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Issue Date: Vol. 52, No. 4, April 2012, Posted On: 4/22/2012


The End Of An Era: New Pricing Behavior, Acquisitions Signal Big Change For Coffee


by Kevin Daw
Kevin Daw, office coffee service, OCS business, green coffee brokers, coffee exporters, coffee roasters, coffee futures, Coffee, coffee buyer, coffee market, vending business, J.M. Smucker Co., Folgers, Sara Lee, DS Waters of America, Standard Coffee Co., Hire our Heroes

In this month's column I thought I'd go over several things that have been happening that you might find as intriguing as I have. Let's start with the plunging coffee market. In December of 2010, I wrote on the state of the coffee market, where it had been and how best to discern where it might go be going. | SEE STORY

As with any market, many unforeseen forces can come to bear on the ultimate direction the coffee market might take on any given level. When markets reach high or low extremes, history teaches us that they will, with few exceptions, snap back (tulips, anyone?).

In my commodities article, I illustrated the last five coffee events that saw the "C" market cross $2 a pound, followed by a subsequent falling back below $2 within a year. This time, things took a little longer to head south; but at this writing, we are sitting in the $1.70s range. At the time, I did not state any definitive conclusions, but provided some evidence for you to make your own judgments about the market. Once again, I am not going to make any predictions, but it should be noted that I have spoken to as many folks who believe we are headed back to $3 as those who feel the worst is over. Without the calamity of a frost or (worse) a severe drought, returning above $3 would be a first, and it would confirm that we have entered a new era of product costs. Add to this the ever-fluctuating differentials paid for particular origins based on quality to that of coffee deliverable against the "C" market, and we find ourselves in rough and tricky waters.

Speaking of eras coming to an end, the coffee industry has seen some big acquisitions over the years, but the past few may have trumped them all. When The J.M. Smucker Co. bought Folgers from Procter & Gamble for $3.3 billion in 2008, I was intrigued. When it then bought all of Sara Lee's North American coffee business (closed in January), I was blown away.

Hadn't Sara Lee just finished acquiring several major regional brands? Talk about the proverbial big fish getting consumed by an even bigger fish. I didn't realize how big Smuckers had become, and what a stable of brands it had acquired over the years. Very impressive indeed. (I admit to being quite partial to their strawberry jam.)

Just when I thought I'd seen it all, along came the recent acquisition of Standard Coffee Co. by DS Waters of America. I must admit to feeling quite a shock at the news, which is perhaps another signal of the end of an era in coffee. Standard Coffee Co. has been the biggest pure-play coffee service for many, many years, and as such, everyone with much tenure in the industry surely has crossed paths with the company in one way or another. Standard gave me my first glimpse of industry consolidation. | SEE STORY

Whenever someone would ask me, back in the 1980s, "who could buy my coffee route business?" the first answer was always Standard. When we made the decision to get out of operating coffee service to focus on roasting in 1987, Standard Coffee Co. acquired the nine operations we ran. They were a fair and professional acquirer and, through the years, I've enjoyed the relationships forged with many in their ranks. We duked it out as competitors, and likewise worked on several projects together through the years; when Katrina hit New Orleans I jumped on the phone to see if they needed a hand in co-packing coffee to keep the trucks rolling.

NEW AGE FOR EMPLOYMENT TALENT

I was recently invited by a good friend and OCS operator to attend the St. Petersburg Grand Prix at the invitation of the National Guard Racing Team. They were promoting what I believe is a great cause, and one from which I believe our industry can definitely benefit. Hire our Heroes was created in concert with the U.S. Chamber of Commerce to help returning and retired veterans find employment in today's tricky environment. We listened to a presentation on the program that promotes benefits a business can derive from such hires. It is well worth looking into as they are holding more than 70 job fairs nationwide and are actively looking for companies ready to hire. From drivers to technicians, the vending and OCS industries surely have openings for these fine young men and women. For more information, visit uschamber.com/hiringourheroes.

Springtime means showtime for our industry. The SCAA will take over Portland, OR, just a few days before NAMA's OneShow rolls into Las Vegas. This issue will likely not reach readers until then, but I hope to see many of you at one of these shows, supporting our industry and hopefully learning and benefiting from the experience. The next great idea is out there, and if you find it, please let me know.


KEVIN DAW is president of Heritage Coffee Co. (London, ON, Canada), a leading private-label roaster serving the breaktime management industries in North America. He is in charge of coffee buying for Heritage. A 30-year veteran of the workplace service business, Daw has served as a commission coffee service salesman, a principal of a vending operation and president of a bottled water company. Since 1990, he has concentrated on coffee roasting. Active in industry affairs, Daw is a Specialty Coffee Association of America Certified Brewing Technician, a member of the National Beverage and Products Association Hall of Fame, a recipient of the National Automatic Merchandising Association Supplier of the Year Award and a NAMA Coffee Ser­vice Committee member.


Topic: Guest Columns

Articles:
  • The Psychology Of Pricing: Leverage Perceptions And Pennies To Execute Gentle Increases
  • Analyzing Prospect's Breakroom Will Fine-Tune Presentation
  • Small Business Can Be Big Opportunity For Far-Sighted Youth
  • What Is Your Pricing Strategy? Establish A Product's Cost, Then Apply Fundamental Valuing Methods
  • It Pays To Keep A Close Eye On The Coffee Futures Market

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