10 things to consider when selecting a coffee supplier

There is no doubt of the many amazing changes occurring throughout the Australian cafe industry over the last decade.

We believe the market has well and truly reached peak saturation point - particularly in Melbourne and to some extent areas of Sydney.

In such highly competitive environments it's critical to ask yourself some key questions :-

  • Have you and your suppliers adapted over time ?
  • Am I using the best products against my competition ?
  • Are my customers likely to go elsewhere for any reason ?
  • Do I have an identifiable point of difference ?

Unfortunately, the old ways of running a hospitality outlet, specifically serving cups of coffee, no longer work.

It was once as simple as putting up signs and opening the door for customers to patronize your premises - as long as you kept things running consistently and backed it up with good service, it was possible to survive and even prosper.

But in these competitive times a whole lot more is required to differentiate from plethora of various coffee outlets nearby.

Unless your premises is located in a busy area with a lot of constant foot traffic, you have to ensure your cafe offer adequately delivers a better service + higher product quality + fairer value so that its attractive for both new customers and returning regulars to support your business.

If just one of these areas (service, quality or value) drops by even a little it's a risk that prospective patrons and regulars will simply walk past your cafe and into your competitors - it's just too easy these days to find somewhere nearby without much effort, everything is within walking distance in our highly dense capital cities and metropolitan areas.

Once upon a time you could exploit the variable standards of coffee quality - both in the roasted beans and the espresso extraction/preparation skill of the barista. However, these days those gaps that once provided some great opportunities for differentiation are now more or less narrowed and equalized due to considerable improvements over the last 10 years in standards for roasters and baristas.

These days almost any coffee company can supply packs of coffee that are rich, smooth and creamy and baristas have higher skill and experience levels to adapt to the constantly changing coffee variables. When both the roasted beans and the barista are working well the results are almost always successful.

For a long time the simple art of a coffee beverage has been the shinning star in every cafe operation - widely acknowledged as the vital cash cow and important for some outlets that may lose money on their food operations.

Coffee beverages when done well can provide high gross margins (typically only beaten by alcohol, which may not apply to many cafe outlets). Well executed coffee also provided key marketing to pull in more customers that might also buy additional items like food, increasing the cafe's overall share of wallet.

Don't believe everything you see or read.

In 2016, with 1,100 brands of coffee being sold in Australia - everyone wants a plug, especially the free ones.....any sort of leg up from a social media post, a food blogger or a mention in the press can raise a profile and interest levels.

These days, it's fair to say that not much separates the top 20 or 50 Coffee Roasters in Melbourne and Sydney. It's also a little bit naive to think such a list of a Top 20 or Top 50 exists - who could possible compile such a list objectively, scientifically......as performance would need to be measured over time - not a one-trick pony god-shot espresso.

Today we are bombarded with too much rubbish dressed up as articles or infomercials that are nothing but paid marketing. Journalists have been usurped by internet bloggers that have a commercial angle to push thinly disguised within sometimes lazy, ill-informed and at times sensationalized content to fill our popular tabloids or broadsheets.

Over time we have formed the view that most bloggers and journalists have a pretty narrow and 1-eyed view of the coffee world - originating from their local or favorite cafe, which forms the foundation and basis for most of their opinions and terms of reference. Sure, they might be able to recite lingo like Single Origin, naturally processed and batch brew filter extraction.......but when it comes to the nuts and bolts of coffee science and chemistry, they are relatively veneer.

It may come as a surprise that the coffee companies supplying the cafes are not the only companies that can source, roast and then showcase exceptional coffee beans. Some coffee companies make strategic decisions to trade outside of the cafe supply segment, but that does not mean they are not able to make the grade.

Our modern society is obsessed with rankings and judging - be it appearance, sport, industry, wealth, fame or humble pastimes - we feel compelled to compare everything - good or bad. Ranking and scores are what stirs our emotions and more importantly what "sells". Bloggers and journalists absolutely love conjuring up headings such as "Melbourne's Top 50 cafes revealed", or Melbourne's best Smashed Avocado.

Be careful about what you read and always let your palate (taste) be the final judge - it's what's in the cup that counts.

So how to you make a choice as to which coffee company to partner with ?

The very first and most important rule is to put any proposed incentives aside so that you can conduct a proper coffee quality evaluation

Remember, a sales pitch starts the moment a discussion on changing suppliers commences - you may not even realize you have started that discussion !

Coffee company reps are hungry for new business (their personal incentives to taking a new account from a competitor are outrageous).

Most cafes in good positions will have at least 3 or more coffee company reps into their premises every single week - regardless of whether existing coffee company signs are displayed. These reps often lead with a conversation along the lines of "you can do a lot better with a different coffee" or they may sit there quietly drinking a coffee and then pass a feedback comment when walking out that the coffee was not so good.

This trick plays on the owner's paranoia that a cafe owner is missing out on something or under-performing. Sometimes, the reps work in teams of 2 with one person complaining the coffee is no good and the other offering their card and a reassuring smile they have the solution.

The trap many cafe owners fall into when they start researching and reviewing potential suppliers is being seduced by shiny new equipment, impressive signage and in extreme situations generous upfront financial benefits.

Short-term thinking with "trinkets" having nothing to do with coffee quality. Trinkets are intended to distract the evaluation process and develop a sense of emotional attachment for the cafe owner focused on proposed incentives.

Incentives clouds the judgement and divert discussion away from commitment around the actual product quality. Signs and equipment don't translate to a better cup of coffee and it's important to keep that point in the context of your evaluation. They also don't pull in extra customers or help you make a better cup of coffee compared to your competition nearby.

Incentives are always offered with strings attached - in the form of a contract. Coffee contracts are legally binding and may involve penalties if breached. There are many incidents whereby cafe owners have attempted to terminate a contracted arrangement prematurely and ended up attending tribunals or court over liquidated damages (impact or consequence of early contract termination).

In general terms, the more generous the incentives, the lower the quality of roasted coffee bean you will receive and the more reason you need to properly evaluate the quality of the roasted product.

If you are working with a lower quality product, then your competitors nearby have an immediate advantage and you may have to compensate with added value from another area of your operation or to discount your coffee beverages to create incentive for your own customers - which impacts your profitability. Over time, that upfront incentive has deteriorated and before long it is financially damaging to your business - it can be frightfully confronting to see how quickly this occurs - we have seen this go full cycle in the space of less than 4 months.

Coffee companies are not banks or lenders - they don't give out loans or free finance to bankroll cafe operations - so don't believe for a minute that the coffee rep is doing you a special favor - it's business and they want your $$.

All coffee companies carry huge liabilities on their balance sheet - equipment and infrastructure used to roast, pack and deliver coffee as well as up to 6+ months of raw products and packaging - cash flow for coffee companies is a big challenge, so that are not the rich benefactors that cafes see them as.

Big Company or Small ?

If you look outside the cafe and coffee industry for a moment, we know from our own personal life experiences that most large companies can be difficult and frustrating to deal with (Banks, Telecommunications, Utilities, Government agencies, etc.) - due to the relative position you occupy in their list of customers - are you basically just 1 of many 1,000's.

As such, you can only expect to receive a basic (barely adequate) level of ongoing service and support from these large companies and trying to get someone who can make a decision or act in your interests is always hard work and at times impossible.

Smaller coffee companies are more focused - they consider their customer's needs, may be able to offer more flexibility and are likely capable of customizing a solution that gives you a key point of difference in a competitive market.

With smaller coffee companies, you are more likely to be able to deal with the owners and therefore problems can be resolved faster and in most cases more amicably.

Large coffee companies tend to play the line they have scale economy and perhaps a self-inflated ego advantage over smaller coffee companies. In roasting coffee, size is not a fair or reasonable indicator of purchasing power as the predominant input costs in roasted coffee beans are the raw materials and the related financing of marketing incentives or their DSO's (accounts receivables).

Coffee reps often brag about the size of the company they work for and that how they source better qualities for cheaper, which is how they can offer you these incredible deals (including the free incentives.....which.....umm.....are not really free).

All coffee companies pay the same relative price for coffees - we all buy from the same brokers (there are just a couple of coffee brokers that supply more than 1,000 brands in Australia). Brokers have set prices for respective grades (called the landed price) regardless of whether you buy a bag, a pallet or a container. The difference between a pallet and a container is around $0.25c per kilo, so the whole bragging rights claim is just another smoke and mirrors exercise to "sell" to you.

The larger coffee companies buy cheaper grades because they have a bigger base of locked-in customers on contract and can afford to leverage their brand by being willing to sacrifice quality against cost. Smaller companies are more interested in building their reputation and therefore will not take risks with cheaper coffees.

How to measure coffee quality

The truth is that it's not easy - quality means different things to most people - and even the so-called experts struggle and sometime tumble.

Some may imagine coffee quality as a brew that is smooth, others believe it must have high flavor and yet others again may think it needs to have elements of complexity such as fruit, chocolate, acidity, caramel and nut.

In these competitive times, a cafe must have a coffee that appeals to the broad majority of coffee drinkers. Whilst that may sound simple, in fact it's the most challenging target for a coffee roaster to prepare such a product due to being constantly pulled in different directions by their customers who influence the feedback loops.

Many coffees on the market today can be rather boring, or quickly develop a boring reputation for being too safe and mundane. Smooth and creamy is largely unexciting these days, except to the traditional coffee drinker who may be used to instant at home and looks forward to a rich and creamy brew as a special treat at the local cafe.

A distinctive coffee that is universally accepted is not easy to create or maintain.

The bravest coffee companies are those that trade without contracts - they live or die by their current performance and are unable to hide behind a term contract.

Every single coffee company markets themselves as quality focused and purchasing the best raw beans. This is without doubt the most ludicrous aspect of coffee marketing because many coffee companies source with a single intent - budget.

Top 10 factors to consider when selecting coffee suppliers

  1. Bench marking - a track record of quality and consistency - does your coffee supplier compete in events and how do they rank among the rest of the industry. If they don't compete and instead give you lame excuses such as "those competitions are not judged accurately" then you know for sure this is a warning sign they are using too much hype to sell their offer. Competitions use accredited judges that must undertake calibration sessions prior to event judging - how else can you compare products.
  2. What infrastructure do they have to preserve coffee quality. If you are really serious about selecting a quality coffee supplier, don't rely upon them visiting your premises to have polite discussion - go and visit their coffee roastery and warehouse. Serious coffee companies have extensive cooling in the areas where raw and roasted coffees are stored. In 2016, very few companies do this simple protective program. Worse still, many store raw or roasted coffees up high in the warehouse racks ? Heat is the enemy of quality coffee  and temps in warehouses can reach 60 deg C
  3. Don't be fooled by sharp reps/salespeople who make promises about unlimited training, shiny new equipment, investments in signage, cups, uniforms, marketing and HR assistance, etc. All these trinkets are clever tactics to get your signature on a contract and lock you in. Once under contract, they often gradually substitute lower grade coffees over time and you are then fighting against your competition with one hand tied behind your back. Nothing comes for free - you will pay for it, you just can't see it as a direct cost line item because it's built into the price of the coffee per kilo rate, e.g. they use much cheaper, inferior grade coffees to maintain their significant margins to fund the incentives. Coffee companies are not banks or cash rich !
  4. Think twice before erecting coffee company logos and signs in your cafe - you are straight away going to reduce the number of prospective customers. Think of it this way - if someone had a bad coffee elsewhere with the same coffee company logo - many cafe customers tend to mistakenly think it's the coffee bean brand, unfortunately not the person making the coffee. A Cafe is your business, your money, your hard earned reputation and your built-up goodwill. Be proud of your own cafe brand because when when you finally come to selling your business - coffee company signs add no value. Train your customers to think about your brand, not the coffee company brand.
  5. Support of espresso machines and grinders is not a core or essential service to coffee roasters in Australia, despite all the marketing. Remember, coffee companies roast coffee beans first and foremost - not sell coffee making equipment. The equipment side is just an annoying and risky means to an end for many coffee companies - they make no money on it and it's just a vehicle to enable the flow of the beans from their warehouse into your cafe. Don't fall for the trap of promises offering 24/7 support. In 2016, the reality is a severe and chronic shortages of skilled technicians around Australia. Technicians rarely work for very long at coffee roasting companies, preferring instead to start up their own businesses and being independent so they can do what they like and earn more money. So think about the facts - more than 90,000 espresso machines and 130,000 grinders installed and just 90 quality technicians to maintain them across Australia......that's like 2,000 devices for every technician. Coffee companies generally outsource this function, so it's the same as if you partner with a good tech - the coffee company adds zero value other than having a contact number to call.
  6. Using a strategy that hopes a brand of coffee will attract customers is really outdated and risky thinking. Even in 2016, I regularly encounter cafe owners who believe that if they are using high profile Brand X, then the coffee drinking public will beat a path to their door - simply not the case anymore. Go with the company that tastes the best according to both your own palate and your most trusted customers.
  7. Don't commit to fixed weekly volumes. Everyone knows that cafes have low and high trading periods so you should have flexibility to order less or more as it suits your business volumes. New outlets opening nearby your premises will have an instant impact upon your daily volumes.
  8. Ensure your supplier is clear and honest with roast dates and freshness. This is perhaps one of the most important contributors to quality and consistency. Don't take coffee that is more than 12 days old and expect to make stunning coffee over the coming week. Demand your supplier gives you coffee that is just 3 - 4 days old. Of course, some coffees develop over a slightly longer period than others, but for quality specialty grade coffees the peak window is 5 - 15 days from roasting.
  9. Transparency is key - sure, many specialty and quality roasters print what is in the blend on the pack, but sometimes it's not the truth, or they run out of a particular bean and fail to inform you or the baristas there has been a change. This can affect the cup profile and the settings used for grind, dose and extraction on the espresso machine.
  10. Flexibility is fundamental - if you don't like a coffee, or your customers are complaining, then a great supplier that values your business will investigate and act accordingly. This is what real quality systems are about, not promises that the coffee is fine and it must be your baristas or the equipment is playing up !. Sometimes, coffees can change because new lots from new seasons arrive and they taste different which is a directly caused by the growing conditions - a great supplier will evaluate and offer an alternative if the coffee is not working or performing to expectations.