Research Notes

BREAKING NEWS: Based on the success of “roam like home” for mobile services, the European Union launches an effort to harmonize caffe latte prices in the EU.

Copenhagen 1 April 2017

It is not a secret that the EU has an image problem among many citizens in Europe, an issue demonstrated when Great Britain activated Article 50, starting the formal administrative process to leave the EU. A major study carried out by the EU Office for the Improvement of the European Commission’s Image (EBIECI) shows that the fight against roaming and “roam like home” has succeeded to improve the EU’s image among citizens.

A secret task force led by former Commissioner Neelie Kroes spent the last six months in the Bahamas to develop a plan on how to leverage the experience of “roam like home” to improve the EU’s image. The conclusion is that harmonization of caffe latte prices in Europe could also be helpful to improve the EU’s image among Europeans.

Pro-European and Member of the European Parliament Jens Rohde of the Danish Social Liberal Party and fellow architect of “roam like home” calls the move to harmonize coffee price as one of the most important things that has happened in Europe since he was elected to the Parliament. He reports, “In Denmark a caffe latte easily cost 6 euros, and it should be seen in light that the average Dane spends 16 euros on his phone bill a month. In practice there are many Danes who spend more on caffe latte than they spend on their mobile bill. Thus harmonization of caffe latte prices is a natural extension of the harmonization of roaming prices.

EU’s statistical agency Eurostat published a major study on the topic in December 2016, investigating prices for food, beverages and tobacco in 38 European countries. The countries includes the 28 members states of the EU, three EFTA countries (Iceland, Norway and Switzerland), five candidate countries (the Former Yugoslav Republic of Macedonia, Montenegro, Albania, Serbia and Turkey), one potential candidate country (Bosnia and Herzegovina) and Kosovo. The study concludes that there are significant price differences between countries, and caffe latte prices can fluctuate more than 600% across Europe. A separate study from The Spruce found significant price differences for Starbucks across countries.

While some may attempt to explain price differences by macroeconomics in a global market, supply, demand, quality, and so on, the EU observes that the price of water and milk, key inputs to caffe latte, varies little versus the price of the caffe latte itself. European Commissioner for Competition Margrethe Vestager observes, “In connection with the tax case against Starbucks and Netherlands, I could see that there was a big difference between what my employees paid for caffe latte when they traveled around Europe to talk to the national tax authorities. I think that there is a problem and that the EU should do something about it.”

According to one source, the European Commission has been aware of the situation for a long time. Officials in the EU Directorate-General for Budget have long noted the difference in coffee prices when processing travel reimbursements for EU employees. Indeed some believed that the high caffe latte prices were fraudulent, and the department head asked EU’s anti-fraud office (OLAF or Office européen de lutte antifraude)  to investigate. Günther H. Oettinger, newly appointed as Commissioner for Budget & Human Resources said, “In my leadership of DG Connect, I had a central role in the fight against roaming and for “roam like home.” Now in my new role, I observe that caffe latte is at least as important to Europeans as the ability to use a mobile phone abroad for free. It’s also the case that we have a budget shortfall with the United Kingdom leaving the EU, so harmonizing caffe latte prices in the EU could contribute a considerable amount.

The Danish coffee chain Joe & The Juice has stores across the EU and other countries. Founder Kasper Basse explained, “We have launched a pan-European loyalty card which gives our customers the ease to consume our beverages across our more than 140 locations.” Needless to say, consumers will enjoy significant arbitrage if buying the card in southern Europe where coffee prices are significantly lower than those in the Nordic region.

Starbucks’ Investor Relations did not respond to inquiries about how harmonized caffe latte prices across the EU will affect their profitability and ability to invest in new stores. However an anonymous Starbucks executive said, “In order to comply with the proposed EU regime, we will probably have to ask customers to show proof of European citizenship. Otherwise we will have to raise prices across the EU to offset the lost revenue from the EU’s price control. Presently our ability to charge the local market price allows us to break even. While prices in Copenhagen are higher than in other cities, we have opened more than 8 stores in the Danish capital. Our customers’ appetite for our products continues to grow in spite of price, as we offer an experience in addition to a beverage.”

In a statement, telecom analyst John Strand, CEO of Strand Consult wrote, “The experience of “roam like home” shows that in order to compensate for lost revenue and reduced price flexibility mobile companies have to raise overall prices as well as remove some subscriptions from the market.  Such projects are unsustainable because the price harmonization does not reflect the difference in underlying costs. However it is irresistible for the EU not to do the project, to give one area of positive press when the general mood about Brussels is negative.  I predicted some years ago that harmonizing caffe latte prices would be the EU’s next big project.”
Brazil’s Specialty Coffee Association (BSCA) is furious over EU’s announcement. They fear that harmonizing EU caffe latte prices will lead to a similar squeeze as observed in telecommunications which put the major suppliers of infrastructure equipment in the grave, notably European firms such as Ericsson, Nokia, and Alcatel.  BSCA Executive Director Vanusia Maria Carneiro Nogueira said, “We fear that the EU harmonization of caffe latte prices will have a major impact on the quality of coffee and that the EU will be flooded by cheap Chinese copy coffee.  Poor quality coffee could have important implications for public health in the EU.”

MEP Jens Rohde says, “Many innocent families from Southern Europe while on holiday Denmark, Sweden, and Norway got a shock at the coffee bar. Nordic prices are often 600 percent or more above what they experience at home. I think that the Italian visiting Copenhagen should pay the same for a caffe latte as he does on the sidewalk in Rome. I also believe that we can also ensure that the EU can define how a standard cafe latte at a standard price should look like and what it should cost. It ought to be the law that people can expect to pay exactly the same for caffe latte, wherever they travel in Europe, whether they are outside or they are at home.”

To lead the fight against high caffe latte prices in the EU, the European Commission has chosen to move people from DG Competition with experience of how to prevent the consolidation of an inefficient European telecommunications industry to guide the work. European Commissioner for Competition Margrethe Vestager concurs with Jens Rohde of the Danish Social Liberal Party. He says, “We know that people from my party and other parties such as Greens-European Free Alliance, European United Left/Nordic Green Left, Progressive Alliance of Socialists and Democrats drink a lot coffee.  For us, it is a human right to get cheap and good coffee when we’re traveling.

Europe’s mobile operators welcome the proposal. GSMA Director General Mats Granrud  says, “I am Swedish, travel a lot, and think that high caffe latte prices in the EU is a major problem. We from GSMA are pleased that the EU continues down the road to harmonize roaming prices in the EU without looking at the underlying costs. My members can only offset their revenue loss in two ways, one is by raising the national prices; the other, is to cut costs. Harmonization of cafe latte prices are a small but important step in the right direction.

To learn more about the new EU initiative, contact Miss April Fool from the EU Office for the Improvement of the European Commission’s Image (EBIECI).

Spokesperson John Strand can be contacted here or mobile (+45) 20850444

This was Strand Consult’s April Fools’ Day joke 2017.

Contact us to get a copy of the report

Request the report