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How Much are We Willing to Pay for a Cup of Coffee?

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How much would you pay for a cup of coffee? Currently a large cappuccino will cost you £2.65 to drink in at Caffe Nero while at Starbucks you'll pay around £2.75 for a Venti (large) drink. For most of us, based on the success of both chains, this sounds pretty reasonable. However, if you had asked the same question perhaps 20 years ago, when for most people coffee was a powder that came from a jar and 'flat white', described a wall and little else, the response would have been very different.

Or, indeed, if you're abroad: a cup of coffee at a London cafe will set you back £2.50, compared with £1.63 in Paris, £1.44 in Barcelona and just 58p in Lisbon, according to a survey by Post Office Travel Money last year. Wholesale coffee prices, like most commodities, fluctuate. Take, for example, the price paid to producers of Colombia mild coffee.

Over the last 10 years this has fallen from 74.96 US cents per pound in 2000 to just 48.43 cents only three years later. By last year, though, it had rocketed to 180.55 cents. But looking at these figures is really to miss the point about what we, as end consumers, will cough up for a cappo. As Jeffrey Young, analyst for retail, consumer lifestyle and technology consultancy Allegra Strategies points out, the actual coffee in your cup accounts for only a very small part of the total price at the till in a cafe.

"A single shot of espresso - the standard is seven grams for a beverage - costs a coffee chain materially less than 10p per shot," he says. "Seven to eight years ago the psychological barrier was believed to be £2 which we broke through with no problem. Consumers are now paying in excess of £3 for iced coffee beverages in some outlets."

"How much consumers will pay for a cup of coffee is based on a number of factors. Reviewing the market, the quality of the beans and price of coffee, the craftsmanship and skill that goes into making each cup of coffee and the positioning of our brand. However, it also needs to be accessible," says Ceri Ai spokeswoman for Caffe Nero. "We do believe customers are willing to pay a little extra for a quality cup of coffee."

Or for any added extra perhaps. At CUT, the restaurant at the new 45 Park Lane, part of the Dorchester Collection, you'll pay over £6 for a coffee - but in luxurious surroundings. "Coffee's such an essential service ingredient and it must be served perfectly each time," says Loyd Loudy, restaurant director. "We have four dedicated baristas who were trained at the company that supply us with our signature arabica blend, and one of these trained baristas is on site for each service."

Even in these harsh economic times it seems that more mainstream consumers are willing to invest in a good cup of coffee - and the experience of drinking it. Coffee shop openings are increasing in the UK. In April this year Whitbread announced a near-doubling in size of its 1,871-strong Costa chain.

And in the US, where the coffee revolution originated, niche, gourmet coffee houses are already charging considerably more than their mainstream competitors for high end coffees with an interesting provenance and back story. Sales don't appear to suffer.

"We just charge more if we need to," says a matter-of-fact James Freeman of Blue Bottle Coffee in California, which is at the forefront of this movement. "We use more coffee per serving, we use more expensive coffee, we take more time to make each drink. So naturally if our drinks are more delicious, and we treat people well, our customers are going to appreciate this - and they'll be willing to pay more."

This article orginially appeared in a special report in Coffee in Dec 2011, published by Raconteur Media and distributed with The Times (UK)