The latest insolvency data from the Australian Securities and Investments Commission (ASIC) shows that 1,420 businesses in the hospitality industry became insolvent in the first seven months of 2024-25.
This represented a 62% increase on the 877 hospitality businesses that went under in the same period of 2023-24 and 156% higher than the same time in 2022-23.
This week, the Today Show reported that the surge in global coffee prices amid the extended drought in Brazil and heavy rains in Vietnam, as well as the weakening Aussie dollar, could send the price of a cup of coffee at an Australian cafe to $7.
Nine’s money expert Joel Gibson noted that coffee beans only make up around 11% of the retail price of coffee. However, rising rents, energy costs, and staffing costs have also added to the retail cafe coffee price.
“You’re paying for the barista; you are paying for the wages and the rent primarily”, Gibson said.
“You are paying for the banter and the coffee art skills and the athomsphere in the cafe”.
“All those things are going up as well, such as power bills, wages, rents. And so, that means cafes in Australia are going to have to put the price up”, he said.
The reality is that if the retail price of a coffee does rise to $7, we will see massive demand destruction and a wave of cafe insolvencies.
A large chunk of demand will evaporate as Australians choose cheaper alternatives, such as making coffees at home or purchasing machine-made coffee from convenience stores (e.g., 7-Eleven) or service stations (e.g., Coles Express).
Why pay $7 for a coffee at a cafe when a comparable coffee from Coles Express costs only $2?
The unfortunate reality is that the number of cafes operating in Australia skyrocketed over the last 15 years to unsustainable levels. There was never enough demand to support this many cafes.
Soaring coffee prices, rents, and energy costs have created a perfect storm for the cafe industry and will inevitably result in significantly more closures.
The great majority of Australians cannot afford to pay $7 for a coffee or $20 for basic avocado on toast.
As a result, the cafe industry must contract in order to bring supply back in line with customer demand.
