Date Posted:21 July 2016
I guess you would not be surprised to hear that if the coffee market in Australia was analyzed by professional business investors, there would be a resounding level of common agreement that it's a high risk investment with low probability of returns.
Sounds a bit negative or depressing ?
Well, it's the harsh reality of a market that is unstructured and unregulated with the only way to grab market share is by displacing incumbents - not an easy task given term contracts protect many suppliers. There is limited opportunity for disruption or innovation beyond the realm of portion control (pods and capsules).
Some compare wine and coffee as having similar lifecycles, but the big difference is that much of the distribution of wine is locked up and controlled by the large beverage arms of the supermarket retailers.
Coffee roasting is a capital intensive busienss. There is the warehouse, roasting and packaging and emission control equipment, large inventories of raw coffee holdings and in most cases the extending of credit to the retail and hospitality sectors notorious for bad debts. In the cafe segment, a typical coffee company needs to fork out up to hundreds of thousands of dollars in capital on espresso machines, grinders and other nonsense like promotional materials, umbrellas, barriers, etc. for cafes to "use for free".
No experienced business person in their own right would consider entering a market against 1,000 brands given the high capital investment required and the long periods before returns may be expected. Entering a crowded and competitive market is a brave step for smart people (ororgnaisations) with very deep pockets.
So why is a new coffee company opening every 3rd or 4th day in Australia ?. Surely it's a staggering and alarming statistic.
The majority of new coffee brands launching on the Australian market in the last few years are not born from intelligent business decisions, or financially rich entities.
Many are from a hybrid cafe/roastery system with dreams of conquering all segments of the market. Some are the brainchild of people who are ignoring some very real and obvious basic warning signs of market fundamentals - an over-crowded market, yet they are pushing ahead regardless.
They are started by your typical coffee tragic - that person with incredible passion, enthusiasm and excitement for the possibility they can do it better, faster and cheaper than everyone else. Unfortunately, the reality is that it's all been done before, by experts with extensive experience.
Why is so much attention given to the latest hyped-up new coffee Brand ?
The fact is that novices make mistakes and when it comes to coffee it's just like golf or tennis - it takes years and years to be the best. Even after roasting coffee for 12 years I am still learning something new every week and that's a week with 120+ batches which is more than double your average medium sized coffee company.
Mostly, start-up coffee companies are owned by bored baristas or cafe owners thinking they can do a better job of roasting coffee than the experienced professionals, or they are sick of the cafe scene (serving customers with a smile) and they just fall into a coffee roasting business because it's an interest for them personally (e.g. the coffee obsessed tragic).
Some of these new coffee brands are created from experiments at home with various appliances by home roasters that dream of bigger things. Before too long a healthy dose of delusion overtakes their thinking and they believe a home or garage setup means "boutique" and their product is superior to the professionals because it's hand-crafted.
The harsh reality is that coffee roasting has nothing to do with freakish talent, there is no mystical artform or closely guarded secrets handed down by wise old men & women.
There is also no proven formula that spending more on expensive beans will result a better product.
With coffee roasting is not viable to run a business on the basis of a lower margin because rent, labour and overheads are real costs that rise every year.
Roasting quality coffee is equal combinations of hard work, lots of practice and constant perseverance over many years and years in trying to do it better every time you step up to the plate.
It's also about having the capital investments in the best equipment and systems. Unfortunately, many new start up brands do not have the funds to even purchase fundamental equipment such as destoners - placing their customers at risk of equipment damage or failure.
Case in point - I've walked into so many of these cafe-roastery outlets all over Australia and there is absolutely no destoner in sight.......so how are they removing debris from your coffee beans ?. The answer is..........they're not.....which means if you buy their coffee beans your grinder is at risk of expensive damage or failure.
Social Media inflating excessive hype - how do you seperate fact from fiction
Retailing of roasted coffee, like most products that are sold these days, has been taken over by the marketing department using attractive images, rampant social media and the unfulfilled promise of something different and exciting.
Beautiful images on Instagram and raves in Facebook don't necessarily translate into quality everyday products. With all that posing and selfie activity on social media, who is actually doing the real work - what's happening to my order ?
A new coffee brand does not mean it's better than the existing brands in the market - in fact new coffee brands are notoriously immature, unstable and inconsistent.
Trusting the Wise Owl
Existing coffees brands don't get lethargic or disinterested - they look at ways to improve and optimize their business and adapt to changing environments - unless of course they are trapped in the traditional retailing model of low-cost, low-quality, low-freshness supplying cafes, supermarkets or old-school retail stores.
New brands don't have any distinct advantages over existing brands - roasted coffee beans is not an industry that is ripe for disruption or innovation.
New brands have yet to learn the important necessities of where and how to source the best quality lots of raw coffee, or how to setup roasting plants that can typically require 2 years to stabilize and produce consistent coffee.
Most of the hyped up marketing for new coffee brands is around the same themes of "we buy better", "we know better", "we try harder", or "we care more" or "we are younger with more energy". Taglines of false or hollow promises.
Experience and Ownership Matters
The people sourcing and roasting the coffee are the determining factor over quality as is the freshness policy. As a coffee company gets larger, the freshness policy dilutes or disappears entirely.
Roasted coffee bean quality rarely has to do with pretty colours on the coffee bag packaging or the well liked pictures on their facebook page - these contribute nothing to the cup attributes.
Putting aside logistics and sales channels for a moment, what you taste in the cup is a direct result of the skills of the people in production and the tools they have at their disposal, including how much they can spend on quality - if at all.
Coffee roasting is hard physical work. It's back-breaking throwing around 70kg sacks of coffee at speed and those working in coffee roasting production may lift each single coffee bean up to 12 times from the moment the raw coffee arrives into the warehouse until it reaches the customer in the roasted product - that's a lot of lifting and like a concreter, it takes it toll on the human body.
Coffee roasting is ridiculously hot in summer standing next to a 400 deg C oven and uncomfortably cold in winter working in large windy warehouses without heating. It's dusty, smoky and very unpleasant.
There is nothing glamorous or romantic about roasting coffee beans and attempts to beautify the process via social media do not add anything of value to the coffee quality.
Like any volatile food product, the coffee roaster is equivalent to the head chef at a fine dining establishment.
If they have skin in the game, like they own it, the level of care and attention for the product is just as passionate as the care and love of their children.
If the person roasting the coffee is just an employee, all they care about is just turning green stuff brown.
Yes, they may have pride in their work at the beginning, but after a while it's going to wear them down into monotonous production routine.
In almost all coffee companies, the person roasting the coffee beans is the source of all negative feedback. For this reason many get frustrated and upset at being blamed for quality inconsistencies when in fact the owner decided to purchase cheap, crappy raw coffees to save money.
Coffee roasting is not a long term role for the majority of people doing this job and many coffee companies have high staff turnover for their roaster operators.
At justfreshroasted.com.au, the owner of the business roasts all the coffee FULL STOP.
The owner selects the coffee grades, the owner roasts every batch of coffee and the owner is accountable for the quality.
It's this sort of personal commitment to quality that separate our product from the competition.
Big companies have tighter budget constraints on quality
It comes as no surprise that large coffee companies actually don't source high quality coffees for the majority of their products and over time they tend to lower their average coffee quality grades as their business expands because saving money is more important to them than proving their credentials in the marketplace.
Yes, they can source quality lots for the purposes of marketing to promote ability, but their every day coffee blends typically consist of budget grade coffees.
It's a shocking deception - a classic bait & switch routine that most coffee companies today use as their standard business practice.
The larger the company, the greater the budget constraint and generally the higher the real or actual quality deception.
Saving $1 to $3 per kilo on raw coffee from sourcing lower grades translates into $10,000 to $30,000 per week in pure profit to these large commodity brand companies - that's straight on the bottom line and into the stakeholder's pockets.
So, the larger the player, the more critical it becomes to source cheaper coffees and maintain the false illusion of quality.
At justfreshroasted.com.au, we love to take the opposite view.
We can only see one way to build a market and that's from providing the best quality and value - our customers become repeat buyers and advocates on freshness, quality and value.
It's not a new or innovative concept because everyone else is promising the same thing.
We think there are great opportunities to covert customers across from those coffee companies that seem intent on taking coffee drinkers for a ride using lower quality and charging high prices.
For Just Fresh Roasted it's about striving to be the best today and if we are not the best, we will change immediately to ensure that we can be the best tomorrow.
Experience matters - Ownership matters.