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

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)

Mike Ferguson, Fresh Ground Consulting

Nestle has launched an aggressive response to Starbucks' move into instant coffee. Get a taste HERE.

This, to me, is very similar to the Starbucks vs McDonald's hype, which McDonald's is happy to see and promote.

McDonald's true competition in terms of daily cups of coffee is Dunkin, but framing their competition as Starbucks puts them on Starbucks' level in the minds of consumers. "See, the only difference between us and Starbucks is price." The perception is a level playing field.

Nestle's true competition is every other jar or tin of instant on the grocery store shelf, but primarily Kraft and the Maxwell House instant brands (like the General Foods International brand where sugar is listed as the first ingredient and coffee is the tenth). But by framing their competition as Starbucks, they place themselves on the same level as Starbucks instant, Via, in the minds of consumers.  The only difference, they are saying, is price. Admire the tactic, but don't believe it.

I am confident that, whatever you might think about Starbucks Via, it is higher quality than whatever is listed as the tenth ingredient in a tin of International "Naturally and Artificially Flavored Coffee Drink Mix," or even Kraft or Nestle instant brands in which coffee is the only ingredient.

Starbucks must continue to innovate and reinvent itself (or be perceived to be doing so) in an attempt to not only maintain its market share and some reasonable approximation of growth, but to also gain new customers. The transition from "movement to monument" is a painful one. Those who have already arrived at functional stasis as the grand 'ole coffee brands no longer suffer from this adolescent angst in the life of a brand. Like the ancient vampire acquiring a new apprentice to help him adapt to the present age, the old coffee stalwarts need only feed off the expended energy of the younger and more ambitious company.

Whoever defines the relationship controls the relationship. The statement "Friends don't let friends overspend on coffee," framed as an intervention, complete with a form letter you can send to a friend who is hooked on spending too much on coffee...ah, it's advertising and strategic poetry that instantly erases every variable except price, and is the classic fallback for traditional coffees which are, in fact, interchangeable commodities much of the time.

For Starbucks, the only way to win this game is not to play. There are times to go bullet for bullet with the competition in marketing, but not on ground that is isn't yours or that you don't want. Starbucks may dabble at the fringes of obtaining a share of the price conscious consumer dollar, but it isn't really their territory.

It is a valuable lesson for those at the high-end of quality in the specialty coffee market. If the competition says their coffee is better than yours, step up, go head to head and may the best cup win. If they want to compete on price, let them have the customers who hear that siren song and move on. And always reframe, reframe, reframe the conversation around quality, if that is your calling card.

www.freshgroundconsulting.com

Posted by Fresh Ground at 10:02 PM | Permalink | Comments (2)