How to make money from Australia’s caffeine addiction
Australians are drinking more coffee than ever but the challenge for entrepreneurs is finding the profitable part of the chain.
For Aroma Coffee Roastery, based in Marrickville, Sydney, the sweet spot is importing green beans, roasting them, and selling wholesale to cafés. Aroma has turnover of $3 million and is profitable, according to owner and managing director Gavin Gam.
Aroma was founded in 1965 and Gam has been part owner since 1998 and full owner since 2001. Earlier this year Aroma won champion Australian roaster at the Australian International Coffee Awards and Gam is hoping to use the kudos to win more trade customers, as well as underpinning a possible push into supermarkets.
“The hardest part is getting new business because most of my competitors are looking after their customers as well as we’re looking after our customers, but in this market cafés are looking for an edge in their coffee supplier, so by having these awards it makes it easier for my sales rep,” Gam says. “We’re looking at a big push towards growth and better profitability because once people start calling you, you can dictate the prices a lot more than when you’re knocking on doors cold.”
It is an increasingly competitive marketplace – industry website Café Cultureestimates there are now 1000 roasters in Australia, up from 600 less than five years ago, with “new boutique roasters popping up all the time”.
Aroma has 10 staff, including two people dedicated to trade customer service on the road. To compete with big roasters like Vittoria, Aroma sends out coffee machines and grinders on loan and services them, and supplies marketing collateral such as cups, barriers, umbrellas, t-shirts, aprons, and packets of sugar.
Aroma’s footprint is mainly in Sydney and regional NSW, so geographic expansion is another avenue for growth.
Retail strategy
Wholesale roasted beans will remain the biggest part of the business, but Gam is also exploring the retail opportunities. Aroma is now selling roasted beans to consumers online and occasionally to visitors who make the trek to the Marrickville warehouse. Gam has previously not pursued supermarket distribution, preferring to concentrate on the café trade, but that could change soon if a meeting next week with a supermarket rep goes well.
Gam is also looking at producing a range of Nespresso-compatible pods by the end of the year to meet market demand.
Café and restaurant sales – not just coffee but also food – are the growth engine for the economy, according to data from the Australian Bureau of Statistics. In May, restaurants and takeaway food services grew 0.1 per cent, while general retail declined 0.5 per cent. In the March quarter, café and restaurant sales were up 5.5 per cent, following 5.4 per cent growth in the December quarter.
Gam says selling cups of coffee is where entrepreneurs can make the biggest profits, but only if the volumes are high. He has some experience in this field, having run a popular café in Sydney’s Rose Bay in the 1990s. If he had a café now, Gam says he would serve organic coffee but also offer organic milk and a range of other milks such as goat, A2, almond and soy. Generally he observes a cultural trend towards healthier food. “My sugar guy is crying because there’s more coffee being sold than ever before but less sugar.”
Some of the other roasters have their own cafés, such as Toby’s Estate on City Road near Broadway in Sydney. However, Aroma’s Marrickville warehouse does not get much passing trade, so at most Gam would only open a hole-in-the-wall outlet.
Coffee brokerage a ‘huge strain’
There is one experiment he won’t repeat. Earlier this year Gam dallied with being a broker, selling green beans to other roasters, but he has found it a “huge strain on cash flow and relationships”.
“Last year I sold a bit here and there, but I decided this year I’m going to do it and be a broker,” Gam says. “Fortunately I was able to buy really good coffee at a good price, but six months into it . . . I realise that it’s a buyer’s market and you’re at the whim of roasters.”
His warehouse is still full of green beans after a lot of verbal sales deals fell through and the business is carrying additional debt as a result, though Gam says the green beans can be stored for 12 months and he will eventually recoup his money by selling it in roasted form. He explains the only other debt in the business is the mortgage on the property, which is 1400 square metres of floor space with natural climate control from being built into rock.
In the past few years, Aroma has shifted its human resources strategy to put in place a more professional team in all roles, from warehouse manager to roaster. Gam says the average experience in the team is now about 15 years, compared with about five years’ experience before the shift. While the salary costs are higher, Gam says there are benefits. “It’s freeing my time up a lot more as the MD, giving me time to be creative and work more on the business rather than in it.” The ability to enter awards has only come since making that shift.
At the same time, Gam likes to make sure that he can do all the jobs in the business, a philosophy he applied at the Rose Bay café as well as at Aroma.
“Maybe I’m not the master of all trades, but I’m a jack of all trades and a master of some,” he says. “I refuse to be dictated to by staff who say they’re the only one who can do the job. My roaster is going away next month, so I’ll do the roasting. If my accountant’s away, I’ll do the books. I multitask in what I do to make sure that I can do anything in the business and at least that way when I delegate something, I know that it can be done.”
Sourcing beans directly
When Gam started in the coffee business, brokers controlled a lot of the market. Gam likes to be master of his destiny and wanted a greater emphasis on quality, so Aroma became one of the first roasters to import coffee directly.
His first batch was from Brazil and it took him 18 months to get it into the country, because of the low volume. Now Gam buys most of his beans from Ethiopia and returns there every year to source directly.
“I was born in South Africa so I’m African and I’ve got African blood in me. Ethiopia is the birth place of [Arabica] coffee, it is native and grows wild as a bush food. It’s so engrained in their culture, they are one of the only producer countries that drink a lot of coffee. They have coffee ceremonies in Ethiopia, paying homage to the bean.”
“Travel helps me keep my passion for the business, it is a chance to renew the batteries by going out into the field and seeing the labour and love that goes into the coffee, and to give back to the communities by supporting things like clean water projects,” Gam says.
He says the community work is not about marketing. In Christmas 2012 he eschewed the usual corporate gift and instead bought a horse for a village where the horse had died and people couldn’t get to hospital. “A lot of customers weren’t impressed – they were like ‘where’s my wine’?”
Aroma has one blend that is certified organic and Gam thinks certifications like Rainforest Alliance and Fair Trade have a generally good effect. However, he does not buy exclusively certified coffee, preferring to focus on direct relationships with farms and co-operatives. He points out that global coffee prices are higher than in the past, meaning a better return for farmers anyway.
*Original Article by Caitlin Fitzsimmons: http://www.brw.com.au/p/entrepreneurs/gavin_roastery_make_money_from_australia_IlmI1qrTniJts85wlamrBJ