Say Goodbye to 5-shekel Coffee – Cofix Hikes Price

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A branch of the Cofix coffee chain, south Tel Aviv, January 2015. Less profit per sale, but more sales.
A branch of the Cofix coffee chain, south Tel Aviv, January 2015. Less profit per sale, but more sales.Credit: Ofer Vaknin

The man who brought Israel the 5-shekel ($1.35) cup of coffee is now bringing the country a six-shekel cup. The catch is, it’s the same cup.

Cofix, which sells its coffee as well as all its other café fare all for the same price, sent shock waves across Israel Thursday when its CEO and founder Avi Katz announced that prices were going up starting next week.

Katz cited higher costs for the price hike that only a few weeks ago he said would never happen. In an interview with TheMarker on Thursday, however, Katz said that now that he had broken the rule once, it could happen again. Asked if prices might rise one day to seven shekels, he answered, “I hope not before another three-and-a-half years passes.”

The chain, which now counts about 130 outlets around the country, created an eating and drinking revolution in Israel when it opened its first café three-and-a-half years ago with a menu whose items ranging from coffee and juice to sandwiches and croissants sold for a single price that was a fraction of what other cafes charged.

The experiment was such a success that Katz adapted it for a chain of supermarkets that sell some 800 products all for five shekels, albeit not all of them in standard sizes. Next week’s price hike doesn’t apply to the supermarkets, Cofix said, but it has begun offering some goods in a pilot project for prices of 10 and 25 shekels.

Even though the public regarded the five-shekel price as etched in stone, Katz said from the beginning he wasn’t committed to it. When he was devising the concept, he recalled, he eschewed a name for his new chain that related to a specific price. “We took into account that it would be impossible to know what would happen – if there would be inflation or the dollar weakens.”

Katz made no apologies for the price hike, which he said was inevitable because costs for rent, electricity, municipal taxes and raw materials all have risen, as has the minimum wage. He doesn’t think customers will boycott his cafes in protest.

“For three-and-a-half years I’ve made the public happy, and I think the public will give me credit now,” he said. “I didn’t raise prices to 12 or 13 shekels. Look at in proportion, it’s still the lowest price there is in the market,” he said.

Anyhow, Katz reasons, even if he does lose some sales to embittered java drinkers, the higher price will compensate.

He expects to do about 200 million shekels of sales this year. “If turnover doesn’t get hurt by the move, raising the price to six shekels will add 50 million to annual sales,” he calculates. “If sales fall, then the price hike will at minimum add 25 million to turnover.”

Apparently his investors agree: After letting the Cofix Group’s share price fall as much as 3.4% immediately after the news, they quickly had second thoughts and the price ended the day up 0.8% at 14.22 shekels.

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