• Exclusive marketing arrangements


    Broadly speaking, coffees can be divided into three commercial categories.

    • Exemplary quality coffees have a high intrinsic value with a fine or unique cup. Usually of quite limited availability. Mostly retailed under straight estate or origin names. Usually very well presented washed coffees, including some superior washed robustas, but also includes some naturals (Ethiopian Harar, Yemeni Mochas, some Indonesian Arabicas), top organic coffees. True niche products. Usually, but not always, roasted by comparatively small firms and marketed through fairly exclusive outlets e.g. retail coffee shops or bars and upmarket delicatessens.
    • High quality or premium brands, good cupping coffees, well presented, but not necessarily visually perfect. Retailed both as straight origins and as blends. Includes good quality, well prepared organic coffees, and washed as well as superior quality natural robustas. The market for this quality band is much broader and includes a good percentage of today’s specialty coffee. Also produced by leading multinational coffee companies and marketed through normal retail outlets such as supermarkets.
    • Mainstream quality, average quality, reasonably well presented but certainly not visually perfect. Will offer a decent, clean but not necessarily impressive cup.

    In today’s specialty market all three types of coffee are represented: exemplary and high quality coffees either as stand-alone or as a named blend component, and mainstream quality in many of the ready-to-drink and flavoured drinks that are sold alongside filter coffee and espresso.

    Obviously, for smaller exporters of top quality coffee the exemplary segment initially offers more promise. However producers or exporters of good quality coffee have three basic options open to them.

    • Sell to the leading roasters (through the usual trade channels), if volume sales are required and the coffee sold lacks the flavour characteristics necessary to be marketed on its own;
    • Sell to specialty roasters either direct or through importers or agents. The latter in most cases is the more realistic option as these importers or agents have a wide coverage of the small roasters and other retail outlets which are too small to import direct;
    • Focus on specialty coffee retailers either by selling direct (for roasting in store) through specialty wholesalers or by selling through specialty roasters. The number of specialty coffee retailers importing direct is extremely small, however.

    Premiums for specialty coffee can be considerable at the retail level but the premiums available for producers are inevitably much lower, although they can still be significant. It is sobering to realize that mainstream qualities, including robusta, account for an estimated 85%–90% of world coffee consumption, while the share of exemplary and high quality coffee is no more than 10% or perhaps 15% of the world market. This suggests that for many producers it would be inadvisable to ignore the mainstream market altogether. Instead they should concentrate on both: specialty for their top quality and mainstream for the remainder of their production.

    A further point to note is that sales to small roasters are mostly on extended credit terms, something only an importer can easily afford. Inventory costs, late payment costs and even the risk of payment defaults are therefore part of the cost equation. Also, most roasters purchase subject to approval of the quality on delivery. This means the importer will be left with any coffee that does not meet the roaster’s expectations. In other words, the premium for specialty coffee at the wholesale level includes many more factors than just the quality.

    Exclusive marketing arrangements

    There are times, especially with a new and limited coffee, that a producer may agree to sell this coffee only to a particular company, or to only a few companies who do not compete in the same geographic region. Importers and roasters at times like to have such an arrangement because it prevents their competitors from marketing the identical name at a different price in the same market place. They can then create a marketing strategy that sets them, and the coffee, apart from the competition.

    Potential benefits for the producer include

    • The agreements are usually long-term and as such can help create price stability. This expectation of premiums allows producers to focus on the coffee instead of the marketplace, and to be able to pay for the extra effort it takes to maintain the quality;
    • An exclusive arrangement generally means roasters will be spending marketing dollars in introducing the coffee to their clients, i.e. a roaster will promote this particular coffee rather than just blend it. Promotional dollars behind the coffee mean increased consumer awareness, which can lead to longer term loyalty;
    • Exclusivity creates a certain sense of loyalty and communication between the producer and the importer/roaster that may otherwise not be possible. It is also in the best interest of the receiving company that the quality is optimal – as such it may provide technical help and other assistance that would otherwise not have been available to the producer.

    Potential disadvantages for the producer include

    • An exclusive arrangement may limit the coffee’s exposure. And if it is with a smaller company or companies with limited market share, then the chance to create a broader consumer base is lost. This could imply that when the agreement comes to an end the producer is left with a coffee that enjoys only limited awareness and requires further effort to build market share;
    • An exclusive arrangement usually contains price constraints. Sometimes beneficial for the producer but, depending on market movements and the demand for this particular coffee, this could also have negative effects. One can find oneself locked in with one buyer when in reality a better price might be available elsewhere;
    • The producer is relying on one or a few companies to promote his coffee but, generally, has no guarantee this will in fact happen, or that it will be enough to be effective. Even though it is also in the buyer’s best interest to ensure this, he may in fact not do so.

    In conclusion

    Producers entering into such arrangements must make every effort to know their business partner. There certainly are companies that are less than serious, that make promises they cannot keep, and that sometimes may even forego the agreed payment structure when this suits them. It is imperative therefore that all contractual arrangements are reviewed by a legal adviser, both in the producer’s own country and in the buyer’s country.

    In order to be effective these agreements must be true partnerships. The producer must do his share to deliver the quantity and quality the buyer requires. The buyer must do his share to pay a timely, fair price and to promote the coffee to his consumer base in a way that ensures ongoing demand. In other words, create relationships that can be formalized in a marketing agreement

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