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 baristas at Pasea Hotel’s Blend cafes is part of the service provided by full-service hospitality roaster Peerless Coffee & 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 espresso-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 ROAST 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 barista Jake Glennon on latte 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 coffees,” 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 coffeehouse 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 ROAST 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 ROAST 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.