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Minimum wage rise could break ‘psychological’ $5 coffee barrier

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A $5 coffee could become the norm after the minimum wage increases on April 1, hospitality expert Mark Collins says.

Coffee lovers in Auckland and some other parts of the country already pay $5 for their fix, but the average price for a takeaway coffee around the country is $3.90 according to Statistics New Zealand.

Collins said the minimum wage increase could be the catalyst that pushes prices through the psychological $5 barrier.

“I think we will see a price increase. I don’t think it will necessarily be in proportion. We usually see 50 cents or $1 increments and it will depend primarily on what the competition does.

“Once you get past that $5 mark for coffee … you really see the market over time adjusting to that,” Collins said.

The same thing happened to McDonalds happy meals, he said.

For a long time the combo meal sat below the $10, but once it reached $10 it increased to $11 “almost straight away”.

Distribution companies that supplied cafes with milk and coffee beans would also pass on the higher minimum wage, adding to the pressure on prices, Collins said.

Consumers were unlikely to stop buying coffee at $5, but instead might respond by having one less coffee a week, he said.

Marc Weir owner of Wellington cafe Loretta agreed a $5 coffee was inevitable.

Dove Chen says that while housing, food and transportation costs have gone up, coffee prices had barely moved in 10 years.
CHRISTEL YARDLEY/STUFFDove Chen says that while housing, food and transportation costs have gone up, coffee prices had barely moved in 10 years.

“There is a general consensus out there that coffees will go up. It will be a $5 latte or a $5 flat white,” he said.

Ulala Nakama, owner of Ark Coffee in Auckland, which charges $4.50 for a flat white, said the cafe would “definitely increase” coffee prices by 50c in time for April. 

But some cafes plan to hold out.

Mojo, one of the country’s largest cafe chains with 35 cafes said it had no plans to increase prices.

Mojo raised its prices by 10c in 2018 after the Government increased the minimum wage in the first of a series of increases that will take it to $20 an hour in April next year.

Mojo charges $4 for a long black, $4.50 for a regular flat white and $4.80 for a regular latte.

At Wellington’s Midnight Espresso on Cuba Stprices went up by 50c across the board for coffee and food last week. A flat white now cost $4.

Owner Hamish McIntyre said he was spreading the cost of wage increases across the menu.

Hamish McIntyre, owner of Midnight Espresso (left) recently put up the price of coffee by 50 cents to cover the cost of wage increases. (File photo)
ROSS GIBLIN/STUFFHamish McIntyre, owner of Midnight Espresso (left) recently put up the price of coffee by 50 cents to cover the cost of wage increases. (File photo)

McIntyre said his coffee was already cheaper than other cafes despite using “the most expensive coffee in town and organic milk”.

Prices would not go up again until at least next year, he said.

Champion barista Dove Chen, co-owner of Grey Street Kitchen in Hamilton,  said while housing, food and transportation costs had all been rising, coffee prices had barely moved in 10 years.

His cafe charges $4.50 for a long black and $5 for a flat white or latte.

Restaurant Association chief executive Marisa Bidois said while labour costs were a challenge for the industry, its members were aware that there was a limit to what customers were willing to pay and expected any price increases to be modest.

In Dunedin Tim Milmine, owner of The Fix said $5 for a large flat white at his cafe was “a sticking point for a lot of people”.

“It’s going to be very hard to get people across that $5 mark,” he said.

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