Shopping for your Fix

Mar 12, 2024 | Macro Insights, No Bull Economics

Sugar Prices Post Banner

Krispy Kreme recently reported that +20% sugar inflation during 4Q23 reflected that the market is currently at a 10-year high. While this is not impeding the company’s growth, the poor consumer cannot otherwise afford their sugar fix. In the meantime, declining coffee prices are currently looking like a more cost-effective & healthier jolt – explaining the strong sales results we see for energy drinks, Starbucks & Dutch Bros. In any case, with cigarettes almost extinct and expensive sugar increasingly replaced with artificial sweeteners, exhausted & stressed consumers have nowhere else to turn but their espresso shots…     

Why are Sugar Prices so High?

  • Elevated sugar prices reflect: a decision by Brazil (the largest global producer) to allocate more sugar to the production of ethanol in light of elevated gasoline prices; curtailed exports from the second largest producer, India, designed to keep sugar prices lower domestically; the implementation of sugar taxes to fight childhood obesity in countries like the U.K. (promoting artificial sweeteners instead), thus discouraging sugar production; and Hawaii’s historical exit as the former #1 sugar producer as landowners there realized that real estate development & tourism represents a more profitable use of their land.  
  • Long-term supply dynamics are likely to remain constrained as producers see the writing on the wall with sugar slowly going the way of cigarettes & tobacco.    

Coffee Looks Like a Cheaper Fix

  • At the same time we see sugar prices going through the roof, coffee prices have been deflating more recently (see below) as caffeine quickly becomes the stimulant of choice.
  • One does not have to look beyond the huge growth enjoyed by Starbucks & Dutch Bros to understand this trend.

Average Sugar & Coffee Prices Graph

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