Just when you think the profession of the coffee “middleman” was on its way out in this era of the Internet, in come a number of entrepreneurs trying to reintroduce them. What we’re talking about are consumer retailers that intermediate the sale of roasted coffee — with examples that include Citizen Bean, GoCoffeeGo (see Man Seeking Coffee’s recent review), and ROASTe.
These e-retailers provide online storefronts for consumers to review, order, and purchase roasted coffees from a variety of specialty coffee roasters. Virtually all of the participating roasters already have their own online storefronts with support for direct ordering. So the value of these e-retailers is supposedly in the discovery of new roasters and the convenience of buying your roasted coffee from one Web site. Or so the PR machines behind them have stated in our stuffed e-mail inboxes over the past few months.
Business model challenges
In some ways, this reflects the ambitions of entrepreneurs who wish to shoehorn the specialty wine merchant business model on coffee’s ever-popular wine analogy. Other elements seem like attempts at coffee’s wine-of-the-month club. In either case, a major flaw in this model is that coffee, unlike wine, goes stale immediately after roasting. To address this, these e-retailers have established on-demand roasting relationships with their roasters.
Another major challenge with this business model concerns pricing. Adding a middleman always costs more money than a system without one, as they have to make expenses and payroll on top of all the other costs in the supply chain. It’s for this reason that coffee middlemen have been extremely unpopular in recent years. They’ve been demonized by the Fair Trade movement as unnecessary leeches, siphoning money from the coffee trade supply chain that should otherwise be going to coffee farmers.
In fact, the entire financial premise behind Fair Trade and Direct Trade coffee is to get rid of the middlemen. So who is paying for these e-retailers? Right now, it seems to be an arrangement akin to that of travel agents before the age of the Internet: the seller picks up the additional costs as a marketing and distribution expense, and no additional costs are passed on to the consumer. But how long will this last once the consumer novelty wears off?
It’s indirect trade: buying coffee through these roasted coffee brokers effectively cuts into the coffee roaster’s capacity to pay top dollar to their coffee farmers.
Dinosaurs before they’re hatched?
The travel agent analogy to these e-retailers is fitting, as there’s little you can do with them that you cannot already do directly, and more cheaply (total supply chain cost-wise), over the Internet. Like travel agents in their heyday, the value of a middleman comes when there is a lack of consumer information and/or a lack of direct public access to the suppliers. The Internet has rendered both as non-issues when buying roasted coffee. And we all know what happened to travel agents. So unless the individual roasters themselves completely screw up their business at sales and distribution, a middleman will have a very limited opportunity to improve upon these relationships.
For a comparison, over the years I have purchased green coffee beans (for home roasting) from distributors such as Sweet Maria’s and The Coffee Project. Why? For one, I simply cannot find supplies down the street. It also helps that a Web site like Sweet Maria’s provides a lot of flavor profile information and roasting recommendations. But if individual farms I knew and trusted started selling directly over the Web, that would change things.
Does this mean that these e-tailers don’t provide a valuable service customers want? Absolutely not. A number of them already have vocal, loyal customers. There may turn out to be a sustainable long-term market for one or two of these middlemen for a limited set of customers. But given the economic and disintermediation forces of the Internet, we foresee a pretty ugly commercial bloodbath on the horizon for a number of them. Travel agents did give way to travel-aggregating Web sites, but then we already had an established need for travel agents well before the Web came along.