By Scholer, Morten
International Trade Forum
Behind every success is hard work, substantial risks, sleepless nights and -- not least -- the bit of luck that can make the whole difference. This article looks at elements that made the world's first Internet coffee auction (December 1999) a success. Lessons are described here for others to learn -- but also to avoid false expectations among the coffee growers who have started to say: "Getting my coffee on the Internet would change everything -- for the better."
The world's first Internet coffee auction, which took place in December 1999, was a success. This is well known in the coffee trade. Coffee people still talk about the Brazilian coffees that were offered simultaneously on four continents. It was a success in at least two ways:
* The technology worked.
* Coffees were sold at prices considerably above expectations.
Why sell coffee via the Internet?
The idea of selling coffee at an Internet auction developed from two independent rationales:
* A wish to introduce the spirit of competition that exists among coffee growers to the subsequent links in the chain from field to cup -- obviously in the hope of selling at high prices.
* A wish to bypass intermediaries who don't add value in the distribution system and create a closer link between growers and roasters, who could access excellent coffees otherwise difficult to find.
Business as usual
Whereas the first rationale turned out to be right, the second was only partially correct.
Distribution is key
Auctions of this kind make it possible to trace rare, quality coffees directly among farmers (by conducting a competition) and inform roasters directly. In reality, how ever, the Brazilian auction could not have happened had the present distribution system not been solidly in place -- and left in place for the transactions! Farmers and roasters are seldom equipped to handle intermediary export functions such as transportation, letters of credit, payments, documentation, shipping and so forth.
For this reason, as part of the coffee auction process, a well-respected exporter was nominated to handle all ten coffees -- with risks and potential gains from the transactions. Thus the idea that coffee could be sold from a small farmer, directly to a small roaster, was not tested. Skipping the traditional export-import portion of the chain would not have been possible. So in the case of the auction, the coffee moved as it usually does for ordinary sales: Farmer (small) -- Exporter (big) -- Importer (big) -- Roaster (small).
To make a profit with coffee, one cannot deal with small lots; a certain volume is necessary. This challenge becomes doubly difficult when looking for high-quality, gourmet coffee.
In the case of this coffee auction, the lot size of the coffees posed a problem from the beginning. Coffees are typically sold by the container (250-300 bags). The lots were on average just below 100 bags. This meant that an importer would either have to piggyback his lot with another Brazilian coffee or have to pay the shipping on less than a container. Several importers decided not to participate for this very reason.
At present, coffees sold via the Internet need to be unique in order to attract attention and justify a premium. Internet coffee auctions now are for exemplary-quality coffees only, which are offered in small quantities.
It is obvious that future auctions will have to address this problem and find cooperative shipping solutions that are fair to companies of all sizes. The best coffee should not be overlooked simply because the logistics of getting it to port are difficult.
In the coffee auction, all parties took financial risks, in particular the farmers. Without putting pressure on the farmers and calling them every day, there would not have been enough coffee for an auction of this kind. …