Coffee Roaster: Venezia Coffee Roasters
VENEZIA COFFEE ROASTERS
14600 Waterfront Drive
Kennebunk, ME 04043
Two seasoned coffee roasters found their niche in a seemingly saturated market. This plan illustrates that their specialty lies not only in their roasting methods, but also in their socially responsible business practices. Their mission is to balance the needs of their customers, their environment and the coffee growers. Venezia Coffee Roasters' detailed financial tables showcase the preparation needed to make them a competitive small batch coffee roaster in the New England region.
- statement of purpose
- description of business
- goals and objectives
- product and service
- space, equipment and location
- market information/marketing
- financial data
STATEMENT OF PURPOSE
Venezia Coffee Roasters seeks loans totaling $56,000 to: purchase equipment and inventory, rent working space, and perform the necessary renovations and improvements, and provide adequate working capital. This sum, together with an additional $23,000 investment from friends and family, will be sufficient to launch a profitable small-batch gourmet coffee roasting company. The initial form of organization will be sub-chapter "S" with a buy-sell agreement among the founders. The company's mission is to be known as the premiere small-batch coffee roasting wholesalers in southern Maine.
We have over two years experience in the specialty coffee roasting business. Venezia coffees will include only the best ingredients roasted to perfection with pride and careful attention to detail. Venezia's service will be unparalleled offering weekly interaction with its customers. Venezia will guarantee seven-day-a-week maintenance and repair service. Not only will our packaging be environmentally sensitive but it will ensure optimum freshness which surpasses our competitors. In keeping with our environmental ethics, Venezia will be the only roaster in Maine to employ an afterburner to reduce the air pollutants normally associated with the roasting process. Venezia will be able to offer all these advantages and remain competitively priced.
With the ever increasing demand for specialty coffee, Venezia will fill a specific niche in the market. Venezia coffees will appeal to the discerning coffee drinkers who insist on quality, consistency and affordability. Venezia coffee roasting company will be successful due to steady growth with profitability by the third year accomplished by providing a superior coffee with unequalled service to our customers.
How did we choose the name Venezia? Venezia draws on the Italian influence and history in specialty coffees. It lends itself well to a more sophisticated audience such as our target market.
DESCRIPTION OF BUSINESS
Venezia Coffee Roasting Company will small-batch roast only the finest, top grade beans from around the world. Careful attention will be paid to all stages of the product's development, beginning with purchasing the highest quality beans. We will small-batch roast to assure the optimum peak of flavor when roasted. We will blend coffees which complement each other in acidity and body. We will flavor coffees using the best available extracts and flavorings. State-of-the-art packaging will be used to assure a long shelf life (approximately one year) and attractive and informative labeling will be used to entice and educate the consumer about our product.
Our concern is that we be as environmentally conscious as possible. We will use an afterburner on the roaster to reduce the amount of air pollutants normally associated with the roasting process. Our packaging will be recyclable or made from recycled materials. Our packing material too will be recycled.
We will become involved with the Coffee Children Association to help promote a greater return, financially, to the countries from which the coffee originates.
We want to have a working environment that promotes a feeling of pride and enthusiasm.
Venezia will target four markets:
- Retail Specialty Shops - Gourmet, Gift
- Coffee Brewing Establishments - Bakeries, Coffee Shops, Restaurants
- Mail order
- Office Coffee - Schools, Offices
We will provide coffee to the discerning coffee drinkers. We will be environmentally and socially conscious which will appeal to that same market. We will provide the necessary brewing, grinding and display equipment for the relevant businesses. We will contact a roasters' authorized repair service company to provide the maximum service ford that equipment. We will deliver weekly to provide the end user with the freshest product possible. We will place the expiration date on each bag to further insure freshness. We will roast only what we will sell within that week.
Each account at Venezia will enjoy seven-day-a-week service for all mechanical concerns. Along with the regular weekly contacts with each account by our sales representative Venezia will have a service contract set up with CSX of Portland, Maine, to cover weekends and holidays.
GOALS AND OBJECTIVES
As a seed company, Venezia has secured six accounts averaging 300 pounds per week. Our goal is to close ten accounts by the end of the first year. The total amount of sales per week will be 500 pounds or better. We will do a mailing in the Portland area offering introductory specials to give our name exposure and to entice consumers. We will participate in as many community functions as we can possibly handle in an effort to get name recognition and to educate the consumer about our coffee. Initially, tastings in all retail locations will be held regularly. A mailing for office coffee will be sent to surrounding schools and offices. We will capture some of the Christmas business at the gift shops by offering one-pot portions, ground and whole bean, which sell well in customized gift baskets. We will increase our sales by the end of the second year by approximately ten percent. Our name will have greater recognition by that time providing us with more referrals. By the end of year two we will be able to offer our own gift boxes and baskets for all occasions. We will target several of the surrounding businesses for their Christmas gift business. We will increase business by another 250 pounds per week by the end of the third year. At this time we will have hired an additional sales/delivery person to reach that goal through all the avenues previously described. Special emphasis will be placed on capturing corporate gift business.
Both Maria and Jennifer hold college degrees. Maria owned and operated a successful house painting business for five years. She has strong production skills. Jennifer was head chef and kitchen manager at Pineland Farm Restaurant for six and a half years. She has strong organizational skills. Both Maria and Jennifer have over two years cumulative coffee roasting experience. Jennifer was manager of sales and production at Pawtucket Coffee Roasting Company. Maria was the coffee roaster for ten months at the same place. While employed at P.C.R. both Maria and Jennifer learned all of the different facets of running a coffee roasting wholesale business. Within the fifteen months that Jennifer was manager of P.C.R. she tripled sales, bringing sales up to an average of 750 pounds per week. Maria and Jennifer attend Specialty Coffee Association of America Seminars when possible. They confer with experts such as John Collers, President of the Coffee Association and owner of Collers Office in New York City, and Daniel Krull, owner of Sam Coffee Company in Brooklyn, New York. Jennifer is an active member of the East Coast Women's Network and uses that organization as a business resource. Kim Bonn, office manager of Cromwell Financial Services in Portsmouth, NH, consults with both Maria and Jennifer. Don Shute, a retired executive of IBM and EDS also consults with both women. Both Maria and Jennifer have a working knowledge of IBM and Apple Computers. They have taken adult education classes to better familiarize themselves with these platforms. They feel confident, since they have already successfully run a coffee roasting business, that they can make Venezia a profitable and long lasting business in the area.
We have the required technical and marketing skills to get this company up and running. We have experience in ordering, roasting (production), delivery and most importantly, sales. We anticipate hiring one or two employees in year three. The first position would be as a sales/delivery person. We will split the work duties as it demands. Maria will primarily be responsible for the production end and Jennifer for the service and sales end. Each will fill-in where necessary. Bookkeeping will be shared. We have hired Karen Allen, an enrolled agent to handle taxes, and general accounting-strictly part time. We will consult with lawyers concerning incorporating issues.
Maria and Jennifer have worked together for the past two years in varying degrees. They share similar philosophies about work and life and have discussed in depth where they envision Venezia to go and how it will get there. Between us we have the necessary labor skills. When it comes time to hire new employees we feel confident we can train for any position. We continue to further our skills and knowledge by attending roasting and cupping seminars given by John Ewell, president of the Coffee Corner in Boston, MA.
PRODUCT & SERVICE
We will offer coffee roasted weekly to locations within the New England area. We will offer numerous varietals, blends, and flavored coffees along with nearly as many decaffeinated coffees and blends. Our product will be packaged in an airtight, heat-sealed, one-way air valve, polypropylene bag which will either be produced from recycled plastic or be recyclable. The bags will be hand stamped. Labeling will include information concerning contents about artificial and natural flavorings, origin of beans, and type of roast. Each bag will be freshness dated. We will give our suggestions for best brewing and storage. We will offer one pot portion bags along with half-pound, one-pound and five-pound bags. For brewing establishments we will provide brewers which we will install, maintain and repair as needed. We will offer promotional items such as tee shirts, paper cups, ceramic mugs, travel mugs, home grinders, French press pots, bumper stickers, etc. We will offer a money back guarantee. If for any reason the customer is dissatisfied with our product they need only return the unused portion and we will refund all their money.
Our product is extremely reliable, and safe. Any pesticides or residues from the decaffeination process are burned off in the roasting process.
With all the careful attention paid throughout the development of our product we know that Venezia coffee will yield the best cup of coffee for the end user. Freshness will be our number one concern. We are proud to be a Maine based company and feel it should add to the overall appeal of our product.
We feel that we have developed our product experience during our employment at our packaging, will be radically different from that of P.C.R.'s. Although we have not yet tested this new packaging we know through reading and observing the competition that it will be the future of packaging. We will be using a different kind of roaster than our competition, however, the process will be similar. We are confident that the roasting experience we have will translate to this other kind of roaster. As part of the service provided upon purchasing the roaster we will receive training on the new machine.
Jennifer will contact each account early in the week to determine amounts and types of varietals to be roasted. Maria would then roast the coffee for those orders, blend, flavor and package the product. Then Jennifer will deliver via a delivery vehicle within the three day turnover that we allow to process an order. Orders that would fall outside of the hundred mile radius will be delivered by UPS.
Once the plant is fully equipped with the roaster we will start production immediately. Generally it takes about three hours to fill an order from raw bean to packaged product. We have five standing accounts waiting for our production facilities to open.
Jennifer will be purchasing the beans, enabling her to have a first hand knowledge of what will be roasted. A small-batch roaster, such as the one we will be using will allow us to keep a close eye on the development of the bean during the roasting process. Each varietal and each crop within that varietal has a different moisture content. It is that water content that determines the amount of roasting time needed. Since we will not have an automated roaster we will be able to adjust each roast accordingly, yielding an even roast which has been allowed to develop to its optimum flavor peak.
Coffee roasting is an exciting and wonderful process. It is simple in theory. The beans must be heated, kept moving so no burning or tipping occurs, and they must be cooled, or quenched at the precise moment to stop the roasting process. Under-roasted coffee tastes pasty, coffee roasted too long and at too high a temperature will be thin-bodied, burned and industrial-flavored. The roaster that we will be using has a drum which rotates above a gas flame. Typically the air in the drum will be heated to about 500 degrees fahrenheit and by manipulating the air flow the temperature can be steadily maintained throughout the roasting process. For the first five minutes or so the beans will tumble around and lose water weight which accounts for the 15%-18% total weight loss. When the internal gases in the beans heat up and the pressure becomes too much for the bean, they will explode creating the first of two snapping sounds heard during the process. Later when the internal temperature of the bean reaches about 400 degrees fahrenheit, the oils in the beans will begin to develop, a process known as pyrolysis. The beans will then begin to show a marked darkening in color and the second snapping will be heard. Allowing a small amount of time for the beans to cool, they will then be emptied into a metal bin where they will be air cooled. The last few minutes of the process can make the difference between a full city roast, a French roast, an espresso roast, or sadly, a worthless roast. By roasting as close to that amount which is actually ordered each week we will be able to maintain the freshness factor. By expiration dating the bags, we will be able to rotate stock accordingly.
Coffee beans can be bought through a number of brokers. There are ports in New York, Louisiana, and California. We will be using Express Freight Service, Inc. for delivery of the beans from port to our business. The average turn around time for delivery of beans is five working days. Labels, flavorings and most other supplies can all be delivered within ten working days. The initial printing of any advertising or labels will take longer to allow time for proofing, but once it is all set up delivery time is reasonable. We will have all the basic printed material ready to go before we open for business.
Orders will generally be delivered in the delivery vehicle, or by UPS. We will have routes to cover the various areas. Generally Jennifer will make the deliveries, since she will be acting as the sales representative. In so doing she can field any questions or problems the customers might have on a weekly basis. While making deliveries she can make sales calls along the way to try and increase the volume for those routes.
Venezia understands the importance of a good working relationship between ourselves and our customers. The service begins the moment we introduce and educate the consumer about our product. We are willing to customize our displays and equipment to accommodate the different space limitations and needs of each customer. We feel it is important to give the customer a working knowledge of specialty coffee and the specific brewing equipment they will be using.
In whole bean retail locations we will conduct regular tastings to introduce our product and educate the end user. We will offer attractive and informative promotional items and strategies to help establish a new customer base for the retailers.
Venezia knows that any down time for our customers due to mechanical problems of our equipment can be expensive for both parties. Venezia will have a regular maintenance program in place to troubleshoot and predict possible problems and take appropriate precautions. In the event that a mechanical problem does arise Venezia's service contract with a Conley authorized repair company will insure prompt attention to and resolution of the problem. In addition to the service contract with Conley, Venezia will employ back-up brewers as a temporary solution. Either way our customers will be provided with round-the-clock service. This service coverage is unrivaled by our local competitors.
Each week the sales representative from Venezia will contact each account not only to take orders but also to field any questions, promote new products and listen for problems.
SPACE, EQUIPMENT AND LOCATION
Initially we would need the space provided by a two car garage (approximately 320 square feet). We would need plumbing with a two bay sink. We would need a gas hook-up, and the ability to vent a six inch pipe. We would require zoning for light industrial.
We will need a small batch roaster with an afterburner, scales, a delivery vehicle, shelves, work tables, a telephone, a computer, seven brewers, five grinders, a heat sealer, and office furniture.
We are considering another location somewhere between Portland and Acadia, Maine. We would prefer easy access to the main freeway. The location needs to be zoned for light manufacturing. We have looked at a place which fills all of our criteria while meeting our budget qualifications.
The trend in the coffee business now supports Venezia's plan. A big emphasis on gourmet and specialty coffees has been increasing and is reflected in a rapid increase of coffee shops. The West Coast's influence on the coffee market has effected consumer's appreciation of fine coffees making super-market coffees much less appealing. This statement is supported by various newspaper and trade journal articles.
Coastal Coffee Company, which has enjoyed huge success on the West Coast, has recently shown interest in expanding their operations to the East Coast (Boston) thus supporting our conclusion that the gourmet coffee trend is here to stay.
For servicing reasons we will initially focus on the local market, that would encompass an area of approximately one hundred miles in radius extending from mid-coast Maine to the Vermont/New Hampshire border and south to the southern metropolitan Boston area. Over time we will target regional and national markets through a mail-order strategy.
Like some of our competitors we will be using the finest beans and flavorings available. It would be senseless to invest all the time and money into such a fine product and then not protect it. That is why Venezia's one-half-pound, and one-pound bags are constructed of high barrier laminates with a one-way air value to allow the natural by product gas, carbon dioxide, to escape while preventing oxygen, and water contaminates from entering. The bags are heat-sealed but can be easily opened and have resealable zippers. All of these features combined will lengthen the shelf life appreciably. Typically the shelf life of coffee stored in the popular, less expensive, plastic-lined, paper bags only retain their freshness for about six weeks. Venezia's packaging will extend the shelf life to a full year. None of the other local roasters offers such packaging. From a retail perspective, the bag will retain a cleaner appearance over time since no natural oils will seep through and stain the bag.
Venezia's labeling will be very informative, offering advice on brewing and storing techniques as well as describing the type of beans, the flavoring extracts, and the type of roast. Unlike our competitors our coffees will have an expiration date affixed to each bag. This added information will further guarantee freshness to the end user.
In this time of environmental awareness we are proud to be able to offer state-of-the-art packaging that uses 80% less material in its production while offering the consumer a reusable container.
Venezia Target Markets
- High volume coffee brewing establishments
- Donut Shops
- Specialty food shops
- Gourmet Food Shops
- Upper-End Gift Shops
- Offices with an average of twenty five employees
- Mail Order
Venezia will operate in the southern Maine area targeting high volume upper-end bakeries, restaurants, and specialty food shops. The geographic area includes coastal New Hampshire, and southern Maine. As quoted from "The Basis Business and Industry Profile of Specialty Coffee House/Cafes" supplied by Cleveland State University, "according to a recent National Association of the Specialty Food Trade (NASFT) report on the specialty food consumer, gourmet coffee consumers are an educated, affluent group. Overall, 22.1% of Americans purchased specialty coffee. Most gourmet coffee consumers live or work in large urban communities. However, their most significant attribute is education level. Persons with some college education are 11% above average in their consumption of gourmet coffee. Consumers that have completed college are 49% above average in their consumption. Since education is highly correlated to income, it is not surprising that specialty coffee consumers earn above average salaries. Most specialty coffee consumers are affluent, earning above $35,000 per year." We contacted the Bureau of Census whose latest statistics show that the median family income in Portland, ME. is $34,837 and $34,344 in Portsmouth, NH. The percentage of people holding Bachelor's degrees or more in Portland, ME is 29.6 and in Portsmouth, NH is 26.6. According to a researcher for the Maine State Department of Tourism, their major target market is people over fifty five, college educated, and earning over $55,000 per year. This influx of consumers of this profile increases our target market pool.
Our direct competitors are Pawtucket Coffee Roasting Company in Jamesville, ME, Colling Roasters, in Portsmouth, NH. Also breaking new ground is Mecca Coffee Roasting Company, in Portland, ME and to some extent, Valley Coffee Roasting Company, in Stowe, VT.
Since Venezia is the newest coffee roasting company we obviously lack the name recognition that all the other competitors now enjoy. However, to our advantage, we have learned from them the crucial importance of producing consistent high quality products and delivering superior service. We model ourselves after Coast Coffee Company because they insist on using only the best grade beans with careful attention to every other aspect of the coffee roasting and distribution process. It is evident in all their marketing that they are constantly aware of the value of their excellent image and reputation.
The small roasting companies in this area with whom we are in direct competition have taught us the importance of the service end of the coffee roasting business. It is not enough to produce a good coffee. It is imperative to pay close attention to the needs of the retailers, and to the consumer.
Valley Coffee Roasting Company has shown us how quickly a company can expand. They effectively canvassed the entire New England area. There is hardly a person in the New England area who has not heard of Valley Coffee. Valley was once the exclusive coffee drinkers' coffee, now you can get a cup in any Mobil Gas Station or convenience store in New England. The fallout from their indiscriminate expansion has given companies such as Venezia a new niche to fill. Venezia will offer a quality specialty coffee for retailers catering to a more sophisticated and informed audience. In light of the rapidly expanding specialty coffee market and although there are several coffee roasters in the immediate area there still remains a void Venezia can fill. Our goal is to produce a consistent high quality product and provide our customers with reliable, friendly, and expedient service. We want to protect our image and so we will be discerning about the establishments with whom we will do business. We will have written guidelines to ensure that our image is that of a reliable coffee roaster. Venezia will operate as an environmentally and socially responsible company. We will use an afterburner in the roasting process to reduce air pollutants, a step which none of the aforementioned local competitors have taken. We will recycle and re-use any product possible in producing and shipping our coffee. We will not compromise on quality to reduce costs, that would defeat our mission.
Venezia plans a controlled, and methodical, growth process. In our gradual growth we will be able to fully integrate each new business into ours with as much attention as may be needed without having to sacrifice service to the existing accounts. It has been to our benefit to watch Valley Coffee Roasting Company expand too quickly and show us the downside of unbridled growth.
Capital Equipment List
|Roaster and Afterburner|
|San Franciscan SF 25B|
|Used Delivery Vehicle||$3,000.00|
|STF-35 Brewers (5)||$2,225.00|
|CWTF Dual Brewer (1)||$700.00|
|RTF 5 Warmer (1)||$600.00|
|Dual D Brewer System||$1,422.00|
|RWS1 Warmer Stand (2)||$150.00|
|1.5 GPR Server (2)||$328.00|
Breakdown of Variable and Fixed Costs
|Cost of Goods = Raw Beans (Variable Quotes Given August 30, 1994|
|(3) Colombian Supremo||$2.50|
|(2) Costa Rican Tarrazu||$2.63|
|(.5) Ethiopian Yirgacheffe||$3.25|
|(1) Sumatra Mandheling||$3.30|
|(.5) Kenya AA||$2.85|
|(2) Decaf Colom. Meth. Dichlor.||$2.66|
|(1) Decaf. Sumat. Meth. Dichlor.||$3.42|
|Average Cost Per Pound (Raw)|
|(Based on Average 10 Pounds we Anticipate Sell)||$2.79|
|(Based on 18% Shrinkage) Average Cost Per Pound||$3.29|
|+Pick Up Charges||$300.00|
|+Bags 1/2 Pound (Riley & Geehr)||$0.26|
|5 Pound (Lamcor)||$0.35|
|Average Cost Per Pound||$0.31|
|+Labels 3 Inches by 5 Inches|
|+Flavoring (Per Gallon)|
|Salaries Per Month for Two Employees at $5.00/HR|
|Per Month for Two Employees at $8.00/HR|
|Per Month Two at $10/HR and one Part Time at $7/HR|
|Rent/Utilities/Insurances/Average Per Mo.|
Monthly Breakdown of Cost of Goods Year One
*Raw Bean Quotes Given as of Sept. 1, 1994
Colombian Supremo 154 lb. bag $2.50 lb. Total $385.00
Costa Rican 132 lb. bag $2.63 lb total $347.00
Ethiopian 132 lb bag $3.25 lb Total $429.00
Kenya AA 154 lb bag $2.85 lb Total $440.00
Sumatra Mandehling 132 lb bag $3.30 lb Total $435.00
Decaf Colombian (Meth. Chlor.) 132 lb bag $2.66 lb Total $351.00
Decaf Costa Rican (Meth. Chlor.) 132 lb bag $3.03 lb Total $400.00
Decaf Sumatra Mandehling (Swiss Water) 132 lb bag $3.42 lb Total $452.00
|4 Colombian||$1,540.00||Total Cost of Beans||$5,527.00|
|2 Costa Rican||$694.00||Total Cost Bags & Flav.||$1,198.00|
|1 Ethiopian||$429.00||Pick Up Charges||$300.00|
|1 Kenya AA||$440.00||Total Cost of Goods||$7,805.00|
|2 Decaf Colomb.||$702.00|
|1 Decaf Costa Rica||$400.00|
|1 Decaf Sumatran||$452.00|
|5 Colombian||$1,925.00||Total Cost of Beans||$3,668.00|
|3 Costa Rican||$1,041.00||Total Cost Bags & Flav.||$175.00|
|2 Decaf Colombian||$702.00||Pick Up Charges||$300.00|
|$3,668.00||Total Cost of Goods||$4,143.00|
|5 Colombian||$1,925.00||Total Cost of Beans||$6,441.00|
|3 Costa Rican||$1,041.00||Total Cost Bags & Flav.||$435.00|
|2 Sumatran||$870.00||Pick Up Charges||$300.00|
|3 Decaf Colomb.||$1,053.00||Total Cost of Goods||$6,876.00|
|2 Decaf Costa Rica||$800.00|
|1 Decaf Sumatran||$452.00|
|5 Colombian||$1,925.00||Total Cost of Beans||$5,283.00|
|3 Costa Rican||$1,041.00||Total Cost Bags & Flav.||$735.00|
|1 Ethiopian||$429.00||Pick Up Charges||$300.00|
|1 Sumatran||$435.00||Total Cost of Goods||$6,318.00|
|3 Decaf Colomb.||$1,053.00|
|1 Decaf Costa Rica||$400.00|
|6 Colombian||$2,310.00||Total Cost of Beans||$5,283.00|
|3 Costa Rican||$1,041.00||Total Cost Bags & Flav.||$498.00|
|1 Sumatran||$435.00||Pick Up Charges||$300.00|
|2 Decaf Colomb.||$702.00||Total Cost of Goods||$6,318.00|
|1 Decaf Costa Rica||$400.00|
|1 Decaf Sumatran||$452.00|
|7 Colombian||$2,695.00||Total Cost of Beans||$6,015.00|
|3 Costa Rican||$1,041.00||Total Cost Bags & Flav.||$932.00|
|1 Kenya AA||$440.00||Pick Up Charges||$300.00|
|1 Sumatran||$435.00||Total Cost of Goods||$7,247.00|
|4 Decaf Colomb.||$1.404.00|
|8 Colombian||$3,080.00||Total Cost of Beans||$7,220.00|
|4 Costa Rican||$1,388.00||Total Cost Bags & Flav.||$602.00|
|1 Ethiopian||$429.00||Pick Up Charges||$300.00|
|2 Sumatran||$870.00||Total Cost of Goods||$8,122.00|
|3 Decaf Colomb.||$1,053.00|
|1 Decaf Costa Rica||$400.00|
|8 Colombian||$3,080.00||Total Cost of Beans||$6,391.00|
|4 Costa Rican||$1,388.00||Total Cost Bags & Flav.||$910.00|
|2 Sumatran||$870.00||Pick Up Charges||$300.00|
|3 Decaf Colomb.||$1.053.00||Total Cost of Goods||$7,601.00|
|4 Colombian||$1,540.00||Total Cost of Beans||$4,223.00|
|2 Costa Rican||$694.00||Total Cost Bags & Flav.||$194.00|
|1 Sumatran||$435.00||Pick Up Charges||$300.00|
|2 Decaf Colomb.||$702.00||Total Cost of Goods||$4,717.00|
|1 Decaf Costa Rica||$400.00|
|1 Decaf Sumatran||$452.00|
|4 Colombian||$1,540.00||Total Cost of Beans||$3,371.00|
|2 Costa Rican||$694.00||Total Cost Bags & Flav.||$435.00|
|1 Sumatran||$435.00||Pick Up Charges||$300.00|
|2 Decaf Colomb.||$702.00||Total Cost of Goods||$4,106.00|
|5 Colombian||$1,925.00||Total Cost of Beans||$3,756.00|
|2 Costa Rican||$694.00||Total Cost Bags & Flav.||$1,323.00|
|1 Sumatran||$435.00||Pick Up Charges||$300.00|
|2 Decaf Colomb.||$702.00||Total Cost of Goods||$5,379.00|
|5 Colombian||$1,925.00||Total Cost of Beans||$4,156.00|
|2 Costa Rican||$694.00||Total Cost Bags & Flav.||$435.00|
|1 Sumatran||$435.00||Pick Up Charges||$300.00|
|2 Decaf Colomb.||$702.00||Total Cost of Goods||$4,891.00|
|1 Decaf Costa||$400.00|
Monthly Breakdown of Bags, Labels and Flavorings — Year One
1/21b Bags = .26, 1 lb Bags = .32, 5 lb Bags = .35, Labels = .06
|Flavorings (Per Gallon)|
|Caramel Nut||$185.00||Southern Pecan||$89.00|
|1/2 lb Bags||1 Case||$260.00|
|1 lb Bags||1 Case||$322.00|
|5 lb Bags||1 Case||$175.00|
|1 Gal. Each Flavor||$921.00||Total||$1,978.00|
|5 lb Bags||1 Case||$175.00||Total||$175.00|
|1/2 lb Bags||1 Case||$260.00|
|5 lb Bags||1 Case||$175.00||Total||$435.00|
|1/2 lb Bags||1 Case||$260.00|
|5 lb Bags||1 Case||$175.00|
|5 lb Bags||1 Case||$175.00|
|1 Gal. Hazelnut||$129.00|
|1 Gal. Vanilla||$75.00|
|1 Gal. Chocolate||$119.00||Total||$498.00|
|1/2 lb Bags||1 Case||$260.00|
|1 lb Bags||1 Case||$322.00|
|5 lb Bags||2 Cases||$350.00||Total||$932.00|
|1 Gal. Caramel Nut||$185.00|
|1 Gal. Macadamia Nut||$48.00|
|1 Gal. Southern Pecan||$89.00|
|1 Gal. Orange||$57.00|
|1 Gal. Irish Cream||$94.00|
|1 Gal. Hazelnut||$129.00||Total||$602.00|
|1/2 lb Bags||1 Case||$260.00|
|5 lb Bags||2 Cases||$350.00|
|1 Gal Chocolate||$119.00|
|1 Gal. Vanilla||$75.00||Total||$194.00|
|1/2 lb Bags||1 Case||$260.00|
|5 lb Bags||1 Case||$175.00||Total||$435.00|
|1/2 lb Bags||1 Case||$260.00|
|1 lb Bags||1 Case||$322.00|
|5 lb Bags||1 Case||$175.00|
|1 Gal. Southern Pecan||$89.00|
|1 Gal. Hazelnut||$129.00|
|1 Gal. Macadamia Nut||$48.00|
|Note: At the close of year one there remains in inventory a surplus of all above items equalling the ten percent increase expected for year two.|
|1/2 lb Bags||1 Case $260.00|
|5 lb Bags||1 Case $175.00||Total||$435.00|
Pricing Analysis - Calculating the Break-Even
S = FC + VC
FC = Fixed Costs in Dollars
VC = Variable costs in Dollars
X = Projected pounds sold
$6.50 = Average pound selling price
|Year One||Year Two|
|Prof. Services||$4,500.00||Prof. Serv.||$2,040.00|
|Operating Expenses||$2,767.00||Operating Expenses||$1,200.00|
Calculating Break-Even For Year One
GM= Gross Margin Expressed As A Percentage of Sales
Cost of Unit ($6.50 - VC of Unit ($2.83)=Gross Margin Per Unit ($3.67)
(17,084) ($6.50)=$111,047.00=Break-Even Dollar Sales
* Note: a 5% increase due to an estimated 5% increase in cost of goods in year two.
Calculating Break-Even For Year Two
GM = Gross Margin Expressed As A Percentage of Sales
Cost of Unit ($6.50) - VC Per Pound ($3.00)=Gross Margin Per Unit ($3.50)
Break-Even lbs. = FC $63,668.00= 18,191
Gross Margin Per Unit $3.50
Break-Even Sales in Dollars=(18,191) ($6.50)=$118,241.00
Venezia Monthly Sales Projections in Dollars
|Year One||Year Two||Secured Accounts|
Income Statement Three Year Summary
* Includes Pre-Start-Up
|Year One||Year Two||Year Three|
|* Includes Two Months Pre-Start-Up|
|Cost of Goods||$56,407.00||$66,807.00||$100,210.00|
|Total G & A Expenses||$64,736.00||$63,775.00||$78,336.00|
|Net Income Before Taxes||$12,797.00||$12,412.00||$37,554.00|
|Income Statement Year One Detail By Month|
|* Includes Pre-Start-Up|
|Cost of Goods||$7,025.00||$2,919.00||$5,616.00||$4,934.00||$4,396.00||$6,070.00|
|Total G & A Expenses||$12,296.00||$3,637.00||$4,447.00||$4,378.00||$4,164.00||$4,263.00|
|Net Income Before Taxes||(12,757)||$1,686.00||(1,301)||$360.00||$1,892.00||$2,459.00|
Explanation of Categories
Cost of Goods = Raw Beans + Pick-Up Charges + Bags + Labels + Flavorings
Rent/Utilities/Insurance = Rent + Electric + Water + Telephone + Gas + Fuel + Health Insurance + Car Insurance + Business I
Professional Services = Legal + Accounting + Maintenance + Outside Services
Taxes + Federal + Medicare + Social Security + State + Other
Interest and bank loan is based on a $56,000.00 loan at 10% over seven years.
Operating Expenses = Supplies
Capital Purchases = Roaster + Brewers + Grinders + Scales + Heat Sealer + Delivery Vehicle + Computer
Miscellaneous = Subscriptions + Start-Up Costs
Information On Worker's Compensation
Class Code # 8006; Sale of coffee, tea or groceries
Per $100.00 of Payroll = $4.67
Also add 20% surcharge
For year three one part time employee at $7.00/hour 20/hours/week with surcharge = $632.00
|Projected Employee Growth|
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Employee #1 (Jennifer)||Full Time||Full Time||Full Time||Full Time||Full Time|
|Employee #2 (Maria)||Full Time||Full Time||Full Time||Full Time||Full Time|
|Employee #3||Part Time||Full Time||Full Time|
|Employee #4||Part Time||Part Time|
|Employee #5||Part Time|
|Employee #6||Part Time|
Employee #1 = Managerial/delivery/sales position
Employee #2 = Production
Employee #3 = Delivery/sales position
Employee #4 = Production position
Employee #5 = Bookkeeping/administrative position
Employee #6 = Production position
|Cash Flow-Year One|
|Cash on Hand||$0||$27,613||$25,848||$25,826||$21,902||$19,576||$20,233||$20,747|
|Sales Net 10||$0||$4,374||$5,492||$5,844||$6,448||$6,968||$8,528||$9,568|
|Cost of Goods||$7,805||$0||$3,243||$6,240||$5,482||$4,884||$6,744||$6,241|
|Rent, Util., Ins.||$2,380||$1,190||$1,190||$1,190||$1,190||$1,190||$1,190||$1,190|
|$23,613||$27,081||$32,342||$37,260||$39,126||$321,166||Cash on Hand|
|$9,568||$8,664||$8,664||$6,500||$8,664||$89,284||Sales Net 10|
|$6,302||$3,737||$3,650||$4,624||$3,722||$62,674||Cost of Goods|
|$1,190||$1,190||$1,190||$1,190||$1,190||$16,660||Rent, Util., Ins.|
|Cash Flow - Year Two|
|Cash on Hand||$42,782||$38,392||$37,942||$35,078||$33,602||$34,110||$34,398|
|Sales Net 10||$4,810||$6,038||$6,428||$7,092||$7,664||$9,380||$10,524|
|Cost of Goods||$8,268||$3,552||$6,848||$6,014||$5,357||$7,403||$6,851|
|Rent, Util., Ins.||$1,236||$1,236||$1,236||$1,236||$1,236||$1,236||$1,236|
|$37,068||$40,590||$45,572||$50,532||$52,033||$55,498||Cash on Hand|
|$10,524||$9,536||$9,536||$7,150||$9,536||$98,215||Sales Net 10|
|$6,917||$4,095||$3,999||$5,071||$4,079||$68,454||Cost of Goods|
|$1,236||$1,236||$1,236||$1,236||$1,236||$14,832||Rent, Util., Ins.|
Anticipated Estimated Sales In Pounds Per Week and Month Year One
Balance Sheet Month One Year One
|Note Payable Bank||(56,000)|
|Note Payable Perso||(23,000)|
Balance Sheet Month Twelve Year One
|Less Accumulated Depreciati||($7,510)|
|Note Payable Bank||$49,153|
|Note Payable Personal||$23,000|
|Share Holders Equity||$13,197|
Coffee House: Coffee Circus
3005 37th Avenue
Santa Fe, AZ 68002
Coffee Circus' owners are taking advantage of the coffee house rage that has been sweeping the country. Along with taking advantage of this trend, they are also planning for the future. Coffee Circus is also marketing itself as a full service restaurant to maintain stability, in case the coffee trend begins to fizzle.
- executive summary
- mission statement
- purpose of business
- business goals
- description of business
- opportunities and strengths
- critical risks and problems
The interest by consumers in the coffee house industry is sweeping the country. Coffee Circus is positioned to bring this to the Northwest Santa Fe area. To date it has been confined to the Central and East areas.
Coffee Circus will provide a friendly, comfortable atmosphere where the customer can receive quality food, service and entertainment at a reasonable price. The coffee house will offer a variety of choices to the customers. Coffee and tea of all sorts will be offered. Juice, soda, and non-alcoholic beverages also will be available. Both wine and beer will be on sale. Coffee Circus will serve breakfast, lunch and dinner.
The interior design of the building will focus on projecting a relaxed atmosphere. Coffee Circus will be divided into different areas. Some will have tables and chairs, another will have large antique stuffed couches and chairs, end tables, coffee tables, book shelves filled with books and magazines, tiffany style lamps and braided rugs. A PA system will be installed so that the music and entertainment can be heard throughout. A large selection of table games will be provided.
There will be nightly entertainment featuring acoustic jazz, blues and folk music. On selected nights there will be poetry readings and an open microphone. The walls will be used as an art gallery and from time to time there will be an artist in residence.
The site contains a 3,525 square foot building which was used as a sports bar and restaurant. The building has substantial parking. The site shares the Hart Plaza with Folk Limited and Ryan Sports. Remodeling will consist of removing the existing booths, new carpet and some new furniture. The kitchen and bathrooms will require only minimum remodeling. The property is currently zoned for restaurants.
The area comprising a three mile radius around Coffee Circus is heavily populated with young, upwardly, mobile persons with expendable income. This is complemented by a large number of upper middle class "Baby Boomers" who are a large portion of those persons who frequent coffee houses.
A strength which this business will possess is the ability to change with the times. Rather than limiting the future opportunities by having a small area, Coffee Circus will have 3,525 square feet of space and a kitchen designed for flexibility. As the fad of coffee houses fades, Coffee Circus will be able to change to a full course restaurant or whatever the situation calls for.
The advertising and promotion will take a number of avenues. First, flyers will be distributed in the neighborhood. Ads will be taken out in all of the Catholic church bulletins in the area. Since Coffee Circus will be the first union restaurant in the state, ads will be placed in all of the union newsletters. Ads will also be placed in the target areas of the Burns' Grocery, and the local neighborhood newsletters. For businesses in the area, menus will be distributed and ordering will be available by fax. A customer mailing list will be developed with a calendar of events being mailed on a monthly basis.
Coffee Circus will be operated as a Sole Proprietorship. There will be private investors. However, these investors will be silent investors with a payoff of investment within three years. These investments will be paid twice-yearly in equal installments including interest. The total needed capital for Coffee Circus is $99,900. Owner's cash contribution is $10,000 and other investors and family members is $16,000. The amount needed in loans is $30,800 for equipment, $20,000 for remodeling, and $23,000 for operations. This is a total of $73,800.
Overall management will be the responsibility of the owner. The owner brings to the business over 20 years of business experience including over five years in restaurant management and five years in directing a multifaceted non-profit housing program. The general manager will have a minimum of 10 years experience. A major emphasis of Coffee Circus will be to hire economically disadvantaged or at-risk persons and provide them with job training. The majority of these persons will be identified through the City of Santa Fe Job Training Partnership.
To provide a friendly, comfortable atmosphere where the customer can receive quality food, service and entertainment at a reasonable price.
PURPOSE OF BUSINESS PLAN
This document is intended to outline the start-up of the business known as Coffee Circus. The business plan has a two-fold mission. One is to obtain financing. The other is to help define the who, what, where, when and how for the business so that the business will have a clear cut plan and operations map.
The goals of the business are to provide a substantial income and to create a business and working environment where both the customer and employee are treated with dignity and respect.
The specific goals of the business are:
Profit - personal income in excess of $50,000 per year within three years
Clientele - create a base clientele of persons who live and work in the area. These persons will like a relaxed atmosphere where they can "hang out"
Employees - Competent employees (at least 51% from low-income neighborhoods) who are committed and loyal
DESCRIPTION OF BUSINESS
Coffee Circus will be a coffee house/restaurant located in the Hart Plaza on the southeast corner of 37th Ave. and Holgate.
The coffee house will offer a variety of choices to the customers. Coffee and tea of all sorts will be offered. The choices of coffee will range from espresso to latte, from regular flavor to raspberry-mocha. The teas will range from English to flavored varieties.
Juice, soda, and non-alcoholic beverages also will be available. For those who want something else to drink, both wine and beer will be on sale. Wine can be ordered by the glass or by the carafe. Bottled micro-brewed beer will be available.
The breakfast menu will feature croissants, muffins, bagels, donuts, french pastries, fruit filled crepes, etc. Except for the crepes, the baked goods will be purchased from The Works. Lunch and dinner will feature sandwiches, salads and seven different soups. In hot weather, a variety of cold soups will be offered. In addition, Coffee Circus will feature a vast array of appetizers. These will include artichokes (Both stuffed or served with butter); stuffed mushrooms; mini loaves of bread served with your choice of a bowl of pesto, queso, or green chile, etc. Desserts will consist of cheesecakes (some fat-free), pastries, pies, fresh fruit and cheese.
The interior design of the building will focus on projecting a relaxed atmosphere. The bottom portion of the walls will be forest green with the upper being eggshell white. The carpeting will be forest green. The table and chairs will be custom made from light oak. The chair coverings will be of forest green material and heavily padded for comfort. The table tops will be a marbleized forest green laminate. Plants will abound in gold pots. The dishes and eating utensils will be mismatched and purchased from antique and thrift stores. The coffee cups will be from the forties and fifties era. They will be provided by a local antique business and will be for sale.
Coffee Circus will be divided into different areas. An advantage to having different areas is that customers can partake in different activities without bothering anyone (i.e., political discussions will not interfere with the music, or the music will not interfere with those playing board games or reading).
The emphasis will be on providing a comfortable environment for the customer where they will want to linger and return many times.
OPPORTUNITIES AND STRENGTHS
The time is right for opening a coffee house in the city of Santa Fe. Coffee houses are having a great deal of success, which is evidenced by the full houses every day of the week. The southeast side of Santa Fe has no such places. The closest competition is the Coffee Club located at Santa Fe Park and Main. In order to reach a coffee house, a customer from our area must drive 20 to 30 minutes. The majority of these establishments are located on the West side of town. A few are beginning to open in the downtown area.
The area comprising a three mile radius around Coffee Circus is heavily populated with young, upwardly, mobile persons with expendable income. This is complimented by a large number of upper middle class "Baby Boomers" who are a large portion of those persons who frequent coffee houses.
An additional strength which this business will possess is the ability to change with the times. Rather than limiting the future opportunities by having a small area, Coffee Circus will have 3,525 square feet of space. The kitchen will be designed for flexibility. As the fad of coffee fades, Coffee Circus will be able to change to a full course restaurant or whatever the situation calls for.
The business will bring with it a strong group of persons with an extensive background in both restaurants and business.
CRITICAL RISKS AND PROBLEMS
There are risks inherent with any business. However, the restaurant business carries with it very unique risks. Most critical is the customers' changing tastes. Another is the economy. Restaurants rely heavily on serving persons who have expendable income. When the economy takes a down turn, people change their spending priorities. There are less trips to restaurants.
A problem also in restaurants is finding dependable help who will stay with the business. Many restaurant employees tend to be younger and are attempting to move into a career. When either their schooling ends or they find their "dream job," they move on. Often servers filling the positions are non-skilled, and tend to be single mothers or lower educated persons. These persons come with specific circumstances which must be accounted for by management. A single mother may experience child-care problems, or a bus person may have problems with reading. A good owner must learn to deal with these problems in a manner which benefits the business as well as the employee.
Generate monthly sales revenues of $71,000 per month of 3% of the target market within 18 months of opening.
- Maintain a high standard of food quality and service
- Provide first-rate live entertainment without a cover charge
- Ensure a friendly comfortable atmosphere
- Place monthly ads in neighborhood publications
- Distribute monthly fliers to neighborhood, businesses and churches
- Offer discount coupons
- Maintain and use a customer mailing list
The customer will be between 18 to 55 years old. The income level is between $20,000 and $100,000 per year. They will live within three miles of Coffee Circus. They will be white collar workers (managers, professionals, etc.) with expendable income. The education level will range from some college to post-graduate work. A limited number (10%) will come from other areas. This 10% will generally be persons who are coming to see a particular entertainer or poetry reading. A majority of the customers will be persons who enjoy a relaxing atmosphere, conversation and table games.
Estimated Market Share and Sales
Based on the customer profile for Coffee Circus the following numbers were compiled. The report used was prepared by Phoenix Real Estate using information obtained through the Facts Report. The report was prepared using Coffee Circus as the focal point and delineating numbers by a one, three and five mile radius. For purposes of determining market share for Coffee Circus, a three-mile radius was used. National statistics show that most persons do not travel more than three miles to eat or to listen to entertainment. The report shows that 162,908 persons live in the three mile radius. The following is the breakdown of target customers.
|Age Percent||% of Population|
|Income||% of Population|
|Education||% of Population|
|Occupation||% of Population|
Formula For Market Share
The formula takes the total population and then multiplies that number by the percentages in order of importance to the Target Customer.
Total Population × Age% × Income% × Education% × Occupation% = Total Market
162,908×47.08%×55.90%×56.78%×50.91% = 12,393 persons
Market Share For Coffee Circus
2.2% Of Market=276 Cust./Day or 17 Cust./Hour
1.8% Of Market=230 Cust./Day or 14 Cust./Hour
1.6% Of Market=202 Cust./Day or 12 Cust./Hour
The occupancy of Coffee Circus is 127 persons. Two different methods can be used to determine occupancy levels.
Hourly - If you estimate percent of occupancy on an hourly basis, the customer rate would be 9.4% of occupancy. 12 cust/hr /127 = 9.4% occupancy per hour
Mealtime - Typically, you will have two turnovers per meal. Based on projections the percentages would be 23% for breakfast, 27% for lunch and 32% for dinner.
Breakfast - 57 cust/2 = 29 cust/127 = 23% occupancy level
Lunch - 67 cust/2 = 34 cust/127 = 27% occupancy level
Dinner - 79 cust/2 = 40 cust/127 = 32% occupancy level
In reality, the true occupancy rate lies somewhere in the middle. Not all of the customers will come in during those dinner times nor will they be spaced evenly throughout the day.
Promotion & Advertising
The advertising and promotion will take a number of avenues. First, flyers will be distributed in the neighborhood. Ads will be taken out in all of the Catholic church bulletins in the area: Holy Martyr, Queen of Peace and St. Christopher's. These ads will offer 10% off, if the parishioner brings the bulletin with them. The restaurant is located one block from Holy Martyr Church and school. The owner's family attend the church and have a son who has been a student in the school for 7 years. Special events will be promoted with a portion of the proceeds going to the school. Since Coffee Circus will be the first union restaurant in the state, ads will be placed in all of the union newsletters offering a 10% discount to anyone showing their union card. Ads will also be placed in the target areas of the Burns' Grocery, and the local neighborhood newsletters. For special entertainment nights, radio and newspaper ads will be placed. Entertainment and food critics will be given an invitation. On opening night we will have an invitation only party, with over 1,200 invitations being sent.
For businesses in the area, menus will be distributed and ordering will be available by fax. A customer mailing list will be developed with a calendar of events being mailed on a monthly basis.
Servers will always ask the customer if they want added items, i.e. specialty coffee, soup with the sandwich, appetizers, and dessert. This will not only increase sales for the business but will also increase the amount of money the server makes. Most people tip according to a percentage of the check. The higher the check the greater the tip. The server can control their own income.
All tables also will have "table tents" or advertisements. The tents will describe upcoming events. Also, pictures and descriptions of items for sale, such as micro-brewed beers, desserts, etc., will be on the tents. The menus will provide detailed descriptions of the items available, including a section describing the different types of beers available. For example, the chili beer.
If the customer has a complaint, everything will be done to satisfy them. If that does not work, the customer will be given their meal free of charge.
Chicken Little - Northwest corner of Holgate and 37th Ave. One block north of Coffee Circus.
Provides home-style cooking. Known for their southern style cooking. Pleasant homey surroundings. The restaurant caters to families who want to eat and leave. No live entertainment is provided. Their prices are moderate with little or no variation. They are known for good quality food and service. Extremely clean and well managed. There is little or no product comparison. They have become successful due to location and reputation.
Burger's Joint - Northwest corner of Holgate and 37th Ave.
A well-known fast food franchise with a good presence and marketing plan. The food and prices are about the same as their competition. There is no product comparison.
LaJolla - Southeast corner of 37th Ave. and Holgate
Serves Mexico City style food. The atmosphere is upscale and the food pricing is moderately high. The food is highly specialized and caters to a certain type of clientele. There is no comparison.
Steve's - Northeast corner of 37th Ave. and Holgate
Serves a full course menu. The pricing is moderate, but cheaper than Chicken Little. The quality is fair. Most persons eat there because of pricing and because they are shopping at the store. There is very little competition for Coffee Circus.
Keep cost of goods sold at or below 30%. Provide customers with prompt and courteous service.
- Provide initial training for all employees
- Hold monthly employee meetings
- Have an open door policy for employee suggestions and concerns
- Implement the use of the Business Plan systems
- Purchase and use the Food Fax software package
- Have clearly defined job descriptions and duties
- Have an employee policy handbook
- Do employee reviews every six months
- Customer suggestion box
- Design kitchen and service area to be efficient
The product will be distributed in the restaurant by food servers. The food will be cooked on site, except for some of the baked goods. Some of these, such as croissants will be purchased in the raw frozen form and baked daily.
When a customer enters Coffee Circus they will be greeted by a hostess who will seat them and provide them with menus. A server will greet them and give them water. The server will inquire what they would like to drink. The drink order will be prepared by the server. If the drink is either beer, wine or coffee, that will be prepared by the bartender. The drink order will be given to the bartender on a written check, which will be rung up on the register. If the server fixed the drink, it will be rung up on the register by the server. The server will deliver the drinks and then take the food order if the customer is ready. The server will take the food order, ring it up and the order will appear on the cook's computer screen. The cook will prepare the food, in the order the tickets are given. The server will prepare the salads, desserts, hot and cold soups and other items. The cook places the finished food on the window. The server must pick the food up within two minutes. The food is placed on the table and the server will ask if there is anything else which the customer needs. The server will check all the drinks and replenish water, ice tea and plain coffee. The server will ask if the customer needs another drink. Specialty drinks are not refill items. Non-specialty drinks are free refills. The server will familiarize the customer with the operations of Coffee Circus. They will explain to the customer that a number of table games are available if they wish to play. The server will let the customer know about the reading room and present them with a schedule of events. The customer will always be asked if they would like dessert or an after dinner coffee. The server is responsible for checking on the customer in a timely manner. This should be done in an unobtrusive manner. The server will maintain the tables in a clean and sanitary condition. Dirty dishes and plates must be removed immediately. Condiments must be kept full and the containers clean. The server is responsible for presenting the check, payment of the check and returning a receipt to the customer.
The cook is responsible for cooking and preparing all dishes not prepared by the server. The orders will appear on the computer monitor and the cook will prepare them according to the order given. The cook and their assistants are responsible for preparing all items in the morning such as the soups for the day, slicing meat, making specialty items and other dishes for the day. The assistant cooks are responsible for the prep work of all items for the servers and the cooks. This includes stocking all supplies, cutting cheese, fruit, salad items, ice, filling soup tureens, etc.
Cleanliness is required above all else. The servers will keep all of their work areas clean at all times. Spills must be cleaned immediately. After each shift, servers will check the side work chart and have it finished before they leave. This work will be checked by the shift supervisor. The cooking area will be maintained in a clean and sanitary manner. All areas will routinely be wiped down and swept. The cooks and assistants will also have side work which must be completed before leaving. The dishwasher is responsible for keeping the dishes washed and helping with busing the tables if needed. The dishwasher is responsible for mopping the kitchen floor. All employees must read and be knowledgeable of health regulations and follow those rules. Training will be provided by Coffee Circus. Hands must be washed on a routine basis. Smoking is allowed only in designated areas. No smoking is allowed in any food preparation area.
The servers will be required to present a clean appearance. A uniform consisting of an eggshell white polo shirt with Coffee Circus logo, forest green walking shorts or long pants, black sneakers and black ankle socks. The servers must be polite, friendly, and helpful, not only to the customer but to the other staff as well. At no time will employees be allowed to discriminate by remarks, actions or jokes.
Additional regulations are contained in the Employee Handbook.
The cash register system will be Quix 3000 Touchscreen. The built-in system software prints hard or soft guest checks, uses single or multiple remote printers, and reports and tracks data terminal to terminal, or throughout the network. Produces management reports for system, terminal, or revenue center; current and/or to-date totals for:
- Employee/cashier balance reports
- Employee tip reports
- Open and closed check reports
- Time period sales analysis
- Detailed or summarized menu item sales analysis
- Detailed or summarized sales group and category analysis
The food price will be in the moderate range and comparable to other coffee houses in the area. The cost will be determined by not only what the going rate in the area is but also by the percentage of actual cost of the food. The price will not only be competitive, but the food will be tasty, well presented, and large portions will be served in a relaxing atmosphere where the customer will be comfortable. The image projected by the pricing will be that the customer will be getting a fair value for their money; that they do not need to be rich to eat at Coffee Circus and anyone can afford to come in. They will be able to use the books and games. In the evening, they will be able to listen to the live entertainment. During the day, music will be played over the PA.
Credit terms will be offered only in the form of credit card service, such as Visa, MasterCard and Discover. Many people who eat out prefer to pay with credit cards, whether it is to keep track of expenditures or for a work expense account.
The cost of the food will be based on a set percentage. Restaurants traditionally keep food costs between 26% to 32%. Based on the type of food to be served and the delivery system, the percentage for Coffee Circus will be an average of 30% of the actual cost of the food. In order to accomplish this, Food Fax software will be utilized. The software contains the following features.
Inventory Accounting System
Calculates cost of goods, provides shelf-order inventory forms, receiving logs, compares actual usage to average usage by item, ranks highest over and under use items. Tracks vendors, allows look-up by name or vendor item codes. Automatic distribution of invoice amounts to general ledger account numbers. Purchase and transaction recap reports, inventory level control reports, price history and fluctuation reports.
Recipe Costing and Sizing
Plate and batch recipes instantly costed as prices change. Sizing and modeling capabilities.
Complete menu and sales analysis reporting. Evaluate menu performance, run products by contribution. Product cost reports available by day or any combination of days. Sales mix can be sequenced to follow "Z" tape order for fast data entry.
Ideal Use/Perpetual Inventory
Tightest possible method of inventory control compares actual use to ideal use by item and computes variance. Includes ability to run perpetual inventories and track batch recipe production variances.
Bid and Purchase Order
Built-in bid pricing system allows entry of vendor bids and automatic selection of best price available. Shopping list feature, automatic PO creation, price history reports and more.
Import sales mix data directly from almost any cash register. POS system or polling package.
Accounts Payable Interfaces
Export purchases to accounts payable system.
The suppliers have all been in business for a number of years and have dependable reputations.
They will supply all of the bread products such as croissants, loaves of bread, pastries, etc. The Works is a major supplier to restaurants in the area.
Genevieve Pie Company
Since 1987, Genevieve Pie Company has been creating a quality line of dessert products satisfying even the most discerning palate. One of their best known customers is The Big Easy.
Genevieve's is also the distributor for Verson Amos. Verson Amos has built a reputation of manufacturing the finest products since 1980. They will supply the cheesecakes.
Southwestern Coffee Roasters
This family owned and operated company has been roasting coffee for almost a decade. They will supply all of the coffee, teas, and equipment. They also provide ongoing barista training for all Coffee Circus employees at no cost.
Lewis Business Systems
Lewis will provide the Purveyor system. For 25 years, Lewis has provided operational solutions to the hospitality industry. Their specialized focus on restaurants, hotels and bars has made them one of the largest dealers of Quix systems in the country.
Powerhouse, Inc. will provide the software package to track the food inventory and pricing. This system was explained in depth previously.
For over a decade, Powerhouse has specialized exclusively in food and beverage management. In addition to its Food Fax software, recognized world-wide as the industry standard, Powerhouse's consulting and training expertise has been utilized by trade associations, publishers, governments and private companies to help operators reduce costs and improve profits.
Brite Lite will provide the outside signage.
Dirt Out will lease the dishwashing system to Coffee Circus. The lease includes all servicing, parts, labor, and chemicals. There is never an added charge. Dirt Out builds, guarantees and services its dishwashers. They provide regular and emergency service whenever you need it.
In Line has been in business for four years doing tenant improvements and design coordination. Clients include, Tasmania Restaurants, Red Bank and St. John's Boats. In Line is versed in all areas of restaurant permitting, design and regulations.
To have a competent and knowledgeable management staff which functions as a team.
- Hire experienced, qualified persons
- Conduct weekly management meetings
- On-going training to include outside classes in food service, management, etc.
- Reviews every six months
- Performance incentives
- Encourage creativity
Coffee Circus will be operated as a Sole Proprietorship. There will be private investors. However, these investors will be silent investors with a payoff of investment within three years. These investments will be paid twice-yearly in equal installments including interest.
Overall management will be the responsibility of the owner. There will be a general manager and shift supervisors.
As owner, Kirby Pitt brings to Coffee Circus an extensive and varied background. She has been General Manager for two restaurants and has been the Dining Room Captain for a major private club.
Her most recent experience was with a non-profit agency. She was responsible for overseeing three housing programs for the agency and a staff of six persons. Her duties included: monthly reports to Santa Fe Bank, City of Bradford and State Housing Trust Fund; over a $500,000 yearly budget. Ms. Pitt is competent in all areas regarding regulations for the above mentioned organizations, and other government programs.
Also, she performed the grant writing, and was responsible for fundraising and public speaking on behalf of the agency. She worked closely with the Executive Director on purchases of properties for affordable rental from Santa Fe Properties and also wrote the Sante Fe Properties monitoring reports.
In addition, she helped case-work clients, advocated for low income persons, performed housing counseling for persons in danger of foreclosure and worked with union members in need of services.
She serves as a commissioner for the City of Santa Fe Human Service Commission. She is also a member of the executive committee and the community services committee, and serves on the advisory board for the Oasis Family Service Center. In 1984, she was appointed by Mayor Gilda Raye to the Southwestern Village Planning Committee and is a registered lobbyist.
This position has not been filled. The requirements of the position require 10 years experience in restaurants, at least five of those years in some type of supervisory position. A bachelor's degree in hotel and restaurant management is preferable. The candidate for this position will be required to submit a resume and verifiable references. The candidate will be interviewed and hired by the proprietor.
The general manager will report directly to the owner. They will be responsible for the overall management of the staff. They will work in conjunction with the owner in ordering supplies, maintaining inventory, handling customer complaints and scheduling staff. Other duties would include ensuring staff coverage for all shifts and reports to the owner.
Must have five years experience in restaurant work. At least three years as a server. They must be at least 21 years old. They must possess a friendly and outgoing personality and have good personal hygiene.
The candidate for this position will be required to submit a resume and applications.
The candidate will be interviewed and hired by the proprietor and general manager.
They will be responsible for the oversight of the servers, bus person and hostess on their shift. They will work under the general manager.
The shift supervisor also works in the capacity of a server and is responsible for waiting on tables, taking the customers' food and drink orders and acting as cashier for their customers. They are responsible for helping to keep the serving area and the customer areas clean and sanitary. They are responsible for helping the assistant cook keep the service area stocked. At the end of their shift, they will be required to complete all side work as assigned.
The cooks must have a minimum of five years experience, three of which must be as a cook not an assistant. They must have at a minimum a GED or high school diploma.
The cook will submit a resume and fill out an application. They will be interviewed and hired by the owner and general manager.
The cook is responsible for cooking food served in the restaurant. They also are responsible for preparing food items in advance and seeing that the service area is kept stocked. Their responsibility is to see that the kitchen is kept in a clean, sanitary and working order. They oversee and train the assistant cook.
The assistant cook must at a minimum have a GED or be attending school or a training program. They must be at least 18 years of age.
Will be required to submit an application. Will be interviewed and hired by the cook, general manager and owner.
The assistant cook is responsible for assisting the cook in his duties. He/she is responsible for helping to keep the kitchen clean and sanitary. When needed will help with dishwashing duties. He/she is responsible for keeping the service area stocked.
The servers must have at a minimum a GED or be attending school or a training program and one year's experience working in a restaurant. They must be at least 21 years of age. They must possess a friendly and outgoing personality and have good personal hygiene.
Will be required to submit an application. Will be interviewed and hired by the shift supervisor, general manager and owner.
The server is responsible for waiting on tables, taking the customers' food and drink orders and acting as cashier for their customers. They are responsible for helping to keep the serving area and the customer areas clean and sanitary. They are responsible for helping the assistant cook keep the service area stocked. At the end of their shift, they will be required to complete all side work as assigned.
The hostess must have at a minimum a GED or be attended school or a training program. She must be at least 18 years of age and must possess a friendly and outgoing personality and have good personal hygiene.
Will be required to submit an application. Will be interviewed and hired by the shift supervisor, general manager and owner.
The hostess is responsible for greeting customers as they arrive at the restaurant and seating them. She is required to take reservations and answer the phones. Also to assist with busing tables or assisting the servers when available. Duties include keeping the lobby area clean.
The bus person must be attending school or a training program, must be at least 16 years of age and have good personal hygiene.
Will be required to submit an application. Will be interviewed and hired by the shift supervisor, general manager and owner.
The bus person is responsible for keeping dirty dishes off the tables. When customers leave they must clean the table and prepare it for future customers. They are to help the servers with getting non-alcoholic drinks. They also are responsible for helping the servers. They are responsible for helping the assistant cook keep the service area stocked. At the end of their shift, they will be required to complete all side work as assigned.
To maintain costs of goods sold to 30% or less. To increase sales within an 18 month period to 3% of the target market. To maintain financial records according to GAAP.
- Purchase and use Food Fax software
- Train employees proper food handling to prevent waste
- Maintain a weight and portioning system for food
- Check for quality of food from suppliers when food is delivered
- Maintain storage equipment in proper working condition
- Hire an experienced and qualified accounting firm
- Contract out payroll
- Purchase a personnel computer
- Utilize Business Plan equipment Use Accounting software
Financing Plan and Exit Strategy
The total needed capital for Coffee Circus is $99,000. Owner's cash contribution is $10,000 and other investors and family members is $16,100. The amount needed in loans is $30,800 for equipment, $20,000 for remodeling, and $23,000 for operations. This is at total of $73,800.
An acceptable exit strategy for Coffee Circus is to sell the business to another company. The restaurant business is booming in Santa Fe.
The least desirable plan would be to sell the equipment, furniture and other assets. The remaining balance would have to be renegotiated and a payment plan worked out.
|Month 1||Month 2||Month 3||Month 4||Month 5||Month 6||Total|
|Fliers, Newsletters, Church Bulletins|
|Six Month Total||$4,275.60|
|Owner's Initial cash contribution||$10,000|
|Total available cash||$99,900|
|Total Cost of Capital Equipment|
|Licenses & Permits||$12,000|
|Deposits (public utilities, etc.)||$500|
|Adverting (grand opening, etc.)||$1,000|
|Promotions (door prizes, etc.)||$1,000|
|Total Start-up Expenses||$87,038|
|Beginning Cash Balance||$12,862|
|10 End Tables||$300|
|Total Cost Capital Equipment||$30,800|
|# of Periods||120|
|Mth#||Mthly Pay||Int.||Principal||Rem. Princ.|
|Projected Income Statement For Year Ending December 31, 1996|
|Jan '96||Feb '96||Mar '96||Apr '96||May '96||Jun '96|
|Cost of Sales||$15,761||$16,392||$17,048||$17,729||$18,084||$18,446|
|Legal & Acounting||$200||$208||$216||$225||$234||$243|
|Rent & Lease||$3,746||$3,746||$3,746|
|Repairs & Maint.||$500||$500||$500||$500||$500||$500|
|Taxes & Licenses||$111||$1,156||$1,201||$1,250||$1,275||$1,300|
|Total Operating Expenses||$32,343||$33,502||$33,664||$37,583||$37,737||$37,895|
|Jul '96||Aug '96||Sept '96||Oct '96||Nov '96||Dec '96||Totals Periods|
|Projected Statement of Cash Flow For Year Ending December 31, 1996|
|Jan '96||Feb'96||Mar '96||Apr '96||May '96||Jun '96|
|Cash Payments for Income Taxes||$0||$0||$0||$0||$0||$0|
|Cash Flow (Net Cash From Operations)||$4,433||$4,745||$6,113||$3,786||$4,459||$5,145|
|Cash Interest Payments||$644||$644||$644||$644||$644||$644|
|Cash After Interest Payments||$3,789||$4,101||$5,469||$3,142||$3,815||$4,501|
|Chgs Short-term Debt||$0||$0||$0||$0||$0||$0|
|Chgs Long-term Debt||$362||$362||$362||$362||$362||$362|
|Net Change in Cash||$3,927||$4,239||$2,607||$280||$953||$1,639|
|Net Change In Cash||$3,927||$4,239||$2,607||$280||$953||$1,639|
|Projected Income Statement For Year Ending December 31, 1997|
|Jan '96||Feb'96||Mar '96||Apr '96||May '96||Jun '96||Jul '96|
|Cost of Sales||$21,458||$21,672||$21,889||$21,670||$21,453||$21,239||$21,026|
|Legal & Accounting||$200||$200||$200||$200||$200||$200||$200|
|Rent & Lease||$3,746||$3,746||$3,746||$3,746||$3,746||$3,746||$3,746|
|Repairs & Maint.||$500||$500||$500||$500||$500||$500||$500|
|Taxes & Licenses||$8,513||$1,528||$1,543||$1,528||$1,512||$1,497||$1,482|
|Total Oper. Exp.||$51,370||$44,427||$44,485||$44,671||$44,613||$44,558||$44,885|
|Jul '96||Aug '96||Sept '96||Oct '96||Nov '96||Dec '96|
|Aug '96||Sept '96||Oct '96||Nov '96||Dec '96||Total Periods|
|Projected Statement of Cash Flow Year Ending December 31, 1997|
|Jan '96||Feb'96||Mar '96||Apr '96||May '96||Jun '96|
|Cash Payments for Income Taxes||$0||$0||$0||$0||$0||$0|
|Cash Interest Payments||$644||$644||$644||$644||$644||$644|
|Cash After Interest Payments||($1,947)||$5,497||$5,944||$5,248||$4,800||$4,355|
|Chgs Short-term Debt||$0||$0||$0||$0||$0||$0|
|Chgs Long-term Debt||$362||$362||$362||$362||$362||$362|
|Net Change in Cash||($1,809)||$5,635||$3,082||$2,386||$1,938||$1,493|
|Net Change in Cash||($1,809)||$5,635||$3,082||$2,386||$1,938||$1,493|
|Jul '96||Aug '96||Sept '96||Oct '96||Nov'96||Dec '96|
Coffee Bean Plant/Exporter
Coffee Bean Plant/Exporter
BUSINESS PLAN SILVERA & SONS LTDA
Minas Gerais, Brazil
This company prepares coffee beans grown in Brazil for export to U.S. specialty roasters and Brazilian wholesalers. Company success is determined largely by their reputation for being a provider of the highest quality Arabica beans in the world. Since demand for their coffee beans exceeds current production, they plan to bring their facility to maximum production to meet this need. This business plan was compiled using Business Plan Pro™, by Palo Alto Software, copyright © 2000.
- executive summary
- company summary
- market analysis summary
- strategy and implementation summary
- management summary
- financial plan
Silvera & Sons prepares green Arabica coffee beans grown in Brazil for exportation to American specialty roasters and sells to wholesalers on the Brazilian market. We will expand production capacity from 72,000/60kg bags per year to 120-160,000/60kg per year. Our coffee stands out from that of the competition. We prepare the top five percent, in terms of quality standards, of all Arabica beans on the market. Our customers seek this product as it provides them with a point of differentiation to specialty roasters. In the past six years, demand for our coffee has exceeded the amount we are able to supply and we have been forced to refuse requests for larger shipments.
We predict growth of thirty percent in the first year with sales exceeding ($BRL) 26,208,000. In year three the plant will run at maximum capacity and based on the current price of coffee we expect profits of ($BRL) 1.5 million. We have positive indicators from current importers that the additional amount of beans will be sold.
Our keys to success are:
- Establishing and maintaining working relationships and contractual agreements with American importers and Brazilian coffee brokers and wholesalers.
- Bringing the new facility to maximum production within three years of operation.
- Increasing our profit margin to seventeen and one-half percent (17.5%) with the use of improved technology in the new facility.
- Effectively communicating to current and potential customers, through targeted efforts, our position as a differentiated provider of the highest quality Arabica beans in the world.
The objectives of Silvera & Sons:
- Increase production and sale from 78,000/60kg bags per year to approximately 100,000/60kg bags per year in the first year of operation at the proposed facility and reach maximum capacity of 120,000/60kg bags per year by year three.
- Increase sales from ($BRL) 17.9 million to ($BRL) 26.2 million in the first full year of operation.
- Establish strategic relationships with 10-15 American importers in Los Angeles, San Francisco, and Seattle.
- Increase gross margins from fifteen percent (15%) to seventeen percent (17%) in the next three years.
Silvera & Sons Ltda. seeks to serve coffee importers and enthusiasts by exceeding minimum acceptable quality standards and by providing the highest quality product at the lowest possible price. We value our relationships with current and future customers and hope to communicate our appreciation to them through our outstanding, guaranteed product quality, personal service, and efficient delivery. Our commitment to our customers and the country of Brazil will be reflected through honest and responsible business.
Silvera & Sons buys and prepares raw coffee in parchment (pergamino), or coffee in its post-harvest stage. The finished product, green Arabica coffee beans, are packaged in 60kg sacks and sold on the U.S. and Brazilian market. Our customers are primarily American importers and Brazilian wholesalers who provide high-quality beans to the specialty roasting market.
Silvera & Sons Ltda. is a private, family owned preparer and exporter of Brazilian-grown, green Arabica coffee beans. It is owned and operated by Marco Silvera Sr. and his sons, Marco Silvera Jr. and Antonio Silvera.
Silvera & Sons is in its sixth year of operation. The current plant has been in operation for 15 years and for 12 of those years was managed by Marco Silvera Sr. who was then an employee of the former owner, Cafe Fina. Since the plant was purchased, Silvera & Sons has maintained maximum production and sales. It is currently operating at maximum capacity.
|Gross % (calculated)||15.00%||15.20%||15.34%|
|Collection period (days)||60||60||60|
|Other Short-term Assets||$0||$0||$243,936|
|Total Short-term Assets||$0||$0||$1,730,646|
|Total Long-term Assets||$0||$0||$421,650|
|Capital and Liabilities|
|Other Short-term Liabilities||$0||$0||$0|
|Subtotal Short-term Liabilities||$0||$0||$66,435|
|Paid in Capital||$0||$0||$525,000|
|Total Capital and Liabilities||$0||$0||$2,152,296|
|Sales on credit||$0||$0||$6,054,048|
Company Locations and Facilities
The Silvera & Son's main warehouse and office is located in Ouro Fino. The warehouse has the capacity to prepare approximately 6,000 60kg bags of exportable coffee beans. The proposed new warehouse and preparation facility site is also located in Ouro Fino. The new facility will be 3,500m2 and will have 30 selecting machines with capacity to prepare 40,000 bags for exportation and 80,000 bags for storage. The proposed facility will also handle shipping.
Silvera & Sons deals exclusively in green coffee, grown in the southern states of Brazil and one-hundred percent Arabica. Beans in parchment are purchased directly from growers and are de-husked and packaged into 60kg sacks in the Silvera & Sons plant. The final product is suitable for sale and exportation.
In order to differentiate our product, coffee, which is a commodity, from the product offering of competitors, all beans are guaranteed fresh and are shipped within seven days of preparation. In addition, all beans are sorted at ninety-five percent screen 18 and above compared to the industry standard ninety percent screen of 17 and above. The beans shipped by Silvera & Sons are therefore larger than most and are guaranteed fresh. In addition, all of the farms from which Silvera & Sons purchases coffee adhere to environmentally sound farming practices and avoid the use of pesticides and chemicals in crop production.
There are approximately ten competitors who offer a product similar to ours. Our research indicates that with the additional capacity we would become one of the top four providers, in terms of quantity. We have the advantage of established distribution channels and reputation. In addition, improvements to our marketing efforts will further separate us from the larger market and from our close competitors.
Silvera & Sons currently works with two importers in the United States who handle all of our shipments. Likewise, we have dealt with the same Brazilian wholesalers, for internal sales, each year. Sales to this point have been handled through personal selling. Additional sales literature will include a website, direct mail to specialty roasters and importers, and print advertising in several trade publications including Coffee Times, a monthly publication which targets American business dealing with issues relevant to the coffee industry.
Both the existing and the proposed facilities are ideally located in Ouro Fino, in the state of Minas Gerais. Minas Gerais is the largest coffee producing state in Brazil and beans produced in the region are of the highest quality. With additional financing, we would be able to buy larger volumes at lower prices. We now buy from one or more of six private growers or grower cooperatives. Contracts are secured six months in advance of harvest.
Improvements in technology will include the use of partially automated selecting machines which will allow for increased production capacity with a lower machine-to-operator ratio than we currently employ.
Additional storage capabilities will decrease shipping charges and will reduce the need for permanent shipping employees by thirty-five percent. High-technology information system upgrades will improve all aspects of business, especially inventory control, tracking of shipments, and communication with clients in import countries.
Silvera & Sons sells only the finest Arabica coffee beans. This is an important distinction in evaluating our coffee because the alternative to the Arabica bean, Coffea Robusta, though it shares some similarities with the Arabica bean, is very different. Coffea Robusta is grown at lower elevations and has a higher yield per plant as well as being more resistant to disease. It also has up to twice the caffeine level as its cousin, the Arabica Bean. Due to the lower cost and larger market amount of Robusta coffee, it is found primarily on supermarket shelves. The Arabica species grows at much higher elevations, better soil rich areas, and is the source of the world's finest coffees.
By providing the finest species of coffee, Silvera & Sons has taken the first step towards a differentiated product. To further distinguish our coffee, we adhere to higher quality standards than approximately ninety-five percent of the market. In addition, all of our beans are of the Bourbon Santos variety. The "Bourbon" strain is considered one of the finest Brazil has to offer. It is grown in the mountains surrounding Sao Paulo and is highly sought after by specialty roasters from around the world. We have assumed the position of a specialized provider of this exceptional coffee. Our customers, American and Brazilian specialty roasters, recognize Silvera & Sons for our ability to provide the type of beans they require to produce award-winning coffee.
MARKET ANALYSIS SUMMARY
Coffee is the second largest commodity market next to oil and Brazil has remained the largest producer of coffee in the world for two centuries. Imports of Arabica coffee in the United States have increased ninety-four percent in the past five years and consumption of coffee within Brazil has seen similar increases. In addition, demand for green coffee is above the market clearing level, and market price and crop yield estimates are at an all-time high.
The increase in the number of independent specialty roasters in the United States and Brazil has contributed to and is an indicator of the increased demand for coffee. Within the larger coffee market is our target market, the specialty roaster. These discerning customers want the highest quality coffee beans. They serve the growing "gourmet" coffee market and are represented by large American companies like Starbucks and thousands of smaller specialty roasters. The Arabica bean is considered to be the best in the world and as such, the demand for Arabica beans is high on the specialty roaster market. Specialty roasters are willing to pay more for Arabica beans and attempt to distinguish themselves via the characteristics of the bean they use, i.e., the location in which it was grown, farming methods, bean size, etc. The final consumer is relatively price insensitive if the coffee is good, has won awards, or is compatible with a popular trend. We estimate that specialty roasting in the U.S. alone is a ($USD) one-billion market.
The potential customer groups for Silvera & Sons are:
- American importers of green Arabica beans: Market research suggests that there are approximately 200 importers of green Arabica coffee on the West and East coasts of the United States that would be able to handle the quantities of our shipments and are in our target market. Combined, they import a total of four to five million/60kg bags of Brazilian coffee per year.
- Brazilian green coffee wholesalers: This market serves as a safety valve for our export business. By maintaining relationships with Brazilian wholesalers we have an alternative market with established distribution channels.
- Brazilian specialty roasters: As we move towards maximum capacity we will plan to more aggressively target this audience. We hope to eventually reduce transactions with wholesalers and capture their value-added costs as profit. We anticipate that this effort will begin approximately four years into operation of the new facility.
|U.S. Importers (60kg bags)||26%||70,140||88,376||111,354||140,306||176,786||26.00%|
|Brazilian Wholesalers (60kg bags)||26%||30,060||38,876||47,724||60,132||75,766||26.00%|
Coffee has been a growing industry for the past five years. The most notable growth has been in the American market where imports have increased almost one hundred percent and the market price has nearly doubled. The number of specialty roasters has increased from a handful of well known companies to thousands of independent entities. There is a constant struggle within this market to produce the best coffee and serve one or more niches within the larger market. Brazilian coffee producers and exporters have made great efforts to improve agricultural techniques, processing methods, and distribution in order to better serve this growing market. Demand for Brazilian coffee is currently greater than supply.
Silvera & Sons deals exclusively in the exportation and sale of green Arabica beans. There are approximately 150 Brazilian businesses in this market. However, approximately 30 companies account for approximately eighty percent of the total amount of green Arabica exports. In addition, many of these companies prepare, export, and sell, to the Brazilian market, other coffee products. Additional products include:
Green Robusta (Conillon) beans: The Robusta bean is produced in far less quantity in Brazil than the Arabica and is considered an inferior species. The Robusta market represents less than ten percent of all coffee produced in Brazil.
Soluble coffee products: These are instant (water soluble) coffees and are either decaffeinated or not. Sales of soluble coffee products account for approximately twelve percent of the total market.
Roasted and ground coffee: Approximately eighty-five percent of all roasted and ground coffee (decaffeinated and non-decaffeinated) goes to internal consumption and represents approximately twenty-seven percent of the total coffee market.
Primary competitors include: Golden Brazil, Bramazonia, Comexim, and Nicchio Cafe.
All of the coffee produced for exportation by Silvera & Sons and approximately eighty-five percent of all coffee produced for exportation in Brazil is shipped from Porto de Santos. Prepared coffee is shipped via rail and/or truck from the Silvera & Sons plant in Ouro Fino to Porto de Santos. From the port it is then shipped, in 40 foot containers to the port of Miami via cargo ship. Distribution charges are assumed by Silvera & Sons up to the arrival of the shipments in Miami whereupon importers assume responsibility, as detailed in contract, of the shipment and additional distribution charges.
Competition and Buying Patterns
The purchase decision for our customer is based on trust in our process and bean selection. We have established relationships with our customers which extend beyond that of the buyer/seller. The Silvera & Sons label means that the product has been chosen and prepared with the highest quality standards in mind. Our beans are priced up to nine percent higher than similar products. Our customers are willing to pay more for our product because they are familiar with us and trust in the quality of our beans. This is the result of their success in the marketplace with our product.
There are approximately 150 exporters of green Arabica beans in Brazil. According to the Brazilian Coffee Exporters Association, ABECAFE, fifty percent (50%) of all green coffee exports come from their 45 members. Approximately eighty percent (80%) of these exports come from 20 ABECAFE members. Market contributions of individual exporters are held in strict confidence and are not available to the public. However, based on this information and given the large number of remaining exporters not affiliated with ABECAFE who account for the remaining sixty percent (60%) of all exports, we assume that many of the largest competitors are among the ABECAFE members. They are:
Agro Food, Allcoffee, Bramazonia,
Cafe do Ponto, Cafeeira Carolina, Cargill Agricola,
Casas Sendas, Cocam, Comexim,
Comercial Ben, Compel, Cooxupe,
Cotia Trading, Custudio Forzza, Esteve,
Eurobrasil, Fazenda da Serra, Guaxupe,
Inter-Continental, JR Exportadora, MC Coffee,
Melitta, Mitsui Alimentos, Nicchio Cafe,
Nova America, N.S. da Guia, Ottoni & Filhos,
Porto de Santos, Ref. Oleos Brasil, R & G,
Rio Doce, Tres Coracoes, Volcafe.
STRATEGY AND IMPLEMENTATION SUMMARY
Silvera & Sons' strategy is to expand production capabilities in order to fulfill the requests of importers with whom we currently deal for larger orders which we are unable to currently fulfill. In addition Silvera & Sons seeks to establish additional contracts with importers on the West Coast of the United States and increase the volume of green coffee sold on the Brazilian market. We intend to first maximize quantity of coffee sold within existing channels and second, establish additional accounts through targeted marketing efforts.
Our main strategy is to communicate the unique and desired attributes of our coffee to larger segments of the American and Brazilian markets. We sell a superior product, yet one that can be considered a commodity. It is therefore important that we effectively communicate the unique aspects which make it ideally suited for a niche market.
The unique aspects of our products include superior product selection and preparation, quality assurance, and efficient distribution. These are things we have done since we started doing business. The tactics we will use to communicate these strengths include, personal selling, targeted print advertising, and improved communication capabilities via information system improvements and a sophisticated website.
As tactics below the pyramid, we have identified three specialty publications in the United States and two in Brazil in which we will run print ads. We also plan to increase personal selling efforts to additional American importers. Part of the personal selling will include invitations to importers to visit our facilities, at our expense.
Silvera & Sons' competitive edge comes from the advantage of having established relationships with American importers, and Brazilian coffee growers, green coffee brokers and wholesalers. Silvera & Sons has received affirmation of the demand for their product in the form of requests from importers for larger product shipments. Ours is a superior product offering because of the larger average size of the bean and because we purchase from growers who rely on the use of chemicals and pesticides less than two percent of the time. In addition, prompt preparation and shipment provides importers with a product that is up to one month fresher than beans sold by many exporters.
Silvera & Sons marketing strategy will include the use of targeted print media advertising and direct selling to importers in the United States who provide green coffee to specialty roasters. We will capitalize on existing relationships with importers who have stated their willingness to contact West Coast affiliates and recommend Silvera & Sons coffee. We have positioned ourselves as a differentiated provider of the highest quality Arabica beans. The primary goal of all marketing efforts will be to communicate this to existing and potential customers.
For American importers of Brazilian coffee who use our coffee to supply specialty roasters, Silvera & Sons coffee beans are the highest quality and largest beans available. Unlike many exporters, our beans exceed the minimum acceptable quality standards and are shipped within one week of preparation to ensure the largest and freshest beans on the market. Our products are perfectly suited for the specialty roasting market which constantly strives to offer award-winning coffee.
Because Silvera & Sons adheres to higher quality standards, the price of our coffee is slightly higher (four to nine percent) than the market average. The import market largely determines the price of imported coffee in the United States. Beans that do not meet Silvera & Sons quality standards are resold on the Brazilian market at the current market price. Green coffee, on the import market, now sells for US$ 213.56/60kg bag. According to Silvera & Sons' pricing strategy, Silvera & Sons coffee would sell for approximately US$ 224/60kg bag. Importers to this point have been willing to pay the additional cost.
Relationships are key to success in the export business. Importers in Florida have on several occasions visited the Silvera & Sons facility, family home, and farms from which coffee is purchased. Additional accounts and contacts with West Coast importers have all been established and maintained through personal contact. Personal selling will remain our most important means of promotion. Marco Silvera Jr. will continue to lead this effort. In addition to personal selling, Silvera & Sons has identified several specialty publications within which print advertisements will run. Direct mail, in the form of personal letters will also be used to communicate with existing and potential clients. Our budget for promotion activities is as follows:
- Personal Selling which includes phone expenses, travel for Silvera & Sons employees and for importers who we invite to Brazil: ($BRL) 35,000 annually.
- Print Advertising in three specialty publications and direct mail: ($BRL) 12,000 monthly.
- World Wide Web presence: ($BRL) 125,000 to produce a new site and $2,500 annually to maintain the site.
Distribution is one of the greatest challenges faced by Silvera & Sons. The distribution system of Brazil is largely outdated and inefficient. Moreover, taxes, specifically excise taxes, are high. Distribution costs for internal sales are absorbed by the customer but distribution costs for exports are absorbed by us. Increasing the volume of our exports makes us eligible to receive reduced fees and helps ensure that trucks and rail cars are running at maximum capacity.
Our most important marketing program is an increase in personal selling combined with targeted direct mail and print advertising. Marco Silvera Jr. will be responsible, with a budget of ($BRL) 35,000 and a milestone date of May 30, 1999. The program is intended to establish contractual agreements with 10 additional importers, increase brand awareness of our product in the United States, and communicate our position as a provider of the highest quality green Arabica beans on the market.
Another key marketing program is the development of a sophisticated website. The goal of this program is to increase our presence on the world wide web and provide additional means of communication and customer data collection. The website will cost ($BRL) 125,000.
Silvera & Sons' strategy focuses first on meeting the increased demand from importers with whom we have established relationships for larger orders. These importers are critical to our ability to acquire additional accounts on both the East and West coasts of the United States without having to spend a great deal on sales efforts. Secondly we will focus on increasing the volume, while maintaining the percentage of sales, of beans sold to the internal Brazilian market. When we have reached maximum sales to existing channels we can then shift the majority of our focus to securing additional import accounts.
The following table and chart show our present sales forecast. We project sales to grow approximately forty percent in 1999, increase again by twenty percent in 2000, and reach maximum for production capacity in 2001 representing a thirty-three percent growth over the previous year.
|Import and Export||100,200||120,000||160,000|
|Total Unit Sales||100,200||120,000||160,000|
|Import and Export||$262.08||$275.18||$288.29|
|Import and Export||$26,260,416||$33,021,600||$46,126,400|
|Direct Unit Cost|
|Import and Export||$212.00||$222.60||$233.20|
|Direct Cost of Sales||1999||2000||2001|
|Import and Export||$21,242,400||$26,712,000||$37,312,000|
|Subtotal Direct Cost of Sales||$21,242,400||$26,712,000||$37,312,000|
Personal selling: Through personal contact we need to confirm in writing orders for larger quantities of our product from American importers and Brazilian wholesalers. In addition we need to establish sales agreements with at least six, possibly ten, additional American importers. Marco Silvera Jr. is responsible and the due date is May 30, with a budget of ($BRL) 24,000.
Our most valued alliances are those we have developed with American importers. They have the ability and willingness to purchase larger quantities of our products and recommend us to other importers. Additional alliances with trucking contractors and the Porto de Santos Cafe Commission are currently established.
The accompanying table shows specific milestones, with responsibilities assigned dates, and budgets. The milestones represented in this plan are those which we have determined to be the most important.
|Milestone||Start Date||End Date||Budget||Manager||Department|
|Secure Financing||1/1/99||2/1/99||$12,000||M. Silvera Sr.||Finance|
|Establish Import Accounts||1/1/99||5/1/99||$18,000||M. Silvera Jr.||Sales &Marketing|
|Increase Production||1/1/99||9/1/99||$18,000||Antonio Silvera||Production & Shipping|
|Hire Intl. Legal & Finance Spec.||1/1/100||1/1/100||$35,000||Unknown||Administration|
Silvera & Sons' management consists of four full-time employees. Additional assistance is acquired on a part-time basis and/or through the use of consultants, specifically in legal matters. Detailed descriptions are found in the following section.
Silvera & Sons is organized into three functional areas: product sourcing, sales, and marketing; production and shipping; and finance and administration.
Marco Silvera, Sr.: CEO/President in charge of finance and administration. Marco Silvera, Sr., 57, has worked in the coffee export business for 30 years. Before starting Silvera & Sons he was the Chief Financial Officer and general manager of the Cafe Fino coffee company. He began working for Cafe Fino after he finished an accounting degree at the University of Southern California. The current Silvera & Sons plant was formerly owned by Cafe Fino and was sold to Mr. Silvera who had decided to "retire" and wanted to run a small business. Cafe Fino had purchased larger facilities and no longer needed the plant.
Marco Silvera, Jr.: Vice president in charge of product sourcing, sales, and marketing. Marco Silvera Jr., 32, completed his M.B.A. at Syracuse University and worked for several years on the Brazilian stock and commodities market as a broker. He later took a position as an International Sales and Marketing Representative for a major agricultural brokerage and supply firm in Sao Paulo. He is expected to succeed his father as CEO of Silvera & Sons Ltda.
Antonio Silvera: Vice president in charge of production and shipping. Antonio Silvera, 29, worked as a civil engineer for two years for the Brazilian government after completing an engineering degree at the University of Brazil, Sao Paulo. He is responsible for the supervision of all plant employees.
- Ralph Henzo, CFO
- Gracie, Renoldo, & Fertado Attorneys at Law, Sao Paulo
Management Team Gaps
We currently lack a full-time professional who can deal with the changing legal and financial aspects of international business. We have relied on legal consultants but are now analyzing the possibility of adding an additional position to deal exclusively with international issues. In addition, as we continue to grow and hire more personnel, we may hire a controller.
The personnel plan requires an increase in plant employees from 11 to 17-20 within the next three years. Additional employees will also be added to increase administrative and accounting support. One additional employee will be added to the sales and marketing division. We will retain all current employees as they will not have to relocate.
|Antonio Silvera, VP Production||$38,400||$41,088||$43,964|
|Sales and Marketing Personnel|
|Marco Silvera, Jr., VP Sales/Mktg.||$45,000||$48,150||$51,521|
|General and Administrative Personnel||1999||2000||2001|
|Marco Silvera, Sr., CEO||$50,400||$53,928||$57,703|
|Ralph Henzo, CFO||$42,000||$44,940||$44,940|
|Name or title||$0||$0||$0|
|Total Payroll Expenditures||$703,364||$627,036||$699,573|
We want to finance growth through a combination of long-term debt and cash flow. Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow. Inventory turnover must remain at or above four or we run the risk of backing up orders and jeopardizing our freshness guarantees. We have had no problems with accounts receivable and we expect to maintain our collection days at 30 with thirty percent of sales on credit.
In addition, we must achieve gross margins of thirty-five percent and hold operating costs no more than sixty-five percent of sales.
Important assumptions for this plan are found in the following table. These assumptions largely determine the financial plan and require that we secure additional financing.
|Short-term Interest Rate %||14.00%||14.00%||14.00%|
|Long-term Interest Rate %||9.00%||9.00%||9.00%|
|Payment Days Estimator||60||60||60|
|Inventory Turnover Estimator||12.00%||12.00%||12.00%|
|Tax Rate %||47.00%||47.00%||47.00%|
|Expenses in Cash %||5.00%||5.00%||5.00%|
|Personnel Burden %||9.00%||9.00%||9.00%|
Key Financial Indicators
The most important factor to Silvera & Sons' anticipated growth is the procurement of necessary financing. The size of the orders currently requested by importers are larger than what can be produced given our present plant capacity.
We anticipate changes in key financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover. The growth in sales goes above thirty percent in the first year, twenty percent in second, and back to thirty percent in year three after which it will settle. We expect to increase gross margin but our projections show a decline in the first two years following the purchase of the new facility. This is due to the facilities not being run at maximum capacity. The projections for collection days and inventory turnover show that we expect a decline in these indicators.
The break-even analysis shows that Silvera & Sons has sufficient sales strength to remain viable. Our break-even point is close to 7,300 units per month and our sales forecast for the next year calls for almost 8,500 units per month on average. Projections are detailed in the following table.
|Monthly Units Break-even||7,333|
|Monthly Sales Break-even||$1,774,667|
|Average Per-Unit Revenue||$242.00|
|Average Per-Unit Variable Cost||$212.00|
|Estimated Monthly Fixed Cost||$220,000|
Projected Profit and Loss
We expect to close the first year of production in the new facility with ($BRL) 26,260,416 in sales and increase our sales to more than ($BRL) 33 million in the second year and ($BRL) 46 million in year three. Net earnings will average ($BRL) 2.4 million.
|Direct Cost of Sales||$21,242,400||$26,712,000||$37,312,000|
|Total Cost of Sales||$21,842,796||$27,373,884||$38,053,912|
|Gross Margin %||16.82%||17.10%||17.50%|
Sales and Marketing Expenses
|Sales and Marketing Payroll||$225,492||$128,150||$136,521|
|Total Sales and Marketing Expenses||$414,492||$342,150||$354,021|
|Sales and Marketing %||1.58%||1.04%||0.77%|
|General and Administrative Expenses|
|General and Administrative Payroll||$119,400||$130,228||$173,377|
|Total General and Admin. Expenses||$857,126||$859,402||$911,540|
|General and Administrative %||3.26%||2.60%||1.98%|
|Total Other Expenses||$18,000||$24,000||$30,000|
|Total Operating Expenses||$1,289,618||$1,225,552||$1,295,561|
|Profit Before Interest and Taxes||$3,128,002||$4,422,164||$6,776,927|
|Interest Expense Short-term||($2,800)||($24,290)||($50,540)|
|Interest Expense Long-term||$265,444||$238,449||$211,932|
Projected Cash Flow
Silvera & Sons expects to manage cash flow over the next three years with the assistance of a loan supported by the Central Bank of Brazil of ($BRL) 2,700,000. This financing assistance is required to provide the working capital to meet the current needs for the construction of the new production facility and additional personnel, distribution costs, and other related expenses.
|Change in Accounts Payable||$3,429,097||$700,083||$1,672,070|
|Current Borrowing (repayment)||($144,000)||($175,000)||($200,000)|
|Increase (decrease) Other Liabilities||($27,600)||($25,300)||($25,300)|
|Long-term Borrowing (repayment)||$2,394,750||($294,636)||($294,636)|
|Change in Inventory||$1,425,600||$396,977||$790,644|
|Change in Other Short-term Assets||$60,000||$75,000||$85,000|
|Net Cash Flow||$3,338,537||$2,829,414||$4,648,723|
Projected Balance Sheet
As shown in the balance sheet in the following table, our net will grow from approximately ($BRL) 935,626 to more than ($BRL) 1.48 million by the end of 1999 and to ($BRL) 3.46 million by the end of the plan period.
Pro-forma Balance Sheet
|Total Short-term Assets||$6,417,533||$9,718,923||$15,243,291|
|Total Long-term Assets||$2,905,650||$2,689,650||$2,473,650|
|Liabilities and Capital|
|Other Short-term Liabilities||($27,600)||($52,900)||($78,200)|
|Subtotal Short-term Liabilities||$3,323,932||$3,823,716||$5,270,485|
|Paid in Capital||$525,000||$1,175,000||$1,825,000|
|Total Liabilities and Capital||$9,323,183||$12,408,573||$17,716,941|
Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases based upon efficiency projections. Projections are based on the 1997/98 selling price.
|Net Profit Margin||5.78%||6.75%||7.60%|
|Return on Assets||16.29%||17.97%||19.79%|
|Return on Equity||47.42%||36.67%||34.24%|
|Accts Payable Turnover||6.89||6.89||6.89|
|Total Asset Turnover||2.82||2.66||2.6|
|Debt to Net Worth||1.91||1.04||0.73|
|Short-term Liab. to Liab.||0.54||0.60||0.70|
|Net Working Capital||$3,093,601||$5,895,208||$9,972,806|
|Assets to Sales||0.36||0.38||0.38|
|Current Debt/Total Assets||36%||31%||30%|
NAICS: 31-1920 Coffee and Tea Manufacturing
SIC: 2095 Roasted Coffee Manufacturing
NAICS-Based Product Codes: 31-19201 through 31-19204121
Coffee is an important world commodity. According to the International Coffee Organization, it is one of the most valuable primary products that is traded worldwide and for some exporting countries its traded value is second only to oil as a source of foreign exchange. Millions of people worldwide are employed in the coffee trade as growers, pickers, processors, millers, wholesalers, shippers, and roasters. Coffee has been an important commodity for at least 500 years. Stories about its origins and spread across the world are legendary.
One legend about the origin of coffee involves Kaldi the goat herder and takes place in Ethiopia on the east coast of Africa, across the Red Sea from the Arabian Peninsula. Kaldi discovered coffee after noticing that goats became so spirited after eating cherries from a particular tree they did not sleep at night. Kaldi reported this to the abbot of the local monastery. The abbot made a drink with the cherries and discovered that drinking it kept him and all the monks alert for the long hours of evening prayer. Support for this legend comes from the word coffee, allegedly derived from the region Kaffa in Ethiopia where the goat herder Kaldi lived. Knowledge of the energizing effects of the cherries spread to the Arabian Peninsula.
By the 1400s coffee trees were cultivated in the area of Arabia known as Yemeni located directly east across the Red Sea from Ethiopia. By the 1500s, coffee tree cultivation spread northward throughout the Arab region giving Arabians a coffee monopoly.
By the 1600s European travelers returned from Arabia with beans to make the dark black beverage, sometimes called the wine of Araby. Even though coffee foes called it the bitter invention of Satan, coffee trade spread through Europe.
In the latter half of the 1600s, the Dutch usurped the Arabian coffee monopoly. They planted seedlings on the cluster of islands in the Indian Ocean between India and Australia in what is now Indonesia and was then a Dutch colony referred to as the Dutch East Indies. From there, coffee spread westward to the Caribbean.
One legend about the spread of coffee to the Carribean island of Martinque north of the Venezuelan coast involves the French Naval Officer Gabriel Mathieu de Clieu. Serving in Martinique in 1720, de Clieu went to Paris on leave. He allegedly returned to Martinque with one coffee tree seedling. According to this legend, French Martinique stock spread southward across South America and westward into Central America.
According to other legends, the Dutch spread the coffee plant into South America and Central America from their colony Suriname in northeastern Brazil. The British are credited with introducing coffee into the legendary Blue Mountains of Jamaica in 1730. By 1825 the Blue Mountain coffee from Jamaica was planted in the United States, in Hawaii.
Definition and Species
Coffee beans are the seeds of fruits which resemble cherries. The cherries have a red skin (the exocarp) when ripe. Inside the skin and beneath the pulp (the mesocarp), lie two beans, flat sides together, each surrounded by a parchment-like covering (the endocarp). When the fruit is ripe a thin, slimy layer of gelatinous mucilage surrounds the parchment. Underneath the parchment the beans are covered in another thinner membrane, the silver skin (the seed coat).
The two commonly traded coffee bean species are Arabica and Canephora, known as Robusta. Each require 60 inches of rainfall per year, and mild temperatures. For these reasons, coffee production is limited to the areas of the globe between the tropics of Cancer and Capricorn.
Arabica trees make up about 70 percent of worldwide coffee production. Arabica trees produce fine, mild, aromatic coffee beans that bring the highest prices. Varieties include the expensive Jamaican Blue Mountain. Arabica trees are costly to cultivate because they are often grown at high altitudes, 2,000 to 6,000 feet, where terrain tends to be steep and difficult to access. Arabica trees are also more disease-prone than their cousin, Robusta trees.
Robusta trees make up approximately 30 percent of worldwide coffee production. The tree is hearty, disease resistant, withstands warmer temperatures, and grows at lower altitudes than Arabica. Its taste is considered inferior; robusta beans have a distinctive bitter taste and approximately 50 to 60 percent more caffeine than Arabica. Robusta is primarily used in ground coffee blends and for instant coffees.
Taste Testing or Cupping
The legendary coffee beans pass through the hands of growers, pickers, dryers, processors, millers, wholesalers, exporters, shippers, and roasters. At every handoff, coffee beans are taste tested.
Taste testing is called cupping. Most handlers designate a special room for just the ritual of cupping. The taster—called the cupper—evaluates the beans for aroma, taste, and mouthfeel. To do so, the beans are roasted on the spot in a small laboratory roaster, ground, and infused in water boiled to a carefully controlled temperature.
The cupper noses the brew to experience its aroma. After letting the coffee rest for several minutes, the cupper breaks the crust by pushing aside the grounds at the top. After again nosing, the cupper slurps a spoonful with a quick inhalation. The objective is to spray the coffee evenly over the taste buds, assess it, then spit it out. Cuppers may sample beans from a variety of batches in a single day. An expert cupper can test hundreds of samples of coffee a day and still detect subtle differences between aromas, tastes, and mouthfeel. Strong, highly recognizable notes are valued.
Because the aromatic notes of coffee beans are integral to the overall quality and experience of coffee, cuppers use precise aroma descriptors. For instance, animal-like is used to describe strong notes like wet fur, sweat, leather, or hides, and is not considered a negative. Some aromatic note descriptors double as tastes. Burnt/Smokey is both an aroma and taste descriptor associated with burning wood, and is used near the end of the journey when cuppers at roasters evaluate beans for blending or to indicate the degree of roasting necessary. Chocolate-like describes both the aroma and flavor of cocoa powder and chocolate, and is sometimes referred to as sweet. Caramel describes both the aroma and taste produced when sugar is caramelized without burning and is distinct from a burnt/smokey note.
Cereal/Malty/Toast-like is the descriptor for both aromas and tastes of uncooked or roasted grain (corn, barley, wheat, or malt extract), freshly baked bread, and freshly made toast. Earthy is used to describe a scent of fresh earth, wet soil, or humus associated with mold, and is considered undesirable. Floral describes an aromatic note of flowers like honeysuckle, jasmine, and dandelion found mainly in combination with fruity or green aromatic notes. Fruity/Citrus is a descriptor for both the aroma and taste of fruit associated with the scent of berries. The valuable perception of high acidity in coffee is correlated with the citrus characteristic. Grassy/Green/Herbal describes scent notes of freshly mown lawn, fresh herbs or green beans, or unripe fruit.
Nutty describes the scent and flavor of fresh nuts, but not bitter almonds. Rancid/Rotten is a dual descriptor with rancid an indicator of fat oxidation in rancid nuts, and rotten an indicator of deteriorated vegetables or non-oily products. Spicy describes the aroma of sweet spices like cloves, cinnamon, and allspice, but not savory spices such as pepper, oregano, and Indian spices. Tobacco describes both the aroma and taste of tobacco but not burnt tobacco. Finally, winey is an overarching term used to describe the combined sensation of smell, taste, and mouthfeel experiences. It is generally perceived when a valuable strong, acidic or fruity note is found and does not apply to a sour or fermented flavor.
Cuppers utilize a broad array of precise aroma descriptors. Some describe both aroma and taste. The range of descriptors for tastes alone is smaller, consisting of five: acidity, bitterness, sweetness, saltiness, and sourness. In coffee, a taste of acidity is considered desirable, sharp, and pleasing. Coffee with too little acidity will taste flat and dull, coffee with moderate acidity is described as smooth, while coffee with high acidity is called lively.
Bitterness describes a taste characterized by the solution of caffeine, quinine, and certain alkaloids, and is considered desirable up to a certain level. It is affected by roasting and brewing. Detected on the back of the tongue, bitter is the characteristic note that brings together valuable dark chocolate and citrus fruit notes. Tastes for bitterness vary between countries. While Italians enjoy it, Americans are generally less keen for bitterness in coffee.
Sweetness describes tastes characterized by solutions of sucrose or fructose commonly associated with sweet aroma notes such as fruity, chocolate, and caramel, but also purity of taste or freedom from off-flavors of any type. Saltiness describes tastes characterized by a solution of sodium chloride or other salts. Sourness refers to excessively sharp, biting, and unpleasant flavors such as vinegar. The final factor cuppers evaluate coffee for is mouthfeel.
While cuppers use a broad array of aroma descriptors and a narrow well-defined set of five taste descriptors, only two descriptors for mouthfeel are used. Mouthfeel is characterized by either body or astringency. Body describes the physical properties of coffee. A strong but pleasantly full mouthfeel characteristic is preferred over thin mouthfeel. Astringency is characteristic of an after-taste consistent with a dry feeling in the mouth, and is undesirable in coffee. Mouthfeels, tastes, and aromas are assessed by cuppers at every stage as coffee beans change hands in the world coffee market.
Coffee is crucial to the economies of many developing countries. For many of the least developed countries, coffee exports account for a substantial portion of foreign exchange earnings—in some cases over 80 percent. More than 50 countries grow and export coffee. Typical coffee growing countries, in order of export volume, are Nicaragua, El Salvador, Costa Rica, Ecuador, Tanzania, Kenya, Thailand, Rwanda, Burundi, Madagascar, Togo, Zambia, Panama, Bolivia, Venezuela, Zimbabwe, Nigeria, Haiti, Jamaica, Ghana, and Cuba, among about 30 others. Some are among the world's poorest countries.
Even though more than 50 countries export coffee and depend on it for economic livelihood, total production volume is dominated by only a few countries. The dominant coffee producing countries are Brazil, Vietnam, and Colombia, in that order.
Export Volume Worldwide
According to the International Coffee Organization in London, England, global coffee exports reached record levels in 2006. In that year, exports of all its member countries totaled 92 million 60-kilogram (kilo) bags. Figure 60 presents a year-on-year sequence of member countries' total export volume of 60-kilo bags, from 1977 to 2006. World coffee production almost doubled during this period. In 1977 world production was 48 million bags, and by 2006 it grew to 92 million bags. Figure 60 also shows how much export volume is controlled by both the top three and top 10 exporters.
Brazil is the top coffee exporter in the world. It exported 27 million 60 kilo bags in 2006, or almost one-third of the 91 million bags of total exports. Brazil towers over Vietnam and Columbia, the next two largest exporters. Vietnam and Columbia exported 14 million and 10 million bags in 2006, or about 50 percent and 60 percent less, respectively, than the behemoth Brazil with its vast plantations and mechanized farming systems.
The top three coffee producing nations exported 51 million bags in 2006, more than half of the 91 million total in the export marketplace. Since 2001 the top 3 exporters have controlled more than 50 percent of the world export market. For the 20-year period from 1980 until 2000, the top 3 firmly controlled 40 percent or more of the world commodity coffee market, dipping below 40 percent only twice, both times due to weather conditions in Brazil.
Market dominance by the top three exporters is growing due in part to increased production in Brazil, but also because of the rise of Vietnam. Vietnam is a new entrant into the world coffee commodity market and it advanced to the number two position in a matter of years. In 1981 Vietnam coffee exports were zero, while Brazil and Colombia dominated, exporting more than 13 and 9 million 60-kilo bags, respectively. From exports of zero, Vietnam raced to the top. From a production level of 2 million 60 kilo-bags in 1993, Vietnam tripled its exports to 6 million bags in 1997. By 2000 Vietnam's exports doubled again to close to 12 million 60 kilo-bags. In the seven years between 1993 and 2000, Vietnam went from being a minor player to being a world leader, replacing Colombia as the second largest exporter of coffee, a position that Colombia had held for a quarter century.
The top ten coffee producing nations of the world, in addition to Brazil, Vietnam, and Colombia, include, in order of export volumes: Indonesia, Peru, India, Uganda, Guatemala, Honduras, Ethiopia, and Mexico. Indonesia is the fourth largest player. Indonesia owns what the Dutch started in the 1600s, after obtaining its independence in 1949. In 2002 the top 10 crept up to control 80 percent of world export volume. For the five prior years, from 1997 to 2001, the top 10 exporting nations controlled 70 percent of the market, after hovering in the 60 percent range for almost 20 years.
World Import Percentages
Although about 50 countries export coffee, more than 155 countries import and drink the beverage. According to the International Coffee Organization, imports totaled 119 million 60-kilo bags in 2005. Figure 60 depicts the top ten importers of coffee. The United States buys the most coffee. It imported 23 million 60-kilo bags in 2005, or close to 25 percent of world coffee exports.
In 2005 Germany purchased 17 million 60 kilo bags of coffee beans, or close to 20 percent of world coffee exports. Japan and Italy each imported around 7.5 million bags. France imported 6 million bags. Spain and Belgium/Luxemburg tied for imports at 4.4 million bags. Canada and the United Kingdom tied for imports of around 3.5 million bags. The Netherlands is the last country in the top ten importers at 3 million bags. People in the Russian Federation and Poland also enjoy consuming coffee and those countries imported close to 3 million bags each in 2005. The remaining 140 some countries purchased the remaining 14 percent of coffee.
U.S. Consumption Patterns
The USDA Economic Research Service has tracked per capita consumption of coffee and tea in gallons since 1911. Figure 61 depicts nearly a century worth of data on per capita consumption of coffee and nearly a half century of data on the consumption of carbonated soft drinks. Per capita coffee consumption since 1910 trended steadily upwards through the 1910s, 1920s, and 1930s, rising from 20 gallons per capita to more than 35 gallons per capita. In the 1940s, coffee was America's "hot drink." During that period, per capita consumption stayed steady at above 40 gallons and peaked at a record-setting all-time high of 48 gallons in 1947. By 1950 coffee consumption started on a slow downward trajectory.
Coffee went cold in the 1970s. Cans of Folgers and Maxwell House lost supermarket shelf space to Coke and Pepsi. Folger's "Good to the last drop" was replaced by Coke's "It's the real thing." Coffee consumption plummeted. For a 20-year period from 1975 until 1995, coffee was a palliative for parents and "squares." Cool kids drank Coke and Pepsi. Pepsi reminded the young, "You've got a lot to live. Pepsi's got a lot to give." While per capita consumption of carbonated soft drinks grew from 30 to 50 gallons between 1975 and 1995, coffee consumption stayed below 30 gallons, reaching an all-time low of 20 gallons in 1994–1995.
Since 1995 U.S. coffee consumption has been percolating slowly upwards. Since the 1994–1995 low of 20 gallons per capita, coffee rose steadily until 2000 when it peaked—if such a low number can qualify as a peak—at 26.3. The peak of the new century is 50 percent lower than the 48 gallon per capita peak of the last century.
The slight upward trend since 1995 can be linked to the increase of away-from-home coffee sales. Changing consumption patterns driven by the reemergence of coffeehouses restructured the U.S. coffee marketplace. The coffee market is bifurcated into supermarket sales, which Folgers (Procter & Gamble) and Maxwell House (Kraft Foods, Inc.) have historically dominated, and away-from-home sales, with Starbucks dominating. Between 1996 and 2006 Starbucks grew to a $6 billion per year enterprise, creating copycat coffee shops across the county. Dunkin' Donuts changed its focus from donuts to coffee.
The number of U.S. coffee shops more than doubled in number in the first five years of the new century, growing from 12,600 to 21,400, according to market research firm Mintel International Group. This staggering growth equates to one coffeehouse for every 14,000 Americans. Mintel also reported that total U.S. coffeehouse sales increased from $3.2 billion to $8.4 billion in the same time period.
The total U.S. coffee market grew by more than 50 percent—from $19 billion to $29 billion—between 2002 and 2006 and is expected to grow by another $10 billion by 2011, according to independent market analyst Datamonitor statistics reported in the May 28, 2007 issue of Nation's Restaurant News. The majority of coffee is being consumed outside of the home. Datamonitor projected that "away-from-home purchases" will be 75 percent of total sales by the early 2010s. A large part of the rational for this high percentage projection is that coffee purchased away-from-home costs far more by volume than does coffee made at home.
U.S. Census Bureau Statistics
In 2002 the coffee and tea manufacturing industry reported total shipment values of $5.3 billion, according to the report titled "Coffee and Tea Manufacturing: 2002." Total coffee and tea product shipments declined almost 32 percent from $7.3 billion in 1997. Roasted coffee product shipments declined even more, from $5.6 billion in 1997 down to $3.6 billion in 2002, a total decrease of 35 percent. Since the 2002 U.S. Census Bureau report, the Annual Survey of Manufactures reported increases in coffee and tea manufacturing for 2003, 2004, and 2005, with increases over prior years of 5, 0, and 7 percent, respectively. Industry trade association statistics are unclear as to where the growth is. The National Coffee Association and the Specialty Coffee Association of America have different perspectives on growth in statistics they generate to track demand.
U.S. Coffee Demand
Coffee consumption has been on a downward trend that coincided with a sharp upward surge of carbonated soft drink consumption. The flip flop in consumption patterns is so drastic that even the National Coffee Association talks about its market gains relative to soft drink consumption. In its 2007 national coffee drinking survey the National Coffee Association reported that, for the first time since 1990, the percentage of U.S. adults who drink a daily cup of coffee exceeded those who drink a daily soft drink. Out of the nearly 3,000 adults sampled for the survey in January 2007, 57 percent said they drank coffee every day, up from 56 percent in 2006. For carbonated soft drinks, the results were 51 percent for 2007 versus 57 percent for 2006.
The National Coffee Association also reported that daily consumption of gourmet coffee beverages in 2007 fell to 14 percent from a 2006 high of 16 percent. The gourmet coffee subset known as espresso-based beverages was down 1 percent from its 2006 high of 6 percent. Statistics available from the Specialty Coffee Association of America (SCAA) support the opposite trend, reporting growth in the specialty coffee segment. How the terms gourmet coffee and specialty coffee are defined by different organizations has in impact on the statistics that result from a study of the subgroups.
The SCAA defines specialty coffee as coffee that has no defects and has a distinct flavor in the cup. Inherent in the definition is that specialty coffee does not include much Robusta.
The SCAA estimated the growing total market size with year-on-year sequence starting in 1999. The SCAA derives its growing numbers from five distinct distribution channels: coffeehouses with seating (15,500 locations), coffee kiosks without seating (3,500 locations), mobile coffee carts (2,900 locations), roasters on premise (1,900 locations) and supermarkets. From these five distinct channels, the SCAA proclaimed that specialty coffee grew from $7.5 billion in 1999 to $12 billion in 2006. Using these numbers, sales of specialty coffee were up 10 percent from 2004 to 2005.
Data from the U.S. Bureau of the Census reports, the 2002 Economic Census and the Annual Survey of Manufactures, indicate a slight upward trend in the coffee and tea industry between 2003 and 2005, averaging growth of 6 percent per year. The National Coffee Association positions itself vis-a-vis the carbonated soft drink industry which it views as its main competitor. The SCAA sees coffee more on a par with wine, where growth involves a discerning consumer with a discriminating palate willing to pay more for a premium product, properly prepared. As discriminating consumers shift a greater share of coffee consumption to either small roasters offering a premium product on the retail side, or to away-from-home coffee on the coffeehouse side, variations in the price of retail coffee have increased.
U.S. Retail Market Volume and Prices
Ground coffee purchases by volume at retail stores grew more slowly than did the U.S. population during the early years of the twenty-first century, according to the USDA Economic Research Service report from March 2007. The downward trend in supermarket coffee sales has been offset by increases in away-from-home coffee consumption.
The U.S. coffee total market retail value reported by Mintel International Group in October 2006 was estimated at $3.4 billion. The market total includes ground, instant, whole bean, and ready to drink coffee beverages like Frapuccino in a bottle. Ground coffee is the largest of the $3.4 billion, representing 70 percent. Ground coffee retail sales grew 30 percent over their 2004 levels, while whole bean sales grew 11 percent over the same period. Meanwhile, instant coffee sales lost ground. Because these total U.S. retail sales values do not include WalMart, Mintel takes great pain to estimate its effect on the total market. Mintel expects WalMart controls 15-17 percent of coffee sales and accordingly estimated its 2006 sales at around $650 million.
U.S. retail coffee prices per pound were also reported by Mintel International Group in October 2006. Prices were volatile for five the years between 2001 and 2006. The price started in 2001 at $3.25, dropping almost 10 percent to $3.01 in 2002, rising 10 percent to $3.19 in 2002 where it stayed steady in 2004. In 2005 the U.S. retail coffee price per pound increased 12 percent to $3.88. Worth noting is the fact that most specialty and premium coffee is sold at retail outlets in 12-ounce bags, not by the pound.
Java, Joe, Café, Caffe, Coffee
By any name, in any language, coffee is a popular beverage choice. Among all U.S. beverages regularly consumed, coffee ranks fourth in consumption, after carbonated soft drinks, fruit/vegetable juices, and milk. Coffee is not only one of America's favorite beverages, it is a great value. On average, each cup of coffee prepared at home costs less than a dime. From the choice of beverages consumed at home per eight fluid ounces, costs are as follows: coffee (5 cents), carbonated soft drinks (13 cents), milk (16 cents), bottled water (25 cents), beer (44 cents), orange juice (79 cents), and table wines ($1.30), according to the U.S. Bureau of Labor Statistics, Division of Consumer Prices.
The U.S. coffee market is not a perfectly competitive market characterized by many small companies fighting for customers by lowering prices whenever possible. Kraft Foods, Inc. (with Maxwell House) and Procter & Gamble (with Folgers) have long dominated the market for coffee sold through supermarkets and grocery stores. Both are well-known and long-established manufacturers of consumer packaged goods. They each roast and grind coffee beans and package them in either vacuum packed bricks or cans for supermarkets. Neither of these coffee leaders operates coffee shops. Together they control more than 70 percent of supermarket ground coffee sales volume. From 2000 to 2004, market share volume was P&G (Folgers 38%) and Kraft (Maxwell House 33%). Folgers' market share increased to 42 percent in 2004, according to the USDA Economic Research Service March 2007 report.
Mass produced and vacuum packed coffee sold through supermarkets is not a premium product. The premium product is defined by fresh whole Arabica beans, sometimes flavored. Folgers and Maxwell House are not premium products primarily because during the roasting and grinding process, manufacturers presumably combine cheaper Robusta beans with a smaller amount of high quality Arabica beans.
Supermarket sales are one half of the newly bifurcated coffee industry. Since the mid 1990s, the increase of away-from-home coffee sales restructured the U.S. coffee marketplace. Starbucks dominates away-from-home sales in its coffee shops. Starbucks biggest competitor is Caribou Coffee Company. Along with the top two well-known and long-established players in supermarket sales, the newest entrants in the away-from-home sector—Starbucks and Caribou—are profiled. A few examples of small roasters, a growing segment in specialty coffee, are also listed.
Kraft Foods, Inc.
Headquartered in Northfield, Illinois, Kraft Foods is the largest maker of food products for U.S. supermarket shelves. It produces Maxwell House and Yuban brands of ground coffee.
Kraft produces coffee at plants in Houston, Texas; Jacksonville, Florida; and San Leandro, California. The Jacksonville plant is the largest among those. Kraft coffee products take advantage of the lower priced Robusta beans, blending in a minimum of high quality Arabica beans to neutralize the harsher taste associated with Robusta beans. Since 1998 Kraft has distributed coffee for Starbucks' whole bean coffee including its Seattle's Best brand. The arrangement draws on Kraft's extensive network for selling, marketing and distributing packaged foods directly to supermarkets.
Kraft has roots as far back as 1767 in cheese, mustard, biscuits, crackers, and gelatin. James L. Kraft started out in 1903 as a cheese wholesaler in Chicago, Illinois. Eventually Kraft acquired Maxwell House Coffee. Maxwell House began in Nashville, Tennessee, when grocery wholesaler Joel Cheek created the company in 1892. Nashville's finest hotel, Maxwell House, served the coffee exclusively to its guests, giving the brand the prestige of the hotel, even though it was available at supermarkets and easily prepared at home.
A forerunner to General Foods Corporation acquired Maxwell House coffee in 1928. Maxwell House became the first nationally available brand of coffee specially ground for use in automatic drip coffee makers in 1976. Kraft remained independent until 1988 when it was acquired by Philip Morris, the tobacco company. Philip Morris had already purchased General Foods (in 1981). In 1989 the company formed Kraft General Foods from the two acquisitions and, in 1995, renamed this element Kraft Foods. Philip Morris, renamed Altria, spun off Kraft Foods in early 2007. Kraft had revenues of $34.4 billion in 2006 of which coffee beverages represented $4.8 billion.
The Maxwell House Web site boasts that, for more than 100 years Maxwell House has been exactly the same. Its slogan is still "Good to the last drop." It has a long way to go to catch up to changing coffee industry trends toward premium and whole bean coffee. While Maxwell House has expanded its line to include four categories of ground coffee: ground, flavored, convenience, and instant, it does not offer whole beans. Within its ground coffee offerings, nine choices are available, three each in mild, medium, and dark roasts. Maxwell House Master Blend, Maxwell House Slow Roast, and Maxwell House Decaffeinated are the mild choices. Original Maxwell House, Maxwell House Lite, and Maxwell House Original Decaffeinated are the medium roasts. Maxwell House French Roast, Maxwell House 100% Columbian, and Maxwell House French Roast Decaffeinated are the dark roasts. Each comes in either an 11.5-ounce or 34.5-ounce vacuum packed can. Flavor choices are limited at Maxwell House to two flavors in an 11.5-ounce can: Maxwell House Vanilla Flavored and Maxwell House Hazelnut Flavored. Convenience filter packs and singles are available, as well as instants.
Kraft also sells Yuban Original, Yuban Dark Roast, and Yuban Original Decaffeinated. Yuban is advertised as sustainable through its partnership with the Rainforest Alliance, which works toward sustainable agricultural and applies social and economic standards to coffee it certifies.
Procter & Gamble (P&G)
Headquartered in Cincinnati, Ohio, P&G is the largest maker of household products for U.S. supermarket and superstore shelves. It produces Folgers and Millstone Signature brands of coffee. P&G roasts and packages most of its coffee in its New Orleans, Louisiana, plant. It operates a smaller roaster in Kansas City, Kansas.
While the P&G top selling Folgers brand remains a billion dollar business worldwide, even spokeswoman Tonia Hyatt has been forced into defending the brand. P&G's use of lower priced Robusta beans, blended with a minimum of high quality Arabica beans to neutralize the harsher taste of the Robusta beans has led to the brand being equated with old fashioned and non-discriminating tastes. "We have grown sales year after year," Hyatt proclaimed, "and I don't think we would have done that with poor quality coffee."
Folgers is available in four formats, ground, instant, pods, and the Café Coffees lines. Folgers ground line is broad. It includes Folgers Classic, Folgers Coffeehouse Series, Folgers Flavors, Folgers Simply Smooth, and Folgers Decaf. Instant can be in singles or crystals. The Coffeehouse Series includes Breakfast Blend, 100% Columbian, French Roast, Gourmet Supreme, and Gourmet Supreme Decaf. The four Folgers Flavors are Chocolate Silk, Cinnamon Swirl, French Vanilla, and Hazelnut.
The Millstone Signature line reveals that P&G is slightly more in tune with trends than Kraft. It is 100 percent premium Arabica bean coffee offered in flavored and unflavored varieties. Millstone is available in bulk whole bean, prepackaged whole bean, and ground. Millstone offers online ordering of 1.5 ounce, 12 ounce, and 5 pound bags. Millstone Signature brand supports decaf, flavored, roast, and organic lines. Decaf has ten in its family: Decaf Bed & Breakfast Blend, Decaf Breakfast Blend, Decaf Caramel Truffle, Decaf Chocolate Velvet, Decaf Colombian, Decaf French Roast, Decaf French Vanilla, Decaf Hazelnut Cream, Decaf Irish Cream, Decaf Vanilla Nut Cream.
P&G is in tune with flavoring trends. Millstone Signature flavored utilizes flavors including caramel, chocolate, cinnamon, hazelnut, vanilla, peppermint, Irish Cream, Kahlúa, pumpkin, raspberries, almond, and maple. Millstone Signature roasts are available in light, medium, and dark. Light has a breakfast blend and a kona blend. Medium and dark both have the same six blends: 100% Columbian, Colombian Supremo, Foglifter, Maisonette Blend, Sumatra, and last but not least, Jeff Ruby's Steakhouse Blend. Organic supports five separate lines: Rainforest Reserve Rainforest Alliance Certified, Organic Mountain Moonlight Fair Trade Certified, Organic Deep Peruvian Forest Blend, Organic Nicaraguan Mountain Twilight Blend, and Organic Mayan Black Onyx Blend.
Contradicting its defense of Folgers somewhat, P&G went upscale in late 2006. It introduced Folgers Gourmet Selections. The new line includes seven flavors each in 12-ounce packages. Both ground and whole bean options are available in Vanilla Biscotti, Lively Colombian, Morning Cafe, Espresso Roast, Hazelnut Creme, Chocolate Truffle, and Caramel Drizzle. The new premium line is aimed at capturing some of the dollars specialty coffee makers such as coffeehouses, kiosks, and small roasters are getting by catering to the lucrative market of coffee connoisseurs.
The coffee industry is what some would call incestuous. Kraft has partnered since 1998 with its competitor Starbucks to distribute Starbrucks coffee and in 2007 P&G partnered with Dunkin Donuts. P&G will distribute Dunkin Donuts coffee packages to U.S. supermarkets and superstores. The Dunkin Donut range includes both whole bean and ground coffee in a variety of flavors and roasts.
Starbucks added the barista to the long list of coffee bean handlers that includes growers, pickers, dryers, processors, millers, wholesalers, exporters, shippers, and roasters. Starbucks was founded in 1971 in Seattle, Washington, by two teachers and a writer. Its legendary growth began only after entrepreneur Harold Schultz purchased the company to focus on the coffeehouse market rather than supermarket sales. Starbucks had 165 coffeehouses in the United States at the time of its 1992 initial public offering. Starbucks grew during the 2001 recession, announcing at the end of 2002 that, despite the weak economy, its profits were up 19 percent for the year. Starbucks has 39 presidents and senior vice presidents; 10 are women, or about 25 percent. It reached sales of $6.1 billion in 2006.
Instead of competing for a share of existing supermarket sales, Starbucks invented its own market. The strategy made Starbucks a tastemaker, according to a 2003 New Yorker article, which stated: "Starbucks changed not just what people drank but how they drank it. Instead of gulping down gas station swill on the fly, people learned to desire the experience of leisurely sipping a grande latte while eavesdropping on job interviews." The coffee colossus grew from 165 U.S. stores in 1992 to 9,814 stores in the United States by 2007. Starbucks had more than 145,000 employees at its nearly 10,000 stores throughout the country. Starbucks planned to open approximately 1,000 Company-operated locations and 700 licensed locations in 2007 and 2008. This phenomenal growth led Joseph Michelli to write an entire book about the Starbucks experience, while others wrote about Starbucks as a "third place"—what sociologists define as a necessary alternative to work and home. The success of the third place benefited by the rise of telecommuting and freelancing, and a move toward what Harvard historian Nancy Koehn called "affordable luxuries." Affordable luxuries allow American consumers to cultivate the aura of affluence at a relatively low price, if $4 represents a low price for a cup of coffee. Starbucks is so popular that a Starbucks Gossip Web site sprung up alongside an "I Hate Starbucks" Web site. Also popular is a Delocator Web site designed to guide the user toward independently owned cafés.
Starbucks purchases and roasts premium high quality whole Arabica coffee beans and sells them along with fresh, rich-brewed, Italian style espresso beverages at its coffeehouses. Starbucks also sells whole bean coffee at supermarkets through its licensing agreement with Kraft. Starbucks operates four roasting facilities located in Seattle and Kent, Washington, and in York, Pennsylvania. In April 2007, it announced the location of a fifth roasting plant near Columbia, South Carolina, scheduled to begin operating in early 2009.
In fiscal 2006 Starbucks bought almost 300 million pounds of coffee beans, or roughly 25 percent of all U.S. imports. Starbucks paid an average price of $1.42 per pound. About 10 percent or 32 million pounds of the total 300 million pounds was either shade grown coffee (2 million pounds), certified organic coffee (12 million pounds), or Fair Trade certified (18 million pounds). Starbucks is the largest purchaser, roaster, and distributor of Fair Trade certified coffee in the United States.
Caribou Coffee Company
The mythology surrounding Minneapolis, Minnesota, based Caribou Coffee is that in 1990, during an adventure through the Alaskan wilderness, its founders journeyed to the top of Sable Mountain. At the summit they were rewarded with a sensational view of boundless mountains, a clear blue sky, and a herd of caribou thundering through the valley. The "aha" moment and panoramic view led to Caribou Coffee. Its slogan involves variations on the phrase "Life is short. Make the most of it." The founders opened the first store in Minnesota in 1992. The company has a top leadership team of 15 individuals. Of these, six are women, or about half.
Caribou Coffee Company is the nation's second largest coffeehouse chain behind Starbucks. In April 2007 Caribou had 475 coffeehouses, plus 33 franchise locations, in 18 Midwest and Mid-Atlantic states, plus the District of Columbia. According to Mintel International Group, Caribou Coffee would need 12 years at its current expansion rate to catch up with Starbucks' current U.S. presence, while the number of new Starbucks stores opened in 2005 alone was greater than five times the entire Caribou Coffee franchise. In its battle with Starbucks for supermarket share, Caribou Coffee Co. made distribution deals with Shaw's Supermarkets, a unit of Supervalu, and Harris Teeter, a subsidiary of Ruddick Corp., to sell its packaged coffee beans in supermarkets in New England and the Southeast. In 2007 Caribou Coffee started a several-store pilot program with Bed Bath & Beyond to offer several varieties of its premium coffee beans at stores in six states. Caribou Coffee also sells to office coffee providers, airlines, hotels, sports and entertainment venues, college campuses, and other such commercial customers.
Caribou Coffee pledged that by 2008 at least 50 percent of its coffee beans will come from Rainforest Alliance certified farms. Caribou lines that currently bear the seal (and the percentage certified in each blend) include: Daybreak (50%), Colombia (100%), Guatemala El Socorro (100%), Caribou Blend (75%), Fireside Blend (30%), Espresso Blend (75%), French Roast Blend (75%), Reindeer Blend (30%), Perennial Blend (30%), and Amy's Blend (50%).
Sara Lee Corporations sold its U.S. coffee retail brands (Chock Full o'Nuts, Hills Brothers, MJB, Chase & Sanborn; excepting Senseo) during 2005 to Segafredo Zanetti Coffee Group of Bologna, Italy. In another industry sale, A&P sold Eight O'Clock in 2003 to Gryphon Investors, which subsequently operated as Eight O'Clock Coffee Company. In June 2006, Tata Coffee Ltd. of India acquired the brand.
The SCAA sees a growth trend for small roasters who had shipments of $1.75 billion in 2006. These are typically small local retailers who roast on premises. They gained a competitive edge by roasting flavored beans at a time when mega-roasters of Maxwell House and Folgers were not providing the product. Examples include Our Coffee Barn in Spring Valley, Wisconsin; Prima Café in Oklahoma City, Oklahoma; and Baby's Coffee in Key West, Florida, which advertises itself as the southernmost coffee roaster in the United States. One small regional roaster called Dunn Bros. Coffee opened in St. Paul, Minnesota, in 1987. It has 100 locations in five states that roast beans on site. Small roasters can flavor coffee with basic equipment at an average of 25 to 50 cents per pound, and sell flavored coffees at a profitable margin.
Green Mountain Coffee Roasters of Waterbury, Vermont, is a rapidly growing regional roaster. It went public in 1993. Its partnership with Newman's Own Organic Coffee is a good indication of the growth in specialty coffee. In 2001 Green Mountain Coffee Roasters sales totaled $96 million. By 2006 sales more than doubled to $225 million. Green Mountain Coffee Roasters focuses on Fair Trade certified coffee; that segment grew 69 percent in 2006 over the prior year.
MATERIALS & SUPPLY CHAIN LOGISTICS
Besides coffee beans that have been grown, picked, processed, milled, wholesaled, exported, and shipped from abroad, U.S. manufacturers purchase a great deal of packaging materials. Materials consumed by coffee manufacturers are reported in a U.S. Census Bureau report titled "Coffee and Tea Manufacturing: 2002."
For the newly emerging and rapidly growing away-from-home segment, the paper cup is fundamental. For instance, Starbucks rarely spends on advertising and marketing. It lets its locations and cups do its marketing. The Starbucks cup is everywhere. Blogs show Kate Hudson, Sienna Miller, Nicole Ritchie, Renee Zellweger, and the ever present Mary-Kate and Ashley Olson twins holding Starbucks cups.
The 21,400 coffeehouses in the United States use a lot of cups each year. Projections vary. Starbucks and its partner, the nonprofit Environmental Defense, reported in 2006 that Starbucks uses almost 2 billion cups annually. Other sources report that Americans annually use more than 15 billion paper cups designed for hot beverages. That number is projected to grow to 23 billion by 2010.
At the coffee shop, coffee is the smallest portion of the beverage purchase price. For instance, one pound of beans makes about 40 cups of coffee. Assuming the beverage is made from premium coffee beans—the type roasters buy for $4 to $5 a pound—the value of the coffee is about a dime per cup. The cup and the lid can cost twice that much. Of course, the price of each coffee shop beverage has to cover real estate rents, salaries and benefits, taxes, marketing expenses, and other overhead costs.
At coffeehouses, the cup is as important as the coffee and costs more. For Starbucks, it is a marketing tool. The cup is so important to Starbucks that in 1996, the coffee colossus began a 10-year odyssey into finding the perfect cup. At that time Starbucks wanted to stop its practice of double cupping, the practice of providing a customer with two cups, one used to protect the hands for the heat generated by the coffee in the interior cup. As a replacement for the second cup, in 1997 Starbucks started using its 60 percent recycled corrugated paper insulating sleeve. In 1999 several Starbucks stores tested a two-layer cup with an outer layer made from 50 percent postconsumer fiber.
The coffee giant went back to the drawing board in 2001 and partnered with Solo Cup, headquartered in Highland Park, Illinois, with the goal of creating a more eco-friendly paper cup. A major obstacle was getting U.S. Food and Drug Administration (FDA) approval, since recycled content had never before been used in direct contact with food—especially not hot beverages. Mississippi River Corp. provided recycled pulp and paper mill MeadWestvaco (later called NewPage) developed new testing protocols. Solo Cup won FDA approval in 2005. The cups were rolled out in March 2006 at over 5,000 U.S. Starbucks locations. The new cup will conserve 5 million pounds of paper per year, or approximately 78,000 trees, according to Environmental Defense.
Focus on the cup continued. Green Mountain Coffee Roasters of Waterbury, Vermont, also introduced an eco-friendly disposable paper coffee cup. Called the ecotainer cup, it is the first hot paper beverage cup made from fully renewable resources. Unveiled in the summer of 2006, concurrent with the new Starbucks cup, the ecotainer cup is lined with a bio-plastic derived from corn, making it compostable under the proper conditions. Green Mountain Coffee Roasters and International Paper, its partner, were awarded a 2007 Sustainability Award by the Specialty Coffee Association of America. The cup's liner makes it unique. Conventional hot paper cups use a waterproof lining made from a petroleum-based plastic. By choosing to utilize a corn-based cup liner, Green Mountain Coffee Roasters will conserve the consumption of nearly a quarter of a million pounds of non-renewable petrochemical materials every year.
Coffee is an important world commodity. Its distribution channel is complicated. The legendary coffee beans pass through the hands of growers, pickers, dryers, processors, millers, wholesalers, exporters, shippers, roasters, and grocers, not to mention the many professional baristas now working at America's more than 21,000 coffeehouses. At every handoff, coffee beans are taste tested and a portion of every dollar spent on coffee is claimed. In May 2003 Frontline World, the Public Broadcasting Service program, reported that the profit is not equally shared between growers and harvesters in exporting countries and manufacturers and retailers in importing countries. Frontline World calculated the allocations of every U.S. retail dollar spent on coffee for growers, harvesters, shippers, roasters, and retailers.
Pruned short in cultivation, but capable of growing more than 30 feet high, a coffee tree is covered with dark-green, waxy leaves growing opposite each other in pairs. It takes 3 to 4 years for newly planted coffee trees to bear fruit. After the fragrant white flowers blossom, it takes one year for coffee cherries to grow. In Mexico, one of the smaller volume exporters, 90 percent of coffee farms are no bigger than 12.5 acres, the majority owned by local people. Growers receive 10 to 12 cents of every U.S. retail dollar spent on coffee.
Coffee cherries turn bright deep red when ripe. Coffee can be harvested in two ways. Strip picking involves harvesting the entire crop at once, by machine or by hand. Selectively picking involves harvesting only the ripe cherries by hand. This labor intensive method is used primarily to harvest the finer Arabica beans. A good picker averages 100 to 200 pounds of cherries a day, which will produce 20 to 40 pounds of coffee beans. Harvesters get between 10 and 12 cents of every U.S. retail dollar spent on coffee.
Processing must begin quickly to prevent spoilage. Coffee is processed using either a dry or wet method. Neither method is superior. Dry processing can take too long and/or muddle flavors or introduce bacterial and fungal taints. Wet processing can enhance valuable acidity at the expense of some of the desirable body. Even wet processed beans must eventually be dried. Drying affects the final quality of coffee beans. Over-dried beans are brittle and can be easily broken during the milling process. Under-dried beans are prone to rapid deterioration caused by fungi and bacteria.
The traditional dry method is used in countries where water resources are limited. Whole fresh cherries are spread on huge surfaces to sun dry. Cherries are raked and turned often to ensure even drying and to prevent mold and mildew. The process may take from several days to up to four weeks depending on weather. Almost all Robustas are dry processed. Mechanical coffee driers can be used. They tend to be faster, drying beans in less than two days. But cherries must be turned often to distribute hot air evenly or risk over-drying. Dry processed coffee beans fetch significant price premiums, due to a resurgent respect for old fashioned production processes. Dry processed coffee can result in fuller body, better mouthfeel, slightly lower acidity, and natural sweetness. Certain dry processed Sumatran coffees have become extremely expensive. Jamaican Blue Mountain sells for around $35 per pound.
Wet processing involves passing whole cherries through a pulping/stoning machine to separate the skin and pulp from the bean. Beans are then fermented in large tanks to break down the residual sticky mucilage adhering to the parchment surrounding the beans. Wet beans are 57 percent moisture and must be sun or mechanically dried. Wet processing is used for almost all Arabica beans, with the exception of those produced in Brazil. Fermentation adds quality to expensive Arabicas by increasing acidity, adding valuable complex notes. After processing, beans are milled.
Coffee is milled in three stages: hulling, polishing, and grading/sorting. For wet processed beans, machines remove the single remaining parchment layer. For dry processed beans, the entire three layer dried husk is removed. Polishing removes the silver parchment skin. While optional, polished beans are considered superior to unpolished ones. Grading/sorting involves a size scale of 10 to 20. A number 10 bean is the size of a 10/64 inch diameter hole, while a number 15 bean is 15/64 inch. Sorting removes beans deemed defective due to over-fermentation, insect damage, or bruising.
Harvested, processed, and milled beans travel by ship in either jute or sisal bags loaded into shipping containers or bulk-shipped inside plastic-lined containers. Shippers share their cut with banks and insurance companies. Shippers need to move massive volume in order to make money. Shippers receive about 4 cents of every U.S. retail dollar spent on coffee.
Because coffee beans travel by ship, most coffee is roasted near the shipping ports of New Orleans, New York City, San Francisco, and Miami. Most roasting machines maintain a temperature of about 550 degrees Fahrenheit. Beans are kept moving throughout the pro-cess to keep them from burning. When they reach an internal temperature of about 400 degrees, they begin to turn brown and the caffeol, or oil, locked inside the beans begins to emerge. This process, called pyrolysis, is at the heart of roasting. It produces the flavor and aroma of coffee. Roasted beans have a shelf life of about one week. Roasters receive the most of every retail dollar spent on coffee—about 70 cents.
Packaged coffee is typically delivered directly to the warehouses of supermarkets and transportation costs are included in the price. Retailers receive 10 to 15 cents of every U.S. retail dollar spent on coffee.
Adults drink coffee. In 2007 the National Coffee Association reported that 81 percent of American adults drink coffee sometimes, and that 64 percent of American adults drink coffee weekly. In 2003 the National Coffee Association reported that 82 percent of all coffee was consumed during morning hours, 4 percent was consumed at lunch, 5 percent in the afternoon, 4 percent at dinner, and 5 percent during the evening hours.
In order to brew fresh roasted coffee beans at home and extract from them the fullest flavor, consumers need grinders and coffee makers, either automatic drip coffee makers or espresso machines. Originally designed for the commercial market, residential espresso units became popular in the United States during the 1980s and 1990s. Manufacturers include Pasquini (units start at around $900) and Brugnetti ($1200). Nuova Simonelli is a premier Italian maker of espresso machines certified by the European Institute of Ergonomy.
Also adjacent to coffee are other beverages and in particular other beverages that contain caffeine. Many carbonated drinks fall into this category, such as Coke, Pepsi, and Mountain Dew. Figure 61 presents per capita consumption rates of coffee and carbonated drinks, showing the rise of carbonated drinks and the decline of coffee consumption.
RESEARCH & DEVELOPMENT
Research and development efforts have resulted in improvements in the wet processing methods used for coffee beans. Improvements decreased the quantity of water needed in the process and reduced the time needed to process while producing more nuanced flavors. For instance, traditional wet processing was invented around 1740 by the Dutch in the West Indies. It used large amounts of water and involved several steps. In traditional wet processing, freshly picked cherries were separated by density in immense water tanks. Overripe and partially dry cherries have lower densities and float to the surface. Dense unripe and ripe cherries sink to the bottom. Denser cherries were pressed, again in water, between grated screens that removed the bulk of the cherry pulp. The de-pulped beans were typically then fermented in large tanks of water to remove the muscilage.
Besides requiring large amounts of water, the traditional method de-pulps dense cherries together, increasing the risk that unripe cherries get mixed in with the valuable ripe cherries. R&D resulted in an innovative semi-washed process that consumes 10 times less water than traditional systems. Instead of being done in water tanks, density separation is done by mechanical siphons such as those patented by Brazilian machinery maker Pinhalense. Mechanical siphon tanks separate cherries according to density with very little water consumption. Ecological wet processing removes the mucilage by friction instead of fermentation. Machines called mucilage removers use less water than traditional wate fermentation tanks.
The semi-washed system produces the same cup as natural coffee along with the advantage that there is no risk of unripe cherries. The semi-washed process is alleged to yield beans that are sweeter and somewhat less acidic than those that undergo a full washing process that includes the fermenting stage.
Coffee beans go on a sort of journey that involves several numerous handlers. Each handler takes a cut of the consumer coffee dollar. Whether or not the cut is apportioned fairly is the question at the heart of fair trade coffee.
TransFair USA, in Oakland, California, is the only fair trade certifying label in America. The group, founded in 1998, created a "hipster" seal of approval for U.S. consumers concerned about trade inequities. Proponents say low prices that most companies pay to growers and pickers in economically disadvantaged countries cause widespread misery: poverty, unsafe work conditions, and forced child labor. TransFair has core requirements for importers, roasters, and growers.
Growers must be organized into cooperatives that agree to independent inspections and use sustainable methods of agriculture. In return, the growers were guaranteed a living wage of at least $1.26 per pound for their coffee (15 cents more if it were grown without pesticides). The TransFair USA Web site profiles about 30 coffee growing cooperatives, detailing how many members were in each cooperative, and how fair trade had helped meet local healthcare, education, and transportation needs for those in the community.
Fair trade coffee has grown since 1998 when 76 thousand pounds were imported. By 2002 imports grew to almost 10 million pounds and then doubled in the following year, reaching almost 20 million pounds in 2003. By 2006 imports of fair trade coffee had reached more than 60 million pounds. Fair trade coffee is available at roughly 20,000 retail outlets across the United States. Newman's Own Organics offers a fair trade line in cooperation with Green Mountain Coffee Roasters. Peru, Mexico, Nicaragua, Indonesia, and Ethiopia were the top five exporters to the U.S. of fair trade certified coffee in 2006.
TransFair USA had tracked the growth rate of both its traditional and organic fair trade certified coffee since 1999. It had also tracked estimated additional income to farmers as a result of fair trade totaling $92 million between 1999 and 2005. There was tremendous growth of organic fair trade coffee in 2006; it grew 94 percent over 2005.
Fair trade is becoming less a hipster seal of approval and more a part of mainstream commercial culture. Larger corporations offer some fair trade coffee. In April 2000 retail coffee giant Starbucks started to carry fair trade certified whole bean coffee. In October 2004 Burlington, Vermont, based Bruegger's announced it would serve fair trade certified coffee at its 242 locations. In November 2005 McDonald's announced that it would serve fair trade certified coffee in 658 of its restaurants in New England. Participating locations were to switch 100 percent of their coffee products to Fair Trade Certified organic coffee from Newman's Own Organics, roasted by Green Mountain Coffee Roasters.
New York, New York, based nonprofit Rain-forest Alliance works to conserve biodiversity and ensure sustainable livelihoods by transforming land use, business practices, and consumer behavior. Rainforest Alliance certified coffee purchases have doubled each year since 2003 (from seven million to 54.7 million pounds in 2006). All 1,000 U.S. Holiday Inn hotels carry Rainforst Alliance certified coffee, as do all Whole Foods in the United States and Canada.
When tastemakers succeed, they create competitors. The economist William Baumol estimates that innovators and their investors keep less than twenty percent of the economic benefits that their innovations create. The rest spills over. This is why there are thousands more independent coffeehouses today than when Starbucks started, and why McDonalds and Dunkin' Donuts sell premium coffee. Copying Starbucks has become common. Fancy restaurants, convenience stores, and fast food franchises have their own versions of Starbucks coffee. Consumers can find high quality coffee beverages at places such as Jack in the Box, Burger King, and 7-Eleven in addition to Dunkin' Donuts and McDonald's. Coffee beverages offered include espresso and espresso-based drinks such as cappuccino, latte or moccaccino; iced and cold coffee beverages; and flavored coffees and special blends.
Copycats are not only upgrading their offerings to more closely match Starbucks, they are changing their environments. For instance, McDonald's has redesigned some of its restaurants to include a "linger zone" where the youthful customers it hopes to attract can sink into cushy armchairs and sofas while using a wireless Internet connection to send instant messages and surf the Web. The Canton, Massachusetts, based chain of Dunkin' Donuts announced in October 2006 that it will remodel its 5,000 U.S. stores. The remodel is essentially to a coffeehouse environment with more comfortable seating. Dunkin' Donuts is shedding its pink and orange color scheme. Its enormous expansion strategy includes tripling U.S. locations to 12,000 by 2020. It will start in Cincinnati, Cleveland, Tampa, Charlotte, Atlanta, and Nashville and then move westward. Behind the remodel is the reality that coffee has surpassed donuts in popularity. Donuts account for 15 percent of sales, while coffee sales soared more than 40 percent from 2002 to 2006.
TARGET MARKETS & SEGMENTATION
According to the National Coffee Association, manufacturers target young people. It reported a major finding that coffee consumption among 18 to 24 year olds jumped six percentage points in a fourth, consecutive annual increase. The NCA's 2007 data reveal that consumption among the age group soared from 16 percent in 2004 to 37 percent in 2007.
According to the Specialty Coffee Association of America, manufacturers target daily gourmet coffee drinkers, who comprise 12 percent of the population. Daily gourmet coffee drinkers have a high average annual income—$68,400—and regularly purchase gourmet coffee outside of the home. Supermarkets/grocery stores are the preferred destination for gourmet coffee purchases (36 percent), followed by specialty coffee shops (26 percent), with 18 percent preferring convenience stores, according to the National Coffee Association
RELATED ASSOCIATIONS & ORGANIZATIONS
European Coffee Federation, http://www.ecfcoffee.org
Green Coffee Association, http://www.green-coffee-assoc.org
International Coffee Organization, http://www.ico.org
Mid-Atlantic Regional Roasters Group, http://www.marrg.orgInternational
National Coffee Association of USA, Inc., http://www.ncausa.org
Rainforest Alliance, http://www.rainforest-alliance.org
Specialty Coffee Association of America, http://www.scaa.org
TransFair USA, http://www.transfairusa.org
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"Dunkin' Focusing on Coffee as it Embarks on Major Expansion." The Food Institute. 16 October 2006, 1.
Ephraim Leibtag, Alice Nakamura, Emi Nakamura, and Dawit Zerom. "Cost Pass-Through in the U.S. Coffee Industry." U.S. Department of Agriculture, Economic Research Service. March 2007, 28. Available from 〈http://www.ers.usda.gov/publications/err38〉.
"Glamorous Pouches Add Even More 'Perk' to Folgers' Gourmet." Packaging Digest. November 2006, 9.
"International Paper and Green Mountain Coffee Roasters Receive Specialty Coffee Association of America's 2007 Sustainability Award." Wall Street Journal Online. Press Release, 21 May 2007.
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"McDonald's New England Customers Will Drink Fair Trade Coffee." Environmental News Service. 27 October 2005. Available from 〈http://www.ens-newswire.com/ens/oct2005/2005-10-27-09.asp#anchor3〉.
"National Coffee Drinking Trends for 2007." Tea & Coffee Trade Journal. May 2007, 130.
"New Post-Consumer Fiber Paper Cup." Tea & Coffee Trade Journal. February 2007, 76.
Romeo, Peter. "The $6 Billion Gorilla: The Influence of the Seattle-based Coffeehouse Giant is Evident in the Upgraded Decor, Beverages and Business Practices of its Rivals." Nation's Restaurant News. 29 January 2007, 12.
"Specialty Coffee Retail in the USA 2005," and "Specialty Coffee Retail in the USA 2006." Specialty Coffee Association of America. 2006 and 2007 respectively. Available from 〈http://www.scaa.org〉.
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Surowiecki, James. "The Tastemakers." The New Yorker. 13 January 2003.
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see also Tea
COFFEE. Coffee refers to both a plant and to the hot and cold beverages made from the pit or "bean" of its fruit. Coffee contains significant amounts (between 0.8 percent and 2.5 percent) of the stimulant alkaloid caffeine (trimethylxanthine) as well as protein and carbohydrates. The coffee shrub or bush grows as two species, Coffea arabica and C. canephora, and is indigenous to Africa, specifically to the Kaffa region of Ethiopia. The word "coffee" is derived from the Turkish word kahveh, which is rooted in the Arabic word kahwah, meaning wine, this indicating the use of the beverage as a replacement for alcoholic beverages that are forbidden under strict Muslim religious law.
The coffee plant is an evergreen with elliptical, dark shiny green leaves that yields a red husked berry containing a seed pit or "bean." Coffee belongs to the Rubiaceae family and, depending on which of two species from which it is harvested, propagates differently. Coffea arabica is grown principally in Southeast Asia, Latin America, and the Caribbean. Coffea canephora (also known as Coffea robusta ) is grown in Africa (mostly in the Congo), India, and Vietnam, which is its leading producer. The arabica is self-pollinating, while the canephora or robusta needs cross-pollination to fruit. After planting, the shrub requires four to five years of growth before it will fruit. When harvested, the ripe red husk is removed from the berry, and the fresh seed can be planted to generate seedlings or dried for planting at a later time. (It is this seed that is the coffee bean as it is commonly understood.)
Processing the beans requires two steps. In the first step, usually in the country of origin, the husk of the berry is left to ferment and soften, which facilitates the extraction of the seed or bean. The beans are then dried and shipped "green" or unroasted to a destination where they are roasted either for local consumption or for packaging and transshipping to other markets. The roasting process has a substantial effect on the color and flavor of the bean and the beverage it will produce. The darker the roast, the stronger the flavor. It is also the roasting process that eliminates water, making the bean more brittle and easier to grind.
Coffea arabica produces the "Arabica," also known as "Brazilian," varieties, which are often preferred for their balanced aroma and rich flavor. The best, rarest, and most sought after arabica types are harvested in Indonesia, Jamaica, Hawaii, and Colombia, where they are grown on small production farms at a relatively slow and steady growth rate, developing flavorful berries. (In this way they may be said to parallel wine production.) Coffea canephora, or robusta, tends to be strong and bitter. Because Coffea canephora can resist frost and disease and can sustain warmer climates and lower elevations, it experiences faster growth patterns and higher fruit yields. This generally results in beans that contain more caffeine than arabica types but that lack subtlety and flavor. The canephora bean is said by experts to be neutral by comparison to arabica.
|TOTAL COFFEE PRODUCTION||TOTAL EXPORTS OF ALL FORMS OF COFFEE|
|By the top 15 producing countries||The top 15 producing countries|
|Crop years 1999/00 to 2001/02||Calendar years 1999 to 2001|
|(in thousands of bags)||(in thousands of bags)|
|Crop year commencing||1999||2000||2001||Calendar year||1999||2000||2001|
|Costa Rica||(A)||2,404||2,246||2,364||Costa Rica||2,195||1,964||2,018|
|All other producers||13,935||13,043||12,742||All other producers||9,302||8,708||8,313|
|(A) Arabica producer|
|(R) Robusta producer|
|(A/R) Produces both types. Predominantly Arabica|
|(R/A) Produces both types. Predominantly Robusta||SOURCE: International Coffee Organization|
It is believed that the earliest producers of coffee, the Ethiopians, did not brew coffee as it is recognized in the twenty-first century from the roasted beans but made drinks from the bitter berries, combined the roasted beans with butter or animal fat (most likely that of mutton), or chewed roasted beans as a mild stimulant. Numerous tales on the subject of coffee and its discovery exist. One of the most persistent is of a ninth-century Ethiopian goat herder intrigued by his intoxicated, hyperactive flock. Having grown curious, he sampled berries his goats had been eating and felt similarly stimulated.
No extensive or significant use of the coffee crop has developed among Ethiopia's indigenous peoples, and it became an exotic crop for them, exported first to Yemen, then to other Arab nations. It is noteworthy that coffee production did not develop in Africa until the twentieth century and that consumption there is minor. (The berries are sometimes used to enhance teas, which are generally preferred as beverages there.)
A primitive approach to making the coffee beverage may have originated at the beginning of the eleventh century in Ethiopia, however, this was likely learned through Arab traders who ground roasted beans into a fine powder and stirred it into hot water. Most scholars believe the antecedents of modern brewed coffee drinks were developed in the late fourteenth or early fifteenth centuries in Yemen and accredit the processing of the beans—roasting, grinding, and ultimately brewing the pungent hot drink—to a sheik of the Sufi order. Irrespective of the drink's origins, wild coffee plants may have been cultivated as early as the sixth century, but it was not until the fifteenth century that the coffee bush, Coffea arabica, is believed to have been domesticated, developed as an agricultural product, and spread throughout Muslim nations from Southwest Asia to Southeast Asia, including the Indonesian archipelago.
When first brought into widespread use, coffee was usually taken as a dark, bitter drink. Sugar was rarely used in the Arabian beverage, perhaps for fear that it would overstimulate the mind. The spice cardamom was often added to the brew for a naturally sweet flavor, and perhaps to counterbalance or mediate its bitter essence. Cardamom-flavored coffee is most commonly associated with the beverage known as Turkish coffee, as is the eleventh-century approach to boiling the grounds as a brewing technique. (Sugar is often added in this version as well.)
Historically coffee was the subject of frequent controversy and confusion, and its rise—much like tea—parallels the development of international trade and economic interdependencies. Coffee was perceived, for example, early in its development to have medicinal benefits, including as a curative for mange, sore eyes, dropsy, and gout. However, it was also feared that, when mixed with milk, coffee caused leprosy. Coffee was often at the center of political turmoil, especially through the development of coffeehouses in the Ottoman Empire and throughout Europe, where people could congregate and discuss ideas in an atmosphere conducive to (literally) stimulated conversation. Coffeehouses were associated with the plotting of insurrection in the Ottoman Empire and of both the American and French Revolutions, for example.
Coffee is one of the most common delivery systems for drugs in the world. Its caffeine stimulates the brain, improving one's focus. It is also a diuretic, washing out the kidneys. When taken in large quantities, the stimulant causes irregular heartbeat, uncontrollable shaking, and dehydration. Despite—or because of—these characteristics, by the beginning of the sixteenth century coffee drinking was widespread in the Middle East. Its powerful physical effects, however, were such that some Muslim scholars interpreted it as being contradictory to the spirit of the Koran and tried to forbid it. Others opposed its banishment and ironically included the beverage in religious worship. (Records of the period indicate that coffee was drunk inside the Sacred Mosque in Mecca, in present-day Saudi Arabia.) Early accounts exist of coffee drinking, ostensibly for the purpose of staying awake to pray and chant, during the evenings of the one-month fasting of Ramadan.
Coffee is also associated with superstitions and rituals. For example, not unlike tea leaf reading by Chinese fortune tellers, Turkish fortune tellers use the finished cup of coffee—which contains both liquid and grounds—turning it onto the saucer until cool. The cup is then turned back up, and any coffee grounds remaining in the cup are "read" as a basis for predicting the future.
From roughly the fifteenth century to the eighteenth century, coffee trade was monopolized by the Yemenis. The English and the Dutch traded with the Arabs at the major trading port of Mocha in Yemen for nearly half a century before they found a way to break the Arab monopoly. Ultimately Dutch smugglers stole beans from Mocha, carrying them to colonial Java in Indonesia for propagation. Through the Dutch act of pilferage, Indonesian coffee plantations came to produce an arabica bean popularly known as "Java." (Eventually this bean was described by connoisseurs as among the finest arabica available.) The Dutch also sent beans back to Amsterdam for propagation in greenhouses. In short order coffee propagation and drinking spread rapidly throughout the Western Hemisphere and the European colonies. In an act of repilferage, for example, the French king Louis XIV engineered the theft of plants from Amsterdam, and these plants eventually were responsible for the development of coffee plantations in French colonial Martinique. In 1723 the coffee business was born of a coffee bush originating in Martinique and eventually engendered a New World coffee industry that by the twentieth century was responsible for 90 percent of coffee production internationally.
The early to mid-seventeenth century saw the rapid spread of coffee consumption throughout Europe, especially northern Europe, resulting in a significant demand. The possibility of financial fortunes along with the possibilities of lucrative taxes and perceived medical benefits made for both free market and government-encouraged spread of cultivation in tropical and subtropical climes across the globe.
Cultivation spread throughout Southeast Asia, the Caribbean, Latin America, Africa, and Brazil. The first Brazilian coffee bush was planted in 1727, for example, and it was cultivated by slave labor. While the crop experienced a somewhat slow beginning there, by the end of the nineteenth century Brazil's coffee-growing industry was profitable. By the early twenty-first century Brazil was the world's largest coffee exporting nation with Vietnam running second.
Coffee and its patterns of consumption were historically linked to politics as well as perceived curative and stimulant benefits. Originally coffee was enjoyed almost exclusively in coffeehouses, which were founded as specialty shops for the purpose of selling coffee by enticing traders to try the new beverage. The first coffeehouse (or café) opened in Constantinople in 1555, and within a few years the city counted hundreds of such establishments. In rapid turn the coffeehouse became a place for socializing. Paralleling the social patterns of teahouses in China, coffeehouses became meeting places for casual conversation and business and political discussions, including revolutionary strategies. The empire's rulers quickly became concerned with the popularity of such places, where discontented commoners and intellectuals alike could gather and political uprising could be discussed. (Restaurants either did not exist or were forbidden.) Ottoman coffeehouse proprietors were subject to harsh punishments, including being sewn in a bag and thrown in the Bosporus.
Political mechanisms proved inadequate to stem rising enthusiasm for coffee and coffeehouses, however. Great profit centers, coffeehouses were often built in extravagant styles, imparting a social caché to the beverage. Spread by war and commerce, coffeehouses opened in European capitals throughout the early to late seventeenth century, increasing the beverage's popularity and supporting demand.
While coffee was a sort of luxury beverage at first, by the eighteenth century even less-fortunate Europeans could enjoy it (or some adulterated version of it) through sales by street hawkers. Innkeepers also made it part of their family-style menus, and some food historians link the introduction of coffee to creating the sequencing of a meal. In the mid–to late eighteenth century North American colonials drank coffee increasingly as a sort of protest against high British taxes on tea. Free to trade after independence (1776), Americans imported coffee initially from Haiti and Martinique, then Portugal and Brazil. By the mid-nineteenth century Americans consumed an average of over six pounds per capita annually. To a large extent the commercialization, mechanization, marketing, and democratization of coffee in North America evolved the beverage in modern times. The nineteenth century also saw the introduction of the drink in various styles, including Italian espresso (a concentrated one-ounce liquid), cappuccino (a "long" espresso with frothed milk), French café au lait or Spanish café con leche (strong coffee with plenty of hot milk), or iced coffee with or without milk. Other popular combinations are Irish coffee, which includes whiskey and Baileys Irish Cream, and Vietnamese or Thai coffees, in which sweet condensed milk is added.
Coffee can be "pure," using either the arabica or robusta bean, or it can be a blend of the two. One of the oldest blends simply combines various proportions of robusta and arabica beans, making the resulting item either more smooth or more bitter. Some of the more innovative blends include hazelnut and vanilla flavorings, these tied to the late twentieth-century, principally American interest in "gourmet" coffees. While for hundreds of years coffee consumers in Europe purchased a brewed cup of the beverage for quick consumption, in the United States green beans generally were sold in bulk for home roasting. This shift from public coffeehouse to domestic brewing had a profound effect on the industry and psychology of coffee consumption. The American development essentially stripped coffee of its political import, making it a modern commodity.
In other North American developments, at the end of the American Civil War, San Francisco's Folger's Coffee company gave customers a choice, offering both traditional green coffee beans and the more efficient and time-saving roasted beans. A new industry was born, and the tendency toward efficiency and rapid brewing was exacerbated. The Maxwell House company soon followed in Folger's footsteps, and in 1901 the first Maxwell House "instant" coffee came to market. This instant coffee was made by extracting water from brewed coffee and freeze-drying the remains. Other innovations followed. Decaffeinated coffee, which has significantly reduced amounts of caffeine, was made by steaming unroasted beans or by using a solvent, usually chlorine, to remove the caffeine. Because this process also removes some of the flavor from the beans, the stronger robusta variety is usually employed for decaffeinated coffees.
While coffee was added to a pot of water and boiled to produce the earliest versions of the beverage, Arab producers eventually filtered the brew through herbs to hold back the sediment. In eighteenth-century France, coffee was filtered through muslin bags, an innovative but ultimately inadequate process. The expatriate American inventor Benjamin Thompson—also known as Count Rumford—developed the broadly successful metal "drip pot," and a number of other inventors developed variations on coffee-brewing devices, many of which have remained in use in the twenty-first century. In 1819, for example, the percolator was invented in which hot water rises through a tube and into an upper container and infuses coffee. The early twentieth century saw the advent of true coffee filtering devices, particularly through the development of paper filters by the German Melitta Bentz Company in 1908.
The espresso machine (from Italian caffè espresso, literally, "pressed-out coffee") is usually associated with Italy, but it was pioneered in the early nineteenth century in German and French machines that used steam to push steam through coffee grounds. The modern espresso machine, patented in Italy in early-twentieth-century Italy, was developed by Desidero Pavoni (who bought the rights to the espresso machine patent in 1905), and was dramatically improved in Italy after World War II. The hiss of the espresso machine was a common sound in the Italian caffés of San Francisco's North Beach and in New York City's Greenwich Village decades before espresso and cappuccino became fashionable around the 1980s.
The difference in machines and grounds is important in the outcome of any coffee brew. For example, the espresso machine uses twice the amount of coffee as a percolator, a much finer ground of coffee, and much less water (actually steam), resulting in a dark, strong, bitter extraction. Different grinds exist for different styles of brewing. Coarse grounds are used to make filtered coffee, fine grounds are used to make Italian espresso, and even finer grounds resembling the consistency of flour are used to make boiled Turkish coffee.
Harvested, roasted, traded worldwide, and consumed by people from different walks of life, coffee has created significant social crossroads for centuries. Once a luxurious beverage, coffee is enjoyed internationally by a diverse populace. Most often a morning beverage, its popularity has soared as both an afternoon and an afterdinner beverage. Variations abound. Aside from flavored and decaffeinated coffees, bottled coffees, coffee sodas, and other drinks are available.
Embracing this trend, and operating over 5,500 stores internationally (over four thousand in the United States alone), Starbucks is the leading coffeehouse chain of the twenty-first century. It sells coffees with multiple options (would you like a slice of banana nut loaf with your iced, decaf mocha java?) at the elevated average price of $3.50 per cup in a lounge setting, and has pastries (and sometimes, sandwiches) available for purchase. This creates a comfortable atmosphere for conversation and reading, without any pressure to make a purchase and leave. Thus, since the early 1990s Starbucks has created a coffeehouse culture for the masses. With its appeal extending from corporate executives to students and housewives, it has brought the former aristocratic atmosphere into the mainstream. In this way it typifies the late-twentieth-, early-twenty-first-century "mass-class" and "leisure-time entertainment" marketing strategies. The success of Starbucks is also bolstered by its ability to extend the brand by selling T-shirts, travel mugs, and other coffee-related accessories in its stores. Starbucks also sells coffee beans and ice cream.
Coffee is not only a modern beverage but also an ingredient in desserts, including coffee ice creams, coffee gelati, and coffee-flavored cakes. Variations include the American "chimney sweep" recipe, in which vanilla ice cream is topped with powdered coffee and drizzled with a shot of whiskey. Italian tiramisu has lady fingers soaked in espresso coffee and set in a whipped mascarpone cream. In addition, an American classic dish called "Black-eyed steak" employs coffee to deglaze a cast-iron pan in which a slice of salt-cured Virginia Smithfield ham has been pan-fried; the bitter and salty jus is poured over the meat prior to serving.
See also Advertising of Food ; Marketing of Food ; Stimulants ; Tea: Tea as an Icon Food ; Tea (Meal).
Bramah, Edward. Tea and Coffee: A Modern View of 300 Years of Tradition. 2d ed. London: Hutchinson, 1972.
Filho, Olavo B. A fazenda de cafe em Sao Paulo. Rio de Janiero: Ministerio da Agricultura, 1952.
Guyer-Stevens, Stephanie, et al. "Starbucks: To Drink or Not to Drink?" Whole Earth, Summer (2002): 15.
Hattox, Ralph S. Coffee and Coffeehouses: The Origins of a Social Beverage in the Medieval Near East. Seattle: University of Washington Press, 1988.
Heise, Ulla. Kaffee und Kaffeehaus [Coffee and the coffee house]. Hildeshiem, Germany: Olms Presse, 1987.
Kiple, Kenneth F., and Kriemhild Coneè Ornelas. The Cambridge World History of Food. Cambridge: Cambridge University Press, 2000.
McGee, Harold. On Food and Cooking: The Science and Lore of the Kitchen. New York: Scribners, 1984.
Poole, Buzz. "Café Culture." Whole Earth Summer (2002): 10.
Samrowski, Dietrich. Geschichte der Kaffeemuehlen [History of coffee grinders]. Munich, Self-published, 1983.
Schoenholt, Donald N. "The Economy of Coffee, Supply Glut, Crashing Prices, Desperate Farmers: What's the Solution?" Whole Earth, (Summer 2002): 12–14.
Tannahill, Reay. Food in History. New, fully revised, and updated edition. New York: Crown, 1989. Original edition 1973.
Thurber, Francis B. Coffee: From Plantation to Cup. New York: American Grocer Publishing, 1881.
Toussaint-Samat, Maguelonne. History of Food. Translated by Anthea Bell. Cambridge, Mass.: Blackwell, 1993.
Windridge, Charles. The Fountain of Health: An A–Z of Traditional Chinese Medicine. Consulted and edited by Wu Xiaochun. Edinburgh: Mainstream, 1994.
FACTORS INFLUENCING THE INDUSTRY’S LONG-TERM OUTLOOK
The coffee plant is a woody perennial evergreen belonging to the Rubiaceae family. There are two types of coffee, arabica (Coffea arabica ) and robusta (Coffea canephora ). Arabica, which accounts for about two-thirds of global output, is grown at high altitudes in Latin America and northeastern Africa. It has more aroma and less caffeine than robusta, which is grown in humid areas at low altitudes in Asia and western and southern sub-Saharan Africa. The coffee plant can grow up to 10 meters high, but it is usually kept at about 3 meters. It takes two to three years for the coffee plant to produce cherries. Scientific evidence indicates that arabica is indigenous to Ethiopia, while robusta is indigenous to Uganda. It appears that coffee was produced in Ethiopia at a larger scale and then spread to other parts of Africa. Coffee cultivation was introduced to Java by Dutch traders in 1699. A few years later the French introduced coffee to Martinique. Coffee was first cultivated in Brazil in 1727.
Although the origins of the coffee drink are unknown, the usefulness of coffee beans was probably recognized as early as 1000 CE by Arab traders who chewed coffee beans in order to suppress their appetite and stay awake, thus helping them cross large distances in the desert. The world’s first coffee shop reportedly opened five centuries later in Constantinople (now Istanbul, Turkey). Coffee was introduced to the West by Italian traders in the early seventeenth century, with the first coffee shops opening in London and Paris later in that century.
The processing of coffee involves several steps. After harvesting, the skin of the cherry is removed, and the bean is cleaned to become a green bean, the internationally traded commodity. The green beans are roasted, giving them a dark brown color. Following the grinding of roasted beans, consumers use various brewing techniques to convert the ground beans into a beverage. In Europe, most coffee is consumed in espresso-like form, whereas in North America coffee is mostly consumed in drip form (although that practice has been changing since the beginning of the “Starbucks revolution” during the 1990s). In Asia, most people drink instant coffee. Scandinavian countries lead the world with per capita consumption of almost 10 kilograms of coffee per year from 2000 to 2005. The European Union average during this period was 5.0 kilograms, followed by the United States (4.1 kilograms), and Japan (3.2 kilograms), according to U.S. Department of Agriculture estimates (USDA 2006).
PRODUCTION, TRADE, AND PRICES
Most tropical countries produce coffee. Latin America accounts for 60 percent of global output, followed by Asia (24%) and Africa (16%). From 2001 to 2006, more than half of world output was produced in three countries: Brazil (35%), Vietnam (11%), and Colombia (10%). Other significant producers were Indonesia (5%) and Ethiopia, India, and Mexico (4% each). Coffee in some countries, notably Brazil, is produced on large farms with modern equipment, including irrigation, tractors, and even coffee harvesters. In other regions, especially Central America, Africa, and Asia, coffee is produced by smallholders. In some Africa countries, smallholders own as little as one-quarter of a hectare of land. In this setting, the key input is labor and, to a limited extent, chemicals. In some East African countries there are also coffee estates that use large numbers of permanent workers.
More than 80 percent of coffee is traded internationally and consumed mainly by high-income countries. In some years, coffee is the second most-traded commodity after crude oil, generating about $15 billion in export revenue. The United States accounts for about 18 percent of global consumption, followed by Brazil (13%), Germany (9%), Japan (6%), and France and Italy (5% each).
Coffee is traded in green bean form. Although there are numerous coffee trading companies, most coffee trade is handled by five or six large multinationals. Coffee prices are determined in futures exchanges. Highly-liquid coffee futures contracts are traded at the New York Board of Trade for arabica and at the London International Financial Futures and Options Exchange for robusta. Less-liquid contracts are traded at the Commodity Exchanges of São Paulo, Singapore, and Bangalore.
Coffee prices are generally highly volatile (much more so than other commodity prices). This volatility reflects the fact that Brazil, the dominant supplier, suffers occasional frosts, thus subjecting its coffee output to considerable fluctuations. Hedge funds also play a role in price volatility, especially in the short term. Beginning in 2000, coffee experienced one of the most dramatic price declines in the history of the industry (an episode referred to as the coffee crisis ). In October 2001 arabica averaged $1.24 per kilogram, a nine-year low, while in January 2002 robusta dropped to $0.50 per kilogram (the lowest nominal level since the price of $0.49 per kilogram set in May 1965). The main factor behind the price collapse was oversupply, especially in Brazil, which averaged a record output of thirty-three million bags of coffee during the previous four seasons, and in Vietnam, which emerged as the dominant robusta producer, overtaking Colombia as the world’s second-largest coffee producer. The oversupply, caused by lower-cost producers, led some to argue, convincingly, that the coffee crisis was a market-driven outcome of the coffee industry adjusting to new global market realities (Lindsey 2003).
THE POLICY ENVIRONMENT
The coffee market has been subject to considerable policy interventions both at national and international levels. Takamasa Akiyama (2001) reported that only fifteen of the world’s fifty-one coffee-producing countries had private marketing systems in 1985. Twenty-five countries sold coffee through state-owned enterprises, while another eleven had mixed state- and private-sector marketing bodies. By 2007 the coffee sectors of most countries were operating with private-sector marketing arrangements.
The coffee market has also been subject to a series of coffee agreements administered by the International Coffee Organization (ICO), which was established in 1962 to stabilize coffee prices by dictating how much coffee each producer could export. Research has shown that coffee prices were higher under the ICO than they would have been otherwise (Gilbert 1995). There were likely political reasons behind the ICO’s supply measures. According to Robert Bates (1997), the United States, a powerful ICO member, used the organization during the 1960s and 1970s to increase the income of Central American coffee-producing countries in the hope that this action would contain the spread of communism in the region. Similarly, western European countries viewed ICO-induced high coffee prices as a way to provide aid to their former African colonies.
Most coffee-producing countries (accounting for 90 percent of global output) and almost all developed coffee-consuming countries were members of the ICO (interestingly, communist countries, which were not members of the ICO, bought coffee under free trading arrangements). The last international coffee agreement was effective from September 1980 to July 1989, after which the ICO was abandoned. A more recent attempt to regulate supplies through another organization, the Association of Coffee Producing Countries, failed.
FACTORS INFLUENCING THE INDUSTRY’S LONG-TERM OUTLOOK
In the absence of new international initiatives or domestic policies by dominant producers, the outlook for the coffee market depends entirely on supply-and-demand forces. Vietnam’s emergence as a major robusta producer is likely to influence robusta prices for many years. In 1980 Vietnam produced 140,000 60-kilogram bags of coffee—less than 0.2 percent of world production. In 2001 Vietnam exceeded 13.3 million bags—more than 11.4 percent of world production. Vietnam is a low-cost producer, and as of 2007 its coffee trees were very young and had yet to reach maximum yields. Brazil has been able to maintain unprecedented output levels, averaging more than 39 million bags during 2003-2006. Extensive mechanization of coffee harvesting has lowered production costs, while better varieties with higher yields have been developed and adopted. Shifting production north, away from frost-prone areas in the south, has reduced the likelihood of weather-related supply disruptions. And the extensive use of irrigation has stabilized and sustained yields.
On the demand side, the coffee industry faces growing competition from the soft drink industry. For example, the 1970 annual per capita consumption of soft drinks in the United States was 86 liters; by 1999, annual per capita consumption had exceeded 200 liters, according to U.S. Department of Agriculture data.
Numerous other factors are likely to influence the coffee industry’s long-term outlook. First, new technologies enable roasters to eliminate the harsh taste of some coffees, essentially achieving a higher level of quality from lower-quality beans. Second, roasters have been more flexible in their ability to make short-term switches between coffee types, implying that the premia of certain types of coffee cannot be retained for long. Third, a small segment of the market has emerged that focuses on product differentiation, such as organic, gourmet, and shade coffee. The implication of these developments is that the demand outlook is likely to differ from one coffee producer to another. Specifically, any expansion in coffee demand is likely to occur at the two ends of the spectrum: lower-quality beans (reflecting improved technology) and specialty coffees (reflecting expansion to niche markets).
Several new patterns have emerged in coffee promotion and distribution as well. Coffee promotion used to take the form of national brands, represented by the familiar Juan Valdez campaign of the National Federation of Coffee Growers of Colombia. Other types of promotions were undertaken by coffee-trading companies, such as Maxwell House’s “Good to the Last Drop” campaign. The market and trade setting has shifted considerably since the mid-1980s.
In 2007 as much as 10 percent of coffee is branded according to such characteristics as subnational origin (e.g., Kilimanjaro coffee rather than Tanzanian coffee, or Harare coffee rather than Ethiopian coffee); social aspects (e.g., fair trade coffee, which ensures a minimum price to growers); and organic, shade, or bird-friendly production (which ensures compliance with certain environmental criteria).
A second emerging pattern is the development of direct relationships between major coffee retailers, such as Starbucks, and producer organizations that can ensure that the coffee these retailers sell adheres to certain social criteria. Initially, it was believed that, in addition to offering more choices to consumers, these new marketing and branding mechanisms would provide a boost to the income of small coffee growers. While this was the case initially, research has shown that the premia received by coffee growers have declined and are likely to shrink even more as increasing numbers of producers join the specialty coffee marketing channels (Kilian et al. 2006).
SEE ALSO Addiction; Agricultural Industry; Colonialism
Akiyama, Takamasa. 2001. Coffee Market Liberalization since 1990. In Commodity Market Reforms: Lessons of Two Decades, eds. Takamasa Akiyama, John Baffes, Donald Larson, and Panos Varangis, 83-120. Washington, DC: World Bank.
Baffes, John, Bryan Lewin, and Panos Varangis. 2005. Coffee: Market Setting and Policies. In Global Agricultural Trade and Developing Countries, eds. M. Ataman Aksoy and John C. Beghin, 297-310. Washington, DC: World Bank.
Bates, Robert H. 1997. Open-Economy Politics: The Political Economy of the World Coffee Trade. Princeton, NJ: Princeton University Press.
Gilbert, Christopher L. 1995. International Commodity Control: Retrospect and Prospect. Policy Research Working Paper 1545. Washington, DC: World Bank, International Economics Dept., Commodity Policy and Analysis Unit.
Kilian, Bernard, Connie Jones, Lawrence Pratt, and Andrès Villalobos. 2006. Is Sustainable Agriculture a Viable Strategy to Improve Farm Income in Central America? A Case Study on Coffee. Journal of Business Research 59 (3): 322-330.
Lindsey, Brink. 2003. Grounds for Complaint? Understanding the “Coffee Crisis.” Trade Briefing Paper no. 16. Washington, DC: Cato Institute Center for Trade Policy Studies. http://www.freetrade.org/pubs/briefs/tbp-016.pdf.
United States Department of Agriculture. 2006. Tropical Products: World Markets and Trade. Foreign Agricultural Service, Circular Series, FTROP 4-06. http://www.fas.usda.gov/psdonline/circulars/tropical.pdf.
Coffee is a beverage made by grinding roasted coffee beans and allowing hot water to flow through them. Dark, flavorful, and aromatic, the resulting liquid is usually served hot, when its full flavor can best be appreciated. Coffee is served internationally—with over one third of the world's population consuming it in some form, it ranks as the most popular processed beverage—and each country has developed its own preferences about how to prepare and present it. For example, coffee drinkers in Indonesia drink hot coffee from glasses, while Middle Easterners and some Africans serve their coffee in dainty brass cups. The Italians are known for their espresso, a thick brew served in tiny cups and made by dripping hot water over twice the normal quantity of ground coffee, and the French have contributed café au lait, a combination of coffee and milk or cream which they consume from bowls at breakfast.
A driving force behind coffee's global popularity is its caffeine content: a six-ounce (2.72 kilograms) cup of coffee contains 100 milligrams of caffeine, more than comparable amounts of tea (50 milligrams), cola (25 milligrams), or cocoa (15 milligrams). Caffeine, an alkaloid that occurs naturally in coffee, is a mild stimulant that produces a variety of physical effects. Because caffeine stimulates the cortex of the brain, people who ingest it experience enhanced concentration. Athletes are sometimes advised to drink coffee prior to competing, as caffeine renders skeletal muscles less susceptible to exhaustion and improves coordination. However, these benefits accrue only to those who consume small doses of the drug. Excessive amounts of caffeine produce a host of undesirable consequences, acting as a diuretic, stimulating gastric secretions, upsetting the stomach, contracting blood vessels in the brain (people who suffer from headaches are advised to cut their caffeine intake), and causing overacute sensation, irregular heartbeat, and trembling. On a more serious level, many researchers have sought to link caffeine to heart disease, benign breast cysts, pancreatic cancer, and birth defects. While such studies have proven inconclusive, health official nonetheless recommend that people limit their coffee intake to fewer than four cups daily or drink decaffeinated varieties.
Coffee originated on the plateaus of central Ethiopia. By A.D. 1000, Ethiopian Arabs were collecting the fruit of the tree, which grew wild, and preparing a beverage from its beans. During the fifteenth century traders transplanted wild coffee trees from Africa to southern Arabia. The eastern Arabs, the first to cultivate coffee, soon adopted the Ethiopian Arabs' practice of making a hot beverage from its ground, roasted beans.
The Arabs' fondness for the drink spread rapidly along trade routes, and Venetians had been introduced to coffee by 1600. In Europe as in Arabia, church and state officials frequently proscribed the new drink, identifying it with the often-liberal discussions conducted by coffee house habitués, but the institutions nonetheless proliferated, nowhere more so than in seventeenth-century London. The first coffee house opened there in 1652, and a large number of such establishments(café;s) opened soon after on both the European continent(café derives from the French term for coffee) and in North America, where they appeared in such Eastern cities as New York, Boston, and Philadelphia in the last decade of the seventeenth century.
In the United States, coffee achieved the same, almost instantaneous popularity that it had won in Europe. However, the brew favored by early American coffee drinkers tasted significantly different from that enjoyed by today's connoisseurs, as nineteenth-century cookbooks make clear. One 1844 cookbook instructed people to use a much higher coffee/water ratio than we favor today (one tablespoon per sixteen ounces); boil the brew for almost a half an hour (today people are instructed never to boil coffee); and add fish skin, isinglass (a gelatin made from the air bladders of fish), or egg shells to reduce the acidity brought out by boiling the beans so long (today we would discard overly acidic coffee). Coffee yielded from this recipe would strike modern coffee lovers as intolerably strong and acidic; moreover, it would have little aroma.
American attempts to create instant coffee began during the mid-1800s, when one of the earliest instant coffees was offered in cake form to Civil War troops. Although it and other early instant coffees tasted even worse than regular coffee of the epoch, the incentive of convenience proved strong, and efforts to manufacture a palatable instant brew continued. Finally, after using U.S. troops as testers during World War II, an American coffee manufacturer (Maxwell House) began marketing the first successful instant coffee in 1950.
At present, 85 percent of Americans begin their day by making some form of the drink, and the average American will consume three cups of it over the course of the day.
Coffee comes from the seed, or bean, of the coffee tree. Coffee beans contain more than 100 chemicals including aromatic molecules, proteins, starches, oils, and bitter phenols (acidic compounds), each contributing a different characteristic to the unique flavor of coffee. The coffee tree, a member of the evergreen family, has waxy, pointed leaves and jasmine-like flowers. Actually more like a shrub, the coffee tree can grow to more than 30 feet (9.14 meters) in its wild state, but in cultivation it is usually trimmed to between five and 12 feet (1.5 and 3.65 meters). After planting, the typical tree will not produce coffee beans until it blooms, usually about five years. After the white petals drop off, red cherries form, each with two green coffee beans inside. (Producing mass quantities of beans requires a large number of trees: in one year, a small bush will yield only enough beans for a pound of coffee.) Because coffee berries do not ripen uniformly, careful harvesting requires picking only the red ripe berries: including unripened green ones and overly ripened black ones will affect the coffee taste.
Coffee trees grow best in a temperate climate without frost or high temperatures. They also seem to thrive in fertile, well-drained soil; volcanic soil in particular seems conducive to flavorful beans. High altitude plantations located between 3,000 and 6,000 feet (914.4 and 1,828.8 meters) above sea level produce low-moisture beans with more flavor. Due to the positive influences of volcanic soil and altitude, the finest beans are often cultivated in mountainous regions. Today, Brazil produces about half of the world's coffee. One quarter is produced elsewhere in Latin America, and Africa contributes about one sixth of the global supply.
Currently, about 25 types of coffee trees exist, the variation stemming from environmental factors such as soil, weather, and altitude. The two main species are coffea robusta and coffea arabica. The robusta strain produces less expensive beans, largely because it can be grown under less ideal conditions than the arabica strain. When served, coffee made from arabica beans has a deep reddish cast, whereas robusta brews tend to be dark brown or black in appearance. The coffees made from the two commonly used beans differ significantly. Robusta beans are generally grown on large plantations where the berries ripen and are harvested at one time, thereby increasing the percentage of under- and over-ripe beans. Arabica beans, on the other hand, comprise the bulk of the premium coffees that are typically sold in whole bean form so purchasers can grind their own coffee. Whether served in a coffee house or prepared at home, coffee made from such beans offers a more delicate and less acidic flavor.
Drying and husking the cherries
- 1 First, the coffee cherries must be harvested, a process that is still done manually. Next, the cherries are dried and husked using one of two methods. The dry method is an older, primitive, and labor-intensive process of distributing the cherries in the sun, raking them several times a day, and allowing them to dry. When they have dried to the point at which they contain only 12 percent water, the beans' husks become shriveled. At this stage they are hulled, either by hand or by a machine.
- 2 In employing the wet method, the hulls are removed before the beans have dried. Although the fruit is initially processed in a pulping machine that removes most of the material surrounding the beans, some of this glutinous covering remains after pulping. This residue is removed by letting the beans ferment in tanks, where their natural enzymes digest the gluey substance over a period of 18 to 36 hours. Upon removal from the fermenting tank, the beans are washed, dried by exposure to hot air, and put into large mechanical stirrers called hullers. There, the beans' last parchment covering, the pergamino, crumbles and falls away easily. The huller then polishes the bean to a clean, glossy finish.
Cleaning and grading the beans
- 3 The beans are then placed on a conveyor belt that carries them past workers who remove sticks and other debris. Next, they are graded according to size, the location and altitude of the plantation where they were grown, drying and husking methods, and taste. All these factors contribute to certain flavors that consumers will be able to select thanks in part to the grade.
- 4 Once these processes are completed, workers select and pack particular types and grades of beans to fill orders from the various roasting companies that will finish preparing the beans. When beans (usually robusta) are harvested under the undesirable conditions of hot, humid countries or coastal regions, they must be shipped as quickly as possible, because such climates encourage insects and fungi that can severely damage a shipment.
- 5 When the coffee beans arrive at a roasting plant, they are again cleaned and sorted by mechanical screening devices to remove leaves, bark, and other remaining debris. If the beans are not to be decaffeinated, they are ready for roasting.
- 6 If the coffee is to be decaffeinated, it is now processed using either a solvent or a water method. In the first process, the coffee beans are treated with a solvent (usually methylene chloride) that leaches out the caffeine. If this decaffeination method is used, the beans must be thoroughly washed to remove traces of the solvent prior to roasting. The other method entails steaming the beans to bring the caffeine to the surface and then scraping off this caffeine-rich layer.
- 7 The beans are roasted in huge commercial roasters according to procedures and specifications which vary among manufacturers (specialty shops usually purchase beans directly from the growers and roast them on-site). The most common process entails placing the beans in a large metal cylinder and blowing hot air into it. An older method, called singeing, calls for placing the beans in a metal cylinder that is then rotated over an electric, gas, or charcoal heater.
Regardless of the particular method used, roasting gradually raises the temperature of the beans to between 431 and 449 degrees Fahrenheit (220-230 degrees Celsius). This triggers the release of steam, carbon monoxide, carbon dioxide, and other volatiles, reducing the weight of the beans by 14 to 23 percent. The pressure of these escaping internal gases causes the beans to swell, and they increase their volume by 30 to 100 percent. Roasting also darkens the color of the beans, gives them a crumbly texture, and triggers the chemical reactions that imbue the coffee with its familiar aroma (which it has not heretofore possessed).
- 8 After leaving the roaster, the beans are placed in a cooling vat, wherein they are stirred while cold air is blown over them. If the coffee being prepared is high-quality, the cooled beans will now be sent through an electronic sorter equipped to detect and eliminate beans that emerged from the roasting process too light or too dark.
- 9 If the coffee is to be pre-ground, the manufacturer mills it immediately after roasting. Special types of grinding have been developed for each of the different types of coffee makers, as each functions best with coffee ground to a specific fineness.
- 10 If the coffee is to be instant, it is I V brewed with water in huge percolators after the grinding stage. An extract is clarified from the brewed coffee and sprayed into a large cylinder. As it falls downward through this cylinder, it enters a warm air stream that converts it into a dry powder.
- 11 Because it is less vulnerable to flavor and aroma loss than other types of coffee, whole bean coffee is usually packaged in foil-lined bags. If it is to retain its aromatic qualities, pre-ground coffee must be hermetically sealed: it is usually packaged in impermeable plastic film, aluminum foil, or cans. Instant coffee picks up moisture easily, so it is vacuum-packed in tin cans or glass jars before being shipped to retail stores.
Methylene chloride, the solvent used to decaffeinate beans, has come under federal scrutiny in recent years. Many people charge that rinsing the beans does not completely remove the chemical, which they suspect of being harmful to human health. Although the Food and Drug Administration has consequently ruled that methylene chloride residue cannot exceed 10 parts per million, the water method of decaffeination has grown in popularity and is expected to replace solvent decaffeination completely.
Where To Learn More
Davids, Kenneth. Coffee. 101 Productions, 1987.
"More Fun With Coffee." National Coffee Association.
"The Story of Good Coffee from the Pacific Northwest." Starbucks Coffee Company.
"From Tree to Bean to Cup," Consumer Reports. September, 1987, p. 531.
Globus, Paul. "This Little bean is Big Business," Reader's Digest (Canadian), March, 1986, p. 35.
The coffee plant is a woody shrub native to the understory of the forests of east Africa. The genus responsible for this caffeine-loaded beverage is Coffea, to which taxonomists assign between twenty-five and one hundred distinct species. Some 80 percent of the world's coffee comes from Coffea arabica L., known as arabica coffee on the global market. Most of the remaining world trade features Coffea canephora Pierre ex Froehner, commonly known as robusta coffee. Robustas have about twice the caffeine content found in arabicas.
Coffee belongs to the family Rubiaceae, a commercially important family that provides the drugs quinine (Cinchona spp.) and ipecac (Psychotria ipecacuanha ), as well as the sweet-scented ornamental known as Gardenia augusta. Like many woody species growing in a forest setting, coffee has a vertical stem with horizontal branches. The lateral branches become progressively longer the farther away they are from the apical meristem , giving the shrub an overall pyramidal or Christmas-tree shape. Shiny, waxy, dark green leaves occur in opposite pairs. They are elliptical in shape with distinctly visible veins. The underside of leaves, like other species in the family, shows small cavities (domatia) at the midrib/lateral vein junctions. While the function of these domatia remains a mystery, some investigators believe they might serve as "houses" for mites or ants.
Coffee flowers are small, fragrant, white structures with five to nine narrow petals. Flowering usually comes about ten days after the first rain ends the dry season. A blanket of frostlike inflorescence and its associated perfume can envelope a large estate for two days before the flowers start to fade. Pollination by bees, wasps, and flies leads to fruit set. The fruit, called a cherry or berry, is actually a drupe that turns dark red (or yellow in some varieties) when ripe. It usually contains two seeds (the beans) surrounded by a sweet mucilage.
Distribution of Coffee Cropping Systems
Coffee production occurs within the confines of the tropics, girdling Earth some 23.5° latitude north and south of the equator. As a mountain-loving shrub, C. arabica does best in the temperate climatic regimes associated with high tropical altitudes. Most coffee zones have temperature ranges from 17° to 25°C. But wherever coffee grows close to subtropical latitudes (as in southern Brazil) or in extremely high mountain regions, frost threatens the harvest from time to time. Minimum rainfall for a profitable crop is 1,200 to 1,500 millimeters per year. Excessive precipitation (greater than 2,500 millimeters per year) or windy conditions impede production by hampering pollination or fruit set.
World production of coffee in 1998 exceeded 6.4 million metric tons, harvested on lands covering more than 10.7 million hectares (an area equivalent in size to Guatemala or Bulgaria). Coffee exports derive from more than fifty countries. Though native to east Africa, coffee production has found a solid base in the New World (the Western Hemisphere), where Brazil, Colombia, Mexico, and the Central American countries account for 59 percent of global exports (of all coffees—arabicas and robustas combined). Brazil is the single-largest exporter. Other important producing countries include Ecuador, Peru, and Papua New Guinea for arabicas, and Indonesia, Ivory Coast, Uganda, and Vietnam for robustas.
From Tree to Cup
Processing of coffee beans into the morning habit many people know as having a cup of coffee begins with the harvest. The relatively short interval in which most beans mature requires the mobilization of a large workforce. Men, women, and children alike participate in this annual event. During peak harvest, a family of six might pick 400 to 600 pounds of beans. For every 100 pounds of freshly picked "cherries," workers receive on average the equivalent of $3.33. Once picked, the cherries may be processed in one of two ways: the wet or washed method, in which water is used to wash, ferment, and rewash the beans; or the dry or natural method, in which the fresh bean is left to dry in its husk. The preferred method for the U.S. palate is the wet method.
Once washed and sun dried on patios or in large cylindrical tumbler-dryers (in areas where rain prohibits patio drying), the beans are milled by machines that remove the final thin parchment. Beans are normally dried to about 11 percent moisture content, which inhibits fermentation or molding of the commodity in shipment. Once milled and dry, the gray-green or bluish beans are ready to travel the world to wherever they are to be roasted. The 100 pounds picked for $3.33 mentioned previously, can, if it is quality coffee, fetch anywhere from $6 to $9 per pound in the specialty coffee shops of the United States.
Coffee quality (its taste or "cup quality," as the experts call it) depends upon a host of factors, including soil, climate, altitude, and processing. The best-quality coffees come from mountainous regions where high standards in processing are consistent. The slow growth at higher elevations produces a harder bean, a highly prized quality on the world market. But locale is only one part of the quality equation. Processing plays a critical role in the final product, which means that coffee grown in the best environmental conditions can be transformed into a mediocre commodity if not processed correctly.
Consequences of Different Cultivation Practices
As an understory shrub native to east Africa, C. arabica is evolutionarily suited to shade conditions. Many coffee growers today—the majority of whom cultivate small plots in poor rural areas—produce their coffee beneath the shade of taller trees. This traditional, forestlike system, while technically an artificial or managed forest, provides an array of what ecologists call ecological services. The foliage cover intercepts heavy tropical rainfall, lessening its impact upon the soil. The leaf litter generated by the canopy provides a mulch layer that further helps to protect the soil, and gradually decomposes into the soil, recycling the nutrients contained in the leaves and other debris. Shade trees with deep roots draw nutrients from lower soil layers into the system. And a diverse mix of plant species creates a relatively stable ecological system with little need for chemical inputs such as synthetic fertilizers or pesticides.
The shade canopy often includes tree species that are nitrogen-fixing legumes (e.g., Inga spp., Albizia spp., Gliricidia spp., etc.), fruit trees such as citrus species, avocados, or bananas, and species that yield precious hardwood (e.g., Cordia spp.). This agroforestry management strategy provides noncoffee products that can be used by the farm family or sold on local markets.
Recent changes in production, encouraged by the late-twentieth-century gains in basic grain crops such as corn, wheat, and rice, have changed the coffee landscape in many countries. Higher plant density (number of individual plants per hectare), the use of high-yielding varieties, and the introduction of an array of agrochemicals (fertilizers and pesticides) now characterize a growing number of farms. These changes are often accompanied by a reduction or total elimination of shade trees. In many Latin American countries, fear of the disease known as coffee leaf rust (Hemileia vastatrix ) and of its spreading in the shaded environment of traditional systems has fueled the transformation from shade to sun or nearly shadeless systems. The objective is to increase yield (production per unit area).
The goal of increased yields is certainly laudable, but it ignores the total production of both coffee and noncoffee products obtained from a traditional, shade coffee system. Noncoffee products such as fruits and firewood, for instance, can represent upwards of 20 percent of a farm's annual income. When shade trees are removed completely or greatly reduced in number, a farmer becomes much more dependent upon the volatile international price of coffee—a position few peasant farmers can afford.
Aside from the socioeconomic impact of changes related to production, there are also some environmental consequences. Obviously, the benefits afforded the soil from the forestlike setting are reduced or lost along with the shade cover. Moreover, recent research shows that shaded coffee lands can play a role as a refuge for biodiversity. Birds use shade coffee lands similar to the way they use natural forests. The important features of the shade are the species diversity of the shade trees (the different types of shade trees) and the structural diversity of the shade trees (the height and layers of the canopy). In fact, from ornithological work conducted in Mexico, Guatemala, and Peru, we now know that coffee managed in a way that maximizes the species and structural diversity of the shade component harbors a bird community as diverse as that found in natural forests in the same region.
see also Agricultural Ecosystems; Alkaloids; Economic Importance of Plants; Psychoactive Plants.
Robert A. Rice
Dicum, Gregory, and Nina Luttinger. The Coffee Book: Anatomy of an Industry. New York: New Press, 1999.
Smithsonian Migratory Bird Center. "Coffee Corner." [Online] Available at http://www.si.edu/smbc.
Wrigley, Gordon. Coffee. New York: Longman Scientific and Technical/John Wiley and Sons, 1988.
A strong, stimulating beverage with a distinctive aroma and complex flavor, coffee has been a popular drink for centuries. Brewed by the infusion of hot water and ground, roast coffee beans, coffee is enjoyed at any time of the day and night, though it is most associated with a morning pick-me-up. Coffee's primary active ingredient, the stimulant caffeine, is mildly addictive but to date no serious medical complications have been associated with its use. Local establishments such as cafés, coffee houses, coffee bars, and diners attract millions of customers worldwide. Specialty coffee shops serve dozens of varieties, each identified by the geographic growing region and degree of roast. Methods of preparation also vary widely, but in general coffee is served hot, with or without the addition of milk or cream, and sugar or other sweetener. Though coffee has always been popular, it wasn't until the 1980s that a number of specialty coffee retailers enhanced the cachet of coffee by raising its price, differentiating varieties, and associating the drink with a connoisseur's lifestyle.
Coffee houses have been regarded as cultural meeting places since the 17th century in western civilization, when artists, writers, and political activists first started to meet and discuss topics of social interest over a cup of this stimulating drink. The poet Baudelaire, in
Paris in the 1840s, described coffee as best served "black as night, hot as hell, and sweet as love." Coffee seems always to have been part of the American landscape, as it was a common feature on the chuckwagons of the prairie pioneers and cattle ranchers, and in the break-rooms of companies and board rooms. Coffee is so popular in diners and roadside eateries that it is served almost as often as water. But for most of its history, coffee was just coffee, a commodity that was not associated with brand name or image. All that changed beginning in the 1980s, as the result of a convergence of two trends. Americans looking for a socially-acceptable alternative to drug and alcohol intake were well-served by a proliferation of retailers eager to provide high-priced "gourmet" coffee to discriminating drinkers. Specialty shops such as Starbucks in Seattle and Peet's Coffee in Berkeley have expanded to national chains whose popularity has eclipsed that of national brands such as Maxwell House and Folgers, which spread across America in the fifties. In addition, hundreds of independent cafés and coffee houses were founded in every major American city throughout the 1990s. In the Pacific Northwest—the capital of coffee consumption in America—drive-up espresso shacks line the roadsides, providing a variety of coffee drinks to commuters willing to pay $3.50 for a 20-ounce Café Mocha with a double shot of espresso. Even a small town like Snohomish, Washington, with a population of only 8,000, boasts a dozen espresso shacks.
Percolated coffee, made by a process where coffee is boiled and spilled over coffee grounds repeatedly, was very popular in the 1950s but made coffee which tasted sour, bitter, and washed-out. It has virtually been replaced by filtered or automatic drip coffee and the more exotic "cafe espresso," an Italian invention whereby hot water is forced through densely packed coffee grounds resulting in very dark, highly-concentrated coffee. Espresso is a popular favorite in specialty coffee shops and in European cafes. These coffee houses offer a more healthful daytime solution to social interaction than the local bar, which centered around the drinking of alcoholic beverages. The stimulating effects of coffee quite naturally encourage conversation and social discourse. Many coffee houses show artwork and host local musicians; some feature newsstands or shelves of books encouraging patrons to browse at their leisure. Coffee shops are also found around most college and university campuses.
The earliest recorded instances of coffee drinking and cultivation date back at least to the sixth century in Yemen, and coffee houses were popular establishments throughout Arabia for centuries before Europeans caught on, since it was forbidden to transport the fertile seed of the coffee plant. There is botanical evidence that the coffee plant actually originated in Africa, most likely in Kenya. Centuries later, coffee plants were imported by French colonists to the Caribbean and eventually to Latin America, and by the Dutch to Java in Indonesia. Today coffee production is centered in tropical regions throughout the world, with each region boasting distinctive kinds of coffee.
There are two distinct varieties of the coffee plant: caffea arabica, which comprises the majority of global production and grows best at high elevations in equatorial regions; and caffea robusta, discovered comparatively recently in Africa, which grows at somewhat lower elevations. The robusta bean is grown and harvested more cheaply than arabica. It is used as a base for many commercial blends even though the taste is reported to be poorer by connoisseurs. The coffee bean, which is the seed of the coffee plant, varies widely in flavor dependent on the region, soil and climactic conditions in which it is grown. These flavors are locked inside, for the most part, and must be developed by a roasting process during which the woody structure of the bean is broken down and the aromatic oils are released. The degree of roasting produces a large degree of variation in how the final coffee beverage looks and tastes.
The principal active ingredient in coffee is caffeine, an alkaloid compound which produces mildly addictive stimulation to the central nervous system, and stimulation to a lesser degree of the digestive system. The medical effects of drinking coffee vary depending on the amount of caffeine in each serving, the tolerance which has been built up from repeated use, and the form in which it is being ingested. Coffee is often served in restaurants as a digestive stimulant, either enhancing the appetite when served before a meal, such as at breakfast, or as an aid to digestion when served, for example, as a "demi-tasse" (French for "half-a-cup") in restaurants after a fine meal. Although American medical literature reports that up to three cups of coffee may be drunk daily without any serious medical effects, individual limits of consumption vary widely. Many people drink five or six cups or more per day, while coffee consumption has been restricted in cases where gastrointestinal complications and other diagnoses may be aggravated by overstimulation. Though not medically significant, many coffee users experience rapid heartbeat, jumpiness, and irritation of the stomach due to excessive coffee consumption. All of these side effects may seem worth it to a coffee drinker who relies on the certain stimulating effects of multiple cups of coffee. Withdrawal symptoms such as headaches occur when coffee is taken out of the diet due to caffeine deprivation, but these effects usually subside after a few days.
With all the concern about caffeine in coffee, it was a matter of time before scientists found ways to remove caffeine while maintaining coffee's other more pleasurable characteristics such as taste and aroma. The first successful attempt to remove the kick out of coffee came at the end of the nineteenth century. Distillation and dehydration/reconstitution resulted in a coffee beverage with less than two percent caffeine content. The caffeine-free powder was marketed successfully as Sanka (from the French "sans caffeine" meaning "without caffeine"). Since then, other processes of refinement have succeeded in removing caffeine from coffee while preserving greater and greater integrity of the coffee flavor complex. Most of these decaffeination processes involve rinsing and treating coffee while still in the bean stage. One process, which uses the chemical solvent methylene chloride, has been judged by coffee experts to produce the best tasting decaffeinated coffee since the chemical specifically adheres to and dissolves the caffeine molecule while reacting with little else. Popular outcry arose concerning the use of methylene chloride in the late 1980s when a report was released indicating that it could cause cancer in laboratory animals, but the claim was soundly refuted when it was explained that virtually no trace of the element ever remained in coffee after having been roasted and brewed. Use of methlyne chloride was curtailed in the mid-1990s nonetheless, due to a discovery that its production could have an adverse impact on the earth's ozone layer. Several other methods of decaffeination are currently used, such as the Swiss water method and the supercritical carbon dioxide process, to meet the growing consumer demand. The vast majority of coffee drinkers, however, still prefer their coffee to deliver a caffeine kick.
Braun, Stephen. Buzz: The Science and Lore of Alcohol and Caffeine. New York, Oxford University Press, 1996.
Castle, Timothy James. The Perfect Cup: A Coffee Lover's Guide to Buying, Brewing, and Tasting. Reading, Massachusetts, Anis Books, 1991.
Cherniske, Stephen. Caffeine Blues: Wake Up to the Hidden Dangers of America's #1 Drug. New York, Warner Books, 1998.
"Coffee Madness." Utne Reader. #66, November/December, 1994.
Davids, Kenneth. Coffee: A Guide to Buying, Brewing, and Enjoying. Santa Rosa, California, Cole Group, 1991.
Kummer, Corby. The Joy of Coffee: The Essential Guide to Buying, Brewing, and Enjoying. Boston, Houghton Mifflin, 1997.
Nile, Bo, and Veronica McNiff. The Big Cup: A Guide to New York's Coffee Culture. New York, City & Co., 1997.
Sewell, Ernestine P. How the Cimarron River Got Its Name and Other Stories about Coffee. Plano, Texas, Republic of Texas Press, 1995.
Shapiro, Joel. The Book of Coffee and Tea: A Guide to the Appreciation of Fine Coffees, Teas, and Herbal Beverages. New York, St. Martin's Press, 1975.
The coffee industry is a major economic activity of several Latin American countries, with consequent influence on patterns of land use, population distribution, and social relations. Native to northeast Africa, coffee was introduced into the Caribbean and the Guianas in the eighteenth century, but it became a major commercial crop only in the nineteenth century, as demand grew in Europe and North America and transportation technology connected remote producing areas to seaports. Coffee requires a frost-free, temperate climate with well-distributed rainfall and fairly rich soils—conditions met by the interior uplands of southeast Brazil as well as the highland areas of Colombia, Central America, southern Mexico, and the larger Caribbean islands. While it is a perennial shrub with a normal life span of twenty to forty years, yields can vary markedly from one year to the next. Aggregate world demand changes only slowly, but abrupt fluctuations in supply, and consequently prices, make coffee a risky business. Nations heavily dependent on coffee for foreign exchange earnings and government revenue have gone through cycles of boom and bust, mitigated somewhat since World War II by a series of international coffee agreements intended to regulate production levels and even out price swings.
In Brazil coffee replaced sugar as the most important export by 1830, holding that position until superseded by soybeans in about 1980. When leaf-rust disease decimated coffee groves in Ceylon and Java in the 1870s, Brazil became the world's primary producer. Coffee spread south and west from Rio de Janeiro, with African slaves providing the labor force on large plantations. That pattern extended into western São Paulo with the construction of railroads connecting the port of Santos to the interior. In the late 1880s, during a decade of high prices and rapid growth, European immigrants replaced slaves as the mainstay of the labor force in São Paulo, just before the final abolition of slavery in 1888. In the first two decades of the twentieth century, Brazil produced three-quarters of the world's coffee, with the state of São Paulo accounting for fully half the world's supply. A bumper crop in 1906 of 20 million 132-pound bags, the highest recorded in Brazil for many years, prompted a government program of price supports and market controls that became a recurring feature of Brazilian coffee policy. During the 1930s such policies included the purchase and destruction of large quantities in the face of depressed world prices. The coffee trade brought mass immigration from Europe, high government revenues, and complementary economic activity—all fundamental in the eventual emergence of São Paulo as South America's largest industrial center.
Colombia first exported small quantities of coffee in 1835, and by the early twentieth century was exporting about 500,000 bags per year (at a time when Brazilian exports averaged some 12 million bags annually). The formation of the National Federation of Coffee Growers in 1927 institutionalized a system whereby the coffee of many medium and small farms was marketed through what became a powerful political and financial organization controlling the country's principal export. By specializing in higher-quality varieties and astute marketing, Colombia's production expanded steadily after World War II, so that by the 1980s the aggregate value of its coffee exports rivaled that of Brazil (whose large internal market absorbs about half of its total production).
Cultivation began in the highland areas of Central America also in the nineteenth century, as newly consolidating national elites encroached on indigenous village lands through privatization laws and usurpation, and many formerly autonomous peasants were forced or drawn into the labor force of the new export sector. German planters and trading firms were important from the 1870s to World War I in some areas of Guatemala and Chiapas, Mexico. Costa Rica's coffee sector, like that of Colombia, has had a greater proportion of small and medium-sized producing units than was the case in Guatemala and El Salvador, where larger plantations have been the norm. Although coffee became dominant in the profile of exports in several countries, none rivaled Brazil in total production, and the vagaries of Brazil's annual crop continued to influence world price levels. Since World War II, production in central Africa also expanded, led by Ivory Coast, Uganda, and Kenya, so that by the 1980s Latin America accounted for 55 to 60 percent of world exports, down from nearly 90 percent in the early 1900s.
Since the 1980s, increased competition from African and Asian producers has brought down the prices paid to growers. One of the ways coffee estates have combated low prices is through specialization and quality. The fair trade movement, an effort to guarantee workers a fair wage and producers a fair price, has brought a higher premium and better quality. Increasingly, coffee marketers are creating brands based on the unique qualities of coffees grown in particular regions.
See alsoCoffee, Valorization of (Brazil); Colombia, Organizations: National Federation of Coffee Growers.
Bergad, Laird. Coffee and the Growth of Agrarian Capitalism in Nineteenth-Century Puerto Rico (1983).
Bergquist, Charles. Coffee and Conflict in Colombia (1986).
Fisher, Bart S. The International Coffee Agreement: A Study in Coffee Diplomacy (1972).
Holloway, Thomas H. Immigrants on the Land: Coffee and Society in São Paulo, 1886–1934 (1980).
Palacios, Marco. Coffee in Colombia, 1850–1970 (1980).
Roseberry, William. Coffee and Capitalism in the Venezuelan Andes (1983).
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