Inflationary pressure poured on coffee22/07/2022
Compared to other services, the beverage business has not increased prices on a large scale, but input pressure has increased significantly.
From the end of June to the beginning of July, the Highlands Coffee chain announced a 10-15% increase in price, equivalent to VND 4,000-10,000 per product, with the reason to keep the quality of products and services “in the context of market fluctuations”. In particular, there are products that increase up to 18%.
The opening “shot” of Highlands Coffee – one of the largest chains in Vietnam – shows that inflationary pressure has spread to Vietnamese coffees, milk teas, smoothies and crushed ice.
Mr. Hoang Viet, CEO of Laha Cafe, said that beverage chains must increase prices because the cost of space, raw materials and labor is increasing very quickly. The cost of coffee has increased by 25%, the premises increased by 10-20%. Even cups, bags, and straws cost 10-20%. “There are ingredients that increase up to 20-30%. Without increasing prices, it is difficult for shops to maintain,” he said.
A coffee shop of Highlands Coffee in District 1, Ho Chi Minh City. Photo: Quynh Tran
Input pressure poured on coffee in the context that the consumer price index (CPI) in the first half of the year only increased by 2.44% compared to the same period last year. However, the average domestic gasoline price in 6 months alone has increased by 51.83% over the same period in 2021. This item easily causes many raw materials of the beverage industry to increase in price because transportation is expensive.
Nguyen Vo Trung Quan, founder of The Young Café, said the restaurant’s input costs increased by 10-30%, from coffee to fruit and cream, mainly due to transportation costs. “Usually, shops will hold out for 1-2 months when input prices increase. Having a large chain increase first is not surprising because they are under pressure of space costs, good location, and high labor costs,” Trung Quan analyzed.
However, many other large chains such as Starbucks, Phuc Long, The Coffee House, Chuk Coffee & Tea said they have no plans to adjust. Mr. Tran Le Nguyen, General Director of KIDO Group, which owns Chuk Coffee & Tea, also pledged that “the next few months will not increase prices”. Ordering platforms such as GoFood, Baemin, ShopeeFood also have not recorded significant price fluctuations on a large scale of partners.
The F&B industry has only just begun to recover after two years of struggling because of Covid-19. According to the General Statistics Office, the food service and accommodation industry only grew positively in the last quarter, with 25.92%. Meanwhile, this industry fell deeply in the previous 3 quarters (down 54.1% in the third quarter) and recovered gradually.
The demand for drinks in the summer is also very large. ShopeeFood said that in the beverage industry, the platform recorded high demand and increased orders in May and June. GoFood said the total number of orders placed through the platform in the second quarter of 2022 increased by 42% compared to the same period. Therefore, these units would rather reduce profits to increase peak sales than raise prices – a decision that could push customers to the competition.
“For me, raising the price by a few thousand dong is not a problem, but the mentality is hurt. Now there are many shops, if one place increases, it is easy to choose another place”, said Hoang Phan, a salesman in the district. 1, HCMC said. Every day, he spends an average of 70,000 VND for 2 drinks, not counting when he needs to meet up with the clients.
Therefore, some chains choose the strategy of continuing to hold prices and launch new products to have momentum to stimulate demand. The Coffee House said that its two new products recently broke sales records continuously even before the epidemic. “We have also been opening new stores. The number of stores has returned to 154 (compared to before the epidemic) and is expected to increase rapidly”, a representative of this chain said.
Another way to hold out is to adjust the product structure. Mr. Nguyen Truong Khoa, Operations Manager of The Running Bean chain, said that many suppliers have increased prices by 20%. “From the beginning of the year until now, we have always tried to keep the best price for our customers by accepting to remove some products from the menu because the price of ingredients for that dish is too high,” said Khoa.
However, keeping the old price will also have limits. Truong Khoa said that in the current situation, when prices are escalating every day, The Running Bean is considering adjusting some suitable business plans to balance the economic problem.
With Laha Cafe, CEO Hoang Viet, said the company’s strategy is to research new products with reasonable costs and better profit margins, limiting products with raw materials that increase in price too quickly. At the same time, look for premises farther from the center to reduce rent cost.
“In this situation, we are also considering raising the prices of some products to offset costs. If we don’t increase prices, it will be difficult to maintain,” he added.
Nguyen Vo Trung Quan is moving The Young Café’s location from District 1 to District 10. The cost of the space is not too heavy and the labor is also insignificant because it is self-made with another co-founder. However, he said he would be forced to change menu prices if the overall input cost increased by 50%. “If inflation persists, sooner or later the prices of the shops will all go up,” he said.
A new report released on July 6 by HSBC said that Vietnam’s price pressure is not as clear as other countries in the region, but inflation momentum is still increasing rapidly. They forecast inflation to average 3.5% in 2022, but could temporarily surpass the 4% cap at some point. For example, in the fourth quarter of this year, inflation could reach 5.6%.
“There are signs that inflation has begun to spread,” the report commented. Core inflation rebounded to 2% year-on-year for the first time in nearly two years, as domestic demand continued to grow.
Source: Cong Thuong