mycuppa November 2013 Newsletter

Are retail prices of coffee beans a true indicator of the quality?

It's a battle we often encounter each day. The wrong perception.

Why are we so cheap?

Why are your coffee beans almost half the price and twice as fresh as my local provider?

People ask us these questions every day; surely they must think we are sourcing cheap, low-grade raw coffees!

There is a natural tendency inside every human to summon upon traditional, if primal, laws of value - price being a typical indicator of implied or inherent quality.

Surely, it applies to everything - cars, electronics, etc.

Is this the case, and does it apply to roasted coffee beans?

We can confirm that retail or selling price is NO quality indicator regarding freshly roasted coffee beans.

I control the pricing we set - the owner of mycuppa - not the industry, not any regulators, not the government, not the distribution channels or retail sector (supermarkets), not the competition and not the source and supply costs.

Whilst it's true that at different times, something like a Sumatran is priced higher than a Brazil because of differentials in origins sourcing costs. Programs like FAIRTRADE and Organic also add pricing premiums and levies.

Background

I decided eight years ago to run a low-margin, just-freshly-roasted coffee operation that would enable people all around Australia to enjoy that "premium coffee" experience in their homes or offices.

The only way this could work is if we set up a fast-track system to maintain freshness and quality, deal directly with our customers, and, very importantly, remove the retail and distribution layers that cause dilution and confusion of the value proposition.

We could see that the coffee industry in Australia needed to be more structured and unregulated, un-regulated and distribution required to be more cohesive. Coffee is like wine, except that wine is ridiculously controlled and influenced by distribution channels (primarily the Supermarkets who own the majority of liquor outlets).

Coffee distribution has some independence and is likely for the foreseeable future.

The number of new entrants to the coffee roasting industry in Australia is staggering. It has become a modern-day gold rush (although we do not know why, as it's too competitive).

Almost every experienced barista wants to run his own coffee roasting business. The Australian market now has up to 900 labels available, including both domestic and imported brands, making it completely saturated.

What does this mean for the coffee consumer?

It needs to be clarified: too many brands, too many promises, too much hype.

The tipping point has well and truly occurred.

As of late 2013, the industry needs more capacity (supply) to service the demand.

Every roasting label is now promoting itself as Specialty - even the long-term players stuck in their old-school ways for 20+ years are scrambling to re-brand themselves as specialty roasters to cash in on the modern movement and shifting consumer trends.

Let's get back on track - is the price an indicator of quality when it comes to roasted coffee beans?

I will start by breaking this into a few sections - sourcing, roasting, service/value-add.

Sourcing Green Beans

This is where the game can be won or lost.

In my typical 90+hr week, almost 20 is dedicated to sourcing raw coffee.

Eight years ago, I must confess I was utterly guilty of looking for "bargains" - money was tight, standards were average, and I had a misguided belief that I could turn something average into gold through pure will-power and super-human skills - boy, was I so very wrong!

Many years of valuable lessons have been learnt - buying quality results in benefits and gains in the longer term.

We have been on the quality bandwagon for over five years, and there is no ceiling for sourcing quality.

We have also seen the competition step up.

Nowadays, there are contenders everywhere, so you need to be on top of your game, and when it comes to green beans - we only pick the best - budget is never a consideration.

The embedded legacies of traditional coffee companies hold them back.

You see, they have strict budgets to operate within - because they have spent large amounts of capital to lock in cafes with equipment, signs and other so-called "freebies", meaning they are left with having to purchase cheap coffee to turn a profit - all their margin is used to service their debtors (cafes not paying their Invoices) and suppliers of freebies.

I'm glad we are free of that market - it constrains your thinking and controls your behaviour.

In the last 12 months, we have stopped putting farm or estate names on our coffees - unless we have the entire lot imported into Australia.

The reason is that there are a lot of lazy coffee roasters out there who copy what you are doing - they will not bother themselves with roasting, cupping, evaluation and all the scientific analysis required to assess a new prospective coffee correctly.

98% of the raw green coffee roasted in Australia comes from just two(2) coffee brokers - one in Sydney and one in Melbourne.

We purchase 99% of our coffees from these brokers, and almost all of the coffee roasters in Australia do the same.

There is so much delusion, pretension, hype and "smoke and mirrors" in the coffee industry - I've seen coffee companies claiming some rare, exotic, exclusive type of coffee only to see the commodity, generally available raw coffee on pallets with their name on it in the truck that delivers to us - as per above, there are just two companies supplying just about everyone.

Roasting

This area remains a key differentiator and is a high investment area for us. Recently, we have revised all our profiles using advanced optimisation tools.

How you do it and how your platforms are configured is still a critical factor in the final result - roasting makes a real difference, but the gap is closing.

We run two(2) very different roasting plants, and both are tuned to such a precise state that we know the coffees running through them will be the absolute best we can achieve at that time.

Service and Value-Add

The final cog in the solution.

As of November 2013, we continue to operate in a demand-pull model.

That is, we roast based on orders and not to stock.

Our scale is now major, so we can comfortably roast 16 to 20 different coffees each night, six nights a week, to ensure we are always sending freshly roasted coffee beans to our customers daily.

Speed is the other compliment to service. We must process your orders fast and have your parcel out the same day.

Currently, we run at a 99.5% fulfilment rate, which is pretty special.

We can only achieve that with the fast-paced schedule from 8 a.m. to midnight, 6 days a week - something our competitors simply cannot and will not match that level of coverage.

Because of our freight volumes, we lodge directly into a distribution centre each day - meaning our parcels have reduced the first-hop leg that would normally delay packages by up to 24 hours.

We need to understand how our competitors can charge $50 a kilo for coffee that is not as fresh or roasted with the same precision as our computer-controlled plants.

Is it hype?

Have they done a good job at their marketing by convincing you to pay money for something rare and exotic?

How would you know what is being promised is actually what was delivered - it's impossible!

At mycuppa, we provide honesty, transparency and the highest-quality coffee to our customers at a fair and reasonable price.