Bad news for South Africans who drink coffee

South African coffee lovers are in for some pain as coffee prices in the country continue to rise due to unfavourable weather conditions, which impact supply.

This was revealed in Famous Brands’ interim results presentation, wherein the company shared its projections for food prices over the next few months.

In particular, the company said coffee prices are continuing to rise due to restricted supply related to unfavourable weather conditions.

Stats SA released South Africa’s inflation data for September 2024 on Wednesday, which revealed that CPI had dipped to below 4% for the first time in months.

However, food and non-alcoholic beverages saw inflation rise by 4.1% year-on-year, and hot beverages, in particular, saw inflation rise by 15.8% year-on-year.

In July this year, The Conversation reported that roasters and cafe operators are faced with rising costs that, when passed onto consumers, threaten to bring to a shuddering halt almost 30 years of continuous, at times dizzying growth.

It explained that the principal cause of these price shifts is the decline in the size of coffee harvests and underlying stocks in the principal producer countries.

In addition to coffee, Famous Brands CEO Darren Hele said South Africans can also expect to pay more for some seed oils.

“While we have experienced a period of flat seed oil prices, both soya and sunflower oil are seeing upward pressure,” he said in the presentation.

He also pointed to a variety of factors that have added to increased chicken pricing.

However, it’s not all bad news, as Famous Brands expects stable potato and beef prices. In addition, the company expects milk prices to drop, likely leading to lower cheese prices as well.

In its results, Famous Brands said the past six months have seen one of the tightest periods on consumer disposable income. 

The company pointed to some green shoots that could see this situation improve, including load-shedding being seemingly under control, political stability, dropping fuel prices, downward pressure on interest rates and, importantly, reduced food inflation.

However, it warned that reasonable recovery of consumer disposal income might not occur in the medium term.

Famous Brands took a hit from this constrained consumer environment, as several of its brands saw far lower sales.

In the six months through August 2024, Famous Brands – which owns brands like Steers, Debonairs, Wimpy and Mugg & Bean – saw its revenue increase by 2.0% to R4.02 billion.

However, its operating profit remained flat at R371 million, with an operating profit margin of 9.2%, lower than in 2023. 

“The results are largely due to prudence on our cost base even though our operating profit margins were impacted by lower volumes and overhead cost pressures,” the company said.

The company’s Leading Brands portfolio – which houses quick-service and casual restaurant brands like Steers and Wimpy – continued to perform strongly, with continued good performance from its Casual Dining Restaurants. 

However, the performance of its Signature Brands portfolio – which houses more bespoke, casual dining options like Salsa and Turn ‘n Tender – was impacted by a lack of discretionary consumer income for luxury dining experiences. 

“Overall, our brand’s performance continues to be under pressure as lower consumer spending dampened demand, and this impact at storefront flowed through to both our manufacturing and logistics divisions results,” the company explained. 

Famous Brands said green shoots of confidence in the country have yet to result in economic growth, and positive sentiments have not materialised in terms of spending in this reporting period. 

“There is no doubt that consumers are feeling the economic pressure, with food inflation, fuel prices and interest rates remaining high, compounded by rising electricity costs and household disposable income remaining low,” the company said.