Monthly Archives: March 2012

I remember hearing Peter Giuliano talk on a podcast about differentiation in the coffee market. Identifying the lack of differentiation in pricing in the industry. He commented that even pizza had a regular section and gourmet section to the industry, with markedly different pricing structures.

The topic came out of the recent discussion about the future of specialty coffee. In short (and probably not doing justice the detailed topic it is), demand for specialty coffee is going up at the same time available land going down because of environmental changes due to climate change. Together, this means specialty coffee will become more expensive.

I find the differentiation topic quite interesting. The example of wine is a clear example. And today I noticed how it’s done in beer. Where I live, regular beer is sold in 6 packs for around $15-$20, and that’s how they’re displayed in the fridge. But the more expensive beers were stocked in the fridge as single bottles, for around $5. Or, in small writing, they were also available in packs of 4 (not 6!). This seems to me that they’re has been a conscious decision to price the specialty beers the same price, only changing the volume. I know i’m more likely to buy a single bottle for $5 than be forced into buying a 6 pack for $30.

So can the same be done with coffee? Does it need to? I think it does. Recently I had a conversation with a roaster who is involved in “direct trade”, travelling to source and talking to the farmer, and buying high quality, very tasty coffee and shipping it to sell wholesale and in his shop. He told me about some of the costs involved at different steps and then said that sometimes a roaster only makes a few dollars on a kilo of roasted coffee. Reason being, is that roasters like this travel a lot to source these coffees, pay a lot more for quality and also pay more for extras in shipping and storage. It costs more to get get great coffees. And right now, customers are lucky. Due to there being little differentiation in the market, there is only so much a roaster can charge, the result: we get some amazing coffee for not much more than regular coffee.

I think, like many other more experienced and knowledgeable people than me, that differentiation in the coffee market is key to building a sustainable specialty coffee market.

It can be viewed as a problem, but I think there is an exciting side to this situation. Challenges are a chance to be creative. A chance to re-think, re-brand, re-whatever. How do we re-value a product? James Hoffman blogged about the single-serve market and it’s pricing structure. I thought this was a good point imparticular: “One could infer that Nespresso’s success implies we’re way too cheap”. It’s well worth a read in regards this current topic. I think the brilliant thing this small segment of the coffee industry did was re-package, by doing so they were able to re-value the product (i’m sure i’ve heard this somewhere else).

Should the specialty coffee market re-package? And by this I just mean thinking of other ways to sell coffee other than 250g bags. If it did, I can see another advantage. Finding new ways to keep coffee fresh. For example, a regular coffee bag is 250g. It can take a while for someone making a cup a day at home to go through this. And with all the opening and closing of the bag, by the end of that time it’s not so great either. Re-packaging could be a way to re-value the product and keep it fresher.

I think this is a great time to be in Specialty Coffee, especially if you like being creative.