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Reflections in a cup: All The Public Really Wanted Was…

All The Public Really Wanted Was...


March 31, 2008
By Stuart Daw

Topics

Leaving the specialty retail coffee business aside, is it true that
large foodservice coffee buyers generally serve a lower quality of
coffee than smaller ones?

Leaving the specialty retail coffee business aside, is it true that large foodservice coffee buyers generally serve a lower quality of coffee than smaller ones?

And if so, what are the dynamics affecting this condition?

The question comes to mind from the recent conversion of McDonald’s to an upgraded coffee program, presumably in response to what has been called “The Starbuckian Revolution.” Viewing McDonald’s seemingly remarkable success with this move one might ask: “Where, for goodness sake, have they been all these years?”

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This is not to denigrate in any way the unparalleled achievement of McDonald’s as a business enterprise. I recall our first trip to Florida from Toronto in 1963, and a visit to Tampa’s Busch Gardens. We arrived around lunchtime, and the family was hungry. There before us, just outside the Gardens, stood a hamburger stand with strange looking golden arches in front.

Never having heard of McDonald’s before – assuming it was just a local hamburger joint – we ordered burgers all around, running I think at around 29 cents apiece in that era. But I was intrigued by something they called a “Big Mac.”

Without sounding too corny about this I ordered one, took a bite and suddenly realized that “the world will never be the same again.” I may have been a bit late in saying that, but it surely turned out to be true, for it did indeed change the foodservice world.

But to reformulate the question: Why, given their expertise, did it take so long for McDonald’s to get the idea of improving their coffee?

The explanation may be that they fell prey to the problem faced by all buyers that have to make value judgments among the alternative variables. Surely McDonald’s was aware all along that to improve the coffee would mean at least some increment in sales. But they also knew such an improvement was going to cost more. And any buyer with an already high volume of purchases in a product is in a different position than someone operating the corner coffee shop.

The higher unit cost of product will not just apply to the increased product sales. It will also apply to sales already taking place, which will remain the largest part of their coffee purchases. And therein lies the rub!

Let us consider the dynamics of all this. Breaking into the coffee business exactly 57 years ago last month, the objective seemed quite simple to me: to go to the market with the best possible cup of coffee, and then convince customers, or prospects, that it was in their best interests to buy it, trusting their subjective judgment.

But that was, of course, only half the battle; for in the buyer’s mind the decision went beyond quality, inevitably getting mired in the price consideration. That consideration included not just a possible higher per pound coffee cost, but perhaps also the heavier weight prescribed to achieve the better tasting brew.

Did he or she want to sell richer, higher grade coffee, and were they willing to pay for it? The variables of blend, roast, grind, weight, etc., along with proper brewing technology were quite straightforward.

But the issue to the operator was then, as it continues to be, what is the optimum combination of quality and economics in any given coffee environment to ensure maximizing long-range profitability? This question remains today, for coffee service and vending operators as well as restaurateurs or any other foodservice people.

A classic case history for me came in the early 1970s, when our vending supervisor convinced a large vending company buyer to allow us to work with his people in a test situation, upgrading the coffee machines, checking for proper gram throws, cleanliness, and of course using higher grade coffee.

The program was a success, demonstrating the increased sales that would result in a company-wide application of these changes.

The math comparing the impact of higher costs against increased gross profits was also convincing. The buyer recognized it.

The moment of truth arrived however, when the time came for him to approach his superiors to try and convince them. Our price for coffee alone was going to be 10 cents per pound higher, to say nothing of the cost of higher gram throws, and the likely increased cost of cream.

The buyer ruefully revealed to us that 10 cents per pound on their total poundage was greater than their entire company’s profit the previous year (let’s hope that was an unusual year). Our proposal would be too hard to sell to upper management, and he didn’t wish to even tempt them to chastise him for not seeing the realties of this situation. To them, coffee was coffee, so: “How can we make more money by paying more for coffee while not raising the price per cup? Go and get us a 10 cent per pound reduction. Never mind asking us to pay more.”

The thought of making more profit by selling more due to a quality change while not raising prices was foreign to them.

It is so comfortable to maintain the status quo. But it could be well worth the effort to seriously study the effect of improving coffee quality and promoting it, especially with the dramatic change in gross profits per cup since that earlier era referred to above. A simple breakeven chart analysis might show the way to the right decision. 

The fundamental problem may be that the foodservice operator doesn’t really believe that the customer will know and appreciate the difference when the coffee improves. And maybe he is right with respect to many or even most of his clientele.

But there is a core of coffee lovers out there who will appreciate and gladly pay for the quality boost. True, there are many variables to be considered outside of the bare bones approach cited here, including the costs of promotion and product focus, but it couldn’t hurt to check out McDonald’s recent experience. o