The State and Future of the Business of Coffee | Re:co Symposium 2018

This is the opening panel of the “The State and Future of the Business of Coffee”, a session at Re:co Symposium this year. This session gathered business leaders in Specialty Coffee to discuss the ways that the specialty coffee trade has changed in the past decade, the challenges businesses face today, and how we might prepare for the future.

To open this session, we were pleased to welcome our panel of guests: Nicholas Cho, Co-Founder and Head Barista of Wrecking Ball Coffee Roasters; Tracy Ging, Chief Commercial Officer and SVP at S&D Coffee and Tea; Josh Owen, President of Revelator Coffee Company; Teresa von Fuchs, Head of Sales at Bellwether Coffee; and Dan McCloskey, Founder and Chief Creative officer at Premium Quality Consulting.

Led by Nicholas Cho, the panel took the stage at Re:co Symposium to debate and discuss an important question: are we in a specialty coffee roaster bubble?

Special Thanks to Toddy

This talk from Re:co Seattle is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

Full Transcript

0:00 Introduction

James Harper: Hello everybody, you’re listening to the Re:co podcast, a special episode of the SCA podcast. I’m James Harper, filling in for Peter Giuliano for this episode. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. You can find videos of these talks on our YouTube channel – just follow the link in the show notes.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

I want to give you a head’s up that the Re:co Symposium and the Specialty Coffee Expo are coming to Boston this April. To learn more or to purchase tickets, visit recosymposium.org.

Over the next few three weeks, we’ll be releasing episodes from “The State and Future of the Business of Coffee”, a session at Re:co Symposium last April this year. This session gathered business leaders in Specialty Coffee to discuss the ways that the specialty coffee trade has changed in the past decade, the challenges businesses face today, and how we might prepare for the future.

On this episode of the Re:co Podcast, we are pleased to welcome the guests on the first panel of “The State and Future of the Business of Coffee”: Nicholas Cho, Co-Founder and Head Barista of Wrecking Ball Coffee Roasters; Tracy Ging, Chief Commercial Officer and SVP at S&D Coffee and Tea; Josh Owen, President of Revelator Coffee Company; Teresa von Fuchs, Head of Sales at Bellwether Coffee; and Dan McCloskey, Founder and Chief Creative officer at Premium Quality Consulting.

Also, to help you follow along in this podcast, I will chime in occasionally to explain who’s talking. It turned out to be a very lively discussion so you will hear me introduce the panelists just once in order to keep the flow of the conversation going.

Led by Nicholas Cho, the panel took the stage at Re:co Symposium to debate and discuss an important question: are we in a specialty coffee roaster bubble? Let’s hear what they have to say.

3:00 Introduction by Nicholas Cho

Nick Cho: Good to see everyone. My name is Nicholas Cho. I’m co-founder and co-CEO of Wrecking Ball Coffee Roasters in San Francisco. I’ll be guiding you through the final session of this Re:co Symposium. This session is titled “the state and future of the business of coffee.”

Well what’s business? Isn’t this all about business? What do we mean by business? So for this session, we’re going to focus on consumer businesses. Both as specialty coffee retail and as roasting companies.

After all, in the big money pyramid that is the business of coffee, consumers are the big base, right? The dollars that drive everything upstream. Which is another way of saying when we say the specialty segment of the U.S. coffee market is worth over $26 billion dollars or more per year, those dollars are consumer dollars.

So we’re going to divide this session into three parts. We’ll begin with a little debate. Well, more like a little discussion. We’re going to ask a question: are we in a specialty coffee roaster bubble? And four accomplished specialty coffee industry leaders will join me here on stage to delve into that question, pick it apart. Along the way we’re going to find out what you, the audience, thinks about it, too. Then we’ll invite Jan Anderson to the Re:co stage. Jan is a specialty coffee business consultant and she’ll share with us her research into the future of specialty coffee consumption, particularly looking at what we might expect to see from the up-and-coming coffee consumers. Everyone here has heard of Millennials, right? So we had Baby Boomers and Generation X, Millennials. Who can tell me what the generation is that comes after Millennials, what it’s called? Z! Generation Z. So I can’t wait to hear, as a parent of two generations Z girls, Jan tell me about what coffee I’m gonna be buying for my girls for the next 10 years or if they’re going to be drinking coffee at all.

And then finally, we’re going to invite three special folks to the Re:co stage and will take much of what we’ve heard, discussed over the past couple of days, we’re looking at solutions to the way that specialty coffee businesses because can move forward in the next few years and beyond.

We’re going to hear about three retail businesses that are already doing a lot of that work today. And we’ll hear about it by meeting these three dynamic founders.

So as our first group of coffee leaders comes up on stage. And as this is the, of course, being the 10th Re:co Symposium, we wanted to start this session with a question that would have us reflecting on the past 10 years of our industry. But that’s ultimately about describing what’s happening now and in the near future. Specialty coffee has been a term that’s been with us for a few decades now, but it’s really coming into its own over the past 15 years or so.

As we’ve seen a proliferation of specialty coffee roasting companies that display all the hallmarks that we expect to see these days from a third wave coffee company. Certain sort of design aesthetic, certain way that we talk about coffee, a fairly wide range of flavor profiles, of the experiences that we offer and so on.

So in an age where so much of our focus has been to re-educate our coffee consuming public, to accept and embrace our new point of view about what coffee can be, we find ourselves in a situation where certain markets, certainly the market where I live in San Francisco, specialty coffee can feel really crowded. So many players. Let’s name them all like Pete’s, Equator, Blue Bottle, Ritual, Sight Glass, my company Wrecking Ball, Red Bay Coffee, Saint Frank, Mr. Espresso,Phil’s, many others I haven’t mentioned and many I won’t mention for reasons….

Anyway, the San Francisco coffee roasting community is really crowded. And yet I’m hearing about even more new specialty roasters that are about to start right now in San Francisco. What’s happening? Why is this happening? A market bubble – while it’s definition is something that we’re going to get into in a moment – can Loosely be defined as a market condition for which a rapid and significant market correction is imminent. Like I said, we’ll talk about it some more.

We all remember the American Real Estate bubble from a few years ago, from 10 years ago actually. The Dot Com Bubble was the thing about 10 years before that. In both instances, we all look back with the benefit of hindsight and we see all the signs of what was going to happen.

So while our current specialty coffee market at the roasting and retail level are small compared to those market bubbles were, it really is a big deal for us in this room. So while you may have never asked yourself this question before, let’s take this opportunity to ask ourselves this question now.

Are we in a specialty coffee roaster bubble? So let’s really ask it now. Like really really ask it and an answer it. So what we’re going to do is we’re going to go ahead and poll the audience and you’re going to select yes or no now, and then at the end of the debate or discussion, we’ll take another poll and see if your feelings have changed, if at all.

Okay. So joining me in this discussion are four leaders of our specialty coffee industry. First, she’s the Chief Commercial Officer and Senior Vice President at S&D Coffee. Round of applause for Tracy Ging. Next to Tracy, is the Founder and President of Revelator Coffee, Joshua Owen. Teresa Von Fuchs is the Head of Sales at Bellwether Coffee. And finally, Dan McCloskey is the Founder and Chief Creative Officer at Premium-Quality Consulting.

8:30 Panelists’ thoughts on what do we mean when we say “specialty coffee bubble?”

Nick Cho: So Dan, let’s kick it off with you. So when we say “bubble, a specialty coffee roaster bubble,” like what do we mean by bubble?

Dan McCloskey: You pointed out that it means that it’s begging a correction. But I think the other part of the definition of a bubble is that it’s when the value of something is highly overvalued above its intrinsic value. And so the question I think, if we use the term bubble, is “is coffee overvalued in that way?”

And I think the quick answer is “no.” I think what we’ve learned from the session so far is, if anything, it’s undervalued. There might be a question of whether particular brands are overvalued – that could be true in different places. But I really think what we mean when we say a roaster bubble and we start to talk about that, we’re talking about saturation of the market place. You were just alluding to that in the opening.

And our company thinks about brands, we count brands and we think about them all the time. And there may be some evidence to suggest that there is an oversaturation that may have happened. We have counted in the last 10 years an increase in the number of brands per year that have been found – it’s actually about 70 per year. We’ve counted 619 new brands since 2008. So about 70 or so a year. That’s a doubling from our data per year of brands before 2008. So there was absolutely an increase. We dub this “the tidal wave” and we think it’s an increase.

And actually, we see that almost exactly two-thirds of those brands exhibit what we would call “third wave characteristics,” which we measure and talk about. So one might really feel that there is a saturation happening.

While doing some homework – and I don’t know if you have the slide available – but while doing some homework I found this article from my hometown of Chicago talking about – from Cranes, a very good business magazine – talking about the local anxiety of coffee producers and analysts about the market. You can see some of the things that they’re saying that the hard times are going to come and the danger of this thing is saturation and there are only so many neighborhoods.

The funny thing is that this is from 1994, this article. This is from a first online edition of Cranes Magazine. And personally, it’s the year I started in coffee and really, the link is there and I’m sure you guys can find it. But they really get it wrong and they got it wrong in 1994. One can absolutely understand their anxiety. Lots of people were entering the marketplace. It certainly seemed like there wasn’t any space, that there were only so many educated urban coffee drinkers. But they totally missed what was going to happen. I mean, I missed what was going to happen in terms of the Third Wave.

And I mean most of the companies that are in the article are no longer in business. Some of the consultants are no longer in business. So I take that as a personal warning. But anyway.

But so I think it’s interesting. So I think the point is: to answer your question “what do we mean?” I think we mean saturation and then the real question is: “is there saturation?” And I think that’s what we’re going to talk a little bit more about now, right?

Nick Cho: Most definitely. Tracy, why does this matter? Like why should anyone care?

Tracy Ging: Well, I have a different take on what I think the bubble is. And so I think there are markets where saturation is happening. But I think the bubble is more around a style of doing business. I think that the two-thirds of brands that are showing third wave characteristics, I think that refers to a particular style of doing business that’s going to get very pressured in this new environment.

So there’s no doubt that there’s low barriers to entry, we’re going to see a lot of roasters continue to come on, big roasters are entering the space. Big brands that have never been into coffee are entering the space. You’ve got people like Amazon that are poised to disrupt. You’ve got other technology that’s poisonous to disrupt. So when I look at that term “bubble,” I think about it as “are we detached from reality?” And I think that we are in a bubble because I think that the style of specialty coffee roasters that has been successful or popularized to date probably isn’t going to work in this new market environment.

And I think what’s going to get corrected is that the reality of what we think is going to be successful is not going to be based on what was successful in the past.

Dan McCloskey: Yeah. I just would add I feel like there’s a Third Wave user manual that’s been shared and it’s quite easy too….

Nick Cho: It’s like an Ikea manual. Comes with a little wrench.

Josh, so Revelator’s been around for five years now. You’re growing in the southeast part of the United States. A lot of your growth has come through mergers with other companies. Sometimes who are struggling a little bit, and with the injection of some capital and some business know-how, be able to grow in that way.

So what are you seeing out there as you’re growing Revelator?

Josh Owen: I think I would echo what Tracy said, which is it’s not about oversaturation in this absolute sense. It’s about oversaturation in this relative sense. That there’s too many people trying to do exactly the same thing. And this is a moment where, as we talked about in the previous panel, innovation really matters.

And and yeah, I think in the Southeast – which is a region where specialty coffee and third wave coffee maybe came a little bit later in some of these cities than it did where you’re from – we’re seeing people using that manual over and over and doing the same thing over and over.

And yeah, it’s ripe for Innovation.

Nick Cho: Yeah, Theresa, so Bellwether Coffee, we had Arno up here earlier. Bellwether’s counting on not being a bubble. Maybe in an in innovative sort of way. So what are you seeing out there?

Teresa von Fuchs: Well, I feel like, again, we’re talking about the definition of terms, right? So even when we talk about market saturation, are we talking about retail spaces that are following this Ikea manual? Or we talking about the roaster business model? Because I think the roaster business mode is what we’ve definitely seen changing, right? If you thought that you were going to invest in infrastructure, pay the bunch of money for this thing, have your cool cafe and then also sell a bunch of wholesale to every cafe around you, that model has definitely changed over the last couple of years.

But what we see, what I feel like we all see, is that that’s not happening because people are greedy or feel like they just downloaded a playbook and are going to go win. It’s happening because there’s this real engine of enthusiasm, like people have broken supply chains and really good things – way outside the economic sense, right? – in order to have access to coffee and roasting.

People do it when it doesn’t make sense for their business because they love it and they want to do it. And I think when you watch people making those kinds of decisions around the things that they really love, yes, some businesses will fail – we’ve all been to great restaurants that didn’t last.

But I also think that there’s more to it that we could do to support that engine of enthusiasm rather than whine about how it’s affecting our business model.

16:15 Is passion driving people starting to start businesses? And discussion around the viability of the specialty wholesale roasting model.

Nick Cho: Is it? But people love coffee. I hear you and for a long time like the buzzword was “passion.” Passion for coffee, passion for a lot of stuff.

Is that really what’s driving people starting businesses?

Teresa von Fuchs: I think that there’s a difference between people starting businesses and people who have been in business, fell in love with the thing and then want to take their craft to the next level. And I feel like when we talk, we’re asking a specific question about a roaster bubble, right? And when you look at the people that are getting into roasting now, they’re not all brand new businesses. It’s a lot of people who’ve had cafes, understand the business model of coffee and want to take this next step for their passion or their knowledge base.

One interesting thing we hear a lot – as I talk to a lot of people about and want to start roasting – is that they want opportunities for their staff. And I think that that is a great reason to expand what you do in your business.

Nick Cho: Right, but then let’s say you’re a cafe and you weren’t roasting coffee before and you start to – and we’ll get a little bit into why we put roaster into this question and didn’t leave it out and just say specialty coffee – but so your cafe decided to start roasting and you build into your plan “well, we’ll roast for ourselves and then we’ll get some wholesale.”

And I think that last little part has been automatic in our industry for a while and now, I see it over and over again, many friends opening roasting companies and then getting started with certain assumptions in mind. And then all of a sudden they’re just like “no one wants to buy our coffee.” Because there’s all these other people out there,

Josh Owen: there’s the business promise is what they’re running into.

Teresa von Fuchs: That’s the learning curve of new business.

Tracy Ging: I mean, I think one of the things that really struck me from yesterday was Andrea Illy showing the retail dollar value growth versus the actual consumption growth. So the consumption growth wasn’t that impressive but the retail value grew quite a lot. And if you look at what’s underneath that, a lot of that is not coffee. It’s not the bean. It’s the delivery mechanism. It’s single-cup systems. It’s other forms.

Differentiation really happens through the delivery, through consumer products. There’s less and less opportunity for differentiation at the bean level. And I think what was even more troubling about is that – we heard all day yesterday – dollar value growth isn’t getting shared with the farmer. And we heard Alejandro say, “it’s just not in my economic interests to keep following every whim of every little micro rooster that comes down to visit.”

And so that piece has to get corrected if we’re going to keep struggling with differentiating the bean – that’s where this wholesale model is going to get really tough.

Teresa von Fuchs: I see it in the retail model too. Like, I’ve actually been talking to a lot of retail cafes that know that there’s no opportunity for wholesale. They don’t want to do that and they’re not necessarily even getting into roasting for this romanticism of sourcing. That was honestly one of my first fears when I was first talking about Bellweather. I was like, “oh great. I’m going to empower a bunch more people to go down and bother farmers and get in their way.”

But that’s actually not necessarily like the movement. It’s the same way that we took brewing and espresso preparation to this craft, people want to apply that to roasting. And for that I feel like we should give them better tools.

Nick Cho: And so while not wanting to cross over into the infomercial level, so how would the Bellwether’s type product like disrupt that?

Teresa von Fuchs: In the simple way, we really tried to make roasting more accessible. So from an economic standpoint, but also from a usability standpoint, Arno talked a lot about that. But also this idea of, like we don’t have great tools for roasting. Super sorry other roaster manufacturers out there, right, but it’s not been a space we’ve innovated in the last 10 years.

Nick Cho: People are usually going to a vintage roaster not necessarily like a new roaster.

Teresa von Fuchs: And there has definitely been new roasters and new upgrades to the same basic concept of the technology, right. But we’ve been having great conversations about brewing preparation and sourcing for last 10 years, but we’re not looking at one other fundamental piece. And that’s really what Bellwether tried to do. It’s ventless and electrical and we’ll talk about it later.

Tracy Ging: And the customer. We’ve been having great conversations about roasting and sourcing and brewing and the equipment and the customer’s been largely absent, the coffee drinker.

And I think that’s one of the things too that I think is going to challenge this style of specialty coffee roasting that the manual depicts is, is that we keep defining quality and very nuanced, almost nerd terms that we know aren’t translating to the coffee drinker.

It’s not that it’s not important. It’s not that that shouldn’t still be a pillar of specialty coffee. But the grind particle… I mean, it’s getting lost on [them]. We’re losing and alienating coffee drinkers in that process.

And when you really start to look at what defines quality from a consumer mindset, it’s other cues. It’s like freshness. It’s like service. It’s like being welcomed. Sustainability has an amazing halo over the perception of quality in the consumer’s mindset. So we’re going to have to get much broader and how we define quality.

Teresa von Fuchs: But this speaks to the whole idea about saturation. I think it’s a good opportunity, right? Competition is going to force smaller businesses to innovate and make themselves differentiated. Right? We all say the same things about our business models.

21:30 A discussion on the opportunities for differentiation in the specialty coffee retail market.

Nick Cho: Let’s talk about that. Let’s unpack that a little bit more, that idea of differentiation. Because this makes me think about when I started in specialty coffee, as opening a little coffee shop in Washington DC in the beginning of 2002. And when we did that, we were the first – no one had ever seen latte art before, no one had ever seen single origin stuff before. We were doing – as the kids like to say – we’re blowing minds left and right.

And fast-forward to today in San Francisco. And yeah, a lot of us – again speaking about the Bay Area – a lot of us are sourcing coffee from the same importers. Very often I hear a lot about in the Seattle area, for instance like great importers like Atlas. It’s like, oh like every little roaster has the same coffees from Atlas and from the other other places.

So we’ve been talking about differentiation as a solution to maybe things getting crowded. But let’s talk about like that crowdedness. Like what is it that we’re seeing over and over again? Like what are some of those things, still sticking with a problem a little bit more.

Teresa von Fuchs: Everyone here bringing up sourcing right? Everyone talks about how they source coffee, but they all do it the same way. We’re not talking about the craft of roasting.

Nick Cho: We’re more direct-er than the other …Like, you like direct trade and now we’ve got direct-er trade.

Dan McCloskey: I think in some concentrated places, it’s a real problem.

Teresa von Fuchs: I would say it’s a real opportunity.

Dan McCloskey: Yeah. Well, but I would say in Logan Square, where I live in Chicago, you shouldn’t open a coffee brand there.

Teresa von Fuchs: Or do it better.

Dan McCloskey: Well, if you can do it better that’s fine. Maybe you should buy one that’s not doing so well and make it better. But there are places where latte art is going where it’s a huge opportunity. I mean Arno used the word “democratization of coffee” and maybe I’m derailing your intention here, but we see the playbook, but it’s going to places where they haven’t had a really cool upscale coffee.

I was talking to a guy who owns a really cool roaster in Rockford, Illinois, which is a little town. Beaumont Texas. So there’s places for it to go. So, I think there’s a lot of room for the democratization, of the spread of this form. Maybe not in San Francisco or Chicago or Williamsburg.

Josh Owen: Even then, though, I think the conversation – and this is a funny thing to say to this room – but it continues to be too much about product. That you’ve had years and years of fighting to make the product itself better and it’s gotten to a point that it’s good enough for most consumers and they don’t actually care if it gets any better.

And so the conversation has got a shift towards this broader experience and how do we give them a better experience and not just a better cup of coffee? Because for most consumers they can get a good cup of coffee that they’re happy with.

Tracy Ging: I was just going to comment that I don’t quite buy into – I’m not saying that there’s no space left anywhere – but I don’t quite buy into there’s some pockets in Bozeman that you can still go to because…

This is where I think that the consolidation the larger brands, Amazon, distribution strengthening. I think that’s where it’s going to really play out, where they’re going to figure out how to get really good coffee into those further reaches.

And so I think I would I think I would really challenge that that’s going to be a shielded model. I still think you’re going to have to look at the playbook and anticipate some different plays.

Dan McCloskey: So what I think is that I look at the restaurant business. I was talking to someone and they were saying that they don’t admit that we’re part of the restaurant business, we’re in the restaurant business. And I agree with that in the sense that I think that the restaurant business is a diverse business, and I think where you get to in the restaurant business – and just speaking about the United States now – is you finally find ourselves in a place where even in small towns, that didn’t have great food necessarily, you have great food, but you also have corporate food. You have Olive Garden and you have a restaurant makes upscale Italian food. And they live they live together. Right?

Nick Cho: They do for now. But we hear about Olive Garden and companies like that on the decline, right?

Dan McCloskey: I guess I’m just saying like in terms of like the threat of consolidation – and Tracy I’m not sure this is exactly what you’re saying – but the threat of consolidation taking over the artisanal or the craft. I’m not worried about that either, because I think that there’s an opportunity for both to live together

Josh Owen: particularly we’re at this moment where yeah, there’s all this consolidation happening, but you’ve also got all this data that says consumers really want local business. And so yeah, it’s going to be Amazon who’s going to get the product into people’s homes in some of these smaller markets, but there’s still a lot of room to have a local business that people can actually engage with and be part of the community.

And that’s really important.

Teresa von Fuchs: Especially when we make an effort to open businesses that are contributing to our communities. Right? Like when you don’t just open a cafe in Bozeman because you’re like “I hear rent’s cheap there.” You open a cafe in Bozeman because you live in Bozeman and you want a fantastic community space, right? And then you should develop that, rather than on the playbook. Ideally, it’s great to watch people build those businesses based on the needs in their actual communities.

Nick Cho: Sometimes that community space is like that third place thing that we all know and love about. The place is important for individuals and it’s like their Cheers Bar, their friends Cafe, like going to the cafe.

But in a way, as much as that concept still exists, at least my experience in San Francisco is, you’ll see people use specialty coffee shops as their third places. Plural. So the four or five places, when I’m in this part of town, I’m near work. There’s a Blue Bottle there. When they’re over here, there’s a Ritual. Whatever, whatever.

Dan McCloskey: If the line’s too long, they just jump over to the next one right?

Teresa von Fuchs: But why is that bad?

28:15 Discussions on whether specialty coffee is in a bubble in the first place.

Nick Cho: Well, I guess the issue again is the crowdedness of the market, right? Whether it’s saturated or not. Where it’s bad is… You want to be able to project growth. And depending on your ambition as a company, then you might need to raise money or ask for loans or things like that.

And so, we’re all here in a way trying to look at that crystal ball, Magic 8 Ball, and see into the future and try to anticipate what’s going on. And so, one of the reasons we brought this question up is: well if the answer is a little bit more on the “yes” side. We need to have our eyes wide open about that and it needs to inform our behaviors.

Tracy Ging: I think one of the things that I’m trying to say… I’m not going to act like Coke and Amazon are going to take over everything. But what I’m not comfortable with, is being in the position of like “yes, there’s still opportunity. Specialty Coffee Roasters, go to the smallest town possible and be the smallest business you can be. So our answer to these changing economics and these changing market forces is just go be small. I don’t like that.

Josh Owen: I think the answer is “go be different.”

Teresa von Fuchs: I don’t think that’s our answer. I think that’s what people are doing. People are still opening small businesses. I have yet to be in a room where people ask themselves “are we at a bakery bubble? Are we in a bagel shop bubble?

Josh Owen: But I do think the answer though is: go be different. Right? It’s you got to go do something different from what other people are doing because there’s too many people trying to do the same thing. And so going to a small town is one answer to that. It’s not the only answer. It’s not the best answer. It’s one avenue where there’s still room to be something different.

But there’s also, I think, room to be something different in San Francisco.

Teresa von Fuchs: Yeah, let’s look at – hate to bring it up on stage – but let’s look at avocado toast. We’re definitely an avocado toast bubble. People definitely still eat avocado toast.

Nick Cho: Well, I mean that’s an interesting segue because avocado toast. There’s no avocado toast plate, right? It’s a thing that is served at a certain place.

Teresa von Fuchs: But one person did it, everyone did it?

Nick Cho: But one of the things that we like to talk about at Re:co Symposium is – and we’ve talked about already on this stage over the past couple of days – is new market opportunities, be them in new demographics or new essentially sales channels and new concepts.

Let’s talk about that a little bit more. Like, so we said differentiation, right? Cold brew, that’s another channel, that’s another place where specialty coffee can go and if you’re a roasting company, it’s another profit center.

Dan McCloskey: But I don’t know if there needs to be something new necessarily. I think innovations that make things easier or that make things cooler or like a new way to play music and you’re like, okay.

But I mean in some ways it’s a simple concept. And I go back to this analogy of the restaurant business: you’re opening a restaurant, maybe you’re going to find a new cuisine that no one in your town has tasted, but probably you’re not. And certainly in some places you’re definitely not.

I think “new” just means doing something a little better, doing something well. And I think there is room in the coffee business for doing things better. In the cafe business for sure. I think that you could critique some of the characteristics of the third wave in ways that I think could be challenged and changed through different business practices.

Josh Owen: I go back to just the supremacy of experience over product. But even as you talked about cold brew, that’s another product conversation.

I think that the most room for innovation in particularly the retail side of the industry, is what experience do we give to the customers who walk in? What customers do we give an experience to at all?

Teresa von Fuchs: Phyllis mentioned that yesterday, like 34 million consumers that we’re probably not reaching.

Josh Owen: Yeah, and that’s where I think there’s a lot of room for Innovation. So it’s not just about “oh go create a new product.” It’s just “give them a different experience from what they’ve had going.”…

Nick Cho: What do you mean by different experience? Like, just to interrupt. For instance, I like to go to Los Angeles. Intelligencia’s Venice Cafe was known, in its heyday especially, and this is a whole different consumer experience. The fact the people who built that shop, they wanted to break up that “you queue up at the register and then you get the coffee from the barista experience.” That didn’t catch on.

Josh Owen: But they tried.

Nick Cho: They did but it didn’t catch on. It’s a successful shop.

Teresa von Fuchs: It didn’t catch on is that shop empty?

Nick Cho: No, I’m saying that trend of trying to be disruptive in that way very often…. I mean when we say something is disruptive, we really mean it’s disruptive and successful. Right? Otherwise, it doesn’t show up on our radar. People been trying different things.

So again, what do we mean by creating new experiences?

Josh Owen: I think so much of it… I mean going back, there’s not really anything new. It’s more about taking different pieces and putting them together in a new way. I can’t answer the big question necessarily. I can tell you what I’m obsessed with Revelator. And that’s about how do you take this local cafe experience and scale that to a larger company? Because there is this craving and communities for genuinely local shops, that are actually part of their communities and put on community events.

And none of the third-wave roasters who’ve gotten to serious scale have done a lot there. So I think there’s room there but that’s just my answer.

34:00 A discussion on whether the future of specialty coffee is becoming more like restaurant businesses?

Nick Cho: So we’ve already said the word restaurant a couple times and I think, it was maybe in our conversation on the phone before where it came up, that there had been this “land grab, gold rush” when it comes to specialty. On the retail side and especially in the established markets that have matured as we know them to be today.

And that one point of view might be “well, what we’ve done is we’ve now become like restaurants.” Because that was actually our destiny, especially in coffee retail. I think we’ve talked about a little bit.

Dan McCloskey: I have a theory of the American marketplace and I talked to some of my European friends and I think that they find it quaint. Because my theory – speaking for just for myself – is that we just didn’t have things in food or in coffee, and we found them now. So now we have coffee. So the land rush was there, Intelligentsia could be new in LA. You could be doing something new. And that’s done now. And I mean, maybe in Bozeman. But now it’s done in Bozeman.

So now it’s about repeating. Because this is a product we repeat every day, and in this wonderful way, and it’s a simple thing that we do to give ourselves pleasure and to make our lives better in that simple way. It’s not something special and new. It is special. It’s two things at the same time.

So that’s why for me, the idea of the restaurant resonates because I feel like in America we finally have a mature restaurant market. I think people in other parts of the world, they’ve had a mature restaurant market for hundreds of years.

Nick Cho: But I guess when we talk about restaurants, I’m sorry I didn’t catch this part, which is the risks that we all hear about, in terms of the failure rate for restaurants.

Dan McCloskey: There’s a myth that 90% of restaurants failing. It’s actually a 26% fail in the first year in the US. It’s a lot. It’s a lousy business. Right? It’s a hard business, but it’s also a business that we all love because we go to them.

Tracy Ging: There’s also the statistic that the average restaurants are only making like 5% profit. So, I mean, I think if the subject is a bubble and we’re orienting towards restaurants than we are orienting towards a very different economic model than what I think specialty coffee roasting had promised.

And that’s why I think the product conversation is interesting because I think there is something new to talk about. And that people are drinking coffee not just for that morning wake me up, or energy, or that afternoon relaxation. People are now drinking coffee as a refreshment beverage, as a functional beverage, something to wash down…, a sensory experience.

Tracy Ging: But I think that all creates opportunity to introduce specialty to a broader range of coffee drinkers, and if we don’t want to be in that space – “we” in the broad term – somebody else will get into that space and it’s going to change the landscape fundamentally.

Josh Owen: But that requires Innovation, right? I think the conversation we had had was the extent to which the coffee industry silos itself off from the rest of the food and beverage industry. And they’re this purity that people are trying to protect in the product. And to get into the space as you’re talking about where coffee is a refreshment, it’s part of a beverage, you have to be prepared to treat it as an ingredient in this broader nourishment conversation. And I think a lot of the third wave roasters are afraid of that because they’re afraid of getting away from that purity of product.

Teresa von Fuchs: And maybe we’re just more hopeful than most people. But I really feel that people are taking ownership of things and are innovating in smaller ways, are personalizing. Not just the consumers, right? The businesses are fitting into their communities and they’re trying to update their craft and there are plenty of places that we can innovate. We can bring specialty coffee to more people. We can make it more accessible for… I mean, I’m super hopeful.

Nick Cho: Yeah we have about three minutes left and I would be remiss if I didn’t talk a little bit about wages in the especially because we’re talking in the United States. I’m in San Francisco. In July our minimum wage goes up to $15 an hour. Our shop actually made the pre-emptive move of our starting wage now is $16 an hour for no experience. And if you have experience, like $17 and $18 an hour.

So that all said, just to point out that there’s a lot more pressures that are pushing on different sides. But that all said I just wanted to mention that but as a factor.

So we’re asking this question to really is – the broader question, the more general one that this is a subset of is – what’s going to happen in the future? And to some degree we could all agree on this idea that the markets are maturing. The bubble is a certain type of outline condition, but things are maturing for sure. So regardless of the bubble question, like, what does that mean within this topic? Where are we going to see things continue to move? Especially I know Dan that’s where a lot of your work is, and Tracy as well.

Dan McCloskey: Yeah. I mean, I hope I didn’t sound pessimistic sitting next to my friend here. But I actually think it’s incredibly positive. I think that maybe some forms are tired. Like some style is tired. But the style might have to change. But I think that the opportunities for coffee are fantastic in the future. I think that you have to be a business person and not just a revolutionary right?

I think in the past there was space as the wagon was going across the plain to grab the land right? To be to have a mission before you had an understanding of a P&L and I think that’s probably got to change for people in the future. But there’s tons…. it’s more accessible. It’s a really big opportunity.

Nick Cho: Any thoughts Tracy?

Tracy Ging: I think you and I had a conversation with you in the preparation. And this isn’t the best analogy but just for lack of a better one, I feel like there’s been a small tip of the mountain that we’re all crowded on, crowded at the top trying to fight for air and space.

And I think that there’s always room to ascend, but I think sometimes you’ve got to like come down the mountain a little bit and then acclimate and then bring back up.

And I feel like this idea of small has always troubled me. I think that there’s some space. The market is really open to coffee and new experiences and it’s often – and this came up in 2012 or 2013 in one of the research studies that we did – it’s intimidating for them to get to the top of the mountain and expect that a coffee drinker that’s new to this specialty coffee thing go right up to the pinnacle, the peak. And I think that we can really bring go down the mountain a little bit and bring people up.

And I don’t think that means sacrificing standards, but I think it means maybe focusing on ones that are more accessible for different types of audiences.

Nick Cho: And Tracy you’re gonna get the last word. Thanks all four of you for this great conversation. Thanks, Tracy, Josh, Teresa, Dan, everyone. Round of applause for our panelists

42:00 Outro

That was Nicholas Cho, Tracy Ging, Josh Owen, Teresa von Fuchs, and Dan McCloskey at Re:co Symposium this past April.

Remember to check our show notes to find a link to the YouTube video of this talk and a link to the speaker bios on the Re:co website.

And don’t forget – Re:co Symposium and the Specialty Coffee Expo are coming to Boston this April. To learn more or to purchase tickets, visit recosymposium.org.

This has been the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

Talks, WatchSCA StaffFebruary 4, 2019Re:co 2018

The State and Future of the Business of Coffee | Re:co Symposium 2018

Special Thanks to Toddy

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