4.14.2020

Tough Love for the Coffee Industry

First... some quick bonafides and background. While I used to work in coffee, and still love coffee and the coffee industry, I now make my living doing business strategy consulting - primarily for some of the largest companies in the world. A lot of what I'm doing right now is providing advice to companies about how to adapt to, innovate within and (frankly) to survive the COVID-19 pandemic. 


Times are tough in the coffee industry.

And, frankly, that's an understatement. Many coffee businesses in the United States are unlikely to survive 2020. And almost all that do survive will enter 2021 diminished and damaged.

Coffee businesses are not alone. A significant percentage of large retailers are at risk. The pandemic could represent an extinction level event for the restaurant industry. Hospitality and travel are unlikely to ever be the same - and a large percentage of businesses in this sector are likely to fail in the next six months. From event management companies to temporary staffing firms and from malls to hair salons - the business losses are likely to be profound.

And we are never, ever going to return to the "Old Normal."

So it's time to reposition for a new Normal. In fact, it's past time to do so. If coffee companies fail to get this right, or fail to act, they will likely be out of business before the end of the year.

So how do coffee companies do this?
What is the strategy for surviving?

Below is a generic and generalized approach, based on my work for large global companies, that should be applicable to most if not all coffee businesses. A lot of what I'm going to say will be upsetting and you're likely to want to reject it. You're likely to hate me for saying it. But I'm sharing this out of love for coffee and the coffee industry. I'm saying it because I want you to survive.

So here is the approach:

  1. You need to massively trim your retail operations. Any retail cafe which can be repurposed for drive-through in a market when most of your customers are driving cars should be immediately repurposed. Any retail location which can be repurposed for take-out windows (and has sufficient density of people and foot traffic) should have a take-out window added. All retail locations should be shuttered immediately (with the exception of your drive-through and take-out). No customer should enter your stores. If none of your retail locations are suitable for drive-through or take-out, you should consider doing pop-up drive-throughs and pop-up take-out operations. You should then model out the viability of all your remaining retail locations. Take your existing business and apply Best, Base, Worst case adjustments to revenues on a per-location basis (I would suggest using 15%, 30% and 50% as the adjustments given likely reductions in consumer demand). Any retail location that doesn't model out to being able to be profitable in a new Normal should be permanently shut down. You need to reduce staff to the bare minimum to handle your drive-through and take-out. You should not, however, reduce your retail advertising. Advertising rates have plummeted, and you need to retain your customers. As part of your retention strategy, you should also introduce new and improved loyalty programs that span retail and e-commerce and which encourage the purchase of high-margin items. You should immediately ramp up your email marketing focusing most strongly on reactivation campaigns that drive subscriptions. You should also talk to your landlords and try to renegotiate your leases, and/or get your landlords to pay for part of the creation of drive-through or take-out operations.
  2. You must immediately pivot away from wholesale. As noted above, restaurants are facing an extinction level event, so you should assume $0 in potential revenues from these customers. Coffee bars (as you know) are equally vulnerable, and if they survive they are likely to be diminished (and are very likely to become cost-conscious buyers). The only grocery businesses that should get one iota of your attention are those that are already optimized for e-commerce and delivery, or for click to collect (online purchasing with pre-packed and pre-paid pickup). The vast majority of other grocery stores are unlikely to survive the coming year. As part of your pivot away from wholesale, you should reduce your wholesale staff to the absolute bare minimum. Basically, you should have enough staff to manage the very few grocery businesses who are likely to be okay. You should cancel any and all marketing and advertising efforts that support wholesale - and that includes all your custom packaging, custom blends, co-marketing, etc. Wholesale clients are likely to come to you to renegotiate your deals. Keep in mind that doing so to keep clients who are going to go out of business is just going to cost you long term (particularly in terms of your bad debt). And also that the stores that do survive will want to keep those new, lower, costs. And that your more desperate competitors will be happy to lose money on a per pound basis to generate some cash flow. Avoid this trap.
  3. You should focus all the energy you can on your Direct-to-Consumer (DTC) business in general and your e-commerce business in particular. This is the one area of your business that has growth potential in the short-term - and is sustainable in the long-term. In particular, given cash-flow issues, you should push hard on DTC subscription offers. You should put the majority of your marketing and advertising energy (and dollars) into supporting your DTC and online business efforts. You need to staff up to enable this. You're going to need to look at optimizing your production around supporting this business channel. Because your DTC channel is likely your highest margin channel, you can afford to invest in this area. You should cross-promote your DTC offerings through your retail (promotional cards with orders). You should have aggressive loyalty programs. You might want to consider a Membership model with exclusive coffee offerings that are only available to those who pay Membership. The more you can move to recurring revenues, the better. The more you can move to a direct selling relationship with your customers, the better. This is, for many of you, going to require learning new skills and new tools and new ideas. You're likely going to have to hire people who are experts in this area. If your website isn't currently a world-class e-commerce site (with a great mobile experience), you need to fix it. If you currently cannot handle 24hr turn-around from order to ship, you need to fix it. If you cannot guarantee timely delivery, you need to fix it. You should also double down on merchandise and gear. Anything that you can sell and fulfill from your website. You need to become expert in social media and online advertising - and you need to have the resources to manage these efforts professionally. You need to ramp up your customer communications, from your email marketing to your social media outreach to doing scrappy things like having retail workers who would otherwise be furloughed start direct calling DTC customers who are high value. In essence, you need to transition as quickly as you possibly can into a DTC-first business. This is required for survival.
  4. You need to look at your current contracts, inventory and assets and determine what is surplus. If you're carrying more green coffee than you can possibly sell at current volumes - cash it in. Resell it. Even if it's at a loss on what you paid for it. You need the cash. If you have roasters that you no longer need - cash them in. Sell them. Even if you love them and polished them by hand after your expert restoration guy brought them back from the dead. Even if you've given them names. Sell them. If you have contracts to buy green coffee that are multi-year, these are now liabilities on your books. Renegotiate them, sell them or cancel them. Even if it hurts, even if it costs. If you have a ton of branded promotional crap - put it online and ask your fans to buy it to help you through this time. Be scrappy, be aggressive. 
Restaurants are pivoting to pop-ups and grocery stores. They're selling off their wine cellars and their chefs are offering cooking classes via Instagram video. They are doing whatever it takes to survive.

You have to do the same.
Whatever it takes.
Swallow your pride. Do the painful things. Make the sacrifices.
Because otherwise you'll be gone in a year.




9.07.2019

Fish Oil and Damp Cardboard

OK.

I've been patient. I've been quiet.
But I can't cope with this anymore.

American espresso sucks now.

I'm incredibly tired of drinking bad espresso and incredibly frustrated by trying to produce quality espresso from crappy, inconsistent coffee.

Over the last decade the objective quality of American espresso has steadily declined. The basic craft skills of blending and roasting have declined. But most of all, the interest and care that is put into espresso has fallen off a cliff.

American espresso is consistently either sour and astringent and under-developed; or dirty and baggy and poorly selected; or all of the above. In addition, an espresso from a quality coffee bar will taste radically different day to day. An espresso blend from a quality roaster will not only taste different batch to batch - it requires radical changes from a barista batch to batch.

I'm incredibly tired of drinking shots that taste like battery acid, or fish oil and damp cardboard, or super concentrated hot cranberry concentrate, or bakers chocolate and damp mushroom. Do any of these descriptions taste good to you? Of course they don't. But this is the espresso you're serving to us - this is the coffee you're selling to us.

I'm fine with changes in taste and philosophy and approach.
I'm not fine, however, with the idea that the peak of espresso quality in the US has passed.

Honestly... y'all need to try and little harder and give a little bit more a fuck.
Because this shit sucks.

9.07.2018

You Should Be Ashamed

Once upon a time I believed that San Francisco was a special place - a better place. I believed that the culture of SF attracted better people. I loved San Francisco and the people who lived here because I felt that we stood for something different - something more humane.

Once upon a time I believed that craft coffee was also a special place - a better industry. I believed that the culture of artisan coffee attracted better people. I loved coffee and the people who worked in the coffee industry because I felt we stood for something - something real and humane.


So I keep waiting for someone in coffee to talk about the problems the industry has around harassment, discrimination and abuse. And I keep waiting for someone to decide to lead.

But the silence deafens.


And today I walked by Four Barrel Coffee.


In the San Francisco I once loved, these doors would be permanently closed. Because nobody would be going to a business founded by a serial sexual predator and now owned and run by his friends and fellow owners. Nobody would support a business whose (new) owners - the ones who had enabled and covered up the founder's criminal abuse - promised to turn over ownership to the employees - which turned out to be a lie. In the San Francisco I once loved, none of the people in this photo would have been willing to be associated with such a toxic business.

And in the coffee industry I once dreamed existed companies would be calling this company out, companies would be publicly distancing themselves, companies would be refusing to do business with them.

Instead, the store is busy - crowded with people who could give a fuck about ethics and morals and values.
Instead, the coffee industry remains silent - demonstrating that those within it also could give a fuck about ethics and morals and values.


I'd love to say this is a call to action.
I'd love to say that I believe this post will result in a company or two taking a public stance against both the abuse that started this shit-show and the utter ethical failure of the current owners.
I'd love to believe that this post will result in a single SF coffee buyer deciding to go somewhere else for their latte.

But I know better.
It's too late for SF.
It's too late for coffee.

With your silence, you give tacit support.

I'm embarrassed. By all of you.

12.28.2017

SF is past its sell-by date

"The reason there are rules is that there’s a society here, and we’re all supposed to fit in somehow. But not anymore. The progressive, fussy, overly sensitive, yammering groups of San Franciscans asserting that we need to have our needs understood and rights acknowledged in order to get along together don’t matter anymore."

Yeah... it's a so-called "Long Read" (as if that were a bad thing).
Yeah... it's another "requiem for the SF we loved" (again, as if that were somehow bad).

But this piece is a true must read for those who love San Francisco or at least love the San Francisco that was.

"We are all in this together. We always have been and we always will be, no matter where things go. But for the past few years in San Francisco, it’s been apparent the counter-myth is ascendant. And this is why I left — it turns out there are places that haven’t yet conspired in the assisted suicide of “we.” There are places where people look each other in the eye, even when they drive."

7.04.2017

On Patriotism

"By ‘patriotism’ I mean devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people. Patriotism is of its nature defensive, both militarily and culturally. Nationalism, on the other hand, is inseparable from the desire for power. The abiding purpose of every nationalist is to secure more power and more prestige, not for himself but for the nation or other unit in which he has chosen to sink his own individuality." - George Orwell


6.16.2017

Extinction Level Event

Amazon to Acquire Whole Foods for $13.7 Billion

If you own or manage a coffee business and you don't have a plan for the coming collapse of the traditional retail and distribution channel in the United States you will be out of business within three years.

This is your only warning.