Cafe owners in world of pain amid surging cost of wages, energy

About 70 per cent of the price of your morning cup of coffee is now being eaten up by wages and power costs, triggering dire predictions more local cafes are set to close.

Collab Coffee owner Colin Buwalda. Picture: Glen Norris

About 70 per cent of the price of your morning cup of coffee is now being eaten up by wages and power costs.

Leading cafe owner Phil Di Bella, founder of Brisbane-based Coffee Commune, said margins in the industry had shrunk in the last three years amid surging inflation.

Mr Di Bella said that when you added in a surge in the global cost of coffee beans, the $14.2bn sector was increasingly unsustainable, with one in 10 cafes going under in the past year and more set to close their doors in 2025.

“The problem we have is a lack of disposable income at the moment,” Mr Di Bella said.

“Disposable income is what people have after paying their mortgages, the school fees and other bills. At the moment people are finding they don’t have disposable income.”

He said 45 per cent of the cost of a cup of coffee now went towards paying staff, 10 per cent to GST, 10 per cent to gas and power and 25 per cent towards beans, packaging and milk. The balance included rent and other payments, as well as the profit margin.

He said the average cup of coffee should be about $10 to $12 but that would be unsustainable for consumers.

Phil Di Bella says cafe owners are suffering

“I predict it could increase to about $8 by the middle of the year,” Mr Di Bella said.

He said cafes could not survive on just selling coffees but faced extra costs to staff and maintain kitchens to sell food.

He said a surge in the cost of coffee beans was adding to the pain.

“Coffee, which is a globally traded commodity like oil, is now trading at the highest level in 70 years,” Mr Di Bella said.

“And with the Australian dollar tanking, the cost of importing beans has become more expensive.”

Merlo Coffee chief executive Dean Merlo said $10 cups of coffee could soon be commonplace amid a surge in costs.

“I don’t know anything that we use in our business that has not gone up double digits – whether it’s gas, electricity or wages,” said Mr Merlo, whose wholesale coffee business supplies to more than 1500 cafes and restaurants around the country.

“It’s tough to be in the coffee business at the moment. We find it hard to pass on costs to our customers.”

He said the slumping Australian dollar did not help matters.

“We are finding a lot of cafe owners are working behind the counter more (to cut wages costs),” he said.

Colin Buwalda, owner of Collab Coffee in Brisbane’s inner north, said despite his business growing, increasing costs had eaten into his margins.

Collab Coffee’s Colin Buwalda says cafe owners have to do their research. Picture: Glen Norris

“Probably over the last 12 months, our packaging, milk and energy costs have seen the biggest increases, which has a flow-on effect to our smaller suppliers,” Mr Buwalda said. “Packaging alone was up about 20 per cent; energy about 35 per cent; while food and anything that was made off-site increased at least 25 to 30 per cent.”

Mr Buwalda, whose cafe in up-market Wooloowin is a favoured spot of couples with dogs, said the global hike in coffee beans was about to hit his business as he renegotiated a new contract with his supplier.

“We use about 70 kilos of beans a week and serve about 2000 cups a week,” he said.

“Your margin comes from coffee, while the food provides your revenue, so you need to have both. You make your money on your coffee as such, but if I just did coffee, it would be hard to pay everybody.”

Mr Buwalda, who started in the hospitality business as an 11-year-old dishwasher, said cafe owners often failed because of poor research and planning.

“I think a lot of them sign leases not knowing what the percentage of your lease should be compared to turnover,” he said.

“Some of them sign for subscription services so they lease a lot of equipment and have super expensive point-of-sale systems that might cost them $300 to $400 a month.”

He said some also took their eye off their finances and were not prepared for the work required to make a go of a business.

“You’re going to have to work seven days a week for maybe five years, so it’s not an easy gig,” he said.

“Sometimes they’re not looking at their invoices every week and outsource to a bookkeeper; the bookkeeper doesn’t care – they’ll just make payments.”

Essential Coffee chief executive Todd Hiscock said the price for Arabica beans, which accounted for most global production, had surged 80 per cent in the past year to top $US3.44 ($5.60) a pound (0.45kg).

The cost of Robusta beans, meanwhile, hit a fresh high in September.

Mr Hiscock said severe drought followed by heavy rains in Brazil, one of the biggest producers of coffee beans in the world, had been behind the surge in prices combined with US dollar weakness and a delayed harvest in Vietnam, another big coffee producer.

Dean Merlo at the company’s Bowen Hills roaster. Picture: Liam Kidston

Originally published as Cafe owners in world of pain amid surging cost of wages, energy