Roasting And Retailing

Roasting And Retailing

"Two roads diverged in a yellow wood ...
I took the one less traveled by,
And that has made all the difference."
- from "The Road Not Taken"
by Robert Frost

Like Robert Frost's wanderer above, every specialty coffee retailer also faces a fork in the road. One route - the one most traveled--is the traditional retail model: buying coffee wholesale from a roaster and preparing it and marketing it along the roaster's guidelines, hopefully with the roaster's assistance. On the other route--the one less taken--is the retail roaster. This hybrid model forces a retailer to know at least as much as the wholesaler they presumably replace--without the support the wholesaler would normally supply--and still run their retail business.

For about the last decade, the fastest-growing segment of the American coffee roasting market has been retailers. Every year, a few hundred of them decide to take on the additional operational responsibilities of creating their own product, of roasting their own coffee even as they still must manage and operate their coffeehouses. Many of these business owners are experienced retailers, while others are start-ups. They run the full gamut, from beginning coffeehouse owners to experienced multi-unit drive-thru operators. And while they all may want to roast their own coffee, they also may have some very different reasons for doing so. They may even be surprised, after beginning the process of roasting, to discover which factors are truly important to them and their businesses and which are just fluff. So why do retailers roast?

The following accounts are from three experienced retail roasters who answer this question, along with what they found after they started the process and how it has changed their businesses, if not their lives. They all had retail experience before taking on roasting, leaving them with fewer unknowns than startups face. Let us take a short journey down the road less taken with these three intrepid, but very different, retailers.

Mike French

Owner, Sammi J's Stonehouse Roastery, Nissawa, Minn.
CURRENT EQUIPMENT: DIEDRICH IR-7 AND AMBEX YM-10

Recently, I was asked why we decided to roast coffee. A simple question to be sure, but the answer is complicated. We were a coffee/frozen yogurt walk-in shop, a summertime business in a resort town in Minnesota. Our revenue was meager at best. My wife, Julie, ran the business during the summer, along with continuing her part-time nursing job.

We had been using regional wholesalers for our coffee offerings, and although liked by our customers, there was little to separate us from other coffeehouses in the area. We needed something no one else had: an identity and product that could only be purchased at our shop. We needed a coffee so fresh you could smell the fruit and chocolate in it. We needed to roast! We had visited many roasteries, and I had seen those "roasting machines" at Coffee Fest.

To sum it up, our top reason to roast was to set ourselves apart from other coffeehouses.

REASON #2: We would have the freshest product available in the area.

REASON #3: No more concerns with ordering, stocking and rotating stock. I would roast as we needed it, keeping no more than three days of inventory ahead. No old coffee.

REASON #4: Quality control. This includes roast level, blends and origins of coffee.

REASON #5: We wanted to. It was a new and exciting adventure. The second question I was asked was, "What has roasting done for our business?" Roasting our own coffee has made our business what it is today. We couldn't have made a wiser decision. I can't emphasize this strongly enough. Not only have we set ourselves apart from other coffeehouses in the area, we have set a whole new standard for coffee in our area. Day after day, we hear from our customers that we stand alone in our coffee quality. We have become the local standard everyone else is compared to.

Our competitor has everything money can buy: location, beautiful decor, incredible signage and branding. Yet we sell far more coffee. By the way, our roaster has paid for itself many times over in the last two years.

There are a lot of intangibles that roasting has brought to us. Our awareness and knowledge of green coffees, roasting, cupping and brewing continue to grow in ways only experience can teach.

KATHI ZOLLMAN

Director Of Education, Summa Coffea Academy
Founder, Dark Canyon Coffee Roasters, Pendleton, Ore.
CURRENT EQUIPMENT: DEIDRICH IR-12

Roastmaster, Cinnamon Bay Coffee, Clearwater, Fla.
CURRENT EQUIPMENT: AMBEX YM-30

My decision to start roasting specialty coffee in-house came after spending two years in a nontraditional retail environment. Our small mail-order business grew quickly and outgrew the kitchen table that was the center of the business. The demand for our fresh-roasted coffee seemed to warrant a retail location. After visiting a few Northwest roasters, we decided to purchase a coffee roaster and open a retail outlet. I was fascinated by the roasting process and felt confident that I could learn to master the secrets of the roast process. The fact that we could control our inventory levels, quality and product offerings was appealing to the potential growth of the business. The other opportunity that quickly emerged was wholesale. We found tremendous growth in wholesaling packaged coffees for retail sale and five-pound bulk coffee and espresso. My interest level was spiked by the roasting process, and becoming a master roaster became a priority in my career path. I wanted to learn the roast process inside and out. Coffee roasting in a retail environment was a win-win situation for my business: The marketing appeal of the roaster right there, within reach of the customer, and increased profit margins were add-on bonuses to the original goal of purchasing the roaster.

Van Howell

Owner, Chaos Coffee Roasters, Greer, S.C.
CURRENT EQUIPMENT: AMBEX YM-15

I knew I wanted to do coffee retail, but after doing several coffee trade shows, especially the retail-oriented ones like Coffee Fest, I was suspicious that a coffeehouse in the Greenville, S.C., area could make it on coffee alone. I already had retail ownership experience in the TCBY system, and I actually still owned a couple at that time. So I pretty much knew the retail labor picture, and I also knew the difference between gross margin and net margin, but I found that many of the so-called experts in coffee either purposefully or through ignorance constantly confused the two. In short, I failed to see where the money was in coffee at the retail level. Until I began to look at roasting in-house.

Roasting in my retail location appealed to me for two primary reasons. The first was that roasting appeared to increase my net margins (the money I get to keep) significantly. The second was that it opened the door for me to explore the wholesale coffee roasting business without much additional cost, allowing me to basically develop two businesses using the same space and the same piece of capital equipment: the roaster.

It has been a great ride, and after three years, I have finally grown the wholesale portion of my business to a point where it is no longer feasible to continue to roast in the retail location. Additionally, the retail has mushroomed, and I could better utilize the space currently occupied by the roaster for traditional retailing.

All in all, I would say that roasting in my retail location was the smartest move I made when I decided to embark on my coffee career. Not only did it allow me to develop and tweak my own brand, but it opened up networking and educational opportunities, such as the Roasters Guild and the new Regional Roaster Training Groups, that are generally not available to standalone retailers.

Nontraditional retailer, traditional retailer and retail/wholesaler are three very different starting business models, and each one above decided to take up roasting. And that has made all the difference. The reasons given for roasting by French, Howell and Zollman are as varied as their business models, but they all fit into the following six general categories. All are mentioned in one form or another by these retail roasters:

Marketing. All specialty coffee retailers have competition. If it isn't coming from a chain store across the street, then it's coming from another independent on the other side of town. If there are no dedicated coffee retailers, then it's doughnut shops, grocery stores and Internet retailers (a rapidly growing segment of retail coffee sales). No matter the competitive threat, independent retailers must find a way to differentiate their product from all others in their marketplace. By installing a roaster, a retailer has a built-in marketing advantage over more traditional retailers, creating a theme for their stores while simultaneously allowing them to brand their own coffee. For most retail roasters, marketing is one of the more important and most obvious advantages to roasting for retail, and it almost always increases the sales of whole bean coffee for existing shops.

Inventory control. Of all the traditional duties of the retailer, none seems to cause more heartache, or gets sloughed off more often, than tracking inventory. Specialty coffee retailers, like all retailers, must devote precious time and energy to staying on top of their inventory. Poor inventory control contributes to inconsistent sales, upset customers and in-house theft. Roasting can transform a retail operation from being the final distribution point in what can be a torturously complex supply chain to a vertically integrated, just-in-time manufacturer of their own branded product. Buying green coffee, as opposed to buying roasted coffee, changes the entire inventory dynamic, as green coffee has a much longer shelf life than roasted coffee and is generally sold in much larger quantities.

Quality Control. Although a less obvious consideration for most retailers, especially start-ups, quality is perhaps the most important consideration over the long run. Quality issues for retailers considering roasting fall into two wide categories: freshness and product selection.

Coffee--especially specialty grade coffee--should be a fresh product. Although coffee, unlike, say, raw spinach, cannot make consumers ill if it is not fresh, the staling of coffee has a decidedly negative effect on its taste. Coffee drinkers should not be paying good money for a poor product, such as coffee that is too stale or even borderline degraded. Freshness is no doubt the preeminent quality issue facing all specialty coffee retailers today, but traditional retailers only have limited control over freshness. They also must rely on their roasting partners to be clear and honest when communicating about issues affecting freshness, and react appropriately. Coffee shops that roast, however, have only to rely upon themselves to ensure that they are serving and selling a fresh product. Additionally, poor margins on wholebean coffee often encourages staleness in retail by discouraging discounting or disposing of coffees that are too old or too stale. Retail roasters, with their much larger margins, are in a better position to discount or destroy stale coffees.

Reasons Not To Roast

Davis speaks for and against retail roasting from experience as an equipment manufacturer and retailer of 13 years:

1. INADEQUATE TIME.If you currently do not have enough time to run your business, how do you think roasting can help? You need time to do the roasting as well as to learn this very special craft.
   
   
2. INADEQUATE SPACE. You do not have enough physical space to roast in-house; or you are unable to vent (coffee roasting produces smoke) the roaster.
   
   
3. YOUR BUSINESS IS TOO DEEPLY INVESTED IN THE WHOLE-SALE BRAND THAT YOU CURRENTLY SELL.For example, if you have Intellegentsia or Counter Culture signage all over your cafe, it may be difficult to switch, even if it will be your brand.
   
   
4. YOU DO NOT HAVE THE CAPITAL TO ROAST.Roaster, ducting, build-out, permitting, and initial green coffee stock are all capital investment - and some are not recoverable if you move or go out of business.
   
   
5. FEAR.You lack the confidence to make the leap into roasting where you will get less support for your business than you are currently getting from your wholesale roaster. Wholesale roasters as a group are much better at day-to-day support than either equipment manufacturers or green coffee brokers.
   
   

With the increasing number of coffees, not to mention certification options, available to roasters of any size, one would think that retailers would have an overwhelming selection of coffees to serve and sell. But the reality is somewhat different. Once a traditional retailer partners with a roaster, they cede certain decisions to that roaster. Among these decisions are what coffees are to be roasted and, perhaps more importantly, how they are to be roasted. For many retailers, relying on the expertise of the wholesale roaster is a welcomed comfort. For others, however, it can be a constant source of irritation. By roasting for their own outlets, retailers can expand--exponentially--the selection of the coffees on their menus, taking inhouse the control as well as the responsibility for their core product line.

COST CONTROL. Nearly every retailer that even fleetingly considers roasting believes that cutting their costs on the coffee they use, without sacrificing quality, is one of the most important factors when considering roasting. With coffee usually being the largest variable expense for most coffee retailers after labor, reducing those costs can be vitally important if the retailer is to grow or even survive. And while it is true that green coffee costs less than roasted, there are other costs associated with roasting in-house that are often not factored into the equation: Initial capital investment (roaster, shipping, installation, finance costs and permitting) and labor (direct roasting labor as well as the labor of learning a new process) are the two most important. However, once all costs are factored in, most retailers can see a significant increase in their bottom lines, even if sales remained constant. A general guideline to keep in mind: It will cost a retail roaster approximately 50 percent of what buying wholesale roasted coffees cost to produce the same coffee in-house.

NEW BUSINESS DEVELOPMENT. Many retail coffee operators enter into the business dreaming that eventually they will make their way "up the coffee chain," using their retail operation as either a base or as an experience to build upon. Whether that dream be multistore, wholesaling, consulting or even eventually growing coffee, roasting within a retail operation opens a new world of opportunities, with a much smaller level of risk. Some of the best wholesale roasters in the country began as strictly retail roasters leveraging their experiences as retailers and their knowledge of roasting to create entirely new businesses. Additionally, roasting can give the committed retailer increased margins and quality control to offset the increased management costs of going multi-store. Although developing new coffee-oriented businesses is usually far from the minds of retailers when first considering roasting for themselves, in many ways a roaster installed in a retail location should be looked upon as a small business incubator awaiting the right entrepreneur to fully realize its potential.

SELF-FULFILLMENT. Very simply, many retailers roast because they see the roasting process as an extension of their own personalities. Roasting coffee, to these retailers, represents that rare avocation that can easily be turned into a vocation. It's a milestone in their relationship with coffee, a chance to create a product with their hands--a product that is still evolving and hence requires attention and creative brain power.