yikes, those prices!

Transcription

1 36 roast

2 yikes, those prices! Creative Coffee Blending Strategies to Deal with Higher Costs by Willem Boot I magine that you have developed a successful distribution with a blend called 3C (Three Continents). Over the years the blend has won various awards and your competitors haven t been able to copy the distinct flavor profile of the blend, which has become so popular because of the unparalleled combination of a winey sweetness, a mild dark-chocolate aftertaste and a subtle interplay of honey and grapefruit flavor notes. The recent green coffee price volatility of the New York C market, along with changes in differential price levels, has been causing you various sleepless nights due to a contract with your largest wholesale client, which stipulates that price increases must be announced at least 120 days in advance. 3C contains two higher-cost components Kenya and Sumatra that have become significantly more expensive. Due to the recent cost increases, your gross profit margin for 3C has decreased markedly. Despite the challenging market conditions, how can you stay ahead of the competition? Of course you feel hesitant to cheapen the blend, and you re weighing all possible alternatives. The only option you see is to redesign the blend with the lowest possible impact on the flavor profile but with the objective to reduce the cost of the blend. You simply see no other alternative than to replace some of the high-cost components with more reasonable-cost beans. What steps should you follow, and how can you strategize this important process? continued on page 38 January February

3 Yikes, Those Prices! Creative Coffee Blending Strategies to Deal with Higher Costs (continued) This scenario has probably repeated itself many times during the past 12 months. Around the world, coffee roasters have been confronted with unprecedented increases in coffee costs. Ultimately, the sustainability of the coffee business is determined by its profitability, and it s no secret that many companies have been confronted with a situation they simply didn t prepare for. To make matters worse, the ongoing financial crisis has made access to credit lines much more challenging. Coffee importers have become extremely careful about extending credit terms to roasters, along with reducing the amount of inventory at immediate availability. Purchasing the same amount of green beans now versus two years ago can require twice the cash on hand, which is a daunting challenge to most companies in this industry, no matter what their size. The challenging economic landscape also has an impact on the buying behavior of restaurants and cafes. Price points have become more important, and the level of competition between roasters has increased. In current times, coffee roasters must be able to react swiftly on sudden and major increases in the cost of goods sold. Overall, specialty coffee sales are driven by the supply of coffee varietals and blends. Blends have traditionally existed for two key reasons. First, blends allow the company to create a level of uniqueness in a highly differentiated specialty marketplace. The composition of the different components in the blend ultimately create endless possible 1/4 page Vert Descamex PU /4 page Vert Motex PU roast

4 unique flavor profiles. Second, blends can provide your company a tool of risk management. Obviously, this aspect of blending has become much more important and relevant than ever before. If the price of one blend component increases sharply or if one specific coffee type becomes unavailable, then the melangeur (a French term for the person in charge of maintaining blends) will attempt to make adjustments in the blend composition without altering the flavor profile of the end result. One of the most revered and traditional blends in the specialty industry, the Mocha Java blend, has this wonderful aura of a perfect marriage between two fascinating, distant worlds: the exotic, tropical island of Java (Indonesia) and the mystic, tribal Yemen, which when combined form a compelling and indulging flavor experience between the taste attributes of fruity sweetness and savory chocolate, and a rich mouthfeel followed by a long, lingering aftertaste. Despite the romantic image of this blend, it s a public secret that the majority of all roasters will rely on different coffee origins than the two mentioned to fulfill the promises of the Mocha Java flavor experience. In most cases, the reason is all about the cost involved in obtaining the traditional washed Java beans and the sun-dried, natural Yemen coffee. (Another reason to use various different coffee in Mocha Java is for uniqueness and individual characters. Not all roasters want to use the same components as their competitors.) Traditionally, the availability of both coffee types has been limited, and the price levels can be significantly higher than the substitute coffee types that are often chosen to replace them. Instead of the Yemen mocha beans, roasters will select an Ethiopia washed or sun-dried coffee; to replace the Java component, a clean-tasting Indonesian bean (Sumatra, Bali or Sulawesi) will be selected. With the changing landscape of green coffee costs, roasters can be quite inventive when it comes to assembling the flavor profile of their blends, specifically when the blend is designed for a customer base that tends to be price conscious. Blending Exercise with the 3C (Three Continents) Coffee Blend OK, let s go back to the case study described at the beginning of this article. The case itself is imaginary, but the story describes today s reality. To illustrate the challenge that roasters face, we decided to create an original 3C blend and then attempted to replicate it using different coffee types. For the design of our original 3C blend, we started with three coffee types, donated by Bird Rock Coffee Roasters in La Jolla, Calif. (Roast s 2012 Micro Roaster of the Year). continued on page 40 1/4 page Vert Cablevey New, to come 1/4 page Vert Toddy New, to come January February

5 Yikes, Those Prices! Creative Coffee Blending Strategies to Deal with Higher Costs (continued) The components of the original 3C blend are shown in Table 1. We decided to use the following three coffees to design a so-called tension blend : The Kenya Giakanja (winey acidity) and Sumatra Lake Tawar (clean, earthy body) act as balancing counter parts and the Guatemala Finca Santa Ana acts as a bridge unifying the high bright notes of the Kenya with the low peat moss flavor notes of the Sumatra by connecting these flavors thorough a rich, chocolate flavor tone. After various trials, our panel composed the initial 3C blend, which was preferred by the cuppers for the bright, winey sweetness, medium-intense chocolate tones with a subtle floral aftertaste and a slightly drying endnote. Our panel rated the blend at a SCAA cupping score of 87 to 88 points, which is really good. Picture A shows the recipe of this blend and also the cost profile. We sourced three additional coffee types with the objective TABLE 1 d Sumatra Lake Tawar Grade 1 DP (Double-picked) Tobacco, clean earthy aroma Full-bodied, sweet Hint of cherries, grapefruit, chocolate and peat moss aftertast d Kenya Giakanja AA Winey notes with honey, grapefruit and bright red fruit Smooth, mellow acidity d Guatemala Finca Santa Ana SHB EP Chocolate, spice and dried fruit Sweet with sturdy medium acid undertone PICTURE A 1/2 page Horiz Unspecified 40 roast

6 to design a blending experiment to identify the possibilities and feasibility of designing a new 3C blend and to replace some of the more expensive components with less costly ingredients. The three coffees that were sourced are described in Table 2. Picture B shows all six coffees and the cost per pound to produce the roasted components with the degree of roast (Agtron scale, beans). This cost includes the transport of the green beans from the importer to the roaster s warehouse, the shrinkage (between percent at a lighter roast degree between Agtron 52 and 58), the cost of energy, the labor for roasting and an allowance for packaging materials. At the time of procurement, the green coffee types that are listed were contracted while the New York C prices fluctuated between $2.48 and $2.74. continued on page 42 TABLE 2 d Kenya Ruthagati AA Medium intense body, green apple acidity Mild heirloom tomato finish d Brazil Pulped Natural Yellow Bourbon NY 2 screen 17/18 Chocolate, dried fruit and slightly dry finish Sweet d Ethiopia Washed Sidama Grade 2 Bright, snappy tartaric acidity Honey, melon syrupy mouthfeel PICTURE B 1/2 page Horiz Java Jacket January February

7 Yikes, Those Prices! Coffee Blending (continued) 1/4 page Vert Espresso Parts NW New, in 1/8 page Horiz Roaster Dynamics PU Remember the scenario: you are locked into a fixed sales price for at least 120 days, and you have decided to re-engineer the blend with the least noticeable consequences for the final flavor profile and with the basic task to reduce the cost by at least 10 percent. How can you strategize this process? Some folks wonder if consumers will really notice changes in blends and variations in quality. In my opinion, consumers are sensitive to changes in blends. They are not always confident enough to express their flavor impressions, but consumers have the discriminate sense to identify a difference between the new versus the old blend. In their own kitchen or living room, with their own well-trusted brewing device and the accommodating brewing rituals, consumers can be very quality conscious. If the difference exceeds a certain threshold, then consumers might get testy and suspect that the roaster is not on top of its quality game, and the consequences could be detrimental. In the case of 3C, the three substitute coffee types were less expensive but not necessarily chosen to cheapen the blend. The Kenya Ruthagati happened to be less pricey and the flavor profile was not as complex as the Giakanja, but nevertheless, we felt that the coffee came at an excellent value. The original Kenya coffee had more distinct winey notes with a softer, balancing sweetness, while the replacement Kenya had a more distinct acidity. This case proofs that it often makes sense to shop around between different importers and compare flavor profiles during blind cupping sessions. The Brazil pulped natural was chosen specifically for its fantastic sweetness and the dried fruit complexity, which as we hoped would compensate well for the partial substitution of the Sumatra beans. Finally, the Ethiopia washed Sidama Grade 2: This East-African coffee might not be as stellar as the original Kenyan Giancara, but it would help to add brightness and clarity to the blend. And, of course, there is a hallmark feature of Ethiopian coffees: the lingering sweetness. Both the Brazil and the Ethiopian coffee proved to bring substantial benefits in the cost profile of the new, optional blends. Further on in this article, we will discuss the results of our efforts. For the cupping trials described in this article, we consulted our in-house panel of three certified Q-graders in conjunction with a panel of six apprentice cuppers who helped us validate the conclusions. Perspectives from roasters and retailers 1/8 page Horiz House ad, your choice! The practice of blending and the resulting cost consequences can stir up quite a conversation with roasting companies and retailers. Obviously, the volatile coffee market has contributed to this acute awareness in the industry. Vincent Iatesta, founder and CEO of Ceremony Coffee Roasters in Annapolis, Md., recalled his own experiences of the past year. We had to face some major challenges trying to contain our prices without allowing the cost taking over, he says. Some of our blends contain more expensive varietals, which gave us various difficult hours of decision making in the process of reengineering our blend repertoire. With 42 roast

8 How Do I Protect Myself? Substituting a more expensive coffee type with a less costly one is not always the preferred answer when green coffee prices are as volatile as we have experienced lately. Some coffees are simply very hard to replace. Nevertheless, many roasters have found successful ways of dealing with the substantial price hikes of Colombian coffee beans by procuring coffee lots with comparable flavor profiles from countries like Honduras and Nicaragua. Contracting coffees father in advance (forward contracting) can help you mitigate the major price volatility that we have seen so far. In this case, the roaster commits to buying a certain amount of coffee at a certain differential price by a certain date from usually an importer. During the time period leading up to the delivery date, the roaster has the right to fix the price of the coffee against the prevailing New York C price level. The price-fixing option provides the roaster the ability to choose a suitable date and price level that will work within the cost budget of the roaster. Forward contracting should not be used for the purpose of speculation; this puts the roasting company in an unnecessary risky position if prices change in a reverse direction. Coffee roasters with more financial leverage can hedge their green coffee positions by opening a futures account with an accredited commodity brokerage firm. Price changes of the green coffee positions can be offset by value gains or losses in the futures account. certain blends, we simply will not compromise. Take, for example, our top-tier espresso blends; we introduced price increases to prorate the cost differences. For the house blend, we found really good substitutions. Sumatran and certain African coffees are very challenging to replace, but some of these coffees have simply become too pricey for some of our clientele. Brooke McDonnell, co-founder of Equator Coffee in San Rafael, Calif., also shared her experiences with blending during the past year. One of our biggest clients is responsible for almost 10 percent of our sales, she says. They had been hit hard by the economy and demanded a lower price. We had to think twice if we could go along with this request. In the end, raising prices rather than reducing them has been the answer, and, at the same time, we have been strengthening our direct relationships with certain key suppliers in order to control cost. According to the folks at Ceremony Coffee, dark-roasted blends offer better opportunities for substituting certain components without jeopardizing the integrity of the flavor profile of the blend. Iatesta explains, Last year we spent a lot of time maintaining certain price ranges for our blends. We managed partially by stocking up in the dips of the market. The best-valued coffees are from the Americas: countries like Nicaragua and Honduras. In the case of Equator Coffee, Brazil pulped naturals proved to be suitable for controlling the cost and maintaining the quality of espresso blends due to the sweetness of these Brazils and their affordability. For Ceremony Coffee, a bean from Guatemala offered sweetness with a buttery body, which made this coffee 1/6 page Horiz Bag Broker PU /6 page Horiz Coffee Shrub New, to come 1/6 page Horiz House continued on page 44 January February

9 Yikes, Those Prices! Creative Coffee Blending Strategies to Deal with Higher Costs (continued) quite suitable as a partial replacement for a more expensive and less available Panama coffee. The same Guatemala contained sufficient acidity to substitute a portion of an East African component in a different blend. How can roasters successfully mitigate the volatility of the coffee markets? Says McDonnell: The aspect of trust is key with direct-trade suppliers. We successfully developed a multi-year relationship with El Batan cooperative near Lojas, Ecuador. As part of our relationship, they created a list with investment options for the credit and we arranged micro credits for infrastructural allocations like the establishment of a new cupping laboratory and the planting of additional coffee trees. The coffee from El Batan is ideal for blending. It grows at a very high altitude and is a great stand-alone coffee. Finding Optional Recipes for the 3C Blend After various hours of tasting, blending, refining and evaluating again, our panel accomplished to develop two suitable options for the replacement of the original 3C blend. From the start of this case OptioNAL BLENDS study, we attempted to keep the impact on the original flavor profile as low as possible. Option A features a substitute for the high note Kenya component (replaced by the Ethiopian Sidama) and a substitute for the low note Sumatra, which has been partially replaced by the Brazil pulped natural. Option B features a substitute for the original Kenya Giancara, which was partially replaced by the Ruthagati. In addition, the Ethiopia Sidama enhances the acidity, while the Brazil pulped natural adds additional body. The assessment of the blends was done in various stages. First, all six components were cupped separately during a blind cupping session. This gave us the possibility to outline the distinct flavor attributes. Second, the panel created virtual blends by visualizing which flavor attributes could be created by making certain combinations between the individual components. Next came the tasting of eight twocomponent blends to assess how the virtual blends were holding up. Finally, we compared four final blends during another blind cupping session. The two optional blends (A and B) were the result of all this diligent work. The panel s conclusion about Option A versus B included some interesting taste notes. Option A was preferred by the panel for the superior sweetness and better mouthfeel. The bright winey notes of the original blend were not as noticeable. Instead, Option A displayed more structure in the base flavor notes with a lingering acidity, which appeared to resonate in different layers. Option B was not preferred due to the slightly thin body and the less distinct sweetness in the aftertaste. This came as a surprise to the panel, since we actually used an excellent Kenya bean (Ruthagati AA) for this blend. The substitute Kenya component lacked the intensity and the structure in the acidity to create a favorable flavor impression. Overall we can conclude that we succeeded in reducing the cost of the 3C blend significantly without most likely upsetting any of our customers. The methodology we applied relies heavily on strict cupping protocols and, most important, the roasting procedures were done diligently. Ideally, roasters should use strict standards to repeat consistent time/temperature profiles and to compare roasting colors by measuring the roast degree. It is also recommended to utilize professional brewing machines in order to prepare the blends as closely as possible according to the conditions of the final user or consumer. Some additional tips for the possible substitution of any of the mentioned coffee types: Guatemala Finca Santa Ana. This coffee farm sits high in the Sierra de Las Minas mountain range, in Guatemala s eastern highlands. The conditions resemble those of the Peruvian North Eastern Amazon area (Huallaga Valley). Most likely, a Peruvian bean would offer the best chance to replace this Guatemalan component. Alternatively, try a wet processed Mexican Chiapas coffee and look for a bean with sufficient body. Sumatra Lake Tawar. Obviously, other Sumatran types (e.g. Blue Batak) could do the job of replacing this unique coffee. Outside Sumatra, Sulawesi or Papua New Guinea comes to mind. Roasters will have a hard time, though, replacing the clean, earthy notes. Perhaps a well-processed Indian coffee would do the job. 44 roast

10 Kenya Giakanja AA. These SL28 and SL34 bourbon varieties are difficult to replace. In our experiment, we had some success with the Ethiopia Sidama Grade 2 but, after the fact, we realized that we should have tried some of the new Ethiopian washed coffees from the Western areas in the birthplace of coffee. For example, the Ethiopian washed Lekempti coffees could offer excellent alternatives. Alternatively, some fine coffees from Malawi or Tanzania could offer excellent solutions. Some helpful final words about blending strategies and how to successfully develop new products inhouse with your own staff and possibly involving key clients comes from a melangeur from The Netherlands, Kees Kraakman, who has been working in the coffee industry for more than 10 years. During that time, he has been involved in various extensive blending initiatives. He recalls his experiences at The Espressofabriek in Amsterdam: The re-design of our house blend started by tasting and documenting the attributes of a series of single origin coffees. Subsequently we designed on paper a large number of feasible blend combinations, and we reviewed through visualization these resulting flavor profiles. Finally, by tasting a selection of recipes, we found our preferred House Blend and we also created two new blends: 21:16 (creamy, caramel with dark chocolate) and R2D2 (vibrant lemon and ripe pineapple). In the end, the project proved to be a perfect teambuilding effort; now we re proud to have our own blends. Truth be told, the specialty coffee industry has become a bit more challenging lately, but with the right amount of creativity and out-of-the-box thinking, it s definitely feasible to develop cutting-edge blends and exciting new products. 1/6 page Vert 1/6 page Vert Coffee Network Shore Sales PU New, in 1/3 page Horiz Kau Coffee Festival Willem Boot is president of Boot Coffee Consulting & Training, a company specializing in product development for roasting companies, hands-on training courses for specialty roasters and strategic marketing programs for producing countries. He can be reached at willemboot@ bootcoffee.com or at January February