Restaurant wants equipment as well as coffee

[Michael V]

New roaster here. So far I''ve only sold 1 pound of coffee and that was to a friend.

Did some walking around and talked to a restaurant and a couple grocery stores. The restaurant said they were willing to do a taste test with customers but if they went to me that I would have to provide all the coffee equipment along with the beans.

Is this the normal way things work? I was hoping to stick with just the beans... If I supply the equipment, do I increase how much I charge per pound of coffee? What is the going rate for business to business coffee sales? I was thinking $5/lb if less than 30lbs/week, $4.50/lb if greater than 30lbs/week for Colombian Supremo. If I supplied the equipment would I bump up the prices or just take it as the cost of doing business?

 

[cafemakers]

Hi Michael,

Sorry to say, that is the way that many restaurants do business. My advice is to avoid the equipment game altogether or you are liable to sink your business in equipment capital.

Supplying average coffees at very low (way too low) prices and approaching restaurants, you're putting yourself in direct competition with large institutional roasters with deep pockets for giveaways, promotions and incentives, like equipment financing. It's a losing game that you should not be playing.

My recommendation for small roasters is to work on your coffee quality and focus on the higher-end market; both in coffees provided and margins that you can obtain for your products. Take a look at what some of the better specialty coffee roasters are doing online for an idea of the direction, then build your own niche and pricing structure. Focus on those customers who will pay for quality and you'll be in good shape when faced with a mega-roaster selling c-grade coffee for $4.00 / lb.

Best of success!

Andrew

 

[Alun_evans]

Andrew is right on the ball here. The problem is that the bigger roasters can provide machines and coffee way cheaper than a small, boutique (dear i add "quality") roaster can. Also a supermarket/grocery store buyer is about as loyal as a starving pet tiger. If they can see better margin, the chances are they will move to another roaster- and of course they are prone to changing to name roasters.

A restaurant will be only slightly more loyal- the better the quality of the restaurant, generally the more staunchly they will stnd behind quality coffee. I think the best way to go for a new roaster such as yourself is to open your own small storefront with cafe if possible. Granted the current economic situation makes this slightly risky, but really it is the only way to get leverage on your coffee quickly. Most of the now well known West Coast roasters these days started off as cafe-roasters, expanded from there. Apart from anything else... starting off is about good cash management. Selling a kg of coffee, for cash, to someone who has just drunk an espresso in your place sure beats waiting 45 days for a restaurant or a supermarket to settle their bill!

IMHO, thats the way to go....

 

[CCafe]

Lets also look at the other side of the coin on this. The upfront capital needed to add equipment can be daunting at best. But most large brewers like a Fetco or Bunn only costs around $1600 wholesale. Slap on 3 or 4 1.5 gallon urns and it runs the bill up another $1000 or so. A good water filtration / scale inhibitor cartridge and head will run another $200. Total investment for your little venture will run you about $2800. If your selling 15 pounds of coffee every week at $8 a pound your talking a $120 in sales a week or $6240 a year.

If you assume that half of that $8 goes to pay for the coffee equipment then it will all be paid in less then 1 year. If you stay on top of water treatment most coffee brewers will give you 5 - 8 years of reliable service. After that you'll want to bring it in for a overhaul and send it out for another 5 - 8 years. So if you look at the numbers in that sense you'll make a killing after that 1st year is up.

I've spoken with a few people that buy the coffee and get the equipment here in Iowa and most are paying slightly more then $10 a pound for coffee. But if the machine breaks a tech comes out and fixes it. All they have to do is order coffee. The only things that they have to pay for out of pocket is for the paper filters and the water treatment cartridge replacement. I've heard of people including everything in with the coffee purchase but I think that would drive the price up another few dollars and I don't know how receptive people would be to paying 13 or 14$ a pound?

 

[Mark at Whole Latte Love]

I think a good thing to tell your potential customer is that you will sell them equipment at cost. You will provide a far superior cup of coffee and that it will not only help sales but will also make sure to leave a much better impression on his customers. You can always tell the truth and say he will always be charged a premium on his mediocre coffee for equipment. You can have him pay upfront for equipment or charge an extra 1-2 dollars a pound until equipment is paid off. Then you will go back to the price you have agreed to sell it to them at. You may also want to consider for large accounts that you will sell below cost or give equipment to them for less or much less then cost depending on the volume they are doing. I would also say if you are buying the equipment from us there is no contract and if you choose to leave us you can have the equipment and there is not the issue of worrying about what to do for equipment now that we have switched. Of course you need to make sure that does not happen .

I always found in Office coffee service (OCS) I would need to warn them that when we replaced the not very good coffee with great coffee that the consumption in pounds of coffee would go up by quite a bit. but that can also be a great selling point because they know less people will be leaving office to get coffee.

It is a tough one to figure out how to compete and the most important thing is not to risk much and you cant compete on price. You can offer a better coffee and the proof should always be in the cup. You may want to walk away as I have from an account that has thousand in free equipment , with some sitting in storage that does not believe that the quality of the coffee does not matter only the cost.

 

[Alun_evans]

I will concede that CCafe is right... if you can get this work, secure it and nail it down with big 3 inch nails, it pays. Actually the whole rental machine business- espresso/grinder etc as well a brew units is, indeed, a nice little money earner. The problem is, and always will be, that many of the clients out there are more concerned about issues that may not be quality ones. I would still try and work out a way to do it your own way first. A well known brand, one you may have forged yourself based on quality, will of course sell. Again I see the problem as being one of leverage. I am not sure of the US situation of course, but generally the bigger guys can buy machinery cheaper,merchandise etc and get their product in cheaper than a small, boutique guy. Where the boutique guy wins is quality, quality, quality- whether that is in product, service or hopefully a succesful combination of both. I remember once, 13 years ago, got a phone call at 2.30am from a Hotel Manager with a machine problem. I crawled ot of bed and headed to his hotel while he probably went back to bed. He did not expect to see the machine fixed the next morning when he came in at 7am, but it was. We were a very small company, but that actually resulted in a relationship that continues up to today. I think being small can be a blessing... but you need to pick and chose who you deal with and this, I know, can be difficult, at the beginnng.

 

[Alun_evans]

I always found in Office coffee service (OCS) I would need to warn them that when we replaced the not very good coffee with great coffee that the consumption in pounds of coffee would go up by quite a bit. but that can also be a great selling point because they know less people will be leaving office to get coffee.

It is a tough one to figure out how to compete and the most important thing is not to risk much and you cant compete on price. You can offer a better coffee and the proof should always be in the cup. You may want to walk away as I have from an account that has thousand in free equipment , with some sitting in storage that does not believe that the quality of the coffee does not matter only the cost.

Top points Mark- as a green horn, about the same time I had the early morning Hotel call, my boss at the time sent me to convince a hotel to change suppliers. We blind cupped the coffee, we killed the encumbents product. What I failed to realise was the historical usage that I estimated future usage on was based on, at best, morning buffet dinners having 1 cup of terrible coffee at best (worst). Of course usage blew out, costs were way over and we ultimatley lost the account back to "terrible coffee Inc". Lesson learnt :grin:

 

[chip]

One more thing...

I would just add that the imagined profit can disappear very quickly if you gear up to provide equipment and you customer suddenly fails leaving you with a big receivable and, if you're lucky, your now used equipment.
We geared up to supply bread to a big restaurant that went bankrupt owing us $3200.00, far more than we ever made on the deal, and with an extra employee we had to let go. Don't forget to consider the possible downside.