The Exchange: Episode 20 – The Coffee Roaster & Packaging Part 2
Special guest Rob Stephen is back with Mark and Todd to conclude a discussion on The Coffee Roaster & Packaging. At the end of part 1 of the conversation moved to vacuum packaging and cost, with Rob concluding, "You're into it for 20-30 grand but I would say if you're going to put that much coffee into distribution you should be expecting to get that out of it."
Available on iTunes and Full Transcript Below
The Exchange is Presented by Olam Specialty Coffee
Hosted by Mark Inman and Todd Mackey
Directed by Mike Ferguson
All music is used under Creative Commons:
Opening Theme, Coffee Night by Alberto Trobia
Closing Theme, Every Last Coffee or Tea by 75 Dollar Bill
Email Mark and Todd with thoughts and questions:
Mike: Welcome back to The Exchange, presented by Olam Specialty Coffee, hosted by Mark Inman and Todd Mackey. I'm Mike Ferguson. This is our 20th episode and Episode 9 of Season 2. The second part of two conversations on packaging with special guest, General Manager for Olam Specialty Coffee, Rob Stephen. As we closed Part 1, the discussion had turned to vacuum packaging and that's where we pick it up. And now, here they are Mark and Todd, with a little bit of Rob...
Todd: For listeners who may be actually hearing this and typing into Google...Vac...
Mark: Vacuum sealer.
Todd: Yeah. Like a vacuum sealer and...
Mark: 0 2 testers.
Todd: This type of stuff...just give us a quick detail, quick definition of what those things are, maybe even just like a sense of a ballpark price, ballpark physical size and what functions.
Mark: Well, the one I had, I did five pound bags. I would do two five pound bags or four one pound bags. It's about the width of an espresso machine. It's on a stand, so you can stand up and do it.
Todd: Like on a table?
Mark: Well, it sits on legs that go to the floor, and it has a tilted plate where you put the bags on. That machine, ran about $15,000. This is quite a while ago. It needed regular maintenance because coffee particles got in the way of filters, and it prevented a good sealing. The heating elements that would melt the bags needed to be placed quite often. So there's a maintenance issue. It's like basically the price of a small roaster and the maintenance of a small roaster. An 0 2 tester at the time was probably $3,000-$5,000. Yeah, it was up there.
Todd: With 0 2 testing, you're probably more invested into the continual process.
Mark: Yeah. And you need that anyway. I mean you have to know what your oxygen levels are. And most people that just assume when they actually get them tested, they're shocked as to how high the oxygen levels are in their packaging.
Rob: For example, I mean, again, getting into the weeds. But if you are doing heat sealing on a bag, and you've got one tiny little gap in your heat element. You've got this staple size gap there that you can't see with the human eye, but every bag you put out in the field is leaking through that area that didn't get sealed on the top. You only find it with 0 2 testing.
Todd: So what about nitro flushing? Is this part of that same unit? Can you get things like this that are bundled?
Mark: Yeah. Yeah, they're usually an option to add to your heat sealer, and it literally is just one more line going in, and then you have a nitrogen tank, an actual like welding tank that you would get from a gas supply company. The gas lasts quite a long time if you get a tall, like a five foot tall or four foot something tank, but it's an additional add on. It doesn't cost a lot. There's no real difference. But if you looked at that SCA staling study, the nitrogen flushing didn't play nearly as big of a role.
Todd: No, I think that was one of the bigger takeaways from that study.
Mark: Yeah.
Todd: That was the thing, to most people, that was the thing that was like gold standard. Gotta do it if you want to be serious...
Mark: Well, and especially if you went up the ladder and went to liquid nitrogen drops, which is definitely more expensive and doesn't pan out, doesn't pencil out in the end.
Rob: And I think the people who were really pioneering the use of this technology were people who were going into long term distribution.
Mark: Yeah.
Rob: Heavy grocery, one year shelf life...
Mark: Right.
Rob: Most of our listeners aren't going to be entertaining the idea of a one year shelf life.
Todd: Sure. Of course. Well, yes. We talked about transitioning from hand packing and obviously a key consideration, I'm sure anyone who's kind of leveling up from small to medium sized is thinking about that already, and that is weigh/fill. What are the advantages there? What are the considerations that you're looking to spend some capital before year end and neutralize some of your your profits? Is this something to do? Why do it?
Mark: Well, I don't see any downside to doing it. The issue is, is that it takes a lot of labor to hand scoop bags. How many bags can you, Todd Mackey, at the peak of your career when you are really scooping away, what was your record per hour? It's not as much as you think. Before we went on the air I was talking about when I went to a very large roaster one time that I worked with and was stunned to see that they had about 30 people around a table hand filling and weighing the bags. And the comment I had brought up was why with the volumes that they were doing, they had four full bag roasters going. And imagine the amount of weighing you're doing on that. And their answer at the time why they didn't go to a weigh/fill was that it wasn't artisanal, which I was at a loss as to what that even meant. Was there a flourish on the when you pull the scoop out of the bag that they thought added something to it? But it speeds up dramatically the process of filling and weighing in bags. Especially when you have big runs for wholesale. It's it's well worth the money. Again, it's a considerable investment. It's not cheap. It requires maintenance. That is significant. But in the long run, that would be one that I would do over nitrogen flushing if I was going to be weighing my options of what I could afford.
Todd: It seems like this would be the biggest first step, going from hand packed, flip sealed bags to the next level. Now obviously the biggest consideration is just the capital spend. And I think most people find themselves in a place where even though per unit you're spending dollars instead of cents, you don't have that cash free to spend on something that's as uninspiring, unromantic as the weigh and fill seems until you're in the precise position of management...
Mark: Right.
Todd: Which a lot of the listeners, I'm sure, in the first three years in business, that that's not a thing yet, but it should be coming down the pike. And I do think this is an area where money can be found without necessarily just saying, well, let's up our prices.
Mark: Well, I'd like Rob pointed out it's one of those expenses that at the end of the year, the idea is that it's increasing your volume. And if you then run your numbers, especially your cost of goods when it comes to labor costs at the end of the year, that will have paid for itself. It's a no brainer on that level.
Rob: There's just nothing to teach you that you don't want to hand fill 10,000 bags like hand filling 10,000 bags.
Mark: Yeah. {laughter}
Todd: Speaking of filling 10,000 bags, I had the unique experience of hand filling what felt like 10,000 bags. Like little single pillows and things like this.
Mark: Pillow pack.
Todd: I'm sure we have listeners that are in this space that might be, you know, fulfilling the demands of old school, let's say, clients that are looking to brew pot by pot and they want pre-portioned pillow packs. Is this something that all the same logic applies? Are there considerations for how you're dealing with packaging these types of things? In your experience, if you're getting pressure as a small roaster from customers who love your coffee and want to buy it, and ask, "Can you sell it to me in this format for this brewer?" But obviously the expectation is it's going to be the same exact coffee and taste the same exact way.
Mark: Right.
Todd: Can you actually deliver coffee in that package and keep your standard?
Mark: Well, I would go back to the days... For one, that's hotel service predominantly is where you're going to get that.
Todd: Well and restaurant.
Mark: Well, yeah.
Todd: Not high end restaurant service.
Mark: Not high end restaurant service, but you'll have that. That's true. If you get into the airline business, you know, some people get airline accounts. Maybe it's a regional airline carrier, but they're gonna want the pillow packs as well.
Rob: They'll want filter packs.
Mark: Filter packs. Yeah. That boils down to what do you want to do with your brand and are you willing to sacrifice the quality for the increased visibility? I mean, if you can have the Hilton chain for a region, is it worth it in the long run, even though the coffee quality won't be better? I chased the hotel business pretty vigorously, but I did not want to do that type of pack, so I was experimenting with different ways of getting hotel service coffee done that didn't involve that, that still maintained the quality of the coffee that would be equal to what the customer would experience in the cafe or at home. And it's tough. It's a really tough one. The machine for that is quite expensive. You would have to have significant volume to make that pencil out and be worth your while, and you have to wrestle with yourself on the quality issue. Remember back in the day that the espresso pods... That was the same kind of thinking. You know, the press pods that came in a little puck that would just go right into the pour filter.
Todd: Oh, sure.
Rob: But that brings me to what I usually use to tell people who would get into that line of business, which is the same advice I would give you if you were going to scale up your roasting is the same one I would give you on packaging. Which is, before you go out and haul off and buy a huge, huge roaster, consider whether you can rent time on somebody else's right? So you know, a form fill and seal machine, entry level is $150,000. And they go up from there. They go into the millions. And if you wanted to do flexible packaging at high volumes, or you wanted to do filter packaging, there's roasting plants out there that nobody knows of, nobody knows their brand name because they just do stuff for other people. You bring your roasted coffee to them, and they'll do this for cents on the package.
Mark: Right.
Rob: And you don't have to lay out your capital. They've got all the quality control in place. And it's a great way to start up and see if you your market for that is good before you invest in all this packaging. I tell you, packaging equipment changes fundamentally the way that your business operates because you then you are required to have a maintenance staff. These things are like Swiss watches. They break down all the time. I shouldn't talk about watches around you.
Mark: They don't break down all the time. You regularly maintain a Swiss watch every five years, and they'll run fine.
Todd: It's like dealing with a nice espresso machine. Preventative maintenance is key.
Rob: True. True. But some of these machines have hundreds of moving parts and if one of them goes, they all stop. So it's the kind of thing where, as much as you can make it somebody else's problem and use somebody else's money, it's worth doing. I mean, obviously not for a simple net weigher or to fill craft bags or something like that. But we start getting into advanced packaging, there's a ton of excess capacity.
Mark: That reminds me. You know, we talked about this on a handful of episodes ago and Rob's name came up, where Rob had mentioned...
Todd: Sure you want to talk about that?
Mark: You might as well get the cat out of the bag. Just get it out there on the table and get past it.
Rob: Don't hurt either of my feelings, please.
Mark: Where when Rob was that Duncan, he and I had had a conversation about this, not this subject, but around scaling up as a brand and roasting. And Rob had brought up a thing one time that irked me at first, and then the more I thought about it, and then in time I've learned he was correct, was...
Rob: Wow, you said that into a mic and everything.
Mark: Yeah. Yeah. Yeah. This is recorded.
Todd: He's been working on getting prepared to deliver that. Let's just take a moment of silence in celebration.
Rob: I told myself I wouldn't cry. {laughter}
Mark: Yeah. Revel in this moment. Take advantage of it. It was the idea of if you were to use your money wisely, what you would not be doing is investing in manufacturing of coffee. What you would be investing in is your brand. Because at the end of the day, that's what's going to sell, if you ever sold your company. That's what's going to help you grow. That buying a roaster... It was something to the effect... What irked me was something about, "You're just browning beans. Just get over yourself. This is a replicable thing. That it's not art we're dealing with. We're dealing with food manufacturing." And, you know, when you're a small roaster, you think you're an artist. You think you're producing something that nobody else can do. But the bottom line is, is that any contract grocer out there that knows what they're doing can replicate anything you can imagine. If you give the spec correctly. And so what Rob was saying was, you know, invest in your brand, invest in your package, invest in the company, put that stuff off on somebody else. And nowadays, especially with FSMA, you know, the Food Safety Modernization Act, and maintenance of all this equipment, and the labor of having roasters and packagers and all of that, that you can pay somebody to do it. And it literally is pennies on the dollar. In most cases, you'll find that your manufacturing costs will always be far cheaper to go to a co-packer than it would be to do it yourself. And he was right about that. It took a while for this sting to wear off, but he was right in the end.
Todd: Sure. Sure. Well we're proud of you, Mark.
Mark: Yeah, that was a big step for me.
Rob: He's not admitting all the other times I was right. But, you know, there're plenty more episodes coming down the pike.
Mark: I have no idea what he's talking about.
Todd: I do feel like there is that mentality in the craft space where we want to be...
Mark: Hands on. Yeah.
Todd: ...making things and the maker mentality, which I think is totally healthy and totally a driving part of the space we are in, which is also very difficult to shake when it comes to things like this that are in the business' best interests, whether you look at liability or you look at overheads, you look at the opportunity cost of taking those dollars, putting them there into a fixed asset instead of hiring a salesperson, or building your brand, or investing in more elaborate packaging and doing some sort of rebranding initiative that can stand out more. This is a very compelling argument. I think, you know, to me, that's the place where this logically brings us is how important is packaging as it relates to the brands? I mean, obviously, it goes without that it's critical.
Mark: Yes.
Todd: But, we're in what feels like a day and age in specialty coffee where everyone is trying to paint with the same palette something that's entirely different and say, "Well, we are totally different in the next roaster down the street.".
Mark: Right.
Todd: But can you do that? Is that a waste of time? Should we be focusing on other things? Is packaging almost self-indulgent at this point? You know, we've got like bags inside of boxes inside of cans out there that are just like, coming from a sustainability perspective, crazy, right?
Mark: Yes. It's ridiculous.
Todd: I mean, I just can't help but say. I have to. So in your opinion, is this a dragon we're chasing to slay, and we should give up the hunt? Or it is a worthwhile investment, specifically around innovating packaging, and doing better at communicating that.
Mark: Well, it depends on what message you're sending. I think that nowadays in not only coffee, but any food product or actually any product, packaging is branding. It's marketing. It's a way to look as being innovative. But in the long run, you have to ask yourself, on the sustainability side, are you sending the right or wrong message? And I think a lot of larger companies, getting back to the watch thing... I'm a watch collector. I'm very big into that. A big thing for watch collectors is the box that the watch comes in. And if you were to buy the man on the moon watch that went to the moon. It's the fiftieth anniversary of the Apollo 11 mission. That box is two and a half feet wide by two and a half feet deep and about eight inches tall to hold a watch. But everybody wants to box. They want the big box. Like, what does that have to do with the watch? It's got nothing. It's a box, and it's made of wood, and it's lacquered. And you think about the environmental footprint of making that package is ludicrous. So a company called Oris Watches has done away with all of that. They're putting their high end watches in recycled bamboo packaging and very minimalist. And that's their message. We're not going to continue to clog the oceans with plastic and useless stuff. And so I do think you need to be conscious of that. My move into cans was all about that. Could the multi layered package have been superior when it comes to preservation of coffee? Perhaps. But I wasn't willing to take the leap and to go into a package that was not recyclable, that was nothing but landfill fodder. I could live with it. It's the same reason why I never went into capsules, and it just didn't work for me. So what's your moral compass on this? I don't know. In creative ways, some of the companies lately... There are companies that stand out because of their packaging and if you walk down a grocery shelf where they're dealing with regional coffee players, if you just walk quickly, a lot of those packages kind of blend in together. It's wallpaper. And so what's going to pop? So Illy, obviously they're in a can with the screw top lid, and that popped. That was a unique thing that stood out. Now you have to Drive Coffee that's being done in Atlanta I believe, that's using... This is off the shelf product, but a paint varnish can. It's like a square ish or rectangular can with a screw top that you would have like paint thinner normally. You have a DoubleShot, out of I believe it's in Oklahoma, that's using paint cans to package their product. You have this this company called Barista Parlor in Nashville, Tennessee, which I saw these really cool square, I believe they're like a tetra pack type square box with a center plastic screw cap that the coffee beans come out of. I emailed them prior to the show because I want to get a better handle on what that package is. But as far as a brand driver, it was a very cool package. It was probably one of the better looking coffee packages I've seen in a long time. And then Huckleberry would do their special edition coffees in what looked like an oversized Altoids tin, but they made that look like a cassette tape and the branding was written like it was a cassette tape. So some of these other packaging, you know, they were they were vacuum sealed and they had valves on them.
Todd: Yeah. No, I mean, it's interesting to look at some of those instances and compare how much of that special marketing efforts that are single copies or limited edition runs versus this is our standard package... How many of these are deployed in the context of multiple roasters competing for the shelf space? All that kind of stuff played out, and I certainly I know we've done a marketing episode, we're likely do more marketing episodes, but the point wasn't necessarily to take the discussion completely down that route. It's just that it begs to be asked when we're thinking about packaging, what type of dual purpose approach should approach should a roaster have? This is not functional. It is also a form, and it needs to be approached as such. My personal success metrics for each episode, Mark, is just to get you to say "Back in the day," a minimum of four to five times. And that's already completed. {laughter}
Rob: You were alive during that moon mission you mentioned, right?
Mark: I was one.
Rob: Yeah. I just wanted to point out that you were alive, so that's good.
Todd: Yeah, I personally feel like we had covered.... I'll kick it over to you guys. What did we miss? Is there anything before wrapping it up that we should talk about or that you would be remiss to overlook?
Mark: Well, I think what we've overlooked, and we haven't addressed, is the capsule packaging, which is a huge deal nowadays. Not only the Keurig type capsule, but now that the espresso type capsule has opened up, people are starting to package into that. And to me, a much more difficult decision for a roaster because the volumes are clearly there when you do it. I mean, businesses are transformed when they go into this type of package. But I would argue that it's a significant sacrifice in quality, compared to coffee being brewed in other methods. And the environmental footprint thing is something you have to wrestle with. It's a big one. But if it's just about capitalism and growing your brand, I don't know of any avenue right now that's going to grow your volume faster than that. It disturbs me that that's what's causing the amount of growth we're seeing. But nevertheless, it's something that we are here... It's a reality for us in this industry.
Todd: Yeah. Not only the volume...
Rob: Yeah, let's not forget that you're taking a pound of coffee and ultimately selling it for $50 a pound when do the math on that.
Todd: Yeah. There are tons of roasters who are trying to buy some of the best greens out there and can't sell it... And we're seeing average quality roasted in sort of straight commercial type approach...
Mark: Well. Even if you did a high end super great microlot, like this coffee we drink today, and you put in a capsule, you're going to lose a significant amount of what makes this coffee great.
Todd: For sure.
Mark: And my old argument, when I when those were first coming on the market, was I'll put my $50 a pound coffee versus your $50 a pound capsule, and I guarantee you're going to be more impressed with what I'm doing. But cleanliness, convenience,.
Todd: Oh, convenience...
Mark: Rules the day, unfortunately.
Todd: Yeah. It is one of those things, I think, beyond just the sort of moral question that everyone has to ask in terms of getting in their sustainability or lack there of standpoint, is also what is it doing for you? This is one of those that depending on the space, it's kind of like you coming across over confident, right? Can you make the leap?
Mark: You can all relate to that, kids out there. {laughter}.
Rob: You can related to that right, Mark?
Mark: Sure. My pocket square.
Todd: It begs the question can you make the transition entirely? It's almost silly to say. And it's not to say, well, if you can you should. That's not the conversation we're having.
Mark: A lot of people, that's their thought process.
Todd: But I do think that you need to have the thought in mind in terms of the different platforms you're selling, different packaging that you're putting product out in as it relates to quality, and the message that just it's shape itself sends about where you are. Are you picking the space that you want to live in? Are you ready to fully occupy it if it's taken, and it's received?
Rob: I mean, I always have the same conversation that both you have with clients, which is, "What green coffee should I buy?" Well, what are you trying to say with coffee? That dictates how you roast, what style of roast, what kinds of machines you roast on. It dictates the packaging you use. It dictates what goes on the outside packaging. What are you trying to say with coffee? A lot of these questions of modality, you know, what kind of packaging should I use, which I put on it are all easily or more easily answered if you can answer that first question. What are you trying to say? And one of the biggest things you can say or not say is whether you decide to go into that kind of packaging.
Todd: Yes. Yes. We know for sure. Bottom line, you can't just say, "Yes. I'll do that. Yes, I'll do that. Yes, I'll do that.".
Mark: Right.
Todd: Because the company you're going to become in five years or 10 years is not at all the company that you're starting now, that you started a year ago, two years ago, or the one that you dream to be. So you make those decisions wisely. With that in mind, Mark, I'll let you take us out. What a special episode.
Mark: I know.
Todd: You're overlooking downtown Providence with Rob Stephen. Rob, we hope you'll sit down with us for a few drinks. What do you think? What was the experience?
Rob: I think I was misled about the fact that there'd be something in my glass, but otherwise I would really...
Mark: We'll take care of that after the show.
Rob: I had a great time. I've been listening to the episodes over the last couple of seasons and so many times wishing I could get in there. So I'm really glad for the opportunity. Yeah, I'll take you up on any invites in the future.
Todd: I would have thought that he would have shown up prepared for that segment. It's a regular segment every episode. I just want to air the grievance.
Mark: Get it out there in the room.
Todd: It was aweseom to have you, Rob. Your experience in this space, especially, is really unique. I feel like you have the depth and approach to speak to this that few people do. Thank you so much for your time.
Mark: Well, another great episode of The Exchange, from Olam Specialty Coffee. For Todd Mackey, producer Mike Ferguson, and myself, Mark Inman, we wish you a very good day.
Mike: It's true. You've been listening to The Exchange, presented by Olam Specialty Coffee, hosted by Mark Inman and Todd Mackey, directed by Mike Ferguson, and featuring special guest Rob Stephen for the past two episodes, as we discussed the coffee roaster and packaging. Our opening theme was Coffee Night by Alberto Tribia. Our closing theme is Every Last Coffee or Tea by 75 Dollar Bill. All music is used under Creative Commons. Remember, you can e-mail us for any reason, other than to criticize Mark's obsession with pocket squares, at TheExchange@olamnet.com. Thank you for listening, and we'll see you next time for an episode on coffee roasters and providing retail equipment for customers. And now your postscript.
Todd: I mean, I felt like I was on another planet, man.
