Why is iced coffee even more expensive than the hot stuff? And Gen Z are obsessed

Specialty iced coffee has become the drink of choice for young Australian cafe-goers, despite rising costs pushing the average price above $8 in Sydney.

Gen Z customers are driving the iced coffee category at US coffee chain Starbucks, where four of the top 10 beverages are now iced, among them iced caramel macchiato. In some cases, they outsell their hot variants.

“Younger customers … see cold beverages as more premium, customisable, and Instagrammable,” says a spokesperson for Starbucks Australia.

The growing interest led Starbucks to report a modest profit of $3.15 million in Australia in the 2023 financial year – the first time it has done so – and a marked improvement on its loss of more than $5.5 million the year before.

Ask for an iced coffee at an independent Sydney cafe and the barista will typically serve an iced latte with two shots of espresso over ice, along with milk or water. A Good Food survey of 25 Sydney cafes (stretching from Penrith to Palm Beach) reveals speciality iced coffees account for up to 40 per cent of orders in cafes such as Blackwood in Cronulla, Cafe Rafaele in Coogee, and Artificer in Surry Hills.

The trend is likely to increase as warmer weather drives “a close race between flat whites and ice-cold brewed coffee”, according to Daniel Yee, director of Artificer.

But it was a first when iced oat lattes outsold flat whites, espressos and lattes combined at Single O’s newest cafe in the Brisbane suburb of Newstead, where spring temperatures have often exceeded 30 degrees.

It may be a taste of what’s to come in Sydney, says Single O general manager Michael Brabant. In October, the coffee roaster launched its first ready-to-drink iced coffee (Iced Latte Pilot Can, using oat milk) to meet demand.

Iced coffees are more popular at cafes with novel offerings, whether that’s a seasonal iced gingerbread latte at Starbucks or a self-serve iced oat latte, on tap, at Single O in Surry Hills.

Sales are strongest at cafes that bring creativity into the cold drinks space, says Brabant: “Cafes like Soulmate in Newtown, where they’re doing interesting things with their iced oat latte with maple and cinnamon, or Rollers Bakehouse in Manly, where they have a cinnamon roll iced latte.”

Social media plays a critical role. Starbucks’ shaken brown sugar oat iced latte went viral on TikTok over winter, with tagged videos (featuring cafe-bought and home-made copycats) racking up 35.5 million views. The trend reverberated through cafes such as Ickle Coffee in Kingsgrove, where young customers requested it.

By adding “pizazz” (dehydrated rose petals, a sprinkle of cinnamon, and a high-ball glass) to their iced coffee, Grays Point cafe Jack Gray caught the attention of an unnamed social media influencer. One tagged post later, and sales were up 30 per cent.

The trend continues to gain momentum, even after yearly price hikes of between 50c and $1.

At Valentina’s in Marrickville, the iced maple latte developed a cult following despite its $9 price tag. It’s one of many specialty iced coffee options in Sydney priced between $6 and $11, including iced tiramisu latte at Plate’s, Sydney Olympic Park ($7); Ickle Coffee’s espresso yuzu fizz ($9); and single-origin filter coffee pour-over on “crystal” ice at Ratio Coffee in Crows Nest ($11).

Iced coffees are rarely the same price as hot coffee. On average, an iced latte in Sydney will set cafe-goers back $2 more than a large flat white.

While the price difference may seem counterintuitive (the milk isn’t steamed, the barista only added some ice), Sydney cafe owners reveal three key reasons why, beyond the standard second shot of espresso and the extra volume of milk required when poured cold.

The ice must be bought at a premium (up to 50 cents a cube, plus refrigeration costs) or made with a commercial ice machine (between $1000 and $33,000), which requires additional electricity, water and maintenance costs.

The cup is larger, requires a lid, and is often biodegradable, costing roughly three times more than those typically used for a regular flat white.

And then there are the rising costs of milk (dairy up 33 per cent this year, alternative milks up 13-14 per cent); syrups (Single O pays $54 for 1.4 litres of maple syrup); and wages (up 5.7 per cent for casual employees).

Efe Topuzlu, co-owner of Malika Bakehouse (Surry Hills, Botany), says profit margins are so slim, the price of hot coffees should be the same as for the iced variants, but cafes wouldn’t be able to get away with it.

“You simply cannot charge $7 for a flat white in Sydney. If you go above that, you get smashed by customers as a ‘rip-off’ venue, no matter what quality ingredients you use,” she says.

Five iced coffees to try

Iced latte, Jack Gray
What: High-grade coffee from independent Engadine air-roaster Left Right and the Bird, served with milk, over ice, with freeze-dried rose petals and cinnamon.
How much: $5.50
Where: 110 Grays Point Road, Grays Point, jackgray.com.au

Iced tiramisu latte, Plate Cafe
What: An espresso blend from Ona Coffee, served with milk and topped with whipped cream, made in-house with mascarpone and pure cream.
How much: $7
Where: Shop 2, 11 Murray Rose Avenue, Sydney Olympic Park, platesop.wixsite.com/mysite

Oat milk cold brew, Soulmate
What: Single O’s Killerbee coffee blend brewed overnight with Australian oat milk, maple syrup and cinnamon. Served on tap.
How much: $7.50
Where: 39 Phillip Street, Newtown, soulmatecoffee.com.au

Espresso Yuzu Fizz, Ickle Coffee
What: House-made yuzu soda and honey lemon syrup with two shots of specialty coffee, sourced from a farm in Ethiopia and roasted in-house, over ice.
How much: $9
Where: 251 Kingsgrove Road, Kingsgrove, icklecoffee.com

Pour over, Ratio Coffee
What: Your choice of four variants of high-grade coffee beans, roasted in-house, brewed using the Japanese V60 pour-over method, and served over a large, slow-melting block of “crystal” ice.
How much: $11
Where: Shop 2, 473 Pacific Highway, Crow Nest, coffeeratio.com.au