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Shhhhh - be very, very quiet: a report on private label coffee in the specialty market.


Everybody is doing it, but nobody is talking about it. The "it" is private label coffee, a trend we saw emerging in the past few years as a result of the reducing operating costs during the depressed economy. Private label seems destined to continue given the free movement in the market and the lack of an ICO agreement.

Given the circumstances created by an open market, it has become increasingly easier for people to gain direct access to green coffee, an important step in maximizing the profitability of private label. Furthermore, private label seems to be pretty recession-proof, and it is also one of the key ways in which everyone, from local roasters to the big commercial coffee companies, can cash in on the consumer's desire to buy specialty coffee - something unique and/or associated with a prestigious name. What this all adds up to is, according to most estimates, approximately a 20% share of specialty coffee sales. By all means, private label is going to remain a significant movement in the coffee industry.

In a Webster's dictionary kind of definition, private label coffee is when a roaster roasts and packages a coffee to the specifications of another company. In conversations with two of the more well-known roasters of private label coffees, Gavina and Mountanos Brothers, I found that the term private label encompasses many things. Taken in its broadest context, most of the coffee being sold as specialty can be considered private label in one way or another. Although to be more specific, the three major avenues of business for roasters of private label are coffee services, supermarkets, and bulk sales to gourmet and specialty shops.

The advantages of this process to the private label customer seem obvious. For one thing, it seems that everyone wants into the specialty coffee business, as witnessed by the fact that in places like Seattle and San Francisco it is now possible to buy an espresso at the dry cleaners, and whole bean coffee at the local barber shop. It makes a great deal of sense to tap into the expertise and knowledge of a coffee roaster, especially if your mainstream business is not coffee, but a related product such as coffee machinery or specialty foods. But, while many such companies want a piece of the specialty coffee pie, there are few who have the capital to invest in setting up and operating a roasting facility - so for these businesses, the answer lies in private label.

In coffee-related industries such as these, private label also has appeal because, while offering the the end-consumer specialty coffee is natural, it makes more sense to put your own name on the package instead of focusing the consumer's attention on another company. Self-promotion is one of the primary justifications for deciding to invest in private label. Also important is the ability, in an increasingly competitive market, to be able to differentiate your services and products.

This concept is easily demonstrated in office coffee services - if, as XYZ company, you sell the same major nationally distributed brand of coffee as your competition, pricing becomes a key issue. But if you're selling your own XYZ brand and do a quality job, who can argue if it costs a little more. As most people in specialty or gourmet industries know, the ability to offer a unique product directly translates into profits.

For wise and wary businesses, private label also offers the opportunity to test the waters of specialty coffee without laying down a huge amount of capital. When especially large volumes are in question, it is possible to maintain surprisingly high quality standards while keeping the cost to the consumers small. Big discounters on the West Coast, such as Price Club, Costco, even Trader Joe's, have all been able to offer whole bean specialty coffees.

For the roaster, private label in situations like these also helps to differentiate the discounted product, thereby maintaining the high-quality, higher-price image of their own name-brands.)

On the flip side, it is also possible with private label to offer consumers a lower quality product (albeit whole bean Arabica), and keep the price rock-bottom, while still benefiting from having the coffee identified solely with your business. This is where many of the supermarket private labels come in, keeping cost at the lowest possible level while still offering the consumer an option to the widely distributed brands which can be purchased at every supermarket in the neighborhood.

But what is in this for the roaster of private label coffee? Just common sense says that you can make more margin with your own label, and recognition certainly doesn't play a part since no one is exactly eager to divulge any information regarding their roaster. Private label is one of those touchy proprietary subjects that, even in the friendly specialty coffee industry, can cause awkward silences in conversation.

For the roaster, it is a combination of things that makes for a successful private label customer. Quantity, packaging, and green bean sales all contribute to the profitability of private label. It is a relatively low overhead type of business, since the capital investment in machinery is already in place for their own coffees. In some cases, the client is even responsible for the acquisition and storage of the green coffee. But always, in these cases, the client takes on the hardest role, the marketing and selling the coffee.

At the low-maintenance end of the spectrum, the coffee comes into the plant, gets roasted, and gets out. With this kind of business, it is simply a matter of money. At the opposite extreme, the roaster provides packaging and selects the green coffee, increasing both work and profit margin. Either way, providing private label coffee comes with a lot of long-term rewards. While none of the roasters I spoke to wanted to concentrate their efforts on private label roasting, it, nevertheless, played an important role in their companies.

In essence, a good private label account can mean growth for the roaster's business without them having to ever step out of the door. When the client opens new stores, or expands into new markets, they take the roaster with them. A successful venture into private label is mostly about maintaining customer loyalty; keeping the product consistent; giving good value to the client without sacrificing quality standards; and of course, keeping quiet.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Moore, Wendy Rasmussen
Publication:Tea & Coffee Trade Journal
Date:Apr 1, 1993
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