Seattle Coffee Works

Our good friend Coffee Hero recently brought up the topic of coffee prices (again – this was a topic almost exactly one year ago.) While he praises our prices and I agree on some points, there are a couple of things that might benefit from clarification.

There are really three types of coffee prices:

1. Roasted whole-bean coffee behaves  like a commodity in the consumer market. The price of this commodity is spiking right now for reasons involving seasonal speculation, reduced harvests due to fungus, low levels of coffee reserves in the US, and concerns about hoarding overseas. As a result of this market spike, Folgers raised its prices by 10% earlier this  summer. In cafes and grocery stores, the price of whole-bean coffee is going up by $0.50-1.00 per pound on average. This will affect not just the low-end but also higher-end coffees, like Peets. It will also affect Fair Trade certified coffees.
2. Super-premium coffees, such as our exclusive Direct-trade coffees from Guatemala (Finca Chicaman, Finca Aurelio y Lorena), cost more than commodity-traded coffees to begin with. Direct-trade coffees are mostly sold at a fixed price; their price will not be affected by the commodities markets this year. Likewise the auction coffees sold through the Cup of Excellence and other such programs. Those coffees are in a class of their own that is decoupled from commodity pricing.
3. Coffee drinks. It is true that the cost to produce one very rich espresso shot (23 grams of coffee grounds, that’s a serious triple shot) has gone up by roughly $0.03 because of the recent increase in coffee commodity pricing. Big deal. This should not make anyone raise their prices. But please understand that when you’re buying an Espresso you’re buying a service, not a thing. Most of the cost to provide that service is not contained in what accountants call the Cost of Goods Sold (COGS). What you’re really buying is a nice stopover in a leak-proof, well-lit, comfortable cafe in a location you like, not to mention free WiFi, a comfy chair, free filtered water and clean, fully stocked toilets. And then there’s the barista who keeps the doors open, pours your drink, and maybe even lights up your day. Believe it or not, friendly, super-premium baristi like the ones at Seattle Coffee Works do NOT grow on trees.

So, I think it’s legitimate for roasters to raise the price of whole beans. For Ethiopian coffees, which are even more expensive this year than last, every roaster in town has done that. But increasing drink prices based on the increase in green bean cost is disingenuous. If cafes want to increase their drink prices, they could point to other factors:

• health insurance has gone up 20-30% this year alone;
• aggressive taxation by strapped local governments – we just submitted our paperwork for the personal business property tax of King County, a tax so arcane that in good times the government wasn’t even trying to collect it. It cost us hundreds of dollars in filing costs, probably more than the actual amount of the tax;
• increased difficulty of raising capital (the bailed-out, subsidized big banks are even more tight-fisted now than last year!);
• increased price of milk.

For us here at Seattle Coffee Works, the current coffee commodity market provides one more reason to move toward more direct-trade and to ditch a system of price discovery that just doesn’t fit gourmet foods like super-premium coffee.

In the meantime, thanks for the kudos on our $1.82 espresso ($2 including tax). That hasn’t changed in the nearly four years of our existence – hey, we just had an anniversary! We’re not planning to change prices anytime soon. Especially not during a recession. So come on in, let’s drink some super-premium “cof” – that’s coffee, without the added “fee.”

[Photo credit goes to the most amazing, unflappable, wonderful friend: MANGO POWER GIRL (Mohini Patel Glanz) -- check out her stuff here and here.]

Post Scriptum (Oct. 3, 2010): A friend sent along this link to an article I’d missed. A bunch of coffee commodity analysts seem to think that coffee prices are peaking this year with no basis in supply. It’s mainly about the fungus infection in Colombia and some other speculative reasons. In 2011, they’re predicting a hefty surplus of Arabica coffee. All those coffee chains raising their drinks prices pointing to green-coffee price increases? Not funny, not in a recession. Check out the article I missed.

Every day, at least a couple of our customers ask if we carry fair trade or direct trade coffee. (We do.) In fact, we’re closing in on 100% direct trade coffees in our signature espresso Seattle Space blend, which will make us the second coffee company in the country to do so.

There are so many folks out there claiming the moniker of “Direct Trade”. While it may be hip to slap “Direct Trade” on a label this year, for us Direct Trade (or any other name you want to give it after you read through the end of this post) is an important long-term strategic decision.

First off, let me mention the obvious: many roasters, small and large, have practiced Direct Trade for a long time, maybe centuries. For instance, I am thinking of our friend Dave Stewart who co-founded Stewart Brothers’ Coffee which became the well known Seattle’s Best subsidiary of the mega Seattle coffee chain. Dave has been importing direct from his in-laws’ farm in Costa Rica for a long time. He doesn’t call it “Direct Trade” but in effect it is more Direct Trade than some other “Direct Trade” labeled coffees out there. For lack of imagination, I am also thinking of Peet’s Coffee who’s been doing some sort of “Direct Trade” for longer than some of us have been alive.

What does Direct Trade mean for Seattle Coffee Works? It means a long-term relationship between the coffee grower and the coffee roaster, in which the farmer visits the cafe (as Aurelio Hernandez, one of our partner farmers in Guatemala, did last week), and, the roaster regularly (at least once a year) visits the farm.

The most important aspect of Direct Trade is that farmer and roaster work together to improve the quality of the coffee that gets to your cup. For that to happen, the relationship between both must be close and one of mutual respect.

Direct Trade is not a charity event but a straight business model: As the quality of the coffee improves, the price for the coffee goes up. The price goes up because there will be always a limited supply of truly great coffee, and better coffee generates more demand. All three, grower, roaster, and discerning consumer win. It’s that simple.

When possible, Direct Trade pricing is independent from the vast and speculative fluctuations in the global coffee commodity market, giving both grower and roaster more predictability and security. With our smaller Guatemalan producer partners we’re now starting to set the prices for coffees we’ll be buying in 2011.

Better prices for the coffee enable better lives for producers. If Direct Trade doesn’t translate into sustainable farming practices all around – I mean: no pesticides or herbicides, bird friendly farming, limited or no use of synthetic fertilizers, and, perhaps most importantly, fair wages and humane living conditions for all involved – then it’s not worth doing. A better price paid for the coffee should go a long way towards making sustainability possible. Given the high initial investment (travel costs, export and import fees, lack of economy of scale) only a sustainably run farm is worth pursuing for any roaster who has any business sense.

Fair trade, on the other hand, is pegged to commodity prices, which is why it works well for large- and huge-scale coffee companies. Direct Trade and Fair Trade are not in competition. They are two very different business models, one with a built-in emphasis on small scale and quality, and the other with an emphasis on improving lives on a very large scale. It wouldn’t be economical for a large-scale (think millions of pounds of coffee per year) company to enter a relationship with Aurelio who produces about 300 pounds of coffee a year. On the flipside, if a small coffee company like us didn’t raise the bar on quality we probably shouldn’t be in business.

The producer of our Brazilian coffee, Ipanema Farms, is a large-scale farm which has poured a lot of resources into producing large quantities of super premium coffees. They can choose their certification because they’re a well-run business which is treating all its partners very well: workers make better money, the farmland has been sustainably used for over 200 years. And yet the folks at Ipanema have a laser focus on quality. And they’ll produce just about any coffee we ask for. They are just as much partners as Aurelio is.

We’re in the business of providing superior coffee to our customers. There will always be a much larger market for less-than-superior, but quite possibly still drinkable!, coffee in which it is relevant and important to know that the coffee came from an ethical source – even if we might never know the exact source.

More than any label or certification, we live by the mantra of “know thy producer” because we, and the growers we work with, stand behind our coffee *personally*. We don’t romanticize the hard life of small-lot coffee producers. We don’t shout our certifications from the rooftop. (I don’t know about you, but my BS sensor goes off pretty quickly when I hear anyone flaunting the latest “in” label.)

We are in the business of selling the best coffee we can possibly imagine - and by “we” I mean the baristas and cashistas and roaster (me) at Seattle Coffee Works, and our partners in Guatemala, Brazil, and soon many more spots. Because working together is better and a whole lot more interesting! By the way, Aurelio is in town for two months, so stay tuned for when he’ll stop by the cafe again.