Top 3 Problems facing a Coffee Roasting Business

This post looks at the top 3 problems facing a coffee roasting business in various stages from start up to maintaining a customer base.

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Starting a coffee roasting business may be the most exciting thing you’ve ever done in your life, but be aware – you need to be prepared for the challenges that lay ahead.

In this post we shall tackle the top 3 problems of a coffee roasting business. Each problem listed below is in a different stage as the business expands:

  1. Pre-launch – lack of capital.
  2. Ready for Market – you have everything except customers.
  3. Staying on Top – how to maintain your customer base.

These are the 3 problems that I have seen ‘make or break’ roasting businesses in the coffee industry over the last 12 years. More recently I have been involved in two coffee roasting business start-ups but in the past I’ve been an employee for 3 coffee roasting companies each at different volumes:

  • between 5ookgs and 1 ton capacity per week.
  • between 4 ton and 5 ton capacity per week.
  • over 5 ton capacity per week.

The two start-up businesses had very different launch styles. One was launched on a modest budget and the other spent over $100,000. At this point in time, the coffee roasting business that spent large is roasting to supply their small onsite cafe, while the other business is still owner operated by 1 person who continues to supply wholesale to cafes on a small scale. The current circumstances of both businesses are partly reflective of the capital they had to begin with, but also because of the decisions they made along the way.

Lets get into the top 3 problems:

Pre-launch

lack of capital for coffee roasting business

Without a doubt, the top problem a coffee roasting business faces is getting off the ground. The first questions are always, “Where do I start?” and/or “How much capital will I need to raise?”.

When I speak about ‘lack of capital’, I’m not talking about the problem that one could face in raising the initial capital. Once you have the amount of capital that you think you need to kick start your coffee roasting business successfully, you actually need more, a lot more. This problem is not really a lack of capital, its poor planning. Nobody writes a business plan for a coffee roasting business and has a category titled: Worst Case Scenario. Many business plans incorporate a ‘risk assessment’ but these don’t always take into consideration the specific real life problems that are associated with setting up a coffee roasting business, especially the tangible roastery itself.

Traditionally, a typical business starts with a business plan which entails content and plans to which the owner will use as a guide. This guide will help to get the business owner through the stages, the first step being prepared to enter ‘launch phase’. Part of the process usually involves securing finance in order to meet the capital needs required to launch. This is where the problem starts: an average business plan leads to a lack of capital!

First Tip: Unless you have previously been part of a coffee roasting business start-up, you will need much more capital than you have planned for!

The problem here is that most of the capital is used up on the business set-up. The outlay for equipment and a premises sets you back before you’ve started trading.

Second Tip: Plan only for the essentials, for example, yes its nice to have an Agtron reader to sample the colour of your roasted coffee but its not essential. Clearing the clutter will also help you focus on what your priorities should be.

When money starts to run low then compromises need to be made therefore the business plan is affected. For example, you purchase a 5kg Probat but it cost more for the freight and handling then you anticipated. The installation of the after burner and gas fitter fees cost an extra thousand because the integrity of your gas lines inside the walls were damaged (copper is not cheap!). As each little piece comes together you soon realise that you are losing money by the minute and now you cannot afford an advantageous or prestigious piece of equipment that was going to help with your business branding/identity. Don’t worry, you are going to make it work but your strategy needs to change.

When it comes to launching a business and you are low on capital, the best way to cut costs is to compromise on high end brand names and equipment. Perhaps you don’t buy the new La Marzocco Strada EP 1 group or the Slayer 1 group you had budgeted for testing your espresso roasts? Instead you buy a 2 group Wega or Rancilio. You know that you will be judged by visitors who come to your roastery… that prestigious coffee machine that you were hoping to associate your business and brand with is no longer part of the equation. In this moment, your coffee roasting business just dropped down a tier in market positioning before you’ve even opened.

In the long term, the initial lack of capital and planning can lead to a lower market perception of your coffee roasting business. You don’t need marble floors and chandeliers, just plain concrete floor and a wooden bench will do fine but make sure quality is somewhere in sight. Try and stick to recognized brands and equipment as they generally have good support and after-sales networks if the worst case scenario were to happen. If potential customers see quality in and around your coffee roastery, they associate that quality with your coffee and brand.

To really be prepared for starting a coffee roasting business, you need a detailed business plan which includes day to day expenses and financial forecasts. You don’t want to find yourself ‘lacking capital’ because of poor planning. Do yourself a favor and invest in researching/building a detailed business plan.

Ready for Market

cafe image for coffee roasting business

Okay, so you’ve mastered the art of roasting coffee and you are all set to supply wholesale. You currently supply a few friends, family and locals but nothing close to the transactions that need to start happening. You’ve been into a lot of cafes to show your wares but it seems like no one cares. It feels like you are missing something, the magic ingredient just isn’t there, how can I get an account across the line?

First Tip: Get familiar with your market! It’s actually more of a requirement rather than a tip – market knowledge is priceless when it comes to sales. Take note of the sales strategy that each roaster uses so you know if you have a chance even before you walk into the cafe.

The coffee industry is extremely competitive and if you don’t know how the game works then its time to get a pen and paper and take some notes. There is plenty of money to be made here, and accordingly the market reflects this by how hard it can be to obtain an account. Let’s do some quick math so you know how much is on the table:

Lets say an average cafe needs 15kgs of roasted coffee supplied per week to fulfill demand. The average price per kg is $25, so 15kgs x $25 = $375. Over a year it totals to $19,500 but when you get to having 5 average cafes as accounts, you are now just short of $100,000 per year.

But the income doesn’t stop at just coffee. Cafes need tea bags, chai, syrups, hot chocolate, sugar, stirrers, takeaway cups, lids, etc…

Pause for a minute now to consider what would happen if you were to pick up a great account, say 40kgs per week? That income equates to $50,000 per year which could pay for an employee’s yearly salary. Wholesale coffee is a big deal, so once you gain an account, be sure to keep them.

Now back to the sales side. The basic fact is that every coffee roasting business has something to offer besides just coffee. Here’s a list of things that other roasters might offer in conjunction with their coffee:

  • free takeaway cups
  • free loan branded umbrellas and wind barriers
  • free branded clothing for the staff
  • free loan equipment such as coffee machine and grinder
  • free breakdown call outs if there is equipment failure
  • the reputation of the coffee brand
  • the association with the coffee brand

When attempting to sell your coffee to a cafe, think about what you are offering as a supplier – it needs to be more than just coffee. Even before you step inside a cafe, look inside the window and figure out who supplies coffee to the cafe. If you know your market, you will know if you have a chance of supplying the cafe.

Second Tip: Never enter a cafe when its busy and ask to speak to the manager/owner regarding coffee supply. This is one of the most inconsiderate things a sales person can do. Learn when the quiet times are and plan accordingly.

A major reason that cafe owners won’t change coffee suppliers is because they are scared that a change could lose customers. A good sales person has enough confidence in their product to assure the owner that sales won’t drop and the transition will be smooth. This leads me to the next point: be certain that your coffee isn’t too different from the cafe that you want to supply – if the coffee is nothing like the current blend used by the cafe then you are setting yourself up for a hard sell. As soon as you hand over a sample of your coffee then the owner will notice the contrast immediately. On the odd occasion this could work but my experience is quite the opposite – the owner needs the taste of the coffee to be at least slightly similar for the change over to take place.

In this day and age, websites are essential. If you drop your business card off to a potential customer they could look you up online so you need to have your branding and marketing sorted. Its also a good idea to have an online shopping cart, even if its just to show the customer that you anticipate growth in this area. Online sales are increasing these days and its a great place to show off your coffee blends and what you can offer.

There is no denying the wholesale coffee industry is highly lucrative. Having a great cafe as an account is almost like printing money when you get the formula right. On the other hand, having a bad cafe on your books can be worse than the income they provide, these owners usually don’t pay on time and demand everything for free – they think you owe them something because they promote your coffee. Bad customers take up a lot of your time and always think that somethings wrong, either with the equipment or the coffee. The truth is that you are better off without a bad customer.

There is no ‘best way’ to sell coffee but there are some given truths. Build relationships first then business second. Your name is your brand, once its tarnished – mud sticks. There are so many sales models and strategies out there so just find the one that works for you. The good news is once you are established, the customers will start coming to you. If you are having a hard time finding a sales strategy that works for you, find some one who can help. You can read all of the free information on the internet but only someone with experience can really help you in the sales arena, especially if you aren’t a natural sales person.

Staying On Top

competition for coffee roasting business site

As humans we naturally associate and categorize everything into groups/areas/hierarchy, thats how our minds work. We see a man and woman taking a walk along the pavement next to the beach pushing a baby along in a stroller – our minds categorize this as a ‘family’ on a sub-conscious level without our brains stopping to process or even taking notice. We see a sports team holding the world cup or prize medals and we associate that sports team with victory, with winning, with being the best at what they do. It is this same psychology that advertising companies study and use in branding and marketing. Coca Cola or Pepsi might pay a popular celebrity singer or sportsperson a lot of money to be associated with their brand because somewhere in our minds, we’ve labelled/categorized this product. This is exactly the same for your coffee roasting business, the brand as well as the product.

Lets say 3 years have passed since your first customer came on-board and now you have some traction with around 50 wholesale accounts that you supply coffee to. Some of your accounts are being poached by other coffee brands and you find that its becoming harder to maintain your customer base because the impending offers from other roasters are just too good to pass up for your customers. You already do so many favors for your customers: you are roasting private labels for 10 of your customers, you are supplying another 10 undesirable cafes but you keep them as accounts because you’ve supplied them from the start, you are roasting 12 different blends which means your holding stock of 25 different green bean varieties which is taking up loads of warehouse space and putting pressure on your roasting schedule. Basically you are tired of being ‘everything’ to every customer and you are still losing key accounts to competition roasters. You ask yourself, “How can I possibly stay on top of all of this and continue to grow?”.

First tip: Always plan to re-brand your coffee roasting business, product line and customer base. It can seem daunting to have to choose a specific position in the market but you can’t sit on the fence and expect to continue growing at the same rate.

Yes, the answer is to re-brand. Re-branding is the only way to stay on top of things because you cannot continue to do what you are doing everyday or else you will burn out. Re-branding is the key to starting a whole new chapter in your coffee roasting business, the type of business that starts to pay you back for all of that hard work. This is the how the successful roasters take charge and make things look easy – customers start to approach you and ask to use your product, people want to do business with you and they will pay you more for it. It’s not going to be easy though, you will have to make some hard decisions and go against what you’ve stood for in the past 3 years.

The first step in re-branding your coffee roasting business is to choose how you want people and customers to see your business in the overall scheme of the industry. Its like the advertising company chasing a role model, be careful what you choose because that is how customers will place/rate/rank you in the market. Here are some questions to get your mind thinking:

  • Do you want to be known for having the best coffee in the city?
  • Do you want to be known for quality?
  • Do you want to be known as the fun coffee business?
  • Do you want to be known for the darkest or lightest espresso roast?
  • Do you want to be known for spending ridiculous amounts on 90+ grade/COE/microlot green beans?

After you have decided how you want to be perceived in the market, its time to make the change in that direction. For example, lets say you absolutely love punk rock music and therefore want to be known in the industry for your mixture of grunge and coffee. You start by writing out a plan and then incorporating it into your coffee roasting business by letting your staff all know the new direction. To begin with you re-brand the packaging to a black coffee bag with an electric guitar on it. You start to dress like a punk rocker and your staff do as well. You listen to punk rock in the roastery and purchase a fleet of V8 street cars to deliver the coffee to customers. Customers will see this change and they may not like it so you could lose accounts, but on the flipside, chances are very high that you will start to get a lot of customers who love punk rock call you and ask you to supply their cafes. The goal here is to dominate in this area and attract all of the punk rockers – you now know who your customer base is and you have immediate rapport with them. No more needing to beg cafes to use your coffee, you know your customer profile and the longer you stay with this brand, the better you will get at attracting this type of customer. A punk rocker is perhaps an extreme example of how to position yourself in the market but you get the idea…

New branding stops you from wasting time chasing the wrong accounts and also gives you room to focus on what really counts – taking your coffee roasting business to the next level. While you are re-branding, take the time to cull your coffee offering. Perhaps streamline your range to 3 or 4 coffee options: espresso with milk, espresso without milk, filter roast and decaf? Give them names that suit your brand which is what customers love to hear. Move through your coffee accounts and figure out which ones don’t really suit your brand, you can categorize them from best to worst and spend a lot more time with the best ones – give these customers bigger discounts, more tech support, fresher coffee and better equipment to ensure they stay with you longer.

Second Tip: When re-branding, take the time to change all of your systems such as how you take payment from your customer. Most cafe’s prefer pay cash when the coffee is delivered but this is very risky as your delivery driver is left carrying thousands of dollars on him. Always set up direct debit/automatic debit payments with your customers – they may not like this but you will always get paid on time which is essential for keeping accounts in the green and daily cash-flow coming in.

At the end of the day, market perception is everything. How you are seen by customers can play a big part in how your business grows. Finding your position in the market is hard but once you are established it slowly gets better. Starting and growing a coffee roasting business is much easier with guidance, planning and experience on your side. There is a reason why consultants charge thousands of dollars for expert advice, this is because its much more expensive when you go it alone and make all the mistakes the hard way. Just make sure when you take the leap, you get a little advice from professionals who have already been where you are about to go. Quality advice leads to quality results.

Author: Coffee Roasting Blog

I run a website called https://coffeeroastingbusiness.wordpress.com/.

2 thoughts on “Top 3 Problems facing a Coffee Roasting Business”

  1. What great reading!
    I really enjoyed this, I’ve been involved in coffee roasting businesses for probably around 8 years or so both in Syd and NZ and lots of points in this article are right on the money. Nice work!

    Like

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