Why Kona Coffee Prices Rise
Having just undergone an adjustment in coffee prices for the farm, and struggling for over a year with production costs, hidden costs, market conditions, current and future threats, and new pandemic-related consumption habits, I thought our readers might find it interesting to know why and how their Kona Coffee Prices increase.
A price increase is never taken lightly and always undertaken with deep care and consideration of many factors, along with internal strife, knowing that we will be asking our valued customers to pay a little more.
It means losing some customers, it means angering some, which is always hard as every one of our customers is important. So let’s examine what goes into a price increase, what kind of strategies companies use, and why in the end, 100% Kona coffee is still a value.
Labor plus Supply and Demand=Prices
During our tours, when people ask us why Kona Coffee is so expensive, we usually point out the 2 main drivers. As Kona coffee is 100% hand-picked and requires us to bring in workers, house them, and follow all of the H2A Visa protocols, this is a very expensive way to get coffee off of the trees.
After that, there is a tremendous amount of work to prepare coffee beans for roasting. Labor costs continually rise, the price of transportation, food, electricity, even taxes are not static.
The State of Hawaii has very expensive land and is in very limited supply. As Hawaii is geographically isolated, shipping costs for fertilizer, equipment, etc. always come at a higher price on the islands. Our industry is regulated by both Federal and State laws that many coffee-growing regions in the world don’t have to deal with. The simple fact is that the cost to produce Kona Coffee is very high.
The second major driver is supply and demand. At around 2.7 million pounds of coffee beans produced within the Kona Coffee Belt each year, that is under a tenth of a percent of the world’s coffee supply.
We have roughly 800 small farms in Kona that grow coffee. Compare that to over 530,000 in Colombia. Because the growing conditions in Kona are so unique and they produce a coffee like no other, there is a huge world-wide demand for Kona coffee. Small supply, large demand, means high prices.
The Simple Basics
In the face of rising costs, surging demand, new threats to the coffee industry, and changing consumer habits, how do companies deal with this ever-changing landscape to stay competitive? The answers can be both simple and complex. First the simple.
Rule number one, a company must stay profitable. There are a lot of things that can be done to make that happen, but a company has a responsibility to its employees, stakeholders, and sub-contractors to stay in business. A company works within its margins but needs the ability to invest in infrastructure and maintain growth. Once a company continues to operate while losing money, they go the way of blockbuster video.
Next, the company must produce goods or services that satisfy a need. There are many approaches to this but if your goods are not up to par, others will come in and take your place. In the ultra-competitive specialty coffee market, quality and freshness trends, new concepts in packaging, evolving views about roasts, and subscription services continually require more time and attention. We must work harder to maintain quality.
Our founder, Henry Greenwell, first placed an ad in the Pacific Commercial Advertiser in 1868, advertising for his Kona Coffee. Back then, he had one ad, word of mouth, and a reputation for quality to drive business.
Now, what is known as customer acquisition costs have skyrocketed with endless advertising channels on Facebook and Instagram, YouTube, and Twitter. There is so much out there competing for your attention, the ability to connect with those interested in your products has gotten more difficult, aggressive, and costly.
Lastly, where Kona coffee was once considered a 5 to 1 reduction from cherry to finished bean, damage from Coffee Beetles and fungi have reduced output to 7 to 1. Seven pounds of coffee cherry to make a pound of Coffee beans. That means farmers have to do more work, bear more expense for less coffee.
The Complex Basics
Companies now look at this landscape and decide how to respond. Do they try to lower operating costs? Do they hire fewer people? Do they go after more customers? Do they raise prices? What are the strategies they employ to maintain quality and still survive as a company?
Many coffee companies have employed the smaller bag concept. Keep the same price but put less coffee in the bag. You will find 7oz. and 14oz. coffees all over the internet selling for the same price as 8oz. and 16oz. We decided against it because it seems a little deceitful. Sure, bags are labeled but how many consumers read the fine print?
Some companies employ the better quality at a premium concept. Higher price but roasted to order, all about service and education. We have always valued service and strive to share information with our coffee family, but do not seek to be the most expensive. In fact, we look at margins based only on the cost for us to produce that coffee, not an artificial premium.
We have even seen some companies move in the other direction, with 10% Kona blends. These harness the Kona name while filling their bags with up to 90% inferior coffee. Lower quality, better margins, tricking the consumer. We are true advocates of complete honesty and transparency to the consumer for what is in the bag.
Our Company Standards
We decided that we would do what we have always done. Offer a high-quality, fresh product at a price that is reasonable and true to our company’s ability to continue to engage in farming for generations to come.
We decided to leave our bags at 8, 12, and 16 ounces. We eliminated the 5lb. bag as coffee science research has shown without a doubt that the freshness of the beans degrades rapidly in those quantities. Big bulk bags were a 1980’s trend and it was time (although painful for many) to modernize in order to maintain freshness.
We continue to small-batch roast our coffee and send out the freshest product that we can. Over 3,000 customers each month receive their coffee via subscription to our coffee club, and we are committed to giving them the best 100% Kona Coffee money can buy.
We have examined a number of cost-saving measures by a smaller staff and by using modern software to track inventory and calculate costs more accurately. These measures help mitigate an increase in prices.
Finally, after six years of keeping our prices stable, we had to initiate an increase on some of our coffee products. If you shop comparable products at price per ounce for gourmet 100% Kona Coffee, you will still find us in the “very reasonable” category.
In the end, we know that we won’t be able to please everyone. Some will simply give up. Some will shop around and come back. Others will absorb the cost of a product that gives them a lot of joy.
Just know that we are committed to bringing you the finest, gourmet processed, master-roasted 100% Kona coffee, at a price to value that is competitive with any farm in Kona. Aloha!
About the Author
Matt Carter is a retired teacher (1989-2018), a part-time musician, farmer, and currently manages Greenwell Farms Tour and Retail Store Operations.