For most New Zealanders, coffee is a ritual. For a few, it’s a business. In this new weekly series, we talk to a range of different New Zealand coffee companies at different stages of growth and with different ownership structures to find out how they got there, if it’s possible to scale the business without selling your soul and whether consumers know (or care) if they’re New Zealand-owned.
Even in the best of times, running a small business can be stressful. But in early 2020, as Covid took hold, that stress was ratcheted up significantly. Kōkako’s Mike Murphy points to a few of the extra grey hairs he’s gained over the past few years to prove it.
At that time, around 80% of Kōkako’s revenue came through hospitality – predominantly in Auckland through the cafes it supplied beans to, but also through its own flagship cafes – and his industry became one of the sacrificial lambs in the country’s efforts to escape the worst of the pandemic.
Murphy says Kōkako’s exposure to the already quite volatile cafe sector became very clear very quickly, so he and the team decided to change tack and, as many coffee brands have done before them, aim for the supermarket.
Rather than risk diluting the Kōkako brand, it created a new brand called Everybird, which is now available at around 100 retailers across the country and includes an innovative blend called ‘Half-Caf’. Murphy says it is a more accessible and playful brand than its parent but, despite the financial difficulties at the time, chucking some cheap beans in a bag was never an option.
Kōkako is “a 100 percenter”, which means all the beans it buys are Fairtrade certified.
“There was never any doubt in our mind as to whether the beans for Everybird would be Fairtrade,” he says.
And that’s because Kōkako has made Fairtrade, organic and climate neutral coffee a core part of its brand, both to entice more conscious customers to buy into the story but also to learn more about the industry and gain a connection to the growers and their businesses.
“It does cost us more, as we’re paying a premium for the coffee, per kilo, over conventional coffee, but that’s the way we want to run our company … We’ve stuck with our accreditations and we’ve become very good storytellers, and I think that’s become a real competitive advantage.”
Everybird, which is distributed by Ceres Organics, is at the higher end of the price spectrum in the supermarket and that’s by design, but succeeding there is not just about what you can save on the green beans and roasted coffee, he says. You have to find efficiencies everywhere else, like being clever with your packaging, and you have to create a willingness to pay that higher price through good branding and marketing.
Getting to this point has taken around 20 years, says Murphy.
“We started out as a coffee cart in Aotea Square and the founders, Helen [Ollivier] and Christian [Lamdin], had their coffee contract roasted. Then they bought a 5kg roaster and started roasting on that.”
This is a reasonably common story in the coffee industry and while Murphy doesn’t think it’s that common for owners to start their roasteries or cafes with a desire to create a national (or international) brand, it is possible because coffee has always been quite accessible.
“The cost to get into roasting has been relatively low. You can roast from your garage, start a brand and sell online.
He says New Zealand has the highest number of coffee roasters per capita. But when you want to expand, or when the founders or owners want to extract some value out of a business that’s been built up over many years and may have led to a fair amount of debt, the calculus starts to change.
Selling your soul?
From music to art to beer to fashion, the default indie attitude has long been to kick against the big, slow pricks. Independence was a byword for creativity and nimbleness and selling out was seen as shameful. But that attitude appears to have softened in recent years, Murphy says.
Allpress, which was established in New Zealand and grew aggressively overseas by opening roasteries and cafes in different markets, recently sold to Asahi. Supreme was recently purchased by New Zealand private equity firm Pioneer Capital. And well-known brands like Caffe L’Affare, Havana, Mojo and Atomic were snapped up by big food companies a few years back.
So should we be worried that we’re losing our successful New Zealand coffee brands to multinationals? Can you keep your soul after selling? And, given that coffee isn’t even grown here (at least, not much of it) does it even matter who owns it?
Murphy says there are very clear benefits to having the additional capital, expertise and economies of scale.
“When you get to a certain scale it comes back to the question of ‘who is the buyer?’ If you want to grow, and get bigger, you need marketing money, you need logistics support. It’s about where you are in the cycle of business and it eventually becomes more feasible for a better resourced entity to take that business to the next level. What is the best way to do that for existing shareholders, employees and customers? There’s a lot to consider.”
In some cases, the only ones who may be able to afford to purchase a company like Allpress is a multinational, he says.
“They might have multiple brands, their procurement strategy might be a bit slicker, whereas we need to fight a bit harder or hustle a bit more.”
For those working in the industry, Murphy says there is an awareness of the various ownership changes. But he doesn’t think most supermarket customers would be aware that a majority of coffee on the shelf is owned by multinationals.
“We’ve gone through this pandemic and a lot of people wanted to support New Zealand-owned businesses. Even if a business is owned by a multinational, they are still employing Kiwis who are supporting our economy, but if consumers want to know which ones are Kiwi owned, it’s not always straightforward when they see it on the shelf or order it in a cafe.”
Every customer has different drivers, he says. It could be quality, taste, the treatment of workers or sustainability, he says.
“So just because it’s been sold, it may not change the customer’s user experience.”
In some cases, it can actually improve it. Murphy points to Emerson’s as an example of a supposedly soul sucking multinational putting its resources to good use and turbocharging what the brand had become renowned for.
“Emersons is the gold standard. I did a trip to Dunedin last year and I hadn’t been to the new brewery. You’d never know it was owned by a big company [Lion]. It was packed, the food was great and the founder was there filling flagons and chatting away. If you’re going to do it, this is the way to do it. When a company changes hands, the most important thing is trying to maintain the culture and spirit of the brand.”
Allpress and Supreme have expanded overseas (and have suitably generic international sounding brands to help achieve that goal), so are there any plans to follow suit? And given Kōkako is a Māori name and very much of New Zealand, could that be a limiting factor?
“Our strategy is to strengthen what we’ve created and build out the supermarket brand. We don’t have the capital to go offshore. We would need a partner that shares our values to do that.”
Matters of taste
As buyers become more educated, they start to seek out new methods and more delicate flavours and are willing to pay more for them. You see it in wine and beer, in the huge variety of cheeses that are now available, or the slow food movement, he says.
“If I’m honest, what pays the bills is our standard coffee blends, Mahana and Aotea. That pays my rent and my staff, but you need to keep pushing the boat out with high-grade specialty single origin coffee. That’s at the top of the pyramid.”
He believes it is possible to play at both ends of the market.
“We’ve been doing [single origin] for 10-12 years and we do it because there’s demand. There are some people who become really obsessed. They don’t want their coffee to taste like chocolate and cacao, even though 95% of people will want that because it will be served with milk.”
Murphy says it’s never been harder to be a small business owner. Operating primarily as a coffee wholesaler, margins were already tight, and those margins have been squeezed even further as a result of the pandemic and the ongoing cost increases and supply chain issues. Murphy says one of the best things about New Zealand’s coffee industry is that there has always been plenty of diversity, but there is potential to lose some of that diversity in New Zealand’s coffee scene if smaller operators can’t sustain themselves.
Continued consolidation may mean there aren’t as many independently owned brands on the shelves, he says, but he still thinks there will be opportunities to grow if that’s what the owners want to do.
“I’ve noticed Matakana Coffee Roasters is in a lot of Countdown stores, particularly in and around Auckland. I think that’s really good. You see that with local craft beer as well. They sell the local brands because they know consumers want them.”
And if the sales stack up, the brand might have a chance to expand further, as Everybird has done.
Despite all the challenges, the barriers to entry are still quite low in coffee, he says, and different pathways and ownership structures really depend on different values and goals. There’s no right or wrong answer, and he’s not one to judge whether a company has made the right call to sell, or what a customer bases their buying decision on.
“Growing the business comes down to ambition and drive. I’ve got that and I feel we can make a positive impact by selling fairtrade and organic coffee.”