Lavazza burned by surging coffee bean costs with earnings down double-digits
Lavazza has warned over a double-digit drop in earnings this year amid surging coffee bean costs and said its prices are not set to come down for consumers until 2024.
The Italian coffee giant said it is braced for a hefty drop in underlying earnings over 2023 as it looks to limit price hikes.
It raised its prices by 6.2% in 2022, but saw its costs jump to 550 million euros – almost double its underlying earnings last year.
Giuseppe Lavazza, chairman of Lavazza, told the PA news agency that it has not risen prices further in 2023, but that this is impacting its profits as it faces “unprecedented” increases in coffee bean prices.
Robusta coffee beans recently reached their highest level in 15 years.
He said the group hopes to be able to cut its prices next year as energy and raw material costs are expected to come down.
He said: “We’re still in a situation where it’s very difficult to predict what’s going to happen.
“In 2024 we think the situation can change a little bit and we can have more stability in terms of price of raw materials and energy, currencies and the rises in interest rates.”
The group said it has been hit hard by coffee bean increases – up 80% over the past two years – as well as energy costs, freight prices and the stronger dollar, in which it buys its beans.
“The global economy has seen an unprecedented increase in operating costs in most sectors and in all aspects of the supply chain,” Mr Lavazza said.
He said prices are still under pressure despite energy costs easing, in particular as central banks hike rates.
“The situation is still highly sensitive,” he cautioned.
“But we will absorb most of these costs and believe we are well positioned now for when inflation starts to decline significantly, which we expect will be next year.”
He said demand for coffee beans has been knocked amid the cost crisis in the UK, with the wider market down by 6.5%.
Consumers are downgrading their coffee and cutting back on how much they buy, he said.
He said the firm has looked to protect its sales, but this has come at a cost to its profit margins.
He said: “I know households are under pressure from inflation for many reasons. It’s very concerning.”
It comes as retailers have come under criticism amid mounting evidence of profiteering in some areas of the sector and that they are not passing on wholesale cost reductions fast enough to consumers.
Mr Lavazza said “it’s a very sensitive topic” but he added that retailers on the whole are keen to protect their sales at a time when people are under pressure from higher rates and cost rises across the board.
Press Association – Holly Williams