This article is part of our “Starting Business” series, an in-depth look at how to start a company in a particular niche or industry.
If you are like most consumers, you will understand the importance of a strong cup of joe in the morning, the afternoon and even perhaps in the evening.
Indeed, whether you brew your own java at home, or you visit one of the many thousands of stores for your daily fix, the coffee industry is one of the biggest – and most economically robust – in the world. Because of its enormous size, there is always room for new competitors to enter the market, from shops to roasters.
Roasting, in particular, is one of the more popular startups today. It is the process of transforming the chemical and physical properties of green coffee beans into roasted coffee products, which has taken on a life of its own among millennials and Generation Z. Since you are in charge of roasting the beans, you get to produce the unique characteristics, flavours, aromas and textures of the coffee.
You can also make a significant amount of money from it, if you understand the potential risks and the mechanisms of the wider industry. To help you get started, we have compiled a comprehensive breakdown of how to start a coffee roasting business.
Step 1: Market Research
Notwithstanding the unforeseen effects of the COVID-19 pandemic, the International Coffee Organization (ICO) has previously forecast that the global demand for coffee is outweighing supply. Indeed, the organisation projected a global supply deficit of around 500,000 bags during the 2019-2020 marketing year, and with prices trading at their lowest levels since 2013, global exports have slipped by approximately 10% in recent months.
So, what does that mean for an aspiring entrepreneur? Is there a demand for alternative coffee products beyond the likes of Starbucks, Tim Hortons, and Nescafé?
Ultimately, the answer is yes. Everyone has seemingly transformed into a coffee connoisseur, seeking out unique brands and speciality beverages from brick-and-mortar coffee houses or the supermarket. A 2018 report by the National Coffee Association (NCA) found that more than half of the coffee consumed daily is described as "gourmet", a trend which is driven by younger consumers and customers on the go.
With the millennial demographic taking over from baby boomers as the largest consuming base in the developed world, this is a sustainable trend, too. The same data has found that millennials are willing to maintain their spending patterns on coffee – gourmet and ‘to-go’ – no matter how the economy performs, which means that market conditions are always likely to be in your favour.
Before you start your coffee roasting business, though, you will need to make some critical market considerations. For instance:
- Where are you going to source your beans? The coffee industry is especially vulnerable to labour abuses at various steps in the chain, and this can reflect poorly on you. It is imperative to understand where your beans are coming from, as corporate social responsibility (CSR) is a hugely important part of running a modern business.
- How are you going to research and select coffee shop partners that align with your mission and care about your product? Big chains are unlikely to be interested (at first, anyway), so you will need to start small with local accounts and look to grow.
That said, while it's essential to address these issues, at first the core tenets of your business model should be focusing on creating a great product and building excellent relationships with wholesale customers and coffee shops.
Step 2: Company Research
Once you have obtained considerable insight into – and knowledge of – the global coffee market, the next step is to understand how you will launch your enterprise.
As part of your company research, you need to assess five key areas:
Your initial upfront cost will be around $30,000 (including the costs of obtaining a coffee roaster, green coffee, a grinder, and a heat sealer). Of course, this is variable; you may be able to obtain cheaper equipment, while costs are also dependent on whether you have the space to roast. Unfortunately, it can be hard to attract investment to this kind of startup (at first anyway), so you will inevitably need to tap into credit markets, most likely in the form of a business loan.
Of course, comprehensive knowledge of roasting is the bare requisite for this venture. Educational courses exist, but many coffee roasters are hobbyists who have developed expertise and experience over years. You can take local or online classes and read books, but the best way to learn is to get your hands dirty and carve out a unique flavour for yourself.
It's also a good idea (if you aren't doing so already) to work in a coffee shop. Many professional coffee roasters recommend starting as a barista, as you can gauge what is popular with consumers at the point of sale, as well as develop an intimate knowledge of the processes involved.
Working in coffee shops also allows you to develop relevant contacts. As with all businesses, the more people you know, the more likely you are to find success. If you've never worked a shift at your local hangout, then it's not impossible to attract clients, but if you already have your foot in the door, you will find it a lot easier to pitch your product.
In addition to the major technical equipment, you will also need other components, such as packaging supplies, labels and a point-of-sale (POS) system. Alternatively, roasters can sign up for a "contract roast", whereby you rent a more established roaster's facilities and equipment. Either way, you will still require a plethora of specialist resources to roast.
Licensing / Legal
No matter what jurisdiction you operate in, you will need to obtain the necessary permits and licenses to produce your coffee. You will need to comply with local health and safety laws if you are creating your coffee for commercial purposes, while your product will also have to be approved by the relevant local food and drink authority. For CSR purposes, you might also want to consider obtaining a Fair Trade certification (although this isn't compulsory).
Step 3: Business Documentation
It does not matter if you are selling cheeseburgers or coffee; at the start point, every company needs a business plan.
When compiling yours, consider that a coffee roasting firm has particular business needs. The main thing is determining whether to sell wholesale or to work in retail. In addition to that, your chosen model needs to pay great attention to capital investments, including the coffee roaster, transportation and the coffee beans. You should also include a formal summary of your target audience, your product or service, and what makes your offering unique.
Don't forget to include a mission statement, either, that outlines your core corporate values, as well as a vision statement that determines how your product will improve the consuming habits of your customers.
Step 4: Branding
Branding is hugely important in any industry or niche, but even more so in coffee and beverages where there is little difference in product quality between competitors. For example, Starbucks sells consumers an experience inside its stores. Tim Hortons, McDonald's and Dunkin' pitch buyers an affordable cup of basic coffee. The major brands in grocery stores, such as Folgers, Nescafé and Maxwell, delve between rudimentary and premium-style ranges. Relatively smaller enterprises, such as Costa Coffee, Peet's and Lavazza, have tried to provide taste-focused alternatives with emphasis on quality. Keurig has adopted a 21st-century approach to brewing coffee.
To put it simply, everyone has their own way of marketing their coffee; it's about finding an audience that you want to target, and portraying your product as desirable to this segment, whether that be through associations, lifestyle or imagery.
Your branding strategy is imperative to this. Without getting the simple things right, there is no way you can grow or scale further down the line. Therefore, you need to establish several key elements from the start, including:
Website: If consumers want to become acquainted with your company, your products and your team, you should have a fully functioning business website. You want a top-of-the-line web portal with plenty of information – written and imagery – for customers, wholesalers and investors to understand who and what you are.
Your website can also serve as a direct platform to sell your product, especially once your brand has established itself.
Social Media: A social media presence – even if it consists of only Facebook and Twitter accounts – is vital for attracting potential customers and incrementally building brand awareness. If you are particularly savvy at using platforms such as Instagram and YouTube, you can construct an intimate connection with the public over time.
Identity: Your brand identity is a broad term for what makes your business unique, from the aesthetics of your logo and packaging to the emotional tone you strike and the backstory you tell. For example, major brands such as Nescafé and Kenco exude elegance in their branding and advertising, while Starbucks positions itself as socially responsible and aware.
Step 5: The Legal Bit
There is a difference between brewing your own coffee blend in a shed and operating a bona fide roasting business. The former is a hobby, while the latter is a serious concept that requires labour, capital expenditure and appropriate facilities. Therefore, you need to go through the proper legal channels to establish your business, including registering it with the relevant government agency.
Generally, there are four legal structures that a business can adopt:
There are numerous advantages and disadvantages to each, but it's likely that, at first, a sole proprietorship (or partnership, if you are working with someone else) will be the most practical option.
Ideally, it is best to operate a coffee roasting business in a jurisdiction with as few regulations as possible. This isn't a compromise on quality assurance: often, regulatory bodies maintain egregious regulations that can hamper startups. As a result, it can be a prudent move to research potential locations with a robust supply infrastructure, tax and regulatory advantages, and, of course, a significant coffee market.
Of course, it's a massive risk to move right off the bat, so you may want to build some business experience first and establish your brand. Once you have attained some level of success and experience, you may want to consider relocating and trying your luck in one of these business-friendly java hotspots:
- Vienna, Austria
- Austin, TX, USA
- Kansas City, MO, USA
- Melbourne, Australia
- Reykjavik, Iceland
Step 6: Attracting Customers
During your infancy period, you must determine who your target market is going to be. Will you concentrate solely on the on-the-go coffee addict? Or, will you aim to wholesale to clients in coffee shops, select supermarkets and artisan boutiques? This, of course, is up to you, although some experts recommend attracting wholesalers since they can offer a steadier income.
Ultimately, your marketing plan depends on identifying this target demographic. When you have an ideal customer profile, you can concentrate your efforts on the platforms that they frequent. There are numerous online and offline strategies that you can implement to achieve this, although local SEO and social media are particularly important.
Aside from that, there are other white-hat tricks you can employ to attract customers to your brand:
- Emphasise freshness, aroma and flavours in your marketing materials.
- Specialise in a particular roast level or coffee from a specific region.
- Utilise appropriate and relevant influencers to promote your product.
- Establish and cultivate relationships with specific farmers and share their stories.
- Financially support initiatives related to your industry, such as Fair Trade or the Rainforest Allied Certified Coffee efforts.
- Write down the roast date on all bags to highlight that the coffee has been recently roasted.
- Live up to your vision statement.
Examples and Inspiration
Around the world, there are many successful and profitable coffee roasting companies, all of whom have carved out a slice of the market against much larger competitors. One such example is the Metropolis Coffee Company in Chicago, who believe that spending more time on coffee farms before the roasting process is a crucial step.
"Monday morning quarterbacking only goes so far," the company told CoffeeShopr recently. "The truth is that the reality is very messy – you make hundreds of decisions in a day, and each one can radically affect your direction. That's why a strong 'why' is so critical."
Meanwhile, the Taproom Coffee & Beer in Atlanta claim that building relationships with other independent coffee shop owners is vital.
"I think the advice and stories that come out of that real-life experience are among the most valuable assets to an aspiring coffee shop owner," they say. "I wish I'd known more intimately about the journeys of those who came before me in this city – the highs and the lows, the challenges and triumphs."
Which raises a fundamental question in itself: is coffee roasting all about trial and error? Or is it about learning from others' mistakes?
Starting a coffee roasting business can be a complicated and expensive affair. From the cost of acquiring the equipment to competing with hundreds of other companies, it can only be a successful entrepreneurial endeavour if you are passionate about coffee.
However, by incorporating this guide into your business plan, you can ensure that you are not only tapping into the market but also producing some of the most excellent coffee on the planet, combining your passion for roasting with the potential to monetise.
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