Coffee chains brace for impact as inflation creeps in

Hoang Viet, CEO of Laha Cafe, said that coffee chains are seeing costs of coffee surging by 25 percent and rents by 10-20 percent.

"Some ingredients are seeing costs rising 20-30 percent. Without a price increase, coffee shops cannot survive."

Beverage chains are starting to feel the burden of inflation on their business as surging commodity prices eat into their profit and threaten to bring losses.

Gasoline prices in Vietnam rose by nearly 52 percent between the first half of this and last year.

The Young Cafe has recorded an input increase of between 10-30 percent, mostly because of rising transportation costs.

"Coffee chains often maintain their prices for one or two months before hiking them up," said founder Nguyen Vo Trung Quan.

But major chains like Starbucks, Phuc Long, The Coffee House and Chuk Coffee & Tea have not announced plans to raise prices, with the latter even affirming that there will not be a price hike in at least the next several months.

Vietnam’s food, beverage and accommodation industry is just now recovering from Covid-19 impacts.

It recorded the first growth in the second quarter this year (25.92 percent) after three consecutive quarters of decline.

The rising demand for beverages amid high heat could be partly responsible for the growth.

Delivery app GoFood saw orders in the second quarter surging 42 percent year-on-year, while ShopeeFood said it had received a rise in orders in May and June but did not reveal specific figures.

This surge in demand makes F&B companies reluctant in hiking up prices as this could hamper growth.

A media representative of The Coffee House said that it has recently launched new products that broke pre-pandemic revenue records.

"Our number of outlets have returned to the pre-pandemic level of 154 and it is set to grow fast."

Some other chains, like The Running Bean, have removed some items from their menu as prices of ingredients have surged.

But eventually, a price hike is unavoidable in the industry.

Viet said that Laha Cafe is working on new products with higher profit margins and is looking for new locations further away from central business districts to reduce costs.

"But we are also considering raising prices of some products, otherwise we cannot keep the business running."

Quan has moved a location of The Young Cafe from the central District 1 to District 10 to cut costs, and if input costs rise by 50 percent, he will hike menu prices.

"If inflation persists, sooner or later all shops will hike prices."

Lender HSBC forecasts that Vietnam's inflation could hit 3.5 percent this year, but in the last quarter alone it could be 5.6 percent.