State of the Industry

Specialty Coffee Association of America

Competition, innovation and global issues drive today's industry

By Melissa Niksic

In our modern society, specialty coffee retailers face a multitude of important issues. Competition in this business isn't anything new. Retailers constantly try to surpass their opponents and retain more customers. However, in addition to maintaining higher levels of product quality and customer satisfaction, retailers must also address widespread environmental and social concerns that at first may not appear to have anything to do with bottom lines. Balancing all of these issues is essential in order to survive in today's specialty coffee industry.

More than ever, independent coffee retailers are facing competition from larger chains. Mary Petitt, president of the Specialty Coffee Association of America (SCAA), says that a major reason for this is because large coffee corporations are more aware of the importance of serving better coffee. “We're seeing more competition from the larger companies as they continue to put out better products," Petitt says. “Ultimately, though, competition is a good thing. It pushes all of us to be more creative and innovative with our thinking."

Although the bigger coffee chains are making an effort to sell higher-quality products, Petitt thinks that smaller retailers still have an edge on the competition. “One of the advantages smaller retailers have is that they are very nimble and are able to respond quickly to new customer needs and demands and are able to quickly change things," she says. “As a small retailer, you don't have to go through multiple departments to get approval in order to make a change."

Petitt says that retailers should be aware of their customers' needs and desires, and use that information to incorporate business changes. “Smaller coffee retailers have an intimacy with their customers due to their smaller size, which is a major advantage," she says. “Small retailers always need to have their noses in the air to see what issues are most important to their customers."

Advancing quick service
Convenience and innovation are also important to keep in mind as the industry moves forward. Independent retailers now have the opportunity to offer a variety of unique beverages in their stores and change their menus at a moment's notice due to customer response. Small retailers may benefit from purchasing innovative one-cup brewing machines in order to offer a large selection of beverages without having to keep multiple pots brewing at once.

“You have the ability to brew all kinds of coffee: flavored, decaf, etc.," says Sandy Yusen, director of public relations for Green Mountain Coffee Roasters. “It's convenient for everyone because the cup is ready in 30 seconds, and you don't have to brew separate pots. The cartridges used in the one-stop machines are made to order."

Yusen says that one-cup brewing systems guarantee a great cup of coffee every time due to their built-in quality and temperature controls referencing features of one-cup brewing machines manufactured by Keurig, which is owned by Green Mountain Coffee Roasters.

Photo courtesy of Specialty Coffee Association of America and Green Mountain Coffee Roasters

Take tea seriously
The growing popularity of tea and other beverages in cafes is another issue of which retailers must take note. “It's very important for coffee retailers to realize that we're not only in the coffee industry, we're in the hot beverage industry," Petitt says. “Not everyone drinks coffee, so you don't want to miss out on that potential business opportunity."

The inclusion of tea in coffee retail stores is also becoming more common.

“Tea manufacturers are flooding the market with innovative choices and more fanciful packaging," says Judith Ganes-Chase of J. Ganes Consulting, LLC. “Herbal teas, white and green teas are gaining in popularity."

Ganes-Chase points out that trend-setting Starbucks® has embraced tea, launching its own line of Tazo® teas and providing the products in its stores. According to Ganes-Chase, the tea market is expected to rise from $6 billion annually to $10 billion by the year 2010, and all retailers should make a move to get in on the action.

George Jage, president and founder of the World Tea Expo, says that the healthy benefits from tea make it an appealing alternative to other beverages.

“At the end of the day, all consumers will make their food and beverage choices based on what tastes good, but more and more people are making these choices based on health," Jage says.

Tea is generally rich in antioxidants, and health studies suggest that drinking tea aids in the prevention of various health conditions. The L-theanine found in tea is a natural mood relaxer that produces a calming effect, which is one of the drink's major appeals.

There are literally hundreds of tea varieties on the market. Jage suggests that retailers introduce several different flavors into their stores, including green tea, which has dramatically increased in popularity over the past several years.

Photo courtesy of Specialty Coffee Association of America

While retailers obviously want to showcase their coffee, they should also incorporate a variety of other drinks into their menus. Juice, bottled water and even blended drinks are some of the alternative beverage options gaining popularity in coffee retail stores. Offering premium bottled iced teas is another easy way for retailers to introduce tea into their stores.

Lending a conscious hand
All retailers struggle to remain competitive and expand their customer base. However, there are many widespread concerns in the coffee industry today that may seem out of place with common retail issues.

One major issue that is becoming increasingly important to retailers of all types and sizes is the environment. Many customers, especially those of the younger variety, have become more aware of how the products they use create waste, and consumers are choosing new products based on their eco-friendliness.

Petitt says that all retailers should consider new ways to make their products as environmentally friendly as possible. “Many SCAA members were early advocates of using recycled products," Petitt says. “We're seeing many more ecologically friendly paper cups in use. Styrofoam is much less prevalent in the industry than it used to be."

SCAA recently presented one of its Sustainability Awards to Green Mountain Coffee Roasters and International Paper Company. The award honors individuals, businesses and organizations in the coffee industry that create innovative projects to expand and promote sustainability. In this instance, two companies formed a partnership marketing the first paper hot beverage cup made from fully renewable resources.

Photo courtesy of The Coffee Bean & Tea Leaf®

According to Yusen, consumers use 15 billion paper cups annually, and that number is expected to rise to 23 billion by 2010. The new ecotainerTM produced by Green Mountain Coffee Roasters and International Paper Company is lined with polylactic acid and requires half as much energy to produce as conventional cups. The ecotainersTM are also compostable under proper conditions. “The cup is our way to try and reduce our environmental footprint, at least in this aspect," Yusen explains.

In addition to launching the ecotainerTM, Green Mountain Coffee Roasters incorporated several other environmental issues into its organization, including installing comp fluorescent lighting and converting its entire truck fleet to biodiesel. The company also started paying close attention to fair-trade coffee products, which are gaining popularity among consumers. “More consumers are becoming very critical about where their food comes from," Yusen says. “The fair-trade, organic segment of the coffee industry is growing more than any other type of coffee at a rate of about 75 percent a year. Customers really understand the benefits of fair trade and seek to purchase goods that have a positive impact on the world."

Another company that has made significant strides in supporting environmental causes is The Coffee Bean & Tea Leaf®. Since 2003, all of the company's U.S. stores have maintained certification through the Green Restaurant Association. To maintain membership, each company must make four significant environmental changes in its stores per year.

Melvin Elias, chief operating officer and senior vice president of operations for The Coffee Bean & Tea Leaf®, says that going green requires a lot of work, but it's actually very simple to do. “The initial reaction many retailers have is that it's going to be really hard, but it's not because so many people really get behind it," he says.

In 2006, The Coffee Bean & Tea Leaf® renewed its green certification status by installing energy-efficient water spray valves and lighting in its stores and implementing cup-recycling programs for employees and customers. “We've always received an enormous amount of support from our store teams and our customer base," Elias says. “It's always a joy when our corporate goals coincide with our customer response."

Photo courtesy of Green Mountain Coffee Roasters

Not only do green initiatives make a difference environmentally, but they often have a positive impact on retailers' profit margins. Elias reports that his company is saving thousands of dollars in paper cup costs and on energy bills as a result of going green.

Many companies are also spending more time and money on social issues. The Coffee Bean & Tea Leaf® supports a wide range of programs under its Caring Cup initiative. This project supports numerous domestic and international causes. “After the large tsunami several years ago, our company adopted 40 orphans–that is, we've pledged to pay for their welfare," Elias says. “We've built hospitals in several countries. We donate 50 cents from each bag of Colombian coffee purchased in our stores to support schools in Colombia."

The charitable initiatives supported by The Coffee Bean & Tea Leaf® also factor into the company's own version of fair trade. “For our company, fair trade is making sure we get the best quality stuff from our growers, and that we build strong relationships with our growers as well," Elias says.

The Coffee Bean & Tea Leaf® focuses on maintaining its relationships with growers by making sure it purchases goods at a fair price. The company also pledges a long-term commitment with its growers, usually at least 3 to 5 years. Finally, many of the Caring Cup programs support causes in countries where coffee beans are grown.

Photo courtesy of World Tea Expo and Kanaya Fine Tea

It's also important for retailers to find ways to make a difference in their own communities. The Coffee Bean & Tea Leaf® provides each of its store managers with a donation budget and allows the managers to decide how the money is spent. “A lot of times, you'll see school or community groups coming in and asking for a store to pledge money or provide pastries for an event," Elias explains. “We want to have a system in place where managers have the ability to say yes to those things."

Along with the donation budget, individual stores also receive $500 to participate in the Adopt-a-Classroom program, whereby the store makes a donation that goes toward purchasing supplies for a local classroom.

According to Elias, businesses of all kinds should make an effort to support environmental and social causes.

“You've got to give back," he says. “I know that we're businesses and we're all out to make a profit, but all businesses have a responsibility to give back to the community, the environment and the underprivileged."

Initiatives that make a difference do not have to be grand, but choosing a few paths that lead to bettering the environment and the community will not only be satisfying for you, but your customers will also applaud you with their appreciation and repeat business.

In the end, retailers must struggle to meet the needs of their customers, and those needs do not always correspond directly to the coffee itself. Offering a variety of quality products is essential, but retailers also need to assure customers that their patronage has a positive impact on a global scale.

Innovation, a healthy dose of competition and the desire to produce the highest-quality coffee continue to drive the specialty coffee industry into the future. Keeping an eye open and being a step ahead will lead you down the road to success.