Most business owners know about the importance of diversifying revenue streams. Recent economic events – including the Covid-19 pandemic – have shown us just how important it is to ensure you aren’t exclusively dependent on a single source of income.
For coffee roasters, a number of diversification opportunities have materialised in recent years. From ecommerce to equipment sales, roasters are offering more products and services to customers than ever before.
To learn more about exactly how roasters can diversify their income, I spoke to three individuals working at roasteries. Read on to find out what they told me.
You might also like our guide to common coffee roaster sizes.
What is diversification? Why is it important?
When building a business, it’s a good idea to start with a “core” product. This core offering is typically the heart of your business, and often the reason you start in the first place: a singular product or service that you think people will pay for.
But even if you’re successful, over time, relying on one stream of revenue – irrespective of growing demand – can leave your business vulnerable.
Let’s say that, for example, your business model is based only on selling to coffee shops. But what happens if they close, and your customers all freeze or cancel their orders?
Diversification is, among other things, an excellent way to mitigate and minimise risk. Felton Jones is the Plant Manager and Chief Roastmaster at PJ’s Coffee in New Orleans. He told me about how diversification helped the brand remain profitable as a supplier.
“Making sure we expand our offerings to include a number of items that complement our roasted coffee gives us the ability to remain profitable,” he says.
“In addition, being more diversified allows us to absorb coffee market price fluctuations without the need to frequently change prices for our customers. This in turn allows us to be more open-minded, and allows us to consider a wider range of products beyond coffee.”
Maren Ernst is the owner at Ernst Kaffee in Cologne, Germany. She says: “The last year has shown just how quickly things can change. Our revenue shifted from retail bean sales to wholesale and ecommerce. It just shows how important it is to be diversified.
“Furthermore, diversification keeps you up to date. It makes sure you’re not stuck in a niche, and ‘doing what you always do’ – it opens opportunities.”
In turn, diversification can help roasters attract (and ultimately keep) new customers. Consumer habits are constantly evolving, and by adapting and remaining agile, roasters can evolve with them.
Lee Harrison is the Senior Director of Coffee and Roasting at Joe Coffee Company. He says: “If for some reason (a pandemic, perhaps), the frequency of retail customers that we rely on suddenly drops, we can rely on our wholesale and distribution business lines.
“Thinking along these lines, we have tried to develop and offer a range of products that meet a variety of consumer needs or desires. This includes varying price points, roast profiles, and origins – all connected by Joe Coffee values.”
What should you consider when adding a new product?
All three interviewees note one factor above all else when thinking about a new product or an opportunity for diversification: demand.
“Many factors play a role when we decide to add new products,” Felton says. “First, we listen to customers. Our loyal customers share valuable feedback about flavours, origins and more.
“We also watch trends closely. Being proactive and testing new products based on industry trends gives our product development team an advantage.”
These new products could be anything from reselling home coffee brewing equipment to a new range of more exclusive and pricier coffees.
Maren agrees: “The main factor for extending our offering is customer demand. When we got started, we didn’t plan for wholesale business, but cafés and restaurants came to us and started asking if they could buy and serve our coffee. In a way, we were ‘forced’ to diversify.”
Demand alone isn’t everything, however.
Lee says: “Once we understand what customers want, we develop products that fit our values. A new product should meet both consumer demand and Joe Coffee values before we put it on the market.”
Making sure that you only roll out products and services that meet your brand identity and align with your values is important. And make sure you concentrate on your core offering, too – adding one revenue stream which thrives at the expense of another is not true diversification.
“Ensure that your core products always remain a priority,” Felton says. “Making decisions to bring in new products could be costly and an overall distraction [if you’re not careful].
“Core products will also provide the foundation for you to be creative and experiment with new offerings and new ideas. It is imperative that you don’t take away from the core product as it is key to your brand.”
Research is important
So, you’ve identified a suitable level of demand for a new product or service. But what’s the next step? Moving ahead to product development and rolling it out?
No – before you do anything else, do your research. An article by Forbes reads: “A sustainable business constantly needs new ideas to satisfy the evolving demands of consumers, but too often new ideas fail as a result of inadequate market research.
“Access to insights that can optimise your current and future product offering and assist in connecting your brands to the right consumers in the right way is critical.”
There’s no one-size-fits-all solution for market research when thinking about a new product. Good research comes in a number of different forms. These range from large-scale reports showcasing consumer habits and statistical data to focus groups, a competitor review, or even bespoke in-house research.
“We survey our staff, we survey our customers, we collect anecdotal data from our retail and wholesale environments, and we do our own market research to understand pricing and quality for a specific product type or sector,” Lee says.
“We don’t have access to large-scale consumer research data but some of our wholesale partners do. It has been their data, at times, that has helped us move in certain directions.”
Felton uses similar research methods as well.
“[We hold] widespread internal discussions including with our corporate personnel, and we also have a beverage committee made up of corporate employees as well as franchisees.
“Market trend reports from organisations such as the SCA and NCA are extremely helpful, too.”
Products & examples
There are so many different ways that roasters can diversify and add new products. Businesses that generally sell to coffee shops may look to start selling coffee direct to consumer, for instance. This was a major change for many during the Covid-19 pandemic.
However, your new revenue stream doesn’t necessarily have to involve a change in audience – it can mean rolling out a new product to the same prospective customers.
Equipment is a great example. For instance, roasters selling coffee to home consumers through a web shop can add brewers and home grinders. Similarly, wholesale suppliers might take the opportunity to “bundle” their coffee with commercial equipment, such as grinders and espresso machines.
Another opportunity is to leverage your brand’s knowledge and expertise to educate consumers. This could mean holding webinars, workshops, or classes – virtually or in person. Areas of focus could range from cuppings and general coffee knowledge to brewing and roasting.
Maren, who started Ernst Kaffee with a coffee bar and roasting for retail customers, has since diversified to offer workshops and classes, open a web shop, and start selling wholesale.
“Diversification helps our business to not be dependent on one business pillar or customer,” she says. “It made us grow step by step in a very healthy way.”
Lee adds: “Our most successful products are the ones that people can connect with. In our cafés, these are the [more complex] coffees they become more familiar with over time, [whereas] we’ve aimed for balance [in the coffees we sell to home consumers].
“I think any product offering can be successful as long as it’s well suited to the customers that will buy it and consistent in terms of quality.”
If successful, diversification won’t stop you from being vulnerable if things change – it can also build brand awareness, too. This is important for acquiring new customers and will help you beat competitors.
However, Felton says that keeping new products sustainable in the long term will require time and resources.
“Our brand awareness is better than ever,” he says. “But while [these changes] have had a positive impact on overall revenue, they also require additional infrastructure to ensure successful growth.”
Adding classes and workshops, diversifying into wholesale, starting subscriptions, selling equipment, food, merchandise… there are so many ways for roasters to diversify their income. The key is making well-informed decisions based on solid market research, good demand, and your brand values.
“Keep it simple, and don’t reinvent the wheel,” Felton says. “Stay focused on your core products and values, be sure to develop, and understand which trends do and do not apply to your brand.”
Lee adds: “Remember that, at the end of the day, it is our customers who finance your work. By creating more points of access, you can connect them with your values, your passion, and your work. Listen to your customers!”
Enjoyed this? Then try our article on how roasters can build good relationships with producers.
Photo credits: Ballard Brands, Joe Coffee, Ernst Kaffee
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