managing your vendors - part 2

Hello Coffeehouse people!

This is the second part of a two part blog posting outlining how to deal with different types of vendors.   If you havn't read part 1 yet, I'd recommend checking that out first.

In this section, we will be covering coffee roasters, bulk supply places (BJ, Costco, Sams, Restaurant Depot etc), specialist vendors and a quick summary of negotiating strategy when dealing with these folks.

Coffee Roasters

The coffee roasting industry is pretty fragmented.  It can be generally broken into three types of roasters.  You have the basic roasters (these are the ones that bulk roast coffee, with very little consideration for quality.  Then there are "premium" roasters - this encompasses the vast majority of the roasters that cater to coffeehouses.  Finally, there are 'super premium' roasters.  There are just a small handful of these super-premium roasters including such coffee royalty as: Stumptown Coffee, Blue Bottle, Intelligencia and Counter Culture.   These super-premium roasters are absolutely NUTS about their coffee.   I looked into carrying intelligencia and counter culture coffee a while ago, and I was told I had to 'apply' for the right to carry their coffee.  I was told they would send an inspector to my establishment to ensure I had the 'right' equipment, I cleaned my equipment correctly, and my baristas were correctly trained in how to prepare "their" coffee.   I dont know if these folks are still doing this, but it turned me off.  They seemed to act as if they were doing ME a favor by selling me beans.  Absurd.   The beans from these super-premium roasters are also INSANELY expensive.  After all is said and told, their prices were close to double what I'd have to pay elsewhere. 

If you go with these beans, you have to charge pretty hefty prices to make it worth while.  I thought about it for awhile, and then I decided to let my customers decide... through a blind taste test.

I’m going to warn you up front – my recommendations on coffee roasters goes against what every 'coffeehouse book' I've ever read recommends, but it has worked pretty well for me.

Most books and roasters will tell you to get some beans from various roasters, then to do a ‘cupping’.  For those of you who have never done this, it is tightly controlled method for getting a ‘pure’ read on a specific coffee.   It involves mixing a specific quantity of ground coffee with a specific amount of water, mixing it thoroughly and leaving the grinds to float to the surface, producing a ‘crust’.  The process of ‘breaking’ the crust, smelling the odor, then noisily slurping a teaspoon of the liquid, followed  by exclamations of “Fruity!” or “ Smoky” or “Earthy”!  Soon ensue.        Apparently, this allows those select few individuals with exquisite taste to experience the subtle differences between coffees. 

I find this entire process laughable.  We are in the business of providing our customers with the coffee that the *customers* like best.  Those coffee aficionado who do cuppings do not pay my bills – my customers do.  Thus, it makes MUCH more sense to ask your customers their opinion.

In short, it boils down to a taste test.

1.  Contact 6 roasters (include one of the super-premium roasters if you want).  Ask them for a ‘house’ blend, a ‘french’ blend, and ‘espresso’ blend and what they consider their best coffee.

2. Brew up all the house blends, then place them in cups marked 1-7 (not the actual coffee name).  Give these cups and a rating sheet to a customer, and have them taste and rate the different coffees.  The tester can add any milk/sugar they wish - have them prepare the cup the way they would normally drink their coffee.

3. Do 35-40 of these taste tests – and tabulate the results. 

4. Repeat the process for the French, Espresso and ‘best’ coffee.  

This will give you some idea of which roasters are the best for your customer  base.  

Coffee is an odd product - not unlike wine.  I'm not sure about you, but I can  *usually* tell the difference between a $5.00 bottle of wine, and a $20.00 bottle of wine.  However, I honestly cant tell the difference between a $20 bottle of wine, and a $50 bottle of wine.  We use external signals such as price tag, shelf placement etc to give us clues of its quality level (check out the article written about this by the guy who wrote Freakeconomics http://www.freakonomics.com/2010/12/16/freakonomics-radio-do-more-expensive-wines-taste-better/)   Coffee is similar.  Almost anyone can tell the difference between a cup of Maxwell House, and a cup of coffee from a respectable coffeehouse.  However, few people in a blind taste test can tell you which is the 'better' espresso - the one from Intelligencia or the one from a 'normal' roaster.      If only 1% of the population can tell the difference between excellent beans and amazing beans, then why would you pay double the price for the beans...so you can appeal to that 1%?  Hardly seems worth it...

Out of the six roasters, I was left with two that did the best.  As it happened NEITHER of the two favorite coffees came from the Super Premium roasters.  

The key to any successful negotiation is options.  The more options you have, the better the deal will be.  Once you have narrowed down the possible roasters to 2-3 based on the coffee preferences of your customers, enter into negotiations with all of them simultaneously.   Make sure all of them know they are competing with the other roasters for your business.

Coffee Roasters want you to sell or use as much coffee as possible.  The more you sell or use, the more valuable you are to them and the stronger negotiating position you will have in dealing with them.

You will not have much bargaining power with the roaster at the outset.   No coffeehouse will have much sales volume at the outset.   They have probably seen more coffee houses start and fall apart, than you can shake a stick at.    Any agreement you have with them at the beginning will not be very advantageous to you.   So, only allow the agreement to go for one year.  After the first year, you should be using substantially more coffee, which will strengthen your position, with which you can get more from the roaster.

Ideally, you’d like to get your roaster to provide you with all the brewers, grinders and associated equipment etc. for your shop, as well as upkeep & maintenance for free.  You might well get this after the first year, so it is advisable to lease your brewing equipment at the outset, until you can get your bean poundage up to where you have leverage with the roaster.

At this point, I'm going through in upwards of 300lbs per week of coffee, and my roaster supplies me with top-of-the line brewers, satellites  and grinders for free.  They also service the equipment for free.  It might take a few years to get to this point, but this should be your end-target. 

An additional point - MAKE SURE YOU HAVE SOMEONE WHO CAN REPAIR YOUR EQUIPMENT READY TO GO.  In my case, my roaster also repairs all my coffee equipment (brewer, grinders, espresso machine etc).   When you have a repair guy on call for your machines, make sure he agrees to come within an hour of receiving your call - whenever that call comes.  This is because you lose money VERY fast when you lose a piece of coffee machinery.  In my case, I have calculated that I lose about $150 per hour when my espresso machine is not operational.  If my repair guy cannot repair the machine within 15-20 minutes, he will actually bring in another espresso machine and pull mine out to work on it - this way it minimizes downtime.

As a general rule, I recommend having your roaster repair and maintain your equipment... even if it cost you a bit of money.  This is because the roaster has a built-in incentive to make sure your equipment is working well producing excellent coffee... because (of course) the better we do, the more beans he sells to us!

Restaurant Depot / BJ's / Sams Club / COSTCO

Generally, you can get supplies cheaper at these places than if you go through vendors (who deliver).  When you are first starting out, I'd recommend getting a membership at any / all bulk food/supply warehouses.  You can save as much as 15-20% on your supplies by going through these places.   Restaurant Depot is a particularly good place for supplies.

I still use these places today - a couple members of my staff goes to COSTCO and Restaurant Depot a couple times a week to pick up produce, soda, bottled water, cheeses and meats etc.  Even after accounting for higher payroll and auto wear/tear, it is saving me close to $1500 per month.  Furthermore, my staff has the ability to select their own produce, so they get the best they can find... so while my cost basis has declined, the quality of ingredients has increased!

It is also useful to have a regular habit of getting products from these places, so that way if your regular supplier screws up an order etc, you can always pick up some back up supplies while there.  The main downside to using these places is that they dont have everything you need. 

Food, Beverage, Paper Goods and Cleaner Vendors

There is a wide array of suppliers who will provide things as specific as soda only, all the way up to these HUGE providers that you can get anything from (Cisco, Thurston, Perkins etc.)    Some are tiny and ultra local, serving just one city.  Others are regional or even national.  The basic rule of thumb is the smaller the company, the less you pay and better service you get.  The bigger the company, the wider variety of products, ease of ordering and more you are going to spend.

The basic idea is to have options.. and a back up as needed.  The old military adage works for small businesses as well - two is one and one is none.  Thus, I have two suppliers who can potentially supply me with everything.  This way, if one supplier runs out of something, or starts screwing up (or jacks up their prices unexpectedly), I can quickly and smoothly transition to the other supplier.  

Dairy:  I have a primary dairy supplier, who just does dairy products.  His prices are great, and service is solid.  In addition, I have negotiated the use of a dairy cooler from him - he supplies it to me for free and repairs it as necessary.  (refrigeration repair is always expensive - When I need something repaired, I usually expect to pay a minimum of $350, with around $500 as an average.  If a compressor goes out, you are looking at closer to $1000-$1200 to replace it!!).     My back up is the big generalist supplier.  I can always get milk delivered from them if my small dairy supplier messes with me.  I sometimes switch a product over to a different supplier if the original supplier boosts his prices on that item.  You do this enough times, he will think twice about increasing his prices to you.

Bagels:  Even if you have a bakery, you may want to leave the bagel production to someone else.  Bagels are difficult to do well, and require specialized equipment.  If you have enough space, the best thing to do is to buy them par-baked and frozen... then you can just bake-off the bagels you need as you need them.   I did that for a while, and it worked pretty well.   If I had the space to store bagels in a big chest freezer, I 'd certainly do this again.  Unfortunately, now I have fresh bagels delivered every morning.  Not an ideal situation - they come late, the order is wrong etc etc.

Bread:  We use baguettes for our sandwiches, so we have to get them fresh every morning.  Baguettes (like bagels) take specialized equipment and knowledge to do well.  While we do have a bakery attached to the coffee house, we do not have the knowledge nor specialized equipment, so we have opted to have nearby bakery make them for us and deliver to us every morning.    This works pretty well.

Tea: There are a couple top-notch tea providers around, but I'm a big fan of Rishi Tea  (.http://www.rishi-tea.com)  They have top-quality teas and reasonable prices and reliably send them to you.  I recommend using loose-leaf tea when you do teas - you get much better quality teas that way.

 Papergoods / Cleaning Products:  I have a vendor that JUST does paper / cleaning products.  As with the smaller vendors, they offer good prices, excellent service and pretty good variety of products.  These guys will often times print up cups for you (with your logo), then hold onto the cases of cups until you need them.  They usually ask for you to pay for them upfront, then they just deliver them as you need them.  The minimum order is usually 100 cases, so you'll need a good chunk of cash up front.

Coffee Sleeves:  I've been using JavaJacket for years.  They have the best prices, and are good about print runs and changing graphics.  

Online Purveyors   There are a number of products you will need that your normal vendors will not be able to provide you.  I usually turn to online suppliers for these products.  

- Bulkfoods.com - we have a bakery, so we use these guys to get gluten-free flour (for our glutenfree baked goods), granola for our granola parfaits etc.  The website is ancient - circa 1992, but it works and the prices are very reasonable.

- Spicebarn - We make our own lemonbars, and these guys sell a great lemon powder that really make the bars 'pop'.  However, any kind of spice or seasoning you might need - these guys can take care of it for very reasonable prices.

 - Toddy - ICED COFFEE.   The only way to make Iced Coffee is the Toddy cold-brewing system.  It is *amazing* iced coffee.   (www.toddycafe.com).  It takes a bit more coffee beans to produce a cup of coffee, but it is sooooo gooood.

Generalist Supplier

There is a handful of generalist suppliers who carry a wide array of products - meats/cheeses/breads/ batters / produce / milk / paper goods / cleaning products.... even par-baked muffins etc!    Some of these companies include Thurston, Cisco, Perkins, US food service.  Personally, I've had the best luck with Perkins.

The biggest convenience with these guys is that it is one-stop shopping.  You can get everything in one place.  If I cant find the product with a small vendor, I can usually find it with these guys.

The downside to using these guys are many :  higher costs, higher minimum order size, less fresh products... AND you are nothing but a number to these guys.  They are so big, that you barely register on their sales data, so you have no leverage with them.

HOW TO FIND good vendors?

The short answer - ask around.  Whenever I'm looking for a new vendor, I'll start by asking other restaurants who they use.  If I get the same vendor name from a couple restaurants, I'm pretty sure they are OK. 

Negotiation redux: 

I'd like to touch a bit more on Negotiation - as this is a vital part of your interaction with vendors.

The key to any successful negotiation is multiple options.  The more options you have, the better deal you can negotiate.  Once you have narrowed down the possible vendors in one product area to 2-3, enter into negotiations with all of them simultaneously.   Make sure all of them know they are competing with other vendors for your business.

As part of the negotiating game, you must also understand your value to the vendor.  The vendor is concerned with two things – selling as much as possible, and being paid as soon as possible.   The size of the vendor is also a consideration.  For the big nation-wide suppliers, you barely register on their radar.   For a small, local vendor, you sales are probably much more significant.    For this reason, good service, special deals, equipment loans, favorable payback terms are more likely found with smaller, local providers.

You will not have much bargaining power with vendors at the outset.   No coffeehouse will have much sales volume at the beginning.   Vendors have probably seen more coffee houses start and fall apart, than you can shake a stick at.    Any agreement you have with them at the beginning will not be very advantageous to you.   So, only allow the agreement to go for one year.  After the first year, you should be using substantially more supplies, which will strengthen your position to make it easier to get better pricing/deals etc.

You are looking for a relationship with a vendor that will last for years and years.    So, do not drive such a hard bargain that they cant make money, nor should you pay exorbitantly high prices.    A happy median point must be found.   Remember – your time is worth money.  If you are constantly spending time switching vendors because you chose the cheapest vendor that then monkeys around with you and your pricing, you will waste huge amounts of your time. 

 You must have a system in place to check on vendor’s prices.  I will check my vendor’s dairy and produce prices against what I see in the grocery store.   Take pictures of price tags in the store with your cell phone camera every time you are shopping for groceries.  The prices you pay your vendors should track the prices you see in the grocery store.  For example –  you noticed that from May to June, the price of oranges in your grocery store increased 10%, yet your produce vendor’s prices increased 25%. …     In December, you notice that milk prices in your grocery store decreased 10%, but your vendor prices have not decreased at all.    These are the indications that you are being taken for a ride.

Once a year, bid out your business to other vendors – see what kind of pricing you can get for the same products.  This way your prices will never get completely out of whack.

I hope you enjoyed this section!

DUNCAN

As you may know, I'm in the process of writing a series of guides to show people how to move from a corporate job to owning a coffeehouse.  Unfortunately, they are not going to be ready for a little while.  However, If you are REALLY serious about starting your own coffeehouse, and you cant wait for my guides to come out, I also offer a 2-day, one-on-one intensive boot camp on starting a coffeehouse.  You come up to New Haven for these two days, and we spend two intensive days going through all the intricacies of starting, owning and operating a successful coffeehouse.  If you are interested, send me an email and we'll get it set up: coffeehouseguy1@gmail.com