Tuesday, August 30, 2022

Coffee and Pastry Shops Avoid Inflation Backlash Punishing Restaurants

Nation’s cafes benefited in June as patrons returned to the office and hung on to their favored indulgences

By Rina Torchinsky of The WSJ. Excerpts:

"Americans dined out less as inflation surged this summer, but couldn’t resist shelling out more at coffee and pastry shops.

Total consumer spending fell 3.1% in June from a year earlier at the restaurants analyzed in a report by the financial-services provider Rabobank using data from Earnest Research. But spending at coffee shops and bakery cafes rose 1.9% during the period, the report said.

Analysts, economists and coffee drinkers offer varied explanations for the resilience of caffeine and sugar suppliers, including the pleasure of relatively small indulgences during a time of belt-tightening."

[One coffee drinker said] "“It’s not really going to eat into my budget if I’m just going every once in a while,”" [when the share of your budget spent on a good is low, its price elasticity of demand will be low so that for any given price change quantity demanded will not change much]

"Many consumers are hooked on their routines as much as the stimulants"

"Some analysts said the relative health of coffee and pastry purveyors in June could be a reflection of the return of more workers to offices. “The basic hypothesis is that when you commute, you will buy more in coffee shops,” said David Tinsley, senior economist at Bank of America Institute. “You’re quite likely to buy one going into work. You’re quite likely to buy your lunch or another cup of coffee in the afternoon.” 

The average price of a cup of a coffee in a quick-service shop was $4.90 in the first six months of this year, up 7.6% from the same period last year" [if they are saying that coffee costs 7.6% more than 12 months ago, then that is pretty close to the overall inflation rate so we would not expect sales or quantity demanded to be affected too much]

"Brewing at home was more expensive, too. The price of coffee increased 15.8% in June from a year earlier and rose 20.3% in July, according to the Labor Department." [if coffee you brew at home is a substitute for coffee from a shop then when the price of store bought coffee increases the demand for a substitute will increase. That would help explain why the coffee shops are doing okay]

"Alfredo Romero, economics professor at North Carolina Agricultural and Technical State University, said, “There are some things that people are slower to let go of, and one of those things is coffee.”" [that could be consistent with the earlier statement about people being hooked on stimulants which would mean that there are not many good substitutes for coffee and goods with few substitutes have a low price elasticity of demand]

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