Fresh Cup Magazine

Sold on Wholesale
Making Your Dreams of Wholesaling Coffee Come True
by Michelle D. Williams

So you've established yourself as a successful coffee retailer, and you're loving all aspects of the business. Because you want more quality control over your product and you have an unending passion for coffee, you've even begun roasting your own. You're nothing less than exhilarated by the pleasure, pain and profits of running your own coffee company. In fact, you're so motivated that you're already starting to daydream about the next step-wholesaling. But are you prepared to make that dream a reality?

Diving In
To gauge whether or not you're ready to make the leap into wholesaling, roasters should first consider their reputation, says Ted Lingle, executive director of the Specialty Coffee Association of America (SCAA). In order to begin wholesaling successfully, he says, it's important to have an established presence that grabs the attention of local restaurant, café and drive-thru operators. This kind of reputation is earned with a dedication to quality and freshness, says Lingle, adding that a solid enough reputation might lead to wholesale customers pursuing you. That's exactly what happened to BJ's Coffee Co., a roaster/retailer in Forest Grove, Oregon. "In 1992, we started a little 1000-square-foot retail store with a five-kilo roaster," says co-owner Ken Palmer. "Within the first year, word got out that we had very good coffee, and people started coming to us and asking to buy our coffee for their smaller stores and drive-thrus. Eventually, I had enough accounts to purchase a bigger roaster."

   Capacity is another important consideration for potential wholesalers. Do you have idle time on your roasting equipment? If so, adding a wholesale business is a great way to make use of those extra hours, Lingle says. Even as few as one or two wholesale clients can bring your equipment up to capacity. If you are already roasting to capacity for your retail store, Palmer says it's time to think about purchasing a larger roaster. Exactly what size you upgrade to will depend on how fast your business has been growing and how much space you have in your roasting facility. But upgrading your roaster will afford you the extra capacity to expand your retail business and test the wholesale waters.

   Once you decide you're ready to add wholesale accounts to your business, you'll need to examine your market. If you're as lucky as BJ's Coffee was, your program will evolve through word of mouth and customers will come to you. In today's competitive market, however, it's wise to take a more aggressive approach. Lingle suggests roasters begin by introducing themselves to all businesses selling coffee within a three- to five-mile radius of their roasting facility. Tell them about your coffee and what makes it special. Leave some samples for them to try. Even just one or two interested customers will be enough to get your wholesale program off the ground. As you acquire additional clients, you can expand by hiring employees who are dedicated to sales, customer service and delivery.

   As BJ's expanded, Palmer hired delivery drivers who would stop along their routes and leave coffee samples with potential clients. "We didn't aggressively pursue," he says. "We just left samples and if they were interested, they'd call us back." But Palmer soon learned that most people rarely tried the samples, and those who did, often did so after the coffee had become stale. To avoid this, he suggests going door to door with coffee samples and offering to put your coffee in a prospective client's hopper so their customers can offer feedback for a day. Other roasters have successfully lured wholesale customers with tastings or cuppings. Beth Dominick, president of Sacred Grounds, a certified-organic roaster/retailer in Arcata, Calif., carries a French press when calling on potential wholesale clients. "All you need is some hot water and you can make your coffee, have them drink it and explain to them why it's so much better than what they already serve."

The Pursuit
In today's competitive wholesale coffee market, snagging those first few clients is critical. One approach that helps new wholesalers is to hone in on target markets. Lingle suggests focusing on proximity first, only targeting coffee retailers within a few miles. Then, once you establish yourself around your neighborhood as a roaster who provides quality coffee and excellent service, you might consider expanding into other areas of town.

   The most obvious targets for coffee wholesalers are restaurants, cafés and espresso drive-thrus. For new wholesalers, the easiest targets will be start-up coffee operations and restaurants looking to upgrade their coffee service. The more difficult customers to woo will be operators that are already loyal to another roaster. John Guerin, co-owner of Coal Creek Coffee Co., a roaster/retailer/wholesaler in Laramie, Wyo., advises would-be wholesalers to consider why such coffeehouses or restaurants would benefit from changing to a different coffee supplier. Is your coffee more unique? Does your business philosophy mesh better with theirs? Is your customer service better? Do you offer more services than another roaster? "It is a very difficult sale," he says. "But there are far more roaster/wholesalers trying to sell coffee in mass quantities than those offering something truly unique."

   Some wholesalers find niche markets beyond the restaurant and café arena. Sacred Grounds, for instance, markets its coffee to natural foods stores, co-ops and small chain grocery stores. While coffeehouses and restaurants are obvious targets for building a wholesale business, Dominick found that co-ops and small grocers were more willing to give her coffee a chance. "Our product met the standards of natural foods stores in terms of quality and taste profile," she says.

   Sacred Grounds acquired several account lists from natural foods distributors, then launched a direct-mail marketing campaign. Grocers received a hand-addressed packet, which included a personal letter, press release, wholesale catalog, and brochures for Sacred Grounds' special blends. The letter gave details about pricing, customization options and minimum order amounts, and it invited grocers to call for a free sample. In addition, the campaign offered new customers free shipping on their first order. Dominick says the effort garnered 25 wholesale accounts in less than six months. Many of them, she says, are clustered in the Midwest because the specialty coffee industry is still developing in that region.

   Dominick adds that large, chain grocery stores can be difficult to acquire, but locally owned stores are good places to start. Large grocers often require wholesalers to follow barcode restrictions and to use detailed shipping programs and procedures that integrate with their own. What's more, purchasing decisions at large stores are often made by teams, so wholesalers need to put together and schedule a product presentation for the entire group, which requires extra time and more samples than when approaching a smaller operation. "Because larger stores had so many hoops to jump through," Dominick says, "we discovered that we could get more accounts by calling a small chain or co-op and talking to a single buyer."

   Dominick advises wholesalers to find out what requirements local grocers have for new vendors. For example, be sure to ask whether your packaging should include a UPC code. UPC registration can be expensive for wholesalers, but many small stores do not require barcodes on packaging. Ask what case quantities the store will need and whether you will have to provide bulk bins and store demos. Many stores even require vendors to provide "buy backs," meaning the wholesaler buys back any product that doesn't sell after a certain time period. Dominick stresses the importance of making sure you have enough money allotted for these extra costs, as well as for in-store promotions and advertising. She says that 15 to 20 cents per pound of coffee delivered is a good average budget to cover all of these areas.

   Sacred Grounds carved out another niche through an alliance with the Sierra Club. The roaster recently created a special Sierra Club blend and is marketing the coffee under the Sierra Club logo. A portion of all sales goes back to the organization. "Because there is an outdoorsy, environmental history behind the name, we're finding that a lot of outdoors stores, camping expeditions and travel/touring companies are interested in that product. You really can't overlook any market," Dominick says. "If you have a niche that no one else is filling, or if you're helping to meet a need, you don't have to work as hard to create a demand. But it's important for new wholesalers to realize that every avenue they approach is going to have different needs."

   BJ's Coffee found such an opportunity at Burgerville, a Vancouver, Wash.-based fast-food restaurant chain that incorporates regionally produced foods and beverages into its menu. "We did a trial market and it worked out well, so Burgerville started remodeling and putting espresso in all of its stores," Palmer says. "Now we have 40 Burgerville accounts. That's what really shot us up in the wholesale end." But Palmer warns that targeting large corporations can be challenging and unpredictable.

Wholesale Housekeeping
When developing a wholesale market, Guerin suggests roasters establish an organized set of business systems, from the purchase of green coffee to roasting, filling orders, packaging, shipping, billing, and staying on top of financial obligations.

   Two important considerations are what packing materials to use and what the final product package should look like. Where will your logo be placed and what marketing copy will appear on each package? You'll need scales for weighing beans and possibly heat sealers for putting your coffee into its finished package.

   For grocery store sales, Sacred Grounds often packages its coffee in heat-sealed Mylar bags. Dominick says the paper tin-tie bags commonly used for retail coffee sales don't work for grocery stores because the coffee doesn't stay as fresh. Some bag manufacturers can print your logo on the bags, but you may still want to order stickers to indicate specific coffee varieties. This type of packaging costs around 50 cents per unit, which includes the cost of the Mylar bag itself, the printing of a single-color, adhesive label and a heat sealer to close each bag. Storing the roasted beans in bulk bins and providing tin-tie bags is another method for grocery store placement. But Dominick says such a setup requires wholesalers to make sure bins are always clean and full.

   As your wholesale business develops, consider how you will deliver your coffee. At first, making deliveries yourself using your own vehicle may be feasible. But eventually, you might consider investing in a delivery van and hiring a driver. Some wholesalers pay drivers mileage and let them use their own vehicle. Others simply use UPS or another such company to deliver their coffee to clients. BJ's uses UPS for deliveries that are more than a two-hour drive from Portland; otherwise Palmer prefers for an employee to deliver the coffee in person. "The personal touch is so much better," he says. "People like to talk to someone." Palmer himself visits wholesale customers at least once a year to see how they are doing. He checks the grinders and cups customers' house coffee and espresso to make sure they aren't stale or that the grind isn't off. He works with customers on the phone daily, and if someone has a problem, he usually responds himself.

   Many wholesalers keep their competitive edge by offering additional products and services. Palmer believes it's important to offer one-stop shopping to wholesale customers. If retailers can obtain syrups, smoothie ingredients, chocolate for making mochas, chai, chocolate-covered espresso beans and paper products through their coffee wholesaler, it makes things much simpler for them. "To not offer all of these extras," Palmer says, "puts you at a great disadvantage because there are so many wholesalers out there offering the full service."

   Some wholesalers even provide espresso equipment. But in addition to the considerable overhead costs, supplying espresso equipment can produce a number of added business headaches. "When you get into equipment, you're talking about technicians and servicemen," says Palmer, who does not supply espresso equipment. Palmer says he's never felt at a disadvantage by not offering machinery. BJ's will help wholesale customers make educated equipment decisions. Palmer recommends building relationships with companies that have solid reputations. Then you can make suggestions to customers, and the manufacturer can take care of the sales, setup and repair.

   Offering training to wholesale accounts can be another selling point and a benefit to you, as you'll be secure in knowing your coffee is being prepared and served to your specifications. "We have a lab set up for customers to work with us at our location, and we are willing to visit customer locations when time and finances allow," says Guerin, who insists that new wholesale customers participate. "We typically spend a few hours getting them comfortable with their equipment and going through the process of brewing our coffees."

   Sacred Grounds offers training visits, during which a company representative teaches wholesale customers the importance of keeping coffee fresh, while showing baristi how to weigh coffee, set grinders and rinse filters. Sacred Grounds also provides detailed behind-the-counter signs to walk baristi through the drink-making process, and Dominick recommends a variety of training books and videos to her clients. She tries to visit customers at least twice a year, if not once a quarter. "It really depends on a client's employee turnover and how committed the manager is to following through on what we show them," Dominick says. "Wholesalers must be willing to provide some training as part of their customer service package."

Building Your Brand
Whatever your target wholesale market, it's critical to reinforce your company's identity with each new account. You can provide airpots, bags, cups, and other paper products with your company's logo on them, constantly reminding your clients' customers whose coffee they're enjoying. Wholesalers can work with a professional designer to prepare graphics for these items, or a computer-savvy employee can obtain specifications from a bag or cup manufacturer and prepare the company logo for printing at your office.

   Roasters can also work directly with manufacturers to get their logos on the products they purchase for wholesale accounts. "The initial setup fees are usually quite small," Guerin says. "However, all the manufacturers we have dealt with insist on us buying very large quantities, so the up-front costs can be high." He says that on cups, for instance, wholesalers can expect to be required to buy at least 50 cases per size for custom logo work.

   Sacred Grounds supplies coffeehouses with refillable travel mugs displaying its logo. For airpots, Dominick says the company simply creates graphic tags on the office computer and has them laminated at the local copy shop. The tags provide detailed descriptions of each Sacred Grounds coffee and are attached to airpots with Velcro. Coffeehouse managers can swap out the tags depending on what coffee they want to brew.

   When marketing your brand, Dominick advises that you always remember what you want people to think of when they see your logo. She says your image should reinforce your company's core beliefs. One way Sacred Grounds does this is by using unbleached, recycled paper products. The company has also tried to generate local goodwill through participation in community events and donations to charitable organizations. Dominick believes that these efforts help people think positively about Sacred Grounds when they see its logo.

   To be even more aggressive about cementing your brand identity and strengthening your wholesale business, you might want to consider advertising in local or national publications. Palmer believes advertising can pay off, but he recommends that new wholesalers exercise caution when marketing their business in distant realms. "Be selective about how you advertise, and study the market to see what your returns are," he says.

   BJ's has been in business for more than 10 years and only recently began advertising in national magazines. Palmer says that with the high saturation of the Northwest market, advertising has helped him expand to other areas of the country. By advertising on a national level, his sales have increased throughout the Midwest at a much greater rate than his sales closer to home.

   Dominick says Sacred Grounds advertised in a magazine for office solutions and was flooded with orders from all over the country. She says the key to good marketing is to include as much clear information about your coffee as you can in the space you have-no matter whether you are advertising in a magazine, on a poster or through the mail.

The Pitfalls
While wholesaling can be profitable, there are also some drawbacks. For example, Palmer says wholesalers must be prepared for fluctuations in cash flow when clients don't pay their bills on time. BJ's Coffee tries to work with clients on an individual basis to set up financial plans that work, but sometimes, new customers end up ordering more coffee than they can sell. "We try to work with people and help them get started," Palmer says. "As long as we have a collection system of some kind set up, we feel good."

   Sacred Grounds requires all first-time customers to prepay with a credit card. After that, customers are encouraged to continue paying with a credit card, but if that isn't possible, they are billed under 15-day terms. Dominick says her business partner sends out reminder statements and calls clients who are late in paying. If a customer has not paid within 45 to 60 days, no further coffee is sent to them. Dominick advises new wholesalers to be wary when a customer places several orders in a short time span. "Most small coffee shops cannot afford to place large orders," she says.

   Palmer isn't actually convinced that wholesaling is the best option for roaster/retailers looking to expand. In fact, he thinks that opening additional stores or drive-thru locations often makes more sense. "You are going to make one-tenth the profit wholesaling than you will retailing," he says. "If I had it to do over again, I would probably invest my money in more retail stores of my own rather than wholesaling."

   But Palmer, who competes for wholesale accounts in the heavily saturated Pacific Northwest market, is quick to point out that this is not necessarily true in untapped coffee markets. In fact, he says he's met many people from outside the Northwest who say that the only specialty coffee available in their area is Starbucks. In these less competitive markets, roaster/retailers often stand a better chance of starting up, establishing a name for themselves and building a strong wholesale business.

   It takes a special breed of entrepreneur to navigate these stormy waters, one who is well informed, persistent and passionate about specialty coffee. Take Guerin, who enthusiastically describes the ups and downs of running a wholesale coffee business. "Is it expensive? Yes. Time-consuming? Oh, my God! Unpredictable? Are you kidding?! But I love it, and can't wait to get up every morning!"

Michelle D. Williams is a freelance writer and editor and frequent contributor to Fresh Cup Magazine. She lives in Portland, Oregon.