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Bewley’s MD on direct business

From the November 2012 issue.

Bewley’s Managing Director Jim Corbett says improving the coffee production chain can lead to strong business results.

For all the modern talk of direct trade, one coffee company in Ireland has about 150 years on any roaster trying to claim originality.

The company first broke the East India Trading Company’s tea monopoly in 1835, importing over 2000 chests of tea on a chartered ship. Since its pioneering foray into coffee, Bewley’s has continued a focus on direct trade. These days, the company enjoys a market share of around 4000 hotels, restaurants, and cafés all serving Bewley’s coffee, which translates into one in every two cups of fresh coffee served in Ireland.

The company has mostly steered away from branded coffee shop operations for the last decade – other than its flagship Bewley’s Grafton Street café, which remains the country’s longest serving coffee house, serving 1 million customers annually. The company’s proliferation in Ireland is so strong that heritage building regulations are keeping Bewley’s branding on a Starbucks coffee shop.

“It’s an Irish solution to an Irish problem,” laughs Jim Corbett, Bewley’s Managing Director.

Corbett says Bewley’s has never looked back on its move away from directly managing branded coffee shops, in allowing the company to focus on its expertise in food servicing, and especially in their efforts to directly source their coffee.

Bewley’s approach to its trade arrangements is perhaps best exemplified in a relationship with Nicaragua-based Ramacafe (see breakout story page 13). Corbett emphasises that the deal wasn’t just some feel-good, corporate social responsibility policy, but rather a solution to the company’s fundamental need for a stable supply of Arabica coffee.

“We had a real concern at the turn of century, it came from what we saw in our travels,” he says. “Prices were so low, farmers were literally tearing down their trees and getting out of the coffee business. We were concerned that our supplies of quality coffee would disappear.”

Today, Bewley’s continues to source its coffee via both direct trade agreements and larger coffee brokers. As a medium-sized player on the global scale – compared to giants Nestlé, Kraft and so on – Corbett says the company needs to be careful in what it commits to, as it can’t simply blend away poor quality coffee.

In this sense, the key has been “a lot of homework” before they commit to a purchasing contract. Bewley’s works with on-the-ground non-government-organisations, including extensive work with the Fairtrade Labelling Organisation (FLO), to learn more about potential estates and co-operatives they can do business with.

“We’re on the ground, visiting their coffee farms, getting to know who’s who in those areas,” says Corbett. “We want to know if they have the ability to deliver quality coffee on a regular basis, to know who’s going to be there in the long term.”

Once Bewley’s has identified a farmer or co-operative they want to do business with, they agree on a set buying price directly with the farmer, typically a price matching current market rates and the Fairtrade Premium. From there, they bring this price to a local broker or exporter to handle the logistics.

Direct trade contracts, such as the ones Bewley’s engage in, can have their pitfalls when market prices jump higher than the ones set in the contract. When prices for Mild Arabicas etched close to US$3 a pound, the temptation existed for farmers to renege on contracts if they could get higher prices from the market.

In this sense, Corbett says the quality of their relationships with farmers came through. Every direct supply deal Bewley’s was engaged with was met, with no reneging of any contract. Corbett notes that naturally they increased their prices when the market shot up. This means that Bewley’s has benefitted little from recent price drops.

“The market is at US$1.70, and we’re still roasting coffee at over $2 a pound,” he quips. “That’s trade, isn’t it?”

In terms of their retail operations, Corbett calls the higher green prices a “mixed blessing”. With Ireland still in recession, they’ve increased their retail prices only slightly, and Bewley’s has mostly absorbed the hike in raw materials. Corbett says too high a market price will hurt the whole production chain in the long run.

“I think those prices [last year] were too high, and this does effect the market,” he says. “We’ve been seeing a steady increase in consumption, but that increase will drop if prices are too high.”   

One area where Bewley’s has seen a rather unexpected savings has been in recent sustainability efforts. The company made headlines in February 2008 as the first Irish business to declare their intention to be fully ‘CarbonNeutral’, a certification trademarked by the privately-owned London- and New York-based Carbon Neutral Company. The company helps businesses monitor their carbon footprint, and facilitates the purchasing of carbon offsets.

The decision to go carbon neutral, Corbett explains, wasn’t taken overnight. Similar to the company’s workers experiences in seeing the devastation of low coffee prices at the turn of the century, in their coffee travels they’ve seen first hand the impact of climate change.

“Anyone who is growing around the equator can see it,” he says. “In our time in the industry, we can see also a difference.”

In 2006, Bewley’s Chairman told the management team they would need to start measuring their carbon footprint, as the first step to controlling their environmental impact.

“It’s the old business mantra, ‘what gets measured, gets managed’,” says Corbett. Following from there, management set targets to reduce their carbon footprint. The first year, Bewley’s reduced it by 15 per cent, through energy saving measures managing their coffee roasting equipment. The following year, the company cut its footprint by another 20 per cent, in what Corbett says was “simple housekeeping”, through even better energy management and technology. This led up to the 2008 decision to make the big step forward.

“We decided if we were really serious about this, than we needed to be fully neutral,” he says.

The process involves measuring how much carbon the company is producing, and every year purchasing those offsets from a business or organisation that is deemed to be reducing overall carbon dioxide by a third party. Initially, Bewley’s purchased their carbon offsets from a Spruce Plantation in Scandinavia, but later decided to go a different route.

“We felt like we were writing checks to [a part of the world] that probably didn’t need our money,” he says. “It made more sense to use our money to help our supply chain.” 

Bewley’s shifted its focus instead to coffee producing countries, at first investing in a wind farm in Central American. In working with FLO, they were able to identify coffee growers selling carbon offsets. They sourced a cooperative in Peru, Cepicafe, who were planting trees around their coffee farms.

“The beautiful thing about all this is that now we’re buying their coffee,” says Corbett. “So we’re mailing them money for their offsets, and mailing them money for their coffee. The farm has two income streams. It’s a very repeatable model that we’re fully engaged with.”

In looking back on this move, Corbett says there are two important lessons that the company has taken from the experience. The first, is that it was the right thing to do. As a company founded by a Quaker family, Corbett says that the need for profit has always been strongly accompanied by the drive to do the right thing.

The second point that Corbett stresses is that the company has increased in profitability as a result. 

“As a company, there is no doubt that we’ve saved money,” he says. “Even though we’re writing checks every year, we’ve actually experienced a net gain. That’s quite a statement to make, and it’s an important one.”

As for the future of the coffee industry, Corbett says the company is “very optimistic”. At home, Bewley’s is hoping to gain market share by converting instant coffee drinkers – who still account for around 75 per cent of the retail business – to fresh coffee. Abroad, the company has invested in coffee distribution companies Darlington’s Coffee in London and Java City in the United States.

“We’re really upbeat about the future of the coffee industry,” he says. “The coffee service continues to reinvent itself. Direct trade is going to have a big role to play in that. Coffee companies can no longer hide behind the supply chain and from what’s going on at origin. The coffee trade needs to make a point of improving the lot of everyone in the supply chain.” GCR

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