Growth is a typical measure of success for any business: the larger a business becomes, the more successful it is considered to be.
However, a more important indicator of success is creating scalable growth. As a business grows in size, its sales volume increases. Effective scaling is when revenue increases without adding to resources or costs.
The key question is whether the business has the capacity and capability to meet increased demand while maintaining and raising the level of profitability.
In particular, if a roastery were to pursue growth without considering its scalability, there is a high chance that it may eventually hit a roadblock.
To understand more about growing and scaling a coffee roasting business, I spoke with the Head of the Starbucks Reserve in South Africa, Ishan Natalie.
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What does it mean to scale a business?
Scaling and growth are terms that are used widely in the business world. While they tend to be used together, there is a distinct difference between these two words.
Generally, when a business grows, the additional revenue it gains is evened out by the costs incurred to enable that growth.
On the other hand, scaling allows a business to generate greater revenue while maintaining or even lowering costs. Essentially, scaling helps set the stage for a business to grow more efficiently.
Additionally, scalability is an indication of whether a business’ financial health, operational systems, and human resources are able to accommodate growth.
For coffee roasters, there are various pathways to scaling a business. For instance, in 2002, Blue Bottle started off as a coffee stand. Within a decade of opening its first cafe, the company has managed to expand its footprint locally and internationally – transforming into a coffee subscription giant.
Meanwhile, Starbucks followed a similar path in its infancy, but later took a different approach. It has since scaled into a multi-billion dollar coffee chain and established a strong presence in the grocery segment.
While there are many ways to scale a business, it is important to remember that it could backfire if it is not done under the right conditions.
Why is scaling important?
As a business grows, one of the benefits is economies of scale. This means that as the operation expands, it can purchase higher volumes of coffee and equipment at a lower cost per unit.
“For example, in Starbuck South Africa, scale meant that we can localise our inputs such as syrups and powders, instead of importing them,” Ishan explains. “This makes things cheaper as we save on shipping costs.”
Furthermore, a greater buyer power allows businesses to negotiate favourable terms with their suppliers. This may include payment terms and pricing. At the same time, roasters can forge stronger relationships with their trading partners.
Additionally, if the size of operation grows sufficiently, it may provide the capacity and resources for roasters to explore direct trading models.
Building long-term relationships with coffee producers offers additional benefits, including an improvement in quality, as well as the ability to promote fair and ethical values within the industry.
As a business scales, processes and systems that boost operational effectiveness and productivity are often put in place. This, in turn, provides the infrastructure for roasters to serve consumers more effectively, as well as gain access to larger clients.
Ishan further explains that scaling can create a virtuous cycle of growth.
“As businesses scale, the profit they make eventually pays for the next round of expansion, which makes them more profitable. And, as they make more profit, they can scale even faster.”
Scaling can also help coffee roasters establish their competitiveness and strengthen their position in the market. Ultimately, this contributes to the longevity of the business.
What should roasters consider when scaling their business?
Although scaling a coffee roasting business can be difficult, with the right planning it can be incredibly successful.
“The beauty of a coffee roasting business is that it generally has a good profit line,” says Ishan, who is also a three-time national barista champion. “The challenge of it is that if you want to scale, there are so many things to do.
“It is a large investment in terms of time, resources, and space. For instance, buying a bigger roaster, expanding to a bigger location, and hiring more staff.”
This is why it is vital to have a solid foundation before attempting to scale a coffee roasting business.
Ishan believes some preceding steps a roaster should take include building a strong brand image and trust, delivering consistent quality, and being price competitive.
“Roasters have to grow their brand to become reputable in the industry,” says Ishan, who is also a Starbucks South Africa consultant. “You have to be very competitive, not only in terms of quality, but also in pricing as well.
“If you are consistent with quality and continuously have coffee that appeals to everyone, people will automatically start recommending your business. This helps your business grow through word-of-mouth marketing.”
At the same time, investing in sustainable packaging is an effective way to build your brand presence.
“In coffee, brand appearance is not only about what is in the cup, but also the visual representation of the coffee bag,” Ishan says.
When it comes to reaching customers, the design of coffee packaging is of the utmost importance. A recent survey found that 70% of consumers form their impression of a brand solely based on packaging, influencing perceptions of quality, value, and brand image.
Another important step to ensure successful scaling is to have a strong understanding of the business’ cost structure. Ishan says a common mistake roasters make is they don’t have an in-depth understanding of all the costs that go into roasting and supplying coffee.
For instance, the cost of maintaining equipment and bean weight loss during roasting are just some of the essential elements that should be considered.
“Don’t invest too heavily unless you actually need to,” Ishan says. “I’ve seen many businesses invest too early and struggle to make ends meet as a result.”
At MTPak Coffee, our team of designers are dedicated to helping specialty coffee roasters create the perfect packaging experience that will boost brand perception and image.
We can work closely with you to design and customise your packaging to showcase your unique brand. With added features like transparent windows on coffee bags, consumers will get a sneak peak into the quality of your product.
In addition to our sustainable coffee bag options that are both recyclable and compostable, we offer low minimum order quantity (MOQ) to help roasters stay flexible and keep costs low.
