Hola, amigos! The day that we all dreaded from the start has finally arrived. Tomorrow morning, we board the bus and head back to the good ole’ United States. Though, I am excited to see my family and friends and tell them all about the trip, leaving all these great memories behind will not be easy. This was my first time outside of the country, and I am so glad Costa Rica was my first flight out. I have learned a lot about Costa Rica, America, and most importantly, the finance and economics behind running a coffee business. Now, I will do my best to briefly summarize what I have learned about management within the coffee industry.
To begin, let’s discuss the coffee farms. A lot of decisions need to be made when managing a coffee farm. For instance, the business must decide what part of the supply chain it will become. This is a management decision. Like Doka and Monteverde, the farms could grow their own coffee beans and sell them. Doing so will allow them to ensure the quality of the beans and spend less time wondering if the beans were produced in a sustainable, eco-sensitive environment or not. This may be costly, but these farms can then sell these beans to other roasting facilities or roast them themselves. Many farms cleverly do both which allows them to diversify their business model (Que inteligente!). In addition to this, running a coffee farm is expensive. To begin, you need start-up capital, since a lot of machinery is needed. They must decide how they will finance their operations. They can either borrow from big banks like most private companies do or become a public corporation such as Starbuck’s. As Starbuck’s is larger than Doka and Life Monteverde, we can see the effect of having shareholders on the ability to expand your business model. Also, for companies like Life Monteverde, who really focus on using sustainable practices, they must discuss the opportunity cost of doing so; for instance, when Life Monteverde preserves the forest, they are not using this land to produce more coffee beans. It also costs a lot of money to use special pesticides and time to educate neighbors on sustainability. Properly evaluating decisions and their potential outcomes is a key duty of the owners of these farms, and whether or not they do so correctly could affect the success of their coffee farms.
Now, the next step after growing the beans is the washing, peeling, and drying of the beans. We know all about this part of the process, though, so how does it relate to management? One interesting way Life Monteverde differentiated itself from the rest of the plantations we visited was that its management decided that they would ship some of their beans away to be dried for the coffee mill part of the process. Again, this plays into their social responsibility movement (giving business to coffee mills) but could there also be some economic incentive? It takes a long time to dry coffee beans, and perhaps, since Life Monteverde only dries some of their beans, their workers can spend this time doing other things. Another management decision regarding milling involves the process of drying the beans. As I mentioned, it takes a long time to dry the beans. Sometimes, orders need to be shipped out as soon as possible per a contract; therefore, Doka explained that sometimes they might have to use a machine to dry their beans as opposed to sun drying the beans. This produces a lower quality bean, though, which means it will be charged at a lower price. Managers must take these factors into account when discussing this part of the process.
The next step is roasting the coffee. The first decision that must be made is one of the most important: Will you roast your own beans or will you buy unroasted beans from local coffee farms to roast and sell? For Café Britt, the ladder is more desirable. Without having to spend money on capital for growing coffee beans, Café Britt is able to divert most of its funding to marketing, which they do so well. They are also able to fund lots of market research, which explains why they have so many roasting techniques and differentiated products. Next, roasting companies must accurately predict demand because as Café Rey’s export manager explained, it wastes time and money to roast beans before they are ready to be sold (also affects the freshness). Beans are supplied on an order by order basis, so they must make sure they always have the perfect amount of beans on hand to stay the most efficient.
[Side note: Another interesting thing about Café Rey is that to differentiate themselves from other roasters, they promised to only pay suppliers in cash the day after delivery. When I first heard this, I thought the man was insane. This forces the company to be liquid at all times and leaves no room for error; but I am sure suppliers appreciate being paid in cash on the spot!]
The next part of the process is selling, which I will break into two areas. The first of these areas is selling to retail stores. This is common for many businesses such as Café Britt and Doka. Now, the important thing that management must do in this stage is monitor coffee prices on the New York Stock Exchange. As Café Rey explained, monitoring prices helps them to make the most profit possible. They purchase the beans when prices are low and sell them roasted when they are high. This way, they can turn their expenses into revenues at a maximizing rate. Another interesting management decision was brought forth by Café Britt. They sell their roasted coffee to retail stores, and they also sell them to restaurants and hotels/airports, whom they give the option of franchising. They incentivize these firms to do so by training their baristas and giving them the right equipment to make sure they produce great quality coffee. Although this will cost a lot of money, it is a mutually beneficial relationship for both parties, and since Café Britt made a smart decision to go public, they have the capital necessary to continue these initiatives.
Finally, I will talk about direct selling to consumers and how managers play a role in it. Again, it is important for managers to monitor coffee prices. Another key decision involves how exactly customers can purchase the product. For instance, businesses like Coopedota and Starbuck’s own little cafeterías (Coffee shops) where they earn a good amount of revenue. As a manager, you must decide if it is worth it to fund these coffee shops, ensure that training of baristas will be spot-on, and set reasonable prices. All of this is easier said than done. Also, another decision managers must make is whether or not there will be an e-commerce form of purchasing their coffee. Companies like Britt and Doka have websites, and it helps them to reach international markets and tourists (or local ticos) outside of their facilities. Managers must decide if it’s worth it to hire people to create a website, ensure its constant maintenance, and ship to large amounts of consumers. Clearly, throughout each step of the process, management needs to be above par to run a successful business.
Being able to see first-hand how much hard work goes into running a coffee business has made me grateful of manual labor workers and has made me aware that smart people are not only doctors, lawyers, and CEOs of banks; they are coffee growers and managers too. For the people that conduct the manual labor, there is so much physical discipline and mental toughness required to work such long repetitive hours. For the owners, I would have never come close to approximating the amount of education they have. It is so impressive how much knowledge they have about coffee and more so impressive how much they know about markets and how the environment will affect these markets, etc. I have learned much from them. When I go back to the states, and I sit down at a local coffee shop, I will probably contemplate the entire meal: where the coffee came from, how much work was put into it, and how difficult it was to carry out operations. I am sure that it will make the carefully grown coffee taste that much sweeter!
Thanks so much for reading and as always…