article reprint

Roasting for America’s Hospitality Industry Weighing the Challenges, Risks and Potential Rewards

by Lon LaFlamme

This article was originally published in the Jan/Feb 2017 issue of Roast

Copyright © 2017 Roast magazine. All rights reserved.

Subscriptions within the Training at Pasea Hotel’s Blend cafes is part of the service provided by full-service hospitality roaster Peerless & Tea. | Photo courtesy of Peerless Coffee & Tea U.S. are only $35/year.

(Canada/Mexico–$55 U.S./year f you’re an established retail or wholesale coffee research report more than 20 years ago, Other countries–$65 U.S./year) roaster, you may be wondering if now is the coffee consumption surpassed soda and water for time to invest staff and money into the pursuit millennials for the first time in 2014. To subscribe I of another select market segment. A prime example In addition, the National Coffee Association’s or for more information contact us at 503.282.2399 is the historically price-driven hospitality business. 2016 Drinking Trends survey reports the following: or visit www.roastmagazine.com According to a 2015 report by the market research publisher Package Facts, the food service Daily consumption of -based drinks market for specialty coffee has increased 14.2 has nearly tripled since 2008. percent over the past four years, but that modest Between 2008 and 2016, past-day consumption growth lags well behind consumer demand. of gourmet (specialty coffee) beverages increased Over the past several years, quality coffee has from 13 to 36 percent among 18- to 24-year-olds. taken hold of mainstream America like no other beverage, with daily coffee consumption— Espresso-based beverage consumption has particularly consumption of specialty coffee, as increased from 9 to 22 percent for 18- to 24-year- defined by the Specialty Coffee Association of olds, and from 8 to 29 percent for consumers from 1631 NE Broadway No. 125, America (SCAA)—continually on the rise. 25 to 39 years old, between 2008 and 2016. Portland, OR 97232-1425 Studies published by the SCAA in 2014 phone 503.282.2399 Specialty coffee consumption increased from web www.roastmagazine.com and 2015 found that specialty coffee ranks 19 to 41 percent for 25- to 39-year-olds during that e-mail [email protected] No. 1—with soft drinks a distant second—among same time period. young adults from 18 to 24 years old. Since the continued on next page SCAA began publishing its annual specialty

r o a s t magazine article reprint 1 article reprint (continued)

Peerless Coffee & Tea recently introduced nitro cold-brew at Pebble Beach Peerless Coffee & Tea sales manager Bill Longfield trains Jake Glennon on Resort, including a nitro cold-brew cart that serves players on the golf course. art at a Pasea Hotel Blend cafe. | Photo courtesy of Peerless Coffee & Tea Photo by Joann Dost

become profitable within the first two months “Both men and women, especially to specialty coffee service is forecasted for all of service. In many cases, a handshake deal is millennials, are looking for more flavorful segments of the market. There are a number of sufficient to seal a non-contractual agreement coffee, giving rise to lighter roasts and exotic ways for roasters of varying sizes to capitalize between the roaster and retailer. single-origin ,” states the 2015 SCAA on this inevitable expansion. On the other hand, most large hospitality report. The three most common ways a roaster can customers require multiple brewers, grinders So why are these well-documented sell coffee profitably to the hospitality industry and often espresso machines delivered upfront, increases in consumer demand across without a distributor include: along with 24/7 equipment service support. virtually all age and gender groups being Hotel and resort clients also may require small- acted upon so slowly by some segments of The “full-service hospitality roaster” model, portion or single-cup products and specialized the hospitality industry? Is it worth your time in which the roaster provides financial brewing equipment for in-room service, which and investment to pursue this additional resources, staff, and brewing and espresso entails separate and relatively complicated revenue stream? equipment, and has national service roasting, packaging and equipment processes Clearly, a mere 14 percent increase in partners to seek business nationwide. for the roaster. the market for specialty coffee over the The local “just-in-time” equipment Based on the large upfront investment, past four years across all segments of investment with a service partner model. the profit margins for hospitality roasting the hospitality industry—which includes The coffee-only model. are significantly lower than for wholesale restaurants, universities, resorts, hotels, roasters serving retail coffee businesses. That hospitals and other institutions—indicates Full-Service Hospitality vs. investment won’t be worthwhile without a a slow willingness to cut into the industry’s Wholesale Roasting secured agreement in place. Contractual slim profit margin for cost of goods. But what agreements typically run at least two years, roasters should consider are the potential Traditional wholesale roasters with the cost of equipment and service opportunities emerging over the next four benefit from relatively high coffee sales with included in the per-pound price. years or more. limited expenses other than batch brewers and Consider the following as a generalized As the hospitality industry overall is being training support. With such a limited upfront example: The only equipment a traditional impacted by consumer demand for high- investment, the relationship typically can continued on next page quality coffee, explosive growth in upgrading

r o a s t magazine article reprint 2 article reprint (continued)

By developing a strong local following and a reputation for caring about the community, Rise Up Coffee Roasters owner Tim Cureton has attracted local hospitality clients without having to invest heavily in sales and marketing. | Photos courtesy of Rise Up Coffee Roasters

coffeehouse serving 150 pounds per week agreement—included in a binding, transferable investments in equipment, service and on-site may require a roaster to supply could be a contract can help protect the roaster. Always training. $1,500 brewer, serviced and maintained by the consult an attorney before entering into any The good news is, the hospitality industry customer. A similar volume hospitality account long-term contractual agreements. is moving away from lowest price requests might require $25,000 in equipment, paid for for proposals (RFPs) toward a preference by the roaster before delivery, plus ongoing Peerless Coffee & Tea: The Full- for balancing price, quality and innovation. service costs. These costs need to be amortized Service Hospitality Roaster Longtime Peerless customer Pebble Beach over the term of the agreement for the roaster Model Resorts, for example, proudly promotes its 100 to recoup the investment. To calculate the percent certified-organic specialty coffees at additional cost per pound, the roaster must the many restaurant, catering and in-room sites estimate the additional cost for the hospitality throughout the world-famous resort. client over the contract term, then divide that This VIP customer doesn’t come at a small amount by the estimated number of pounds expense to Peerless. The roaster invests tens to be sold to the client over that same contract of thousands of dollars in equipment and period. service every year in an effort to maintain the Roasters serving hospitality clients at this brand reputation Pebble Beach patrons expect. level also must consider the unexpected. What Peerless also invests heavily into in-room happens if a client suddenly closes or transfers brewing equipment as part of its contractual ownership of the business and does not return agreement, and for each PGA Tour event, the the equipment and/or continue to honor the Peerless service team commonly devotes more original contractual obligations? What if the than a week of its time to equipment service client’s forecasted coffee needs decline and, and maintenance. therefore, do not meet the cost of equipment Peerless account trainers meet regularly for the roaster? with the Pebble Beach culinary management It’s important to develop a detailed risk- team to create an ever-evolving, compatible management program for client financing, Oakland, California-based Peerless Coffee & coffee menu. They work closely with Pebble management of bad debt and recovery Tea has roasted exclusively for the hospitality Beach mixologists and baristas, and have of equipment, and carefully consider the industry since the company was founded in partnered with them to create new signature profit viability of any potential customer 1924. Like other hospitality industry roasters, drinks using organic cold-brew. Recently, before entering into an agreement. Detailed most of the company’s large and many of Peerless began delivering nitro cold-brew on contingencies—such as a minimum volume its smaller customers require significant continued on next page

r o a s t magazine article reprint 3 article reprint (continued)

tap, which is used in cocktails and mocktails at outdoor dining sites, as well as on beverage carts serving golfers on the course via portable City Dock Coffee's story nitrogen brew taps. All of these costs—from equipment and illustrates a relatively low-risk, service to training and event support to affordable strategy that can be used by product development and collaboration with the client’s food and beverage teams—must be roaster/retailers seeking to enter reflected in the business proposal and itemized in the service agreement. Nothing should be the hospitality market. left to chance at this level of business. Peerless also serves as a full-service roaster for Pacific Hospitality Group (PHG) properties, including the group’s restaurants, catering and in-room brewing operations. PHG is a premium would help expand its hospitality business year contracts. Instead, they work with forward- resort property group with luxury hotels and in the future. Once these highly visible local thinking hospitality businesses that agree to boutique resorts in California and Hawaii. endorsements were established, City Dock was buy their own equipment and service. Perhaps most notable are the luxuriously able to increase its per-pound price to ensure Convincing the hospitality buyer that it’s branded craft coffee buildouts within these a reasonable profit margin and return on its in the client’s best interest to buy and own its resorts called “Blend” cafes. equipment investment. own equipment is somewhat revolutionary, Bringing a relevant coffee shop To keep upfront costs low, City Dock began considering distributors and other roasters experience to these boutique properties by carrying no brewing equipment inventory historically have had to provide equipment was an opportunity for Peerless to develop a and subcontracting for equipment service. Only along with coffee. But for roasters who consulting partnership. The team was able to after securing each account did the company have established strong brand recognition, assist in design updates and implementation of source the equipment required, procuring new especially in smaller markets, this approach Blend cafes across the property group, as well and like-new brewing equipment at a discount can be worth exploring. as a comprehensive specialty coffee training on eBay and through other low-cost sources. A good example is Rise Up Coffee Roasters program. Fast-forward to today, and City Dock’s headquartered in Easton, Maryland. In 2005, hospitality accounts make up a third of its with a $16,000 business loan, Rise Up owner City Dock Coffee: The Local gross sales. The company now employs one Tim Cureton opened his first drive-thru coffee 'Just-in-Time’ Equipment full-time brewing equipment service person shop housed in a small trailer. That single Investment with a Service and continues to seek appropriately-sized trailer, located in a parking lot in a town with Partner Model local business partners to maintain its modest a population of 1,029, has evolved into five equipment investment. high-volume, profitable cafes; an active online While City Dock Coffee of Annapolis, Maryland, business; and numerous profitable wholesale is not a coffee roaster—its City Dock-branded Rise Up Coffee: relationships, all “without spending any time coffee is roasted by Dillanos Coffee Roasters, The Coffee Only Model in providing brewing equipment and service,” based in Sumner, Washington—the company’s Cureton reports. story illustrates a relatively low-risk, affordable As noted previously, chasing the hospitality Cureton attributes his thriving wholesale strategy that can be used to great advantage industry traditionally has required a huge division to his business’s bootstrap beginnings by roaster/retailers seeking to enter the upfront investment from roasters in providing and an unquenchable quest for specialty hospitality market. With three and brewing equipment and service. Without coffee knowledge. Starting small, he had no a long-established local reputation for quality, partnering with a distributor, most specialty choice but to require restaurants, hotels and City Dock entered hospitality sales in 2005 with coffee roasters couldn’t afford to enter the the local college to buy and service their own little initial or ongoing investment. The first hospitality arena at all. brewing equipment. Cureton’s community spirit step was to attract a handful of iconic local Today, however, a growing number of and genuine care for his customers—providing establishments as customers. roasters have the brand recognition and the a great deal of free coffee and personal time to City Dock’s owners approached the local commitment to serving their customers and community causes—quickly endeared him and yacht club, the highest-rated restaurant in their communities to sell their coffee only to his modest coffee business to the immediate Annapolis and the Annapolis Naval Base, restaurants, hotels and local colleges. They do and surrounding communities. selling its locally popular specialty coffee at a this without the financial burden of expensive continued on next page break-even price to establish references that equipment and service amortized over multi-

r o a s t magazine article reprint 4 article reprint (continued)

With little money and big dreams, he paid the impoverished global coffee community,” however, many of its largest wholesale his own way to visit one of the coffee origins Cureton says. accounts have been willing to buy only the he was serving from a local roaster. He began Because of this strong local brand coffee, the program concept and the ongoing roasting his own coffee in 2011, and his passion recognition, restaurant owners and hotel training. for great coffee, his generous spirit and his and college food and beverage managers “All hotels we have worked with that can-do attitude became models for every staff have sought out Rise Up Coffee without the were serious about stepping up to specialty member he added as his business grew. company having to make overt sales pitches. coffee have been willing to invest in their own “When every dollar matters, you need to In fact, the company has its own criteria for equipment and service,” says Joshua Boyt, actively listen and care about every customer’s accepting customers, as detailed on its website: Victrola’s director of sales and marketing. “They life. Then, surpass their expectations by “Rise Up Coffee only partners with like-minded have also been willing to pay whatever is being as committed to perfect preparation as businesses. We’re a company built upon necessary to serve an exceptional and hotel- sourcing perfect coffees,” he says. service to others and experiences. That said, brand-enhancing coffee.” “Too many retail roasters don’t recognize our wholesale partners must share our values In years past, coffee was little more than that this is not a wallet-to-purchase business, and passion for delivering nothing less than a an afterthought in the hotel setting. Hotel but a heart-to-heart business,” he adds. “You ‘Wow’ level coffee experience!” guests would find an airpot of warmish brown can still have a third-wave understanding of parked next to the breakfast bar, or a coffee while making every customer a friend.” Hotel Coffee Service: bag of mystery grounds next to a cheap plastic Relying on low- and no-cost advertising, A Changing Landscape brewer in their room. This has been the case Rise Up Coffee has developed a devout even in many of the most expensive hotels in following, largely through social media and Another example of how hospitality roasting America. word-of-mouth marketing. is evolving in favor of specialty coffee comes Today, however, both boutique and “The ability to tell our story of being 100 from Seattle’s Victrola Coffee Roasters. For large hotel chains are realizing this wake-up percent organic and 100 percent fair trade years, the company has worked with wholesale beverage is much more than an afterthought further underscored how Rise Up not only customers that required brewing equipment for their guests. Because of this, a growing cares about our customers and community, and service contracts along with extensive number of hotel chains are making bold moves but also our carbon footprint and needs of and ongoing training. In the past two years, to switch from large, national brands or generic coffees to invest in craft coffee, and they’re paying for their own equipment and service. One such brand is Red Lion Hotels Corporation (RLHC). Seeing quality coffee as a brand-enhancing opportunity, Red Lion reached out to a number of well-known specialty coffee roasters in the Pacific Northwest to dramatically improve its customer experience. Most of these roasters didn’t even return the company’s call. There was an assumption that the 1950s-born chain was trolling for great coffee at a cheap price, with a massive amount of brewing equipment and service included. Victrola Coffee did return the call, eventually landing what is now one of its largest accounts, with no upfront equipment or service costs. What the other roasters didn’t realize was, the chain’s leadership had a strong vision to “own coffee” in the hotel hospitality segment, according to RLHC CEO Greg Mount. “Coffee is one of the important pillars to an As part of its new upscale brand, Hotel RL, Red Lion Hotels has taken the coffee brewer out of the guest room and instead provides overnight guests with a complimentary beverage each morning at the lobby coffee bar, aggressive brand refresh,” Mount says. “This operated by Seattle’s Victrola Coffee Roasters. | Photo courtesy of RLHC continued on next page

r o a s t magazine article reprint 5 article reprint (continued)

refresh to Victrola’s craft coffee is being paired Getting Started Before you decide to enter the hospitality with upgraded soap, linens and televisions.” market, make sure your company is While Mount’s vision is to become current As an established retail or wholesale roaster, financially stable enough to invest in long- with the coffee offerings across all Red Lion now may be the perfect time to explore term profitability, whether that involves the brands, the company also was set to announce expanding your business into the hospitality high upfront costs of equipment and service the launch of a new concept called Hotel RL arena. One of the most cost-effective ways contracts, or the potential for securing your that would push the boundaries of the Red Lion to enter the hospitality market is to follow initial client base at a break-even price point Hotel coffee experience. Sparing no expense, the “just-in-time” equipment investment to establish your company in the market. Most Hotel RL is focused on bringing people with a service partner model used by City hospitality clients also rely on their roasting out of their rooms and into the spacious, Dock, detailed on page 58. In this model, partners for coffee-related knowledge and contemporary and relaxing lobby to enjoy the company seeks out local VIP accounts, onsite training. This is where a business- a “fully immersive shared experience with securing a few iconic businesses to establish building consulting role can be mutually a third-wave coffee bar at its center,” Mount a reputation in the hospitality field. As was the profitable and will sustain a positive long-term explains. “There are no coffee brewers in the RL case for City Dock, these initial contracts can relationship. guest rooms. Instead, each guest is awarded a be approached with a break-even strategy, if complimentary Victrola coffee beverage at the necessary. lobby coffee bar with each night’s stay.” Before you seek out these prestigious, When guests enter the hotel coffee bar, confidence-building accounts, consider LON LAFLAMME serves as a marketing they are greeted as VIPs, with a menu that sourcing a seasoned and consultant for Peerless Coffee & Tea. He has includes all the familiar coffeehouse espresso brewer repair person with a positive and worked in marketing communications for several beverage options along with cold-brew from engaging personality. While you will be decades and has received numerous regional an Oji drip tower and pour-overs of award- competing with a local distributor, you can and national awards in advertising and public winning, seasonal single-origin offerings. make your mark by providing more personal relations. He is the former CEO of the marketing The first Hotel RL opened in Baltimore care and service. Once you have two or communications firm Evans Group, was a in August 2015, with others opening in select three high-visibility businesses to provide marketing/national sales consultant for Dillanos locations across the country. To bring Red testimonials for your company, you’ll be able Coffee Roasters, and has authored three craft Lion’s current properties up to specialty to expand your customer base—and raise your coffee business books as well as seven fiction standards, every hotel in the corporation has per-pound price, if necessary—to cover the novels. adopted a commitment to freshness, with all costs of your service employee and additional coffees freshly roasted, ground on demand and brewing equipment. brewed fresh.

To subscribe or for more information contact us at 503.282.2399 or visit www.roastmagazine.com

1631 NE Broadway No. 125, Portland, OR 97232-1425 phone 503.282.2399 web www.roastmagazine.com e-mail [email protected]

r o a s t magazine article reprint 6