Mike Ferguson's Business Blog Archive

Mike Ferguson, Fresh Ground Consulting

Specialty coffee retailers, listen carefully to me. Ignore the sounds of rumbling from the valley, where the giants fight and play. You are on the high road and must pay attention to your footing.

When consumers are asked why they go where they go for coffee, the two top answers, in a virtual tie for the top spot, are convenience and quality. Make it good and make it easy to get. The convenience sector realized several years ago that they could capture a greater share of the quality-driven market, not by serving coffee that scores 80 plus on the SCAA cupping form, but by serving slightly better coffee than the stuff they had been serving.

Most specialty coffee consumers (70%) also drink traditional coffee regularly. These consumers do not expect to find a great cup of coffee on every street corner, but they are looking for a cup of coffee that is "good enough" along the way. This is the coffee consumption dollar that the convenience sector has targeted, coffee that is good enough. If coffee that is good enough is part of your business model, and you can compete on convenience, then good luck in the valley.

Not long ago I overheard a woman talking on her cell phone as we loaded up our cars in the Sam’s Club parking lot. She said into the phone, “Have you tasted the iced coffee drinks at McDonalds? They’re pretty good, and they only cost $1.89.”

If that is where you want to compete, where the best thing a customer can say about your coffee is that it is “pretty good,” then prepare yourself to battle with giants. If you’re interested in making coffee that is so good that customers are willing to be a little inconvenienced to get to it (and, just imagine, drink it only 12 ounces at a time, out of a porcelain cup even), you will find a niche on the high road.

This piece by Mike Ferguson originally appeared in Specialty Coffee Retailer Magazine

Posted by Fresh Ground at 01:40 PM | Permalink | Comments (0)

Mike Ferguson, Fresh Ground Consulting

The coffee industry has long considered itself recession proof and economists, to the degree that they believe coffee to be a cousin to vice, agree. They consider demand for coffee in general (caffeine more specifically) as “inelastic,” meaning consumers are reluctant to substitute another product regardless of a rise in price or, similarly, a decrease in their ability to pay. And despite several significant economic downturns within the 30- to 40-year lifespan of the specialty coffee industry, quality coffee has demonstrated inelasticity. Retailers and their suppliers and manufacturers have not only survived difficult economic environments, they’ve even prospered.

But the current economic downturn has seen the limits of inelasticity for prepared specialty coffee, if not coffee in general. Across the board, coffee retailers report drops in beverage sales. This is an important point and bears repeating because it holds clues to the future. “Elasticity” is being experienced in the marketplace for “prepared” beverages, the coffee drinks we have others make for us. Consumers are substituting, not another base product, but another preparation and finished product, opting for a less expensive method at retail (i.e. drip coffee) or making it themselves.

In a recent survey conducted by the Specialty Coffee Association of America, among retail respondents that had whole bean and ground coffee sales in 2007, 67 percent report an increase in sales for this category in 2008, roughly the same number (62%) reporting an increase in beverage sales. However, while 20 percent of retailers report a decrease in beverage sales, only 12 percent report a loss in whole bean and ground coffee sales. While not one respondent reported a loss of more than 15 percent in whole bean and ground coffee sales, one out of four respondents reporting a loss in beverage sales indicated a decrease in excess of 15 percent. And finally, while 16 percent of respondents report a drop in drip coffee sales, 24 percent report a drop in sales of espresso-based beverages.

Like all numbers, these are open to many interpretations. What I see is that milk and sugar, true to their commodity status, are demonstrating their elasticity. When push comes to shove, consumers can do without them, thank you very much. But when it comes to quality coffee, consumers are less likely to compromise.

At the end of the day, the economic viability of the specialty coffee retail sector as it has evolved is dependent on more than coffee alone. I believe that consumers will return to their sugar and milk when they can, though I suspect, and even hope, that a large percentage might just stick to drinking more black drip brewed coffee and, perhaps, brewing it themselves with a new respect for that process.

How many coffeehouses remain to greet the sugar and milk refugees when they return may depend more on the inelasticity of everything they sell that isn’t coffee, all the products that consumers can find elsewhere for less. If you have been known for your coffee above all else, I’ll put my money on you. If you have been known for sandwiches, smoothies, CD’s, ceramic this-and-that, open mic night, or anything other than coffee, I can only wish you the best of luck.

This piece by Mike Ferguson originally appeared in Specialty Coffee Retailer Magazine

Posted by Fresh Ground at 02:25 PM | Permalink | Comments (0)

Mike Ferguson, Fresh Ground Consulting

Not long ago I received an email from a client asking me if he should renew his ownership of various website addresses, all of which were either  iterations if his company’s name or different domain extensions. Five years ago, I probably would have advised him to renew his ownership. Ten years ago I probably would have advised him to buy even more domain names.  But a few months ago, I told him to let his claim on the extra domain names expire. 

I think I was right, and I think I would have been right five and ten years ago. Domain names, once a critical component of brand architecture, have lost a significant degree of relevance. The Millennial Generation (Generation Next) does not type in or necessarily even read URL addresses. They click on links.

The relevance and credibility of any given link is established by the context or “community” in which it is found and its source, not the words contained within the URL.  

In response to character limits in text messaging and social networking providers like Twitter and Facebook, there are dozens  of URL shortening services online. Over 60% of URL’s posted in Twitter messages are “shrunk” down to a meaningless series of characters. There are arguments for and against this practices, but it works, as long as we are in the fluid online world.

In the offline world, we still use business cards and company stationary and purchase advertising. When Facebook offered users the opportunity to claim personalized URL extensions for their Facebook pages (e.g. www.facebook.com/aboutferguson) people clamored for their little chunk of URL real estate because the world of “fixed” documents still exists offline, where you cannot click on a link.  We still need to provide pointers to our locations in space and time, in the real word and online. The specific words within a URL are increasingly irrelevant, but still useful, though perhaps only in terms of efficiencies.

The ideas around what is fixed and what is fluid are changing even in the hard-copy world.  The lines are getting blurry. Even the classic example of “fixed” documents, books,  are becoming fluid-like with the advent of Print On Demand technologies. And now that we all carry computers in our pocket, the practical if not psychological need for paper is dwindling. We may never see the prophesied paperless society, but I’m willing to bet that in 10 years, “beaming” a business card will be more commonplace that handing one over.

The point is not the pace of technological change nor the ruthlessness of fluidity when it comes to framing information.  The point is how we respond. Are we questioning our operational and communication assumptions daily?

Are logos still sacred cows that should not be updated more than once every ten years, or can they be dynamic identifiers that can be adjusted frequently for context? What’s the point of having only one  tag line or slogan if it’s only relevant to twenty percent of your target market, and only relevant to them twenty percent of the time?

Do you frame the information on your packaging the same as you do in your printed marketing material, and in your marketing material the same as you do on your website, on your website the same as you do in your blogs, in your blogs the same as you do on your Facebook fan page, and there the same as you do when using Twitter?  Traditional branding discipline would say yes;  and, perhaps those principles are still relevant, but I suspect their relevancy now finds its home within the narrowly defined boundaries of context.

The operations people don’t escape either. It’s fine if you still ask about where the volume price break is on a  print run as long as you’re also calculating out the relevancy lifespan of the document. What is the true cost of that four cent brochure when it becomes irrelevant in three months? What is the true cost of using a brochure when your competitor is beaming “Bluetooth brochures” to everyone in the exhibit hall?

The answers are truly not as important as asking the questions. Questioning our assumption is where the rigor is required because the answers…the answers will always be fluid.

Posted by Fresh Ground at 01:59 PM | Permalink | Comments (0)

Mike Ferguson, Fresh Ground Consulting

I know you’re busy, what with marketing and distribution of your instant coffee going national and opening stores not named Starbucks and everything. Then there is that damned $1.89 iced coffee over at…another retailer. These things are just the tip of the iceberg, I’m sure. The last two years have been challenging. I want just a moment of your time. I'm writing for myself, but as you might guess, I'm also writing to you on behalf of the industry segment that gave birth to you and raised you, the Specialty Coffee Industry.

Look, I know things between you two have been awkward for some time, but think about the early days, when the Specialty Coffee Industry and Starbucks were close and your futures appeared to be inseparable, when you spent time together because you wanted to, not because you felt a “family obligation.” That was before you started hanging out with soda pop makers, fully automatic espresso machines, and coffee companies that, well, I’m just going to say it, roast something less that specialty grade coffee. This was before you grew so big that people began to mistake you for the parent and the Specialty Coffee Industry for the child. You know, your older brother Peet has never really forgiven you for letting people think that.

But I don’t want to focus on the negative. You went out into the world and made a place for yourself. That is how life works. And we recognize that you kept some of the values with which you were raised. The Specialty Coffee Industry has always been proud of your commitment to the proper brewing of drip coffee. Though we all sometimes wished your coffee was not roasted so dark, we recognized that this was part of your personality, and had been since you where a baby.

We might not have said anything, but we noticed that consumers could still often find some very fine specialty coffee, whole bean, at many of your stores. We noticed these little things, these acknowledgements of your childhood. I mean, we didn’t like how you handled your infatuation with Clover, but we recognized the gesture, the attempt to recapture something from your youth and refocus in uncertain times.

I know what you’re thinking. This is the point where we usually start lecturing you and giving you unwanted advice, which always ends with you telling us that we have no idea who you really are and that we don’t understand the pressure you’re under. You’re probably right when you say that.

So, no lecturing this time, no “self-righteous diatribes” about quality. There is nothing the Specialty Coffee Industry can tell you that you have not heard a hundred times before and already knew anyway. We have just this simple request, and it’s about this “Taste Challenge” you’re doing with the VIA.

Sweetie, it’s embarrassing. I think we’ve already had our say in the past about your selling instant coffee, which is just, well, backpacking food, so we won’t go into it again. But whose idea was the whole taste challenge set-up anyway? Did this idea come from one of your soda pop industry friends? Because that’s the sort of thing they use to do…in the 1970’s.

Okay, okay, I said I wouldn’t lecture, but I have just this last question. Why do you keep telling everyone you meet that this VIA is just as good as your regular coffee? It says nothing about this new product of yours and everything about your drip coffee.

This is our request. Sell all the VIA you want. Buy a giant billboard in Time Square and be as proud as you can be about creating the best backpacking coffee on the market. Go head to head with Nestle and slice a sweet chunk out of their pie. But please stop telling consumers that you can fool them into thinking they are tasting real coffee.

Finally, we just want to tell you again, you can always come home. No matter what, there will always be a place for you. Of course, we won’t let you make VIA in the house, but you can set up the camp stove in the tool shed if that’s what makes you happy.

Posted by Fresh Ground at 12:33 PM | Permalink | Comments (2)