Their dear green just got dearer (Photo: Dear Green)
Bell Lane and Dear Green on how to review prices as your green goes up
Supply reductions, climate change, volatility on the C-market, shipping crisis, COVID, and inflation are making everything more expensive. It’s hard not to pass some of the extra costs down to consumers. Bad? Hmm… Maybe not. Learn how this moment can be an opportunity in disguise and how two experienced roasters control their costs and approach pricing with customers.
It’s not as bad as it seems
With over a decade in coffee each, this is not the first time that Nikola Sunko of Bell Lane Coffee, Ireland, and Lisa Lawson of Dear Green Coffee Roasters, Scotland, have had to increase their prices in response to the cost of green. “We buy our Brazil from the same farm since 2013 and the price went up about one third in that period”, says Lisa. However, it’s not often that HoReCa businesses who buy coffee wholesale struggle as much as they do today. So how can roasters find a price balance without losing customers?
The situation may not be as dire as it looks. “The young generations spend a lot more money on food and drinks than their parents did and are more aware that some commodities are cheaper than they ought to be”, says Paul Rooke, Executive Director of the British Coffee Association. Customers might not know about the C-market but they are overall better informed about the economic impact of COVID and the shipping crisis.
The time is right
The director goes on to say that the current environmental issues present an opportunity to sell ethically sourced sustainable coffees regardless of the price premium. Though he wouldn’t call it a revolution, he says “there is a movement”. According to Paul, the timing is right to raise prices when even big retailers like supermarkets are having to rethink their approach in the last 18 months as other commodities like wheat and soy have also become more expensive. “They were forced to recognise the challenges and risks faced by their supply base and will have to relax.”
Ironically, Paul says that the roasters who are being successful are the ones who are not making things about price. “It’s quite easy for a consumer to browse multiple websites to find the cheapest coffee. However, a lot of people who went online realised it’s not just a matter of price. The consumer is looking for a story. Roasters are been successful when they market themselves well.”
Higher profits on online retail kept the business healthy (Photo: Dear Green)
With news outlets headlining that coffees will taste worse as roasters replace Arabica for Robusta to keep costs low, there is also a risk in not increasing prices: consumers might think you are now giving them a lesser quality product. If you want to keep customers, continue having profit, and avoid being questioned about quality, here is what you can do.
1. Grow your online presence
When the price of coffee jumped last October, Lisa was surprised to see how their house blend had become pricier. “We buy a lot, so we have buying power in some respect, but it was still hard to fit our budget”, she recalls. Committed to long-term relationships and ethical standards, Lisa didn’t want to change her quality or supplier, so she embraced e-commerce.
This change in focus allowed Dear Green to hold a price increase to their wholesale customers whilst compensating the extra costs thanks to higher margins on online retail. “When we sell online, our profit margin is bigger so we reviewed our strategy considering which percentage of our coffee was sold wholesale and which percentage on e-commerce. We also invested more in digital marketing.”
For the roaster, the adjustment on a 250g bag turned out to be about £0.10 (€0.12), which is hardly noticed by customers. This hybrid model was crucial for Dear Green, set against changes in wholesale as “hospitality is having such a tough time in Scotland. More e-commerce had some other perks: no barista training, no espresso machine maintenance, upfront payment, better cash flow and no restaurant debt to chase…
2. Add value & sweeten the deal
With lots of long-term clients and a strong reputation, Dear Green sees relationships as a safety blanket in times like this. Loyal customers take more than price into account. “We focus on customer retention and other services we can offer. We offer value rather than price”, Lisa says. Other than extra services and customer support, the roastery became a B-Corp certified company in December of 2020 to underscore their commitment to the planet and their community.
The same goes for Bell Lane. “Let’s say the price per kilo is € 20 and you get offered € 18. Does € 2 really matter? Will you get the same level of support, free training and help to plan the growth of your café that we include in the € 20?” The roastery is also focusing more on sustainability and has reduced its carbon emissions by 98% in 2021.
Sweetening the deal can go a long way too. Four years ago, Dear Green incorporated the postage price into the cost of their online retail bags. This gives them leeway to adapt their margin and the more they post, the less cost they have per package. This also allows the roastery to offer “free second class postage” on all online orders and has helped them boost sales.
3. Make it personal
You don’t break important news over email. You go in person. When Bell Lane increased their prices by roughly 10% in October, “we decided that our account managers would sit down with customers to explain the reasons and answer questions because things would come up”, Niko recalls. “It had to be personal.” Yes, this is a tough conversation to have but, in the past, "we have sold machines that stopped working in one week. I think that is a bigger problem than a small increase in price”.
4. Lean and mean
Five years ago, Bell Lane was roasting 5 tonnes of coffee per year. They had 3 people on production. Now they roast up to 115 tonnes with the same staff. Come May, when their new roastery opens, they’ll be able to roast 300 tonnes and keep staffing low, giving them flexibility when other costs change.
“When we started, we decided our production would be super lean. We invested in a machine that would allow us to finish production roasting in 3 days to have the other 2 days to focus on other areas of the business and invested a lot in packing lines to increase speed and make the job easier for everyone. Imagine having to pack 40 hours a week. It would be absolutely boring”, Niko laughs.
5. Have a cheaper alternative
Both Niko and Lisa say most customers are understanding when it comes to price increases. However, there are always the ones who are price sensitive such as caterers, restaurants and white label clients. For those, the best thing is to offer a cheaper alternative. “The majority of our clients who changed the quality that they buy are restaurants, especially the ones operating night service”, says Niko.
With a background in catering, Niko says this type of customer usually runs on tight margins. In this case, every penny counts. “When we said that we couldn't keep offering the same coffee at the same price going forward, we offered a similar product of slightly lesser quality with a 3% to 5% price increase. By offering a less painful option we made it work. ”He adds that if the quality is such that you don't feel comfortable putting your brand on it, you can offer a white-label service.
6. Cut other expenses
The pandemic taught Dear Green “how to cust expenses, be resilient and quick thinking, constantly analyse the business and make judgments”. The roastery started ordering larger volumes of their packaging to reduce the per-unit rate and changed wholesale deliveries from bags to reusable buckets.
COVID taught Lisa to analyse costs all the time (Photo: Dear Green)
7. Give your customers time to adjust
You don’t start the conversation right when you need to raise the price. “We communicated [the increase] over a period of time”, Niko explains. For him, it’s also “very important is to give customers updates of what is going on in the roastery and the coffee world. Our head trainer always gives an overview of the green market even on top-level training.” Instead of just talking about the sensory qualities of coffee, they communicate about the farmers they partner with. “Cafés embrace that. They also want to support the farmer. We are all in this for the same reason.”
8. Not too much, not too often
Prices should be revised regularly so that when an increase comes, it doesn’t break your customer’s bank. “We never increase the price by a huge amount. The price of our house blend changes every two years by around 10% to 15% and we email people 3 months before on top of speaking to every customer individually”, Lisa explains.
9. Source more from the same supplier & contract earlier
“We had to rethink our sourcing in 2021”, goes Lisa, who remembers buying lots of small volumes split into multiple contracts in 2020 because of the pandemic. “We had to order again, again and again. Now we always try to get a higher volume. It can have a better effect on the price, it’s better for the farmers and great for customer loyalty”, she explains. Buying earlier also helps Dear Green get access to better deals.
10. Cultivate relationships with producers
“When you have a relationship, you know the challenges of the producers and they know yours, so you can meet halfway”, says Niko. “When I last discussed prices with Heron (photo), he offered the same price as last year and said his main problem was the price of shipping. For the volume that we get, an increase in the price of shipping isn’t drastic. We agreed to cover it so we know that the price of the coffee is fixed.”
Niko believes that those roasters who have long-term relationships with suppliers and who pay a fair price as requested by the producer “were not massively affected by the price increase”. He says the differences farmers are asking him are small because his partners support him just as he did them before. “If you don’t have a relationship, the increase will be bigger.”
Roasters with relationships were less affected (Photo: Bell Lane)