The View

Later this week, we are host­ing a tour to the cof­fee grow­ing regions of Costa Rica for about 50 C-level exec­u­tives from the Office Coffee Service sec­tor of the cof­fee world. A trip like this always revi­tal­izes me. It reminds me of how huge, and diverse, and broad, and prof­itable cof­fee is. The OCS folks rep­re­sent approx­i­mately 30% of the total cof­fee sold in the United States. Plus the OCS roast­ers also typ­i­cally sell prod­ucts through mul­ti­ple chan­nels such as com­mer­cial, gro­cery, and even spe­cialty and so rep­re­sent an even larger pro­por­tion of cof­fee sales.

This tour is, for most of these par­tic­i­pants, the first time they will have vis­ited an ori­gin coun­try and expe­ri­enced a spe­cialty cof­fee farm. The OCS oper­a­tors and dis­trib­u­tors have started rec­og­niz­ing that greater atten­tion to qual­ity cof­fee trans­lates to poten­tially higher cus­tomer sat­is­fac­tion and higher revenues.

It is easy to lose sight of the vast scope of cof­fee when all you focus on is our day-to-day busi­nesses in the spe­cialty indus­try. But start­ing next month that all changes as we enter into the tradeshow sea­son and par­tic­i­pate at all lev­els in the indus­try. Soon will be Coffee Fest NY, AFCA, the International Restaurant and Foodservice show, and the National Coffee Association with the SCAA and the NAMA One Show fol­low­ing hot on their heels. These shows rep­re­sent the key mar­ket seg­ments that com­prise our indus­try other than gro­cery. (And many in gro­cery will likely be at one of these shows as well.)

Which leads me to won­der what this year will bring? There are sub­stan­tial chal­lenges that face Specialty Coffee not the least of which is a def­i­n­i­tion of what spe­cialty cof­fee is. Many restau­rant and food­ser­vice oper­a­tors see spe­cialty as a cof­fee bev­er­age with addi­tives, such as alco­hol or fla­vor­ings. Many OCS oper­a­tors see spe­cialty as fla­vored cof­fee. Some cafes see spe­cialty cof­fee as a bev­er­age made by a pro­fes­sional barista using tra­di­tional meth­ods. Some believe that only espresso with no addi­tives is spe­cial. Is ice cof­fee spe­cial? Growers see spe­cialty as meet­ing the min­i­mum SCAA cup­ping score of 80 or above. And so on.

The industry’s adher­ence to qual­ity Arabica cof­fees is being chal­lenged by robusta cof­fees and the mixed mes­sages from some is con­fus­ing our con­sumers. As Ric Rhinehart said at the NAMA Coffee, Water, and Tea show, “We’ve shifted away from those cof­fees now,” Rhinehart observed. “Today’s best robus­tas and ‘nat­u­rals’ are bet­ter than they were a quar­ter of a cen­tury ago, but they’re not as good as the bet­ter milds. Let’s not make the same mis­take again. People want to love cof­fee; let’s not dis­cour­age them. “ (Vending Times; December 2012) while at the same time the SCAA and CQI are mov­ing rapidly to bring robusta into the spe­cialty tent.

I won­der if the appa­ra­tus of spe­cialty cof­fee is poised to col­lapse under its own weight? There are the begin­nings of rum­blings that barista jams, cool events, elab­o­rate inter­na­tional jun­kets, and self-congratulatory prepa­ra­tion meth­ods have not put a sin­gle extra dime of profit into the rank and file indie cafes’ cash drawer.

Then there is the prob­lem of being top-heavy in tal­ent. As Nick Cho wrote in a recent blog, “What are we going to do with all these twenty-somethings who we have con­vinced that being a barista is a real­is­tic long-term career path­way? We have flat growth in cof­fee retail­ing and very lim­ited oppor­tu­nity beyond barista. All these golden promises we have made to aspir­ing cof­fee pro­fes­sion­als are likely empty. There sim­ply is no room in the retail side to absorb all this trained talent.”

According to Ric Rhinehart, the spe­cialty cof­fee mar­ket in the US has reached matu­rity with antic­i­pated growth of only 1 to 2% annu­ally. The major­ity of growth will be in cof­fee pro­duc­ing coun­tries. (Maybe aspir­ing roast­ers and baris­tas would be bet­ter served learn­ing Portuguese and Spanish along with pulling the most per­fect shot?)

I won­der if we have sim­ply lost sight of why you should open a busi­ness in the first place – busi­ness own­er­ship is an invest­ment strat­egy pure and sim­ple. If you are not in it to recover your invest­ment and make a tidy sum extra for you and your loved ones, then you should just put your money into a mutual fund. At least there you are not likely to lose it all overnight.

So this year I hope we can declare “The Year of the Profitable Café.” Without prof­its, all of the other excit­ing ele­ments of Specialty Coffee are just dis­tract­ing wastes of time and money.

The next year should begin to answer some of these ques­tions. The future lies in a refo­cus on prof­its and good busi­ness deci­sions based on local mar­ket real­i­ties. Having the most expen­sive and highly rated equip­ment in the expert hands of a highly trained barista com­peti­tor is mean­ing­less if as a result of bad site selec­tion your café is only gross­ing $135,000 a year. If you decided to open a café to make money, feed your fam­ily, and save for the future instead of just buy­ing a job to have some­thing to do for a few years until you fig­ure out what you really want to do, then this com­ing “Year of the Profitable Café” is for you.

The profit motive is built-in and nat­ural to those other seg­ments – the OCS oper­a­tors and the multi-million pound roast­ers; the medium and large chains and the green importers – it is about time to get it back into the spe­cialty cof­fee industry.

Kerri & Miles

POS">The Power of POS

Running a ser­vice busi­ness is not easy: mar­gins are tight and you can never be too effi­cient or know too much about your busi­ness. Sophisticated POS (Point of Sale) sys­tems pro­vide report­ing that helps own­ers and oper­a­tors become more suc­cess­ful. Data is king, if you know what to do with it. Modern POS sys­tems can also share insight into cus­tomer buy­ing habits and pat­terns, con­trol inven­tory and oper­a­tion costs, labor costs and man­age online reser­va­tions. For instance, many POS sys­tems are able to man­age a cus­tomer list, says Robert Bethge of Perka. Understanding who your best cus­tomers are, how fre­quently they visit and how much they spend when they do pur­chase is vital to being able to rec­og­nize, and reward, your most valu­able customers.

In order to get a bet­ter under­stand­ing of POS sys­tems and their poten­tial, we asked sev­eral experts in the indus­try a few ques­tions for oper­at­ing a lucritive POS sys­tem for your business.

As pow­er­ful as a good POS is as a way to col­lect money, what are other key tips for either gen­er­at­ing more income or pro­vid­ing cost-savings to oper­a­tors? Duessa Holscher of Coffee Shop Manager offers this valu­able tip: “To gen­er­ate more income, you need to focus on sell­ing more to your cus­tomers dur­ing each trans­ac­tion, bring­ing your cus­tomers back more often, or gain­ing new cus­tomers.” Attention to the cus­tomers habits is a must, because you can spe­cial­ize on each indi­vid­ual customer‘s favorite beverages.

Speaking of indi­vid­u­al­ized atten­tion, social media is another good way to reach out to peo­ple. David J. Gosman from pcAmer­ica says to be social. More than ever, social sites like Pinterest, Twitter and Facebook are influ­enc­ing how peo­ple make choices. Also, he advises to incor­po­rate Online and Mobile Ordering, which can occur through a com­puter, tablet device or even a mobile phone, allows cus­tomers to order in the fash­ion most con­ve­nient to them, mean­ing more busi­ness for you.

How does a POS sys­tem reduce oper­a­tional costs?
Sophisticated soft­ware can improve accu­racy of orders and track inven­tory to reduce waste. But the sys­tem itself costs money, and own­ers should put its cost into con­sid­er­a­tion. “A store owner should eval­u­ate the ‘cost of own­er­ship’ which would include the cost of the sys­tem, setup, maintenance/service con­tracts and annual soft­ware fees,” says Glenn Deal of Casio America.

But, after installing a POS sys­tem, it should pay off when own­ers begin to see more money as a result of added effi­ciency. For instance, Jason Richelson of ShopKeep, points out that if designed right, POS sys­tems auto­mate all of your report­ing, so mer­chants can look at their store data in ways that are actu­ally mean­ing­ful. Likewise, Jeff Schaeffler of Vivonet says that “tighter con­trol of prod­uct being sold, dis­counts being given, increased account­abil­ity and safe­guards that come with a POS sys­tem can some­times pay for itself. Monitoring and man­ag­ing labor costs is also crit­i­cal to your restaurant’s prof­itabil­ity. The cost of labor is the second-highest cost in the restau­rant busi­ness. Modern POS sys­tems give own­ers the abil­ity to develop a more com­pre­hen­sive strat­egy for man­ag­ing labor costs with pre­cise fore­cast­ing soft­ware in real-time.

How can a POS sys­tem help increase store traf­fic?
People don’t like to wait in lines; the longer a cus­tomer has to wait in line, the less likely it is that they will return to the store. A good POS sys­tem will move the lines quickly. “They can increases order accu­racy, helps decrease wait time, and can pro­vide dig­i­tal sig­nage which cre­ates enter­tain­ment for cus­tomers while inform­ing them about your prod­ucts and pro­mo­tional items,” empha­sizes Louise Casamento from MICROS Systems. Additionally, Jason Richelson from ShopKeep POS believes that hav­ing an effi­cient and sim­ple point of sale sys­tem allows cashiers to do more trans­ac­tions than nor­mal, keep­ing the line short and the cus­tomers com­ing back.

Both Robert Bethge of Perka and Mike Spence of SelbySoft agree that POS sys­tems can also be used as mar­ket­ing tools to increase cus­tomers. As part of an inte­grated store man­age­ment pro­gram, own­ers and man­agers can use today’s POS to under­stand day parts, vist pat­terns, and which are top sell­ing items. Online order­ing and reser­va­tions solu­tions that are inte­grated to a POS can prove to be highly effec­tive in help­ing to increase sales. Another way to increase traf­fic is to impli­ment a happy hour pro­gram, if you own a liquor license. This way, you will bring new cus­tomers who want to wet their whis­tles, and hope­fully will want to return.

Shannon Arnold from Maitre’D offers 7 Tips to build bet­ter prof­its with a POS sys­tem:
•    Control food costs
•    Monitor and improve kitchen pro­duc­tiv­ity
•    Reduce theft and shrink­age
•    Manage labor costs
•    Boost up-selling
•    Save back-office effort
•    Manage mul­ti­ple loca­tions more effectively

How does a POS sys­tem related to a loy­alty pro­gram?
Loyalty pro­grams are incen­tives for cus­tomers who are just that – loyal cus­tomers. It is a win-win sit­u­a­tion. Retailers acqui­si­tion of infor­ma­tion relat­ing to their cus­tomers’ spend­ing habits, while the cus­tomer receives dis­counts for their con­tin­ued patron­age. Where do POS sys­tems fit into loy­alty programs?

Robert Bethge at Perka extolls the virtues of our dig­i­tal age. “Digital and mobile loy­alty pro­grams are increas­ingly pop­u­lar in all types of small busi­nesses and local shops,” he empha­sizes. “When a mer­chant uses a mobile loy­alty sys­tem that con­nects to cus­tomer smart­phones, its pos­si­ble to not just count how many vis­its each cus­tomer makes, but very spe­cific infor­ma­tion about how much they spend and when.” Robert advices that mer­chants should learn how reg­u­lar cus­tomers behave dif­fer­ent than VIPs or just the occa­sional vis­i­tor. With loy­alty pro­grams, again we see that data is king. “Managers who use num­bers to make deci­sions really value hav­ing the actual pur­chase amounts asso­ci­ated with a cus­tomer visit,” he says.

“Customers love reward pro­grams and are increas­ingly grow­ing to expect them in their favorite shops and restau­rants,” explains Duessa Holscher of Coffee Shop Manager. “With a loy­alty sys­tem that’s inte­grated to your POS, it’s easy to record spe­cific trans­ac­tion data.” As Jeff Schaeffler of Vivonet points out, a retailer can iden­tify what and when an indi­vid­ual cus­tomer pur­chased through that trans­ac­tional data. Integrating this buyer behav­ior into a loy­alty pro­gram allows restau­rants to deploy offers that will have much greater appeal in a more tar­geted manner.

Shannon Arnold explains that some POS Systems offer a built-in inte­grated loy­alty pro­gram. But, she warns, the chal­lenge with a loy­alty pro­gram is ensur­ing that it con­tributes incre­men­tal sales and does not dis­count sales that you would have got­ten with­out a loy­alty pro­gram. By using POS data, you can gather more accu­rate infor­ma­tion includ­ing spe­cific times of day.

What fac­tors should be taken into account when select­ing a POS?
“Budget would prob­a­bly be num­ber one,” says of Glenn Deal. “Make sure the sys­tems you are eval­u­at­ing meet your needs to run your busi­ness effi­ciently.” David Gosman agrees with the idea of effi­ciency being pri­or­ity: “A good POS should offer pro­duc­tiv­ity tools that boost effi­ciency within the busi­ness.” A POS sys­tem should also meet cer­tain cri­te­ria. Duessa Holscher thinks at it is crit­i­cal that any sys­tem you choose is PA-DSS cer­ti­fied for PCI Compliance, which means it han­dles credit card data in an approved way. Jason Richelson sug­gests to do your research and make sure that you can talk to your POS provider if you have any ques­tions. “The last thing you want is to invest in a POS sys­tem that stops work­ing and you have no one to call and help you,” he advises. And Sean Connors empha­sizes ROI (Return on Investment) instead of PRICE. From a finan­cial stand­point, the buyer needs to eval­u­ate the poten­tial ROI of the sys­tem instead of sim­ply com­par­ing prices.

Adding a POS sys­tem can be pricey, but it can also lead to expanded busi­ness and more rev­enue. Consider the fol­low­ing before installing one into your store: Create a bud­get, iden­tify your needs and know your cus­tomers. Once you have made the right adjust­ments and are ready to pur­chase a POS sys­tem, make sure you first research com­pa­nies who sell them and request a demo. You can also find reviews online as well as other com­pa­nies who use their sys­tems. They are pow­er­ful tools for refin­ing your ser­vices as well as your bot­tom line.

We were not able to include all point-of-sale and loy­alty sys­tem ven­dors and equip­ment ven­dors in this arti­cle, for a com­plete list­ing please go to yellowpages.coffeetalk.com.

Social Media Madness

How many “friends” do you have? Do you “Tweet” reg­u­larly? What about “Yelp?” And when was the last time you “Pinned” an image? If you are scratch­ing your head about now, it’s time for Social Media 101.

But wait! Isn’t social media about sell­ing to con­sumers you ask? Remember, every busi­ness per­son to whom you sell is also a con­sumer! And, accord­ing to the Edelman Trust Barometer 2012 Report1, busi­nesses must broaden their def­i­n­i­tion of lead­er­ship to exe­cute on both the fun­da­men­tals of profit and soci­etal good. 2012 brought an unprece­dented nine-point decline in trust in gov­ern­ment, the report goes on to say. And As gov­ern­ment offi­cials are being seen as less cred­i­ble, so are CEO’s. More and more peo­ple are turn­ing to their peers. “A per­son like me” has re-emerged as one of the three most cred­i­ble spokes­peo­ple with its biggest increase in cred­i­bil­ity since 2004.

B2C vs B2B
So how do you use Social Media for your busi­ness? Simply put, busi­ness today is all about rela­tion­ships. Social Media gives busi­nesses large and small an even play­ing field to build con­nec­tions and cus­tomer loy­alty. Facebook is par­tic­u­larly use­ful to lis­ten to your cus­tomers’ needs, cre­ate trust, estab­lish author­ity, and con­nect on a more per­sonal level while remain­ing con­sis­tent with your brand. You can also use it to build new leads and even check out your competition.

Social Media makes us “real” to our cus­tomers. But remem­ber, if you want peo­ple to fol­low you and/or your com­pany, you must go beyond the lat­est prod­uct news and share your per­son­al­ity with them.

What is Social Media?
According to Wikipedia, refers to the means of inter­ac­tions among peo­ple in which they cre­ate, share, exchange con­tents among them­selves in vir­tual com­mu­ni­ties and net­works. The most used and well-known exam­ples include Facebook, Twitter, Pinterest, YouTube, LinkedIn and Google+. However there are dozens of Social Media sites and tools out there with mil­lions of users. Though this list is not com­pre­hen­sive, here is a list of the most pop­u­lar with the num­ber of users as of January 30, 2013 from (where else) the internet2!
-    1.06 Billion – Monthly Active Facebook Users
-    800 Million – YouTube Users (4 Billion Views per Day)
-    500 Million – Total Twitter Users (200 Million Active Users)
-    400 Million – Registered Google+ Users
-    280 Million – Skype Users
-    200 Million – LinkedIn Users
-    100 Million+ – Dropbox Users
-    90 Million – Instagram Users

Other SM Fast Facts:
-    More peo­ple have dig­i­tal iden­ti­ties than pass­ports
-    Asia now has sur­passed Europe in Facebook users (278 mil­lion vs. 251 mil­lion)
-    The Google+ but­ton is used 5 bil­lion times per day
-    “Student” is the num­ber one occu­pa­tion of Google+ users
-    48 per­cent of Fortune Global 100 com­pa­nies use Google+
-    LinkedIn has 2 new signups per sec­ond
-    175 mil­lion Tweets are sent daily
-    4 bil­lion hours of video are watched monthly on YouTube
-    51% of peo­ple aged 25–34 used social net­work­ing in the office, more than any other age group
-    People con­tinue to spend more time on social net­works than any other cat­e­gory of sites—20% of their time spent on PCs and 30% of their mobile time
-    Social Media has over­taken pornog­ra­phy as the No. 1 activ­ity on the web
-    The pop­u­lar­ity of var­i­ous social net­works will change but the desire to com­mu­ni­cate within a social net­work will not
-    With grow­ing skep­ti­cism, rep­e­ti­tion has become even more impor­tant to estab­lish trust and credibility

So what does all of this mean to you and your busi­ness? The time has come to firmly estab­lish your company’s online iden­tity.  With that in mind, here are the top ques­tions mar­keters are (or should be) asking3:

•    How do I mea­sure the ROI of my social media mar­ket­ing?
•    How do I find my tar­get audi­ence with social media?
•    What are the best ways to engage my audi­ence?
•    How do I sell with social media?
•    How should I best use my time to max­i­mize my social media results?
•    How do I cre­ate a social media strat­egy?
•    What social media tac­tics are the most effec­tive?
•    What are the best social media man­age­ment tools?
•    How much time is required to main­tain an effec­tive social media cam­paign?
•    Where can I find the answer to these questions?

Watch for our series on Social Media Tools for Success in future issues!

1    Edelman Trust Barometer 2012 Report – http://trust.edelman.com/
2    http://expandedramblings.com/index.php/resource-how-many-people-use-the-top-social-media/
3    http://www.socialmediaexaminer.com/report/

Retailer / Roaster Profile: A Taste of Italy in San Diego

I have never been to Italy, so it was excit­ing to pre­pare this arti­cle on the very first US store by the Italian cof­fee com­pany Caffe Barbera and its American part­ner Caffe Barbera USA. Started by Domenico Barbera in 1870 in Messina, Italy, Caffe Barbera is now spread­ing across 5 con­ti­nents and about 30 coun­tries. Phillip Arcidiacono is here with us today  – co-owner of  American café. Let’s see what he says:

V. How did the café here in the U.S. come to exist?
A. Hi Max! Well, we opened this one in June, mostly as a con­cept store to deter­mine what’s going to work,  and what’s not going to work because the style of our store is very Italian – nice table­tops,  com­fort­able chairs, ele­gant but also casual at the same time. Hill Crest, San Diego is an area that I would say is more neigh­bor­hood friendly than it is com­mer­cial friendly. We are around many great restau­rants and great lit­tle local busi­nesses, which means that there are tons of cus­tomers who are ecsta­tic about the qual­ity and the fla­vor of the cof­fee. I think what really does it for us and is help­ing us with our busi­ness is the fact that we are roast­ers. We know cof­fee, we have been roast­ing it for over 140 years, so we are 5 gen­er­a­tions of cof­fee roast­ers, and it is still held by the same fam­ily and man­aged in a very close way. The cof­fee is just fabulous.

V.  I can feel a classy and tra­di­tional atmos­phere in this store. How did the American mar­ket react to your con­cept?
A. All of our cafes around the world are usu­ally really beau­ti­ful. With this café here in the U.S., ini­tially it was very hard to see inside and it felt closed in, so we broke the front of the build­ing down and put in all glass. It seemed like the ele­gant look was a lit­tle bit much at the begin­ning, but once peo­ple got in and saw how com­fort­able and relaxed the set­ting was with Italian music in the back­ground, they became really com­fort­able and made us their lit­tle des­ti­na­tion. They like to come in and sit down, use Wi-Fi and enjoy cof­fee. What makes us very dif­fer­ent is that we serve in porce­lain – we want the cus­tomer to enjoy a true expe­ri­ence. This is how we do it in Italy. There are a lot of Italians in San Diego, and many of them drive for 20–30 miles from around the city just to have an espresso from us.

V. For those of us who have never had an authen­tic Italian cof­fee expe­ri­ence could you tell me more about the dif­fer­ence between an aver­age American shop and yours?
A. The biggest dif­fer­ence for us is that we always want the cus­tomer to sit down and enjoy the cof­fee served in porce­lain, the cus­tomers like that. We also ask the cus­tomer to watch us make the cof­fee. If they come to the counter, they can see the cof­fee being made, and our baris­tas do a very nice job in explain­ing what is hap­pen­ing – start­ing from the extrac­tion process all the way to the pre­sen­ta­tion. They like to watch us. It is very much a show to some degree, but it is also an exam­ple of the way it is done in Italy and that bonds the cus­tomers to us. Also, another impor­tant aspect is that when some­one orders some­thing other than espresso, for exam­ple a cap­puc­cino, we take care to make sure that when you taste the cap­puc­cino you taste the cof­fee in your drink first with­out the need to dig through all the cream and end­ing up with a mous­tache before you get to actual cof­fee. It is all about the right way of prepar­ing it.

V. What kind of cus­tomers do you get?
A. We get the full spec­trum from teenagers up to the elderly. A lot of busi­ness peo­ple that work in the area are com­ing in now, not only for their cof­fee in the morn­ing, but also for their mid­day cof­fees, sand­wiches and salads.

V. What kind of food do you serve?
A. Everything is pre­pared fresh and all done in the store except pas­tries. We try to pre­pare our food in the tra­di­tional Italian style. So, ham and cheese for exam­ple, it is not just a reg­u­lar ham – it’s Italian ham and good pro­volone cheese. All of our crois­sants come from the best bak­ery in San Diego.

V. As the qual­ity of cof­fee and skills of roast­ers and baris­tas increase, it seems as if the American mar­ket is also warm­ing up to the idea of drink­ing more and more of straight espresso with­out the need for milky addi­tives, are you also try­ing to pro­mote straight espresso?
A. Yup, some peo­ple cringe remem­ber­ing their expe­ri­ences with espresso because they are used to tast­ing some­thing that is bit­ter with a strong smell. However, we blend dif­fer­ent beans: each type of beans are roasted sep­a­rately then we put our blend together. So the blend is more tra­di­tion­ally Italian – caramel-like in color and very smooth taste – no bit­ter­ness what­so­ever. When you taste our cof­fee it goes around the tongue and then it reaches the tongue’s back side where the fla­vor really gets absorbed and it is very pleas­ant. You love the aftertaste.

V. What is the next step for Caffe Barbera’s US con­quest?
A. We are cur­rently putting all our fran­chise doc­u­men­ta­tion in place, and we plan on open­ing hun­dreds of places in the US in the next cou­ple of years. Right now, we are just very excited to have opened the first store and have started shar­ing the cof­fee with our cus­tomers. We are also start­ing a large dis­tri­b­u­tion busi­ness, and we already got quite a few cafes around San Diego that are using our cof­fee and just lov­ing it.

Café Barbera

Hillcrest, 3614 5^th Avenue,
San Diego, CA
619.683.CAFFE (2233)
www.caffebarberausa.com
Phillip Arcidiacono
phila@caffebarberausa.com

What’s Your Legacy in Coffee Going to Be?

Oné of the early adopters of the idea to view  “Specialty Coffee” as a sep­a­rate seg­ment of the cof­fee indus­try was Ted Lingle. It could be argued that he was one of the most influ­en­tial peo­ple in dri­ving the indus­try for­ward. He has cre­ated a legacy of chang­ing the cof­fee indus­try for the bet­ter. Ted is retir­ing and it seems appro­pri­ate to exam­ine his legacy and how he has influ­enced all of us that still have a few years before our own retirement.

Coffee is rich in his­tory. Since its dis­cov­ery in Africa, it has appealed to us on many lev­els. To some it is just a morn­ing fix, nec­es­sary to start the day. To oth­ers it is a mov­ing expe­ri­ence with roots in exotic lands that cre­ates a link to our own lives. Hundreds of years of cul­ti­va­tion, research and con­sump­tion vari­a­tions make it an impor­tant part of almost every culture.

Specialty cof­fee is new. It has been just a few decades since Erna Knutsen coined the term ‘Specialty Coffee’ and a small group of folks started to change our focus on the prod­uct. They told us that cof­fee does not have to be just a con­sump­tion prod­uct. It can also be a qual­ity prod­uct. In just a few short years, an indus­try was born and we oper­ate in that world now. It is an indus­try view that has a firm belief that if you improve the qual­ity of a prod­uct there will be a mar­ket pre­pared to pay more for it. If the mar­ket pays more, then the entire sup­ply chain will benefit.

Ted’s path to qual­ity cof­fee started in the fam­ily busi­ness. Lingle Brothers, started by his grand­fa­ther in 1920, saw Ted work­ing in it for 20 years. His promi­nence in the indus­try car­ried him to senior lev­els of indus­try orga­ni­za­tions. This made him a nat­ural choice to be the found­ing co-chair of the SCAA. In his role at SCAA, he drove tech­ni­cal research to help quan­tify and iden­tify qual­ity in cof­fee. He wrote ‘The Coffee Cuppers Handbook’ and fol­lowed it with ‘The Coffee Brewing Handbook’. He drove inno­va­tions in eval­u­a­tion sci­ence all in pur­suit of enhanc­ing the sup­ply chain from grower to roaster to retailer.

The body of research required addi­tion resources to move for­ward includ­ing staff, vol­un­teers and grant money. Coffee Quality Institute was formed under his watch as Executive Director at SCAA. Ted would later leave his post at SCAA to become the Executive Director of CQI. Many that know Ted thought this was a ter­rific move for him as he truly enjoys the nuts and bolts of cof­fee sci­ence and he saw a poten­tial to really start chang­ing the cof­fee world.

At CQI Ted cre­ated the Q cof­fee sys­tem whereby well trained and cal­i­brated cup­pers could accu­rately iden­tify, and quan­tify, the attrib­utes of cof­fee. By train­ing cup­pers from farms to retail stores a com­mon lan­guage of qual­ity arose. This less­ened the ambi­gu­ity and frus­tra­tion of dis­cus­sions in the sup­ply chain. A for­mal sys­tem of cal­i­brat­ing cup­pers was devel­oped. A per­son could be taught this sys­tem and if they passed a series of 22 tests became a cer­ti­fied Q-Grader.

The set of ser­vices offered by CQI were all designed to increase qual­ity in the sup­ply chain and be able to quan­tify that improve­ment objec­tively. Over and over it has been proven now that qual­ity improves sales prices for each mem­ber of the sup­ply chain. Much of the improve­ments were taught by CQI and ver­i­fied by Q-Graders in the cup. The num­ber of Q-Graders in the mar­ket now num­bers over 2000!

R-Grader
The Q-program was so suc­cess­ful that it is being given a makeover for Robusta cof­fee. Sales of Robusta tend to be a bulk blend of cof­fee where qual­ity is more of an acci­dent than on pur­pose. Some farm­ers how­ever choose to patio dry their cof­fee and hold them as small lots. Some of this cof­fee is quite won­der­ful and deserves more study. It has already been proven at spe­cialty cof­fee auc­tions that qual­ity in Robusta gar­ners a super-premium. Ted has been putting a ton of energy into this and it will keep him busy in his retire­ment con­tin­u­ing to improve this new offering.

Q 4.0
The lat­est step to improve the Q pro­gram at CQI is by cre­at­ing ver­sion 4.0 of the course. This is another project that has Ted work­ing in his retire­ment to fin­ish the remain­ing details. It is a vastly improved rewrite of the Q-Grader cer­ti­fi­ca­tion class in that it focuses on teach­ing stu­dents crit­i­cal con­trol points of qual­ity and how to improve them. This ver­sion should be out in April before the SCAA Conference in Boston. It really pushes the train­ing to the next level by uti­liz­ing best prac­tices cre­ated by Q-Instructors in the field. The train­ing mod­ules are get­ting more sophis­ti­cated and the tests are being revamped to bet­ter reflect the skills needed in the marketplace.

His Legacy
Ted was asked, “When you look back at your career in cof­fee, is there one thing that stands out as being the thing you were most proud of?” His answer was, “I think it would have to be the cre­ation of the cof­fee fla­vor wheel.” He explained that the body of work that went into that poster that most of us have hang­ing in our busi­nesses some­where set the devel­op­ment stage for a great deal of the Q-Grader pro­gram. It ana­lyzes tastes, aro­mas, and defects and puts them into cat­e­gories that help dis­cover their ori­gins. It is even color coded to show how aro­mas, tastes, and defects inter­sect each other and gives names to them. Many peo­ple have seen it but few have any abil­ity to artic­u­late its sig­nif­i­cance. It is good to see that SCAA is cre­at­ing a class spe­cific to the wheel so us mere cof­fee mor­tals can under­stand its com­plex­ity. When you are done with this arti­cle, go look at that poster on the wall and see if you can find deeper mean­ing. (Then go take the class!)

Ted will be remem­bered for a vast num­ber of con­tri­bu­tions to the indus­try includ­ing some he is still work­ing on com­plet­ing. He has left a mark on the world and has indeed changed the lives of those in the cof­fee indus­try for the better.

Your Legacy
So, what are you going to do today, this year, and the rest of your career until you retire to improve the cof­fee world? Like Ted, you should not be doing it to become famous, but by fol­low­ing your pas­sion you may become infa­mous. Strive today to become a great cof­fee cit­i­zen and make your mark.

Ted, we raise our glass to you! We owe you a full con­tainer load of 90+ grat­i­tude. May you have great cof­fee wher­ever retire­ment leads you! Cheers!

Rocky can be reached at rocky@INTLcoffeeConsulting.com

2012 Editor’s Prologue

First a lit­tle house­keep­ing, the arti­cles in this issue are the ideas and opin­ions of the writ­ers and do no NECESSARILY rep­re­sent the opin­ions of CoffeeTalk and the Daily Dose or its employee – includ­ing me! I would have thought that this was pretty obvi­ous but appar­ently not. Maybe we all have become so jaded to the way news is pre­sented and manip­u­lated that the idea that we might print an opin­ion from some­one that dis­agrees with our own edi­to­r­ial view just doesn’t seem pos­si­ble to some. We at CoffeeTalk take the idea of fair and bal­anced seri­ously and so we print oppos­ing ideas to our own – weird, huh?

There, that is out of the way!

Editor’s Prologue

December 21, 2012

As 2012 draws to a close, I would like to just say that I for one am extremely grate­ful that a giant fire­ball thrown off by the sun did not cre­mate the entire earth. I see that as a huge pos­i­tive – just saying.

During this past year, sev­eral fes­ter­ing issues have finally bro­ken through into the lime­light. The fore­most of these are, in my opin­ion and in no spe­cial order…

• The accep­tance of the real­ity of Climate Change
• Emerging Latin con­sumer power in the US mar­ket
• Market accep­tance of the OMG fac­tor regard­ing the health ben­e­fits of coffee

Others of course will have their own lists, but these are my favorites. During this com­ing year, I see these items expand­ing and redefin­ing our approach to so many fac­tors of the cof­fee busi­ness includ­ing; sup­ply, mar­ket­ing, fla­vor pro­files, new prod­uct devel­op­ment, store design, and other essen­tial busi­ness elements.

Climate change has been one of those sub­jects that have lin­gered in the issue bag for years. I know that we at CoffeeTalk have been shout­ing about it for well over seven years. Finally, the impact on cof­fee and the sup­ply chain has become so obvi­ous that even those who think that the idea of cli­mate change being dan­ger­ous to our well being is so much bologna have come to believe that there is some­thing going on. I think that the accu­mu­la­tion of dev­as­tat­ing nat­ural weather dis­as­ters cou­pled with crop fail­ures in Colombia, Central America, and Africa as well as drought and polit­i­cal insta­bil­ity caused by food inequity, finally woke deci­sion mak­ers up. Unfortunately in the sci­en­tific cof­fee com­mu­nity, the gen­eral opin­ion is that it is too late to fix the cli­mate and instead we must hurry to mit­i­gate the dis­as­trous effects of cli­mate change.

At ASIC (Association for Science and Information on Coffee) this year, Climate Change and Sustainability were the pri­mary sub­ject lines through­out the entire con­fer­ence. The wide con­sen­sus was that talk of avoid­ance is long past; the industry’s only choice now is to respond to the effects. Wide pest and dis­ease infes­ta­tion, drought or, equally bad, exces­sive mois­ture, nature’s impact on infra­struc­ture, tem­per­a­ture changes, loss of opti­mum farm­lands and other impacts can no longer be halted by behav­ioral and indus­trial changes, we can only mit­i­gate the effects.

Emerging Latin Consumer power in the US mar­ket. If there is one take-away from the recent elec­tions in the US, it is that the power is no longer held exclu­sively by old white males. The same is true for con­sumerism. Rapidly expand­ing mid­dle class pop­u­la­tions that have not been tra­di­tional con­sumers of spe­cialty cof­fee are rapidly emerg­ing as impor­tant demo­graphic lead­ers – key to this is the Latin Community. How can we as an indus­try con­tinue to ignore Latin con­sumers when we know they embrace the spe­cialty cof­fee cul­ture, just look at Mexico, Colombia, and Brazil for exam­ples? Look no fur­ther than the Latin con­sumer in America if you are hop­ing to expand mar­ket share!

Second on the list of major changes this year has to be the extra­or­di­nary story of the emer­gence of cof­fee as a healthy bev­er­age. After spend­ing the bet­ter part of the last cen­tury jus­ti­fy­ing the con­sump­tion of cof­fee as a kind of sin­ful plea­sure, what a sur­prise it is to be able to hon­estly talk about the remark­able pre­ven­ta­tive health ben­e­fits of brewed cof­fee. We are pur­vey­ors of the elixir of life, the cure for can­cer, and the keys to the Land of OZ. Coffee as a healthy alter­na­tive to caf­feinated sodas is so for­eign a con­cept that many in cof­fee are skep­ti­cal of our own facts. Taken in mod­er­a­tion, less than 5 cups per day, cof­fee reduces the risk of Type 2 dia­betes, can­cer of the pan­creas, colon, pros­trate, liver, and other organs, onset and deep­en­ing of Alzheimer’s, onset of Parkinson’s dis­ease, and so many other mal­adies. It is the golden age of cof­fee and health. Hurrah!

In the com­ing year, we expect that nutraceu­ti­cal prod­ucts derived from green cof­fee will flood the mar­ket with expan­sion into beauty prod­ucts, nutri­tion sup­ple­ments, and pre­ven­ta­tive medicines.

These are just some of our takes on the past, and the com­ing year. In this issue, you will read the ideas and thoughts of over 35 other con­trib­u­tors from a wide rep­re­sen­ta­tion of our indus­try. These rep­re­sent some of the most impor­tant lead­ers of both pri­vate and non-profit orga­ni­za­tions weigh­ing in on the impor­tant issues of our busi­ness. We hope that you enjoy this year’s port­fo­lio of writ­ers and they pro­voke thoughts about your own busi­ness and your role in our wider global community.

Thank you for your ongo­ing loy­alty, con­stant read­ers, and we look for­ward to con­tin­u­ing to bring you closer to the issues that mat­ter to you most dur­ing the com­ing year. And thank you to our writ­ers and con­trib­u­tors who braved the pos­si­bil­ity of the destruc­tion of the world and still made our dead­lines to bring you these stories.

& Fertilizer.">The Natural State of Coffee — A Contemplation of Grounds, Leaves & Fertilizer.

I’m get­ting older. I paid $1.25 for a “nickel” Hershey Bar the other day. Things change. On the other hand, the $4.50 latte appears to be here to stay. Even in these hard times con­sumers, par­tic­u­larly the young, have deter­mined that they are will­ing to reach into their pock­ets for a bev­er­age that brings them joy. That too, is a har­bin­ger of good things to come for the roast­ing retailer and inde­pen­dent roaster, for our future is cheek-by-jowl linked to the con­sumers’ inter­est in the goods we make and sell. The econ­omy is still rough, and I keep find­ing myself remem­ber­ing my Dad talk­ing about the cof­fee busi­ness dur­ing the Great Depression when cof­fee sold for 25¢ a pound; 5¢ cup. The plain old nickel cup from the cor­ner news stand is now a buck. The Old Man would have found that funny.

A 36% decline in green cof­fee prices over the last 12 months has buoyed the spir­its of small inde­pen­dent roast­ers as the cost of raw goods has come back to earth, and accounts payables have come out of the stratos­phere to more man­age­able lev­els. As I write, the Exchange price for March 2013 is hov­er­ing at lev­els that most farm­ers and most roast­ers can accept as liv­able. The free flow of cash from inven­tory per­mits invest­ment in equip­ment, new prod­ucts, adver­tis­ing and per­son­nel that was unthink­able dur­ing the last 2 ½ years. It is a well-met asset thaw that bodes well for the future of the community.

There are new roast­ing busi­nesses in every nook and cranny of the coun­try. Recently an old cof­fee cur­mud­geon of my acquain­tance men­tioned that if you turn over a rock with your shoe there is a decent chance you will find a new roaster beneath it. There are many new entrants for sure, and this is a good and healthy thing. It indi­cates that there are folks who have the faith, nascent abil­ity, ded­i­ca­tion, and strength of pur­pose to make a place for them­selves in cof­fee. Where there is new blood, there is hope for the future of this stuff we love.

More and more tech­nol­ogy is creep­ing into the roast­ery. The roast­ing man is seen more and more often check­ing the progress of his roast on his iPad. Environmental man­age­ment of roast­ing bi-product appears to be taken seri­ously by a grow­ing num­ber of small roast­ers who have felt ambiva­lent in the past about the smoke, ash, and smells that are the byprod­uct of cof­fee roast­ing. This is as much a result of peer pres­sure, and con­sumer inter­ests as it is the result of munic­i­pal codes. It is good busi­ness to run a clean, envi­ron­men­tally sen­si­tive busi­ness, and we are learn­ing that year-by-year, which is a good thing.

Espresso is an every­day thing in most parts of the USA now, and it is a rare roaster that does not blend and roast at least one item for espresso use. In an inter­est­ing devel­op­ment Robusta, shunned twenty years ago by any spe­cialty roaster worth his salt, has a grow­ing accep­tance now in Italian style espresso blends. Interestingly, the American style espres­sos are iden­ti­fied with pure Arabica blends. There was some talk a while back about the accep­tance of Robusta beans as spe­cialty cof­fee. That con­ver­sa­tion will con­tinue, and prob­a­bly get louder.

The mar­ket­ing of envi­ron­men­tal sen­si­tiv­ity is seen in the choices many roast­ers are tak­ing in the way they present them­selves to their cus­tomers. Kraft paper and hand-crafted look­ing lam­i­nated valve bags and pack­ing mate­r­ial has grown in use, as it gives the impres­sion of cor­po­rate envi­ron­men­tal sen­si­tiv­ity, small com­pany hand-crafted goods, and down-home neigh­bor­li­ness. Many of these efforts are suc­cess­ful. Sadly, few are more than window-dressing to improve the pub­lic accep­tance of goods offered for sale. Still, aware­ness of the public’s desire to seek out the goods of envi­ron­men­tally sen­si­tive busi­nesses is a big step away from a cal­lus profit-driven inter­est and toward a higher plane of cof­fee consciousness.

The devel­op­ment of green cof­fee extract as an ingre­di­ent in food sup­ple­ments and bev­er­ages will be of con­tin­u­ing inter­est. This phe­nom­e­non of a weight loss ingre­di­ent hit the weight watch­ing scene back in April, when Dr. Oz intro­duced mil­lions of view­ers to it on his tele­vi­sion show. Green cof­fee bean extract, which seems to be pri­mar­ily chloro­genic acid and caf­feine, is now being mar­keted as a dietary sup­ple­ment by many food sup­ple­ment and nat­ural vit­a­min com­pa­nies. So far Starbucks is the only promi­nent roaster to have added cof­fee bean extract to its prod­uct mix. It is an ingre­di­ent in Starbucks’ new Refreshers bev­er­ages and in com­pli­men­tary VIA instant bev­er­age packets.

Roasters will be watch­ing more than their shades this com­ing year. Leaves are much on their minds also since Starbucks, owner of the Tazo tea brand since 1998, has opened a Tazo tea store in Seattle’s University Village shop­ping area. They fol­lowed this con­cept store with the announce­ment that Starbucks will acquire Teavana, Teavana’s 300 small shops spe­cial­ize in tea leafs, tea bev­er­ages, and tea acces­sories. The chain, sprin­kled in mostly mall loca­tions through­out much of the coun­try, expected to make $220–230 mil­lion dol­lars this fis­cal year. Nobody’s bet­ting like Mitt Romney on this, but my nickel is on Teavana out­lets becom­ing Tazo-branded stores before long. Some roast­ers have been offer­ing loose teas for years, while oth­ers offer only tea bags to their whole­sale cus­tomers. It is a fair guess that we are all going to be more inter­ested in teas of every type and descrip­tion in the com­ing year than we have been in the past year.

Among the rare and exotic items that may find its way into North American blends this year is Kopi Luwak, the ster­co­ra­ceous Indonesian cof­fee del­i­cacy that has been imi­tated in Peru and Vietnam after pro­duc­tion was juiced in recent years since being fea­tured in the 2007 film The Bucket List. The Indonesian item has taken a pub­lic rela­tions hit from the UK news­pa­per The Guardian, which reported on alle­ga­tions of ani­mal rights abuses at civet farms in Indonesia. Likewise, the Associated Press has made us aware of Thailand’s Black Ivory cof­fee (cul­ti­vated from ele­phant dung) that hits the fan this year. At $500 a pound, this exotic adds con­sid­er­ably to the avail­able vol­ume of this type of item which may put down­ward pres­sure on the pound price of this class of goods. I have not cupped Black Ivory, but I have pon­dered if it is good to the last dropping.

Author and Roaster’s Guild founder, Donald Schoenholt, is said to have an unerr­ing sense of cof­fee, cof­fee his­tory, and cof­fee continuity—but no sense of humor. He will deny this. He believes he is quite droll. Mr. S., cel­e­brat­ing his 50^th anniver­sary in cof­fee, can be found round the roast­ing room at
www.gilliescoffee.com.

Science and Law: A Toxic Mix

Indus­try chal­lenges con­tin­ued to grow this year under California’s Proposition 65. Eighty cof­fee com­pa­nies have been joined to orig­i­nal defen­dants as two law­suits trudged for­ward.  Many more roast­ers were embroiled indi­rectly as retail­ers demanded assur­ances from suppliers.

Both cases have been mov­ing slowly through the California courts. In the case against retail­ers who serve cof­fee in the cup, the plain­tiff has asked the judge to rule in his favor with­out trial. It’s a com­mon pro­ce­dural move – known as a “motion for a sum­mary judg­ment” – which asserts that there are no fact out­comes that can jus­tify a defense.  Defendants’ coun­sel is oppos­ing the motion with a series of piv­otal fact out­comes that sup­port a suc­cess­ful defense.

In the “roast and ground” case, which tar­gets the 80 new roaster and retailer defen­dants along with the orig­i­nal 30,  the judge has put all pro­ceed­ings on hold – or “stayed  the case.” At the same time, all action in the “cof­fee in the cup” case, aside from the sum­mary judg­ment motion, were also stayed by the judge. With that, all fact-finding inter­views and other pre-trial pro­ceed­ings will not go for­ward at least until the motion is heard on April 5, 2013. The newly named defen­dants, how­ever, must still file respon­sive papers based on the court’s request.

Chasing Zero
While these cases have caused extreme con­cern across the indus­try, they are a symp­tom of a broader, sys­temic chal­lenge.  Science has made it pos­si­ble to detect increas­ingly small con­cen­tra­tions of chem­i­cal com­po­nents in foods, bev­er­ages and other prod­ucts. As researchers and reg­u­la­tory agen­cies “chase zero” with advanced detec­tion meth­ods, an end­less cas­cade of trace sub­stances are com­ing under the microscope.

That’s why sin­gle mol­e­cules of acry­lamide could be dis­cov­ered in cof­fee, potato prod­ucts, cere­als and other foods. Multiple mol­e­cules, chem­i­cally bonded in spe­cific ways, make up poly­acry­lamide, which is an indus­trial com­pound imputed to be carcinogenic.

Public Scrutiny
With increased detec­tion also comes increased atten­tion by gov­ern­ment reg­u­la­tors, leg­is­la­tors, food safety groups and con­sumers. As a result, sci­ence is tak­ing on larger sig­nif­i­cance in legal, reg­u­la­tory and pub­lic rela­tions chal­lenges to cof­fee, and is increas­ingly crit­i­cal to the industry’s pro­tec­tion. Including acry­lamide, California’s Proposition 65 lists 1,000 sub­stances the state has deemed to present a risk of can­cer or repro­duc­tive harm. Each has a set con­cen­tra­tion thresh­olds, above which foods and prod­ucts con­tain­ing the sub­stances must carry con­sumer warnings.

And, the chal­lenges will not be lim­ited to California. Already, acry­lamide and a host of other heat-formed sub­stances are on the radar of the U.S. Food and Drug Administration (FDA), Health Canada and the European Food Safety Authority (EFSA), among other gov­ern­men­tal enti­ties and research institutions.

Protection
Heightened scrutiny of minute com­po­nents in cof­fee presents a new dimen­sion of chal­lenge for all seg­ments of the indus­try, includ­ing large and small roast­ers, man­u­fac­tur­ers, spe­cialty retail­ers, and inde­pen­dent cof­fee shops. Protecting your busi­ness means that you need to fol­low and under­stand unfold­ing sci­en­tific devel­op­ments and their legal and reg­u­la­tory consequences.

At the National Coffee Association, that’s an impor­tant func­tion we pro­vide for the industry’s ben­e­fit. For many years, NCA has been the industry’s eyes, ears and minds when it comes to sci­en­tific devel­op­ments sur­round­ing cof­fee, caf­feine and health. The NCA Scientific Affairs Program is the industry’s only such resource, cov­er­ing the field on all aspects of cof­fee sci­ence, as well as its impli­ca­tions for con­sumers and the indus­try. Among the program’s com­pre­hen­sive func­tions are:
•    Tracking and analy­sis of research on cof­fee and caf­feine
•    Science-based per­spec­tive on food safety leg­is­la­tion and reg­u­la­tion
•    Expertise in food chem­istry, tox­i­col­ogy and epi­demi­ol­ogy, along with impli­ca­tions for phys­i­o­log­i­cal and envi­ron­men­tal expo­sure
•    Acknowledged influ­ence in world­wide sci­en­tific cir­cles
•    Active col­lab­o­ra­tion with lead­ing food and envi­ron­men­tal safety organizations.

At the program’s core is a ded­i­cated com­mit­tee of lead­ing indus­try sci­en­tists who hold decades of exper­tise in epi­demi­ol­ogy, tox­i­col­ogy, bio­chem­istry, med­i­cine, food safety and qual­ity assur­ance. In fact, the com­mit­tee is one of just a hand­ful of inter­na­tion­ally respected groups devoted to the study of cof­fee sci­ence around the world.

Through the com­mit­tee and other research chan­nels, NCA has con­tin­ued to track, flag and ana­lyze every study done on cof­fee, caf­feine and health world­wide through­out the year. At the same time, NCA has also iden­ti­fied and scru­ti­nized the reg­u­la­tory and legal con­structs based on sci­ence that could turn research find­ings into legal proceedings.

Going Forward
Every day, sci­ence is becom­ing more gran­u­lar, and gov­ern­ment and con­sumer atten­tion more intense. Over time, the threats to cof­fee are only likely to grow in scope and dimen­sion.  It’s a new type of chal­lenge, a hybrid of sorts, which arises at the inter­sec­tion of sci­ence and law. It har­bors mul­ti­ple poten­tial threats, each of which needs to be addressed quickly and aggressively.

All eyes are now on California, as the indus­try fights the most vis­i­ble exam­ple to date. Inevitably, though, the issues will tran­scend place and time and pose new threats to cof­fee com­pa­nies of all types and sizes. Going for­ward, sur­mount­ing this hybrid new chal­lenge will take indus­try aware­ness, indi­vid­ual atten­tion and, most of all, pro­fes­sional exper­tise devoted to under­stand­ing the sci­ence behind the law.

Robert F. Nelson is the President and Chief Executive Officer of the National Coffee Association of U.S.A. He also serves as chair­per­son of the Private Sector Consultative Board of the International Coffee Organization, where he is mem­ber of the offi­cial U.S. del­e­ga­tion. Nelson sits on Harvard University’s Institute of Politics Global Food Policy Advisory Board and is a grad­u­ate of the Harvard Business School Executive Seminar on Agribusiness. He is the recip­i­ent of the Colombian Manuel Mejia Medal of Merit.

OCS Legend">What it Takes — Lessons from an OCS Legend

Fred Steiner, Winner NAMA 2012 Coffee Legends Arward

When I was grow­ing up the pop­u­lar meet­ing spot was the local bar or restau­rant, today it’s the cof­fee shop, with one on every cor­ner and in fact, some­times two or three. Years ago, I remem­ber hear­ing that cof­fee might be bad for you, today we hear that we should drink more because it may in fact help many health con­di­tions. One thing is for sure, we know it is a mild diuretic and although unproven, a friend told me that it is a sex­ual stim­u­lant in rats! Wow, are we the “in” prod­uct today.

I began in the OCS busi­ness on June 1^st 1974. At the time my cof­fee kit had 42 pack­ages of 2 ½ ounce cof­fee and con­tained 2 x 1lb. pow­dered creamer plus 2 x 1 lb. gran­u­lated sugar and sold for $25.00. A dou­ble kit of 84 pack­ets was offered at a 10% dis­count, thus pric­ing was $45.00 and included 4 x 1lb. pow­dered creamer and 3 x 1lb. gran­u­lated sugar. It didn’t take long before we iso­lated the creamer and sugar and removed it from our ‘cof­fee kit’. For one thing, cus­tomers were being stock­piled on these prod­ucts and sec­ondly if sugar or creamer was on the rise, we would be forced to raise the entire cof­fee kit price, even though cof­fee itself had not increased. The per­cep­tion we wanted to guard against was that we were increas­ing cof­fee prices when in fact we weren’t. Once removed from the cof­fee kit, we devel­oped a creamer and sugar pack­age con­sist­ing of two bags of pow­dered creamer and 2 bags of sugar which sold for $4.25 or four cream­ers and 3 bags of sugar for $7.50.

Of our total sales, 75% were cof­fee and 25% were allied prod­ucts. At the time, allied prod­ucts con­sisted of six prod­ucts: pow­dered creamer, sugar, stir sticks, Styrofoam cups, tea and hot choco­late. Our tar­geted gross profit mar­gin was 60% +.Today my cof­fee sales and total allied prod­ucts are split about 50/50 and we have over 600 SKU’s in allied prod­ucts alone.

In those good old days, for every three accounts we opened, one might have come from a com­peti­tor and two were vir­gin accounts where we were sell­ing the con­cept of OCS to the unin­formed. Today, for every three accounts we open, all three come from competitors.

Back in 1974 my biggest com­peti­tor was my ex sales­man. Machines were inex­pen­sive and a sup­plier would always take a chance by extend­ing a bit of credit to the new oper­a­tor whose garage or base­ment became their ware­house and office. With today’s cus­tomer sophis­ti­ca­tion, and the fact that they are cur­rently on their 3^rd, 4^th, or 10^th office cof­fee sup­plier we need to spend far more on equip­ment which elim­i­nated easy and inex­pen­sive entry into our indus­try. Today some of our com­peti­tors include ware­house clubs, office sup­ply houses and of course, the mul­ti­tude of cof­fee shops on every cor­ner, all vying for the abil­ity to pro­vide cof­fee to the same person.

There were a few sig­nif­i­cant events along the way which I look back on, as being respon­si­ble for shap­ing my phi­los­o­phy in the build­ing of our busi­ness. Shortly after I started in busi­ness, the Mr. Coffee home brewer from North American Systems made its debut with Joe Dimaggio flog­ging it on every TV sta­tion I watched. “That was it”; I hon­estly thought the OCS busi­ness was all but over as a small pour-over machine was now read­ily avail­able to our cus­tomers and cof­fee and fil­ters were avail­able in every super­mar­ket. I was wrong; we not only sur­vived, but flour­ished, because we under­stood that our busi­ness was to pro­vide a ser­vice not just cof­fee as a commodity.

Then in July 18, 1975 a major frost hit Brazil and a pro­jected car­ry­over of 12 mil­lion bags of cof­fee became a pro­jected short­age of sev­eral mil­lion bags. The price of cof­fee soared to lev­els never before seen on world cof­fee mar­kets. We faced the task of rais­ing prices sig­nif­i­cantly and often. Those that under­stood they could not be timid sur­vived, and the rest I ulti­mately bought out.

Into the 1980’s as frosts cre­ated wilder price swings, roast­ers became more cre­ative and ground their cof­fees finer and roasted them darker allow­ing the oper­a­tor to remove frac­tions of the bag and still achieve a sim­i­lar taste. In fact, this became the fore­run­ner of ‘Hi-Yield’ cof­fees and oper­a­tors in every mar­ket were offer­ing as low as 1.1 oz. ‘hi yield cof­fees’. Again, any OCS oper­a­tor who thought they could build a busi­ness on hi yield cof­fee soon learned a big les­son by ignor­ing qual­ity. In fact those thou­sands of cof­fee shops I men­tioned ear­lier actu­ally became an ally of the good OCS oper­a­tor as they edu­cated the pub­lic about a qual­ity cup of coffee.

During those early years I ques­tioned if this was really a sus­tain­able busi­ness.
I won­dered more than once if this could become an indus­try or was just a fad which would ulti­mately fade. Then a funny thing hap­pened; I became a believer one night while watch­ing a TV show. It was a police type of show and there was a scene in an office and one of the detec­tives went for a cup of cof­fee from the cof­fee machine on the counter and I thought to myself that I had always seen the detec­tives car­ry­ing a tray of two cups of car­ry­out cof­fee from a diner. Suddenly a cof­fee machine was a prop in the office that they had set up along with the desks and chairs. We had arrived! At the same time, it was clear that cof­fee roast­ers were not opt­ing into the office cof­fee mar­ket. They sold by the pound, we sold by the cup and they opted to sell to us, not our cus­tomers directly. From that moment on I believed we were going to remain and flour­ish and I made a 1000% commitment.

Well that was a quick look at my start and some of the key events that shaped it but now comes the $64,000 ques­tion: How did I become a so-called “cof­fee legend”?

Well I guess stay­ing at or near the top for almost 39 years is the sim­ple answer. We all know from sports teams that it is one heck of a job to build a cham­pion but it’s quite another job to stay at the top when every­one is try­ing to knock off the king of the castle.

When I started this busi­ness I set up a sim­ple busi­ness plan. Gross profit would be sixty per­cent of sales, 1/3^rd of the GP would go for over­head, 1/3 for wages, and the last third would be profit, thus net profit would be 20% of sales. That has been my objec­tive since day one, but before you get too excited I have to say that I never hit those num­bers, how­ever, I have done well finan­cially while trying.

Secondly, I was for­tu­nate to always remem­ber that ser­vice was a part of our name and busi­ness. We pride our­selves on deliv­er­ing a very high grade of ser­vice and have never been moti­vated to be the cheap­est in town, In fact for 38 years I have taken great pride in always being among the high­est priced ser­vices, if not the high­est and offer­ing our cus­tomers tremen­dous value and ben­e­fits over our com­pe­ti­tion. When prices have to be raised we never hes­i­tate to jump right on it and always try to main­tain our mar­gins. Someone can always offer it cheaper. In fact, you all remem­ber the yel­low pages. Well we refused to adver­tise in them, save and except the free line they gave you with your phone num­ber, because we never quoted prices over the phone as we found that most Yellow Page calls were only price shoppers.

In sum­ma­tion, I have built our com­pany, together with the bonus of hav­ing a smart son with me for the past sev­eral years on a few sim­ple principals:

•    Have a finan­cial plan and stick with it.
•    Always remem­ber that ser­vice is the most impor­tant part of our busi­ness.
•    Don’t be afraid to get your price, remem­ber profit is not a dirty word.
•    Don’t ever dis­count luck but if you are like me, the harder I worked the luck­ier I got.
•    And the most obvi­ous, hire, train, moti­vate, and com­pen­sate good staff.

Quality and Supply Driven Markets — The Future of Washed Arabica Coffee

Coffee in gen­eral and spe­cialty cof­fee in par­tic­u­lar, is a cycli­cal busi­ness. From the nat­ural rhythms of plant­ing, prun­ing and har­vest­ing to the start up, growth and con­sol­i­da­tion of roast­ers and retail­ers, this cycli­cal nature plays out over and over again, and those of us get­ting longer in the tooth rec­og­nize and accept these cycles as a part of the business.

The year we saw what would appear to be some reaf­fir­ma­tions of this cycli­cal nature of the cof­fee busi­ness. In par­tic­u­lar, after two years of tight sup­ply and ele­vated prices, we saw cof­fee stocks increase and prices begin to sub­side. This is typ­i­cal of cof­fees his­tory, with high prices dri­ven by tight sup­ply spurring more inten­sive hus­bandry, new plant­i­ngs and ren­o­va­tion of exist­ing farms. The result­ing increase in sup­ply dri­ves price down, and if the cycle con­tin­ues over time the mar­ket pushes to new bot­toms before the cycle con­tin­ues and hus­bandry declines, new plant­i­ngs cease, and the sup­ply and demand equa­tion slowly turns push­ing prices higher again. There is noth­ing new under the sun here, and it is very tempt­ing to accept this as the nature of the business.

On closer inspec­tion, there is some­thing fun­da­men­tally dif­fer­ent in the cur­rent cycle. This time, while over­all sup­ply of cof­fee has increased some­what, the real story is not the down­ward price pres­sure of increased sup­ply of cof­fee to the mar­ket. The story of real inter­est is tied up in the kinds of cof­fees being pro­duced, exported and roasted in the marketplace.

Total pro­duc­tion of cof­fee in the 2011/12 crop year was nearly 135 mil­lion bags of cof­fee to sat­isfy a demand of roughly 140 mil­lion bags world­wide. Closer exam­i­na­tion reveals two down­ward dri­vers on price. First, is a 2012/13 crop pre­dic­tion for upwards of 146 mil­lion bags, pro­duc­ing the first sub­stan­tial sur­plus in sup­ply since 2006. The sec­ond is the change in the mix of both sup­ply and demand by cof­fee type. In the 2011/12 crop year robusta pro­duc­tion accounted for over 53 mil­lion bags, or 40% of the world total. Brazil and other nat­ural ara­bi­cas accounted for another 41 mil­lion bags Colombian and other milds just 40 mil­lion bags. The result­ing mix on the world mar­ket is less than 30% washed Arabica and over 70% nat­u­rals and robus­tas. The over­all result was sig­nif­i­cant down­turn in both the ICO indi­ca­tor price and the bench­mark New York ‘C’ price. In spite of a dimin­ished pro­duc­tion of the under­ly­ing prod­uct, washed Arabica cof­fee, fore­cast for the com­ing crop year, prices remain low as roast­ers turned to ever increas­ing com­mit­ments to cof­fees other than washed Arabica.

Much of this change in the mix can be ascribed to increas­ing con­sump­tion in tra­di­tional pro­duc­ing coun­tries, where price sen­si­tiv­ity and entry level con­sump­tion pat­terns push greater con­sump­tion of lower priced and/or qual­i­ties. Some small mea­sure is also attrib­ut­able to mature mar­kets, par­tic­u­larly in Europe, demon­strat­ing a will­ing­ness to sac­ri­fice qual­ity for price and push­ing con­sumer expec­ta­tions down­wards. This is another cycle in itself, where decreas­ing qual­ity drags down con­sump­tion, a sce­nario played out in the US in the not dis­tant past. This con­flu­ence of decreas­ing prices, changes in pro­duc­tion mix and increas­ing aggre­gate sup­ply cre­ate an unusual, decid­edly non-cyclical sce­nario in which qual­ity is hard to find and pro­duc­ers strug­gle to find a bal­ance between the costs of qual­ity and dis­ap­pear­ing price incentives.

The cycli­cal nature of growth and con­sol­i­da­tion in the retail mar­kets also had some inter­est­ing man­i­fes­ta­tions this year, most notably the acqui­si­tions of Peet’s Coffee and Tea and Caribou Coffee by the Joh. A. Benckiser Group. In the inde­pen­dent spe­cialty world smaller com­pa­nies con­tin­ued to grow, with new cap­i­tal infu­sions, per­haps most notably Blue Bottle Coffee, dri­ving expan­sion in a vari­ety of markets.

The SCAA con­tinue to work to sup­port and inform the spe­cialty cof­fee com­mu­nity, and we will be adding more insights into the sup­ply and demand sce­nario and its impli­ca­tions for spe­cialty cof­fee as the new year begins. We will also be con­tin­u­ing our work from last year in under­stand­ing the consumer’s rela­tion­ship to spe­cialty cof­fee and will have new infor­ma­tion to share on that topic.

Ric Rhinehart is cur­rently serv­ing as the Executive Director of the Specialty Coffee Association of America. Prior to tak­ing on this posi­tion he was the President of a Los Angeles, California based roaster and retailer. Mr. Rhinehart has over the past twenty years held exec­u­tive posi­tions in sev­eral cof­fee & tea firms.