“What fates impose, that men must needs abide; It boots not to resist both wind and tide.”Henry VI by Shakespeare
I’d be lying if I said this was easy.
I’ve described the events of the past few weeks this way: I’m standing in the middle of a frozen lake and notice a crack forming in the ice. I run toward shore, as fast as I can—winded, freezing, numb—knowing that only one of three things will happen:
- I make it to shore, likely through a last-minute long-jump looking like Superman;
- I’m rescued by helicopter, land-bridge, or snowmobile; or
- I fall in the icy waters and drown.
I spend my days pacing between the folds of my sourdough, checking the numbers, taking my temperature: 98.1/98.6/99.3/oh-fuck-do-I-have-it/98.6. I find myself reading about body disposal during the Black Death, and cinchona trees, and how trench warfare during World War I accelerated the mutation of the 1918 strain of influenza into a superbug that laid waste to humanity—all while sipping Marseille. Really uplifting shit—particularly as this virus makes its way through the human population, changing the world as we know it.
In our industry, countless cafés and roasters closed their doors in its wake—and many of them will remain closed forever.
This is not how I intended to spend my March. I just wanted to talk about my UV light.
We’re living in a weird moment; unprecedented in modern history, and yet one so well-worn by humanity that describing it as “biblical” wouldn’t be out of line. This post isn’t exactly King Lear (and in fact is quite hastily put together which I hope you can forgive under the circumstances), but I wanted to share some guidance for coffee roasters during these troubled times, based on conversations I’ve had with clients, friends and competitors—just as I shared what I could with café operators about how to operate safely during the pandemic.
It’s clear (at least in the U.S.) that we can’t rely on the government to save us—at least not yet. When the bailouts do come, if history teaches us anything, banks and big business will get there first and we’ll be left with scraps—probably in the form of ostensibly low-interest loans (from which we’ll have to pay back deferred rent and financing payments from debt we’d already taken on before COVID-19).
So—so much for deus ex machina.
Wholesale is dried up now, for most of us, since we tied our volume to the “best accounts,” which were, by and large, specialty coffee shops—all while turning our noses up at the dilutive and lower margin grocery business. Joke’s on us, I guess. The doors of specialty shops are closed while grocery stores and essential businesses keep running, corona-be-damned.
But I’ll keep roasting until they repo the roaster or shut us down. They know where to find me: waiting near the Loring with an IR thermometer in a gloved hand and my face in a respirator.
There are some things we can do along the way to make it to the edge of the icy lake with the hopes of making it to shore—or to skate along long enough for a rope ladder to appear should the government get its shit together.
But of course: you can do everything right and still fall in.
So it goes.
Fate 1: Running across the ice
While in Ohio, the governor has issued a stay-at-home order that will be revisited on April 6 (mirroring orders issued in PA, MI, NY and CA), much of the reporting I’ve seen suggests the disease won’t peak until mid-April. Other models show 12-18 months of pandemic disruption to achieve the lowest fatalities and strain on medical resources.
The point is this: we’re in it for the long haul.
Here’s our strategy for survival:
- Stay healthy (and stay inside).
- Cut your costs. As quickly and as aggressively as you can.
- Extend your inventory.
- Grow your revenues, however you can.
The basic calculation for operating a roastery during the crisis is the same as for retail: if you’re staying safe, keeping your customers safe and covering your variable costs, it might make sense to remain operating and generate a contribution toward overhead.
If you have some runway, figure out your burn and stick your landing.
1. Stay healthy.
Wash your damn hands. Don’t touch your face. Maintain social distance. Sleep. Managing your stress, your physical and emotional energy, and your health is going to be key to getting as far as you can on the icy lake.
“Staying healthy” includes your team: If you have multiple production roasters or multiple teams, don’t let them commingle. Stagger their shifts so there’s no overlap. If you’re the alternate (as I am at Phoenix), keep yourself the hell away from your production team unless called upon and stay in quarantine like an astronaut before they’re fired into space.
These are your ice cleats that will help you dig in and move a little more quickly and with greater agility across the frozen lake.
2. Cut your costs. As quickly and as aggressively as you can.
This was the worst possible time for this crisis to arrive for any company impacted by seasonality—it’s not uncommon to see revenues dip 15-30% in Q1 and the colder months of the year. Typically, March is when we start climbing out of the hole and paying down the line of credit or building back up the cash reserve again.
But not this year.
We need to free up as much cash as possible in the short-term, during this period of drought, to put toward (a) variable costs, and then (b) overhead. Pare down your outflows to only essential purchases such as, for example, packaging or green coffee.
First, you can free up cash-flow in the short term by deferring loan payments to your lenders and working with your landlord to defer or discount rents. If you have a $2,700 loan payment and a $3,000 rent payment due every month, deferring both of those for 3 months will save you $17,100 of immediate outflows, letting you put that cash toward essential purchasing and the company’s survival.
The logic is simple: If you close, a lender will not recoup the money they loaned to you. It’s in their interest to float you for a bit in order to increase their odds of being made whole rather than settling for pennies-on-the-dollar in bankruptcy. Similarly, your landlord will not be able to find a tenant to take over your lease—especially since you are not the only one in this position. Chances are, if they aren’t collecting rent from any of their tenants, they won’t even be able to pay for someone to move your roaster out of the space to evict you (let alone their property taxes). It’s in their interest to defer the rent and keep you on your feet so that they, too, can be made whole.
Most major lenders in the U.S. are currently allowing some sort of deferment (in our case, the local banks specializing in small business are offering deferment up to 90 days). Pick up your phone and call your banker.
And then pick up your phone and call your landlord. Most major cities in the U.S. have imposed some sort of moratorium on evictions—landlords know this crisis will impact them, as their tenants do not currently have income. We are no different. Work with your landlord to come up with some sort of deferred payment plan or discounted rent.
The utility companies in Ohio pledged to not disconnect customers during the coronavirus threat—so you can bet that if it comes down to it, we’d defer that payment if we needed the money elsewhere. This is similar to orders I’ve seen elsewhere from other utility commissions.
The state of Ohio deferred Bureau of Worker’s Compensation payments for March, April and May. It’s not a huge savings—but we’ll take it. Every penny counts. See what your state is offering in terms of deferrals of routine payments.
And the federal government delayed the deadline for filing taxes from April to July. For any of us who showed a profit, that’s good—it means we don’t have a tax bill right now, and either way means we aren’t paying our accountants for tax prep for another few months.
Any sort of ancillary services you don’t need right now—design work, or social media, or laundry service, or whatever the case may be—put a pause to it. We’ll get back to that later. You’ll take care of what you can for now.
If you had a delivery driver, you probably don’t need them right now—you can do what few deliveries remain yourself, or ask the remaining production crew to see it through. You can also see if it’s cheaper to ship via USPS flat-rate or UPS right now (it might be). Furlough non-essential staff, which likely includes your route driver, production assistants, and administrative assistants. In Ohio, this means temporary unemployment—this category of unemployment gets them income as quickly as possible and ensures they won’t need to look for other work in the interim, since when things pick back up you will rehire them.
Since your wholesale has decreased (and if you operate cafés, your café revenues are probably down 50-80%) you can likely consolidate production into 1-2 days a week. Put your remaining full-time staff on 60% of their normal hours or wage. Above unemployment, but still at a cost savings to free up cash-flow. This may mean you need to pack a few bags of coffee; fine. That’s what we do when shit gets tight.
Please seek out local resources for your staff to help them if you need to enact layoffs and pay them for hours already worked (I can’t believe I have to say this, but I do). In Cleveland, we have many organizations that are providing gap loans to laid off individuals at zero-percent interest as well as hospitality professionals providing free groceries or meals to those furloughed.
It’s brutal to let good people go, it’s brutal to cut hours (and thus income)—but we don’t have a choice.
And that includes yourself: slash your own pay, or if you can afford to do so (I know—unlikely, since we work in coffee) stop paying yourself entirely. This is about survival of the company and the human race, not your lifestyle. (Plus—all the bars and restaurants are closed and Amazon deliveries are taking a month. What the hell are you spending your money on anyway?).
Prioritize your outflows. Here’s the order I’d recommend:
- Small local vendors who depend on you for survival
- Rent (if you can’t get it deferred) and utilities (if you’ll get disconnected)
- Bank loans (if you can’t get them deferred)
- Coffee, importers you owe, and your packaging supplier
- Everything and everyone else
The Small Business Administration is offering guidance to small businesses right now, and, if your state has been approved, a disaster loan for those businesses impacted by COVID-19. If I’m being honest, I think this is pretty shit—while interest rates for bonds go negative and you can borrow below 2 to buy a house, small businesses are invited to borrow at 3.75% just to float payroll. While Boeing built a plane that resulted in the deaths of hundreds of people, engaged in billions of dollars of stock buybacks to increase their stock value and enrich executives, and profited from endless war, they’re likely to get a hand-out from the government.
By the people, of the people, for the people…corporations are people too. Especially when they retain lobbyists.
Borrowing money to cover normal expenses while operating at a loss for an unknown period of time is not exactly sound business advice. However: the loan offers a 30-year term, which is quite generous—and they’re offering up to $25,000 without collateral (that’s important because many/most specialty coffee roasting companies do not have any collateral to offer).
If you anticipate that early June will be the end of this period of abridged business since this first wave of the virus will likely (hopefully) be controlled by then—figure out what you need, cash-wise, to skate by and limp along until then. If this loan will help you get through that last month and let you long-jump to shore from the breaking ice, take it. If it gives you some breathing room and helps you make sound decisions elsewhere, take it. Hell: Apply for it anyway—if you don’t need it, you pay it back. No big deal. You survived.
At the same time, put your wholesale customers who remain operating onto temporary C.O.D. payment terms, if you can. Migrating from credit card to ACH payments will net you a little more cash, but under the circumstances I’d take credit card versus non-payment or closure. We both need to reduce the cash going out and keep cash flowing in.
Put a pause on preventative maintenance unless it’s urgent for the next month of operations. If you’ll go out of business in 100 miles, there’s no need to worry about an oil change that’s due in 500 but would be fine for another 1,000.
If you’re sitting on enough green coffee inventory to get you to shore, you’re lucky. With the slowdown in business, the typical four-week inventory position might be extended to six or eight or ten (hopefully you’ve read my post on microbes and fade, or my post on UV analysis so you know which coffees to roast first). The pandemic is going to dramatically impact the middle of the supply chain as well—importers who don’t have credit insurance in place will face painful decisions in the days and weeks to come.
But: because they talk to roasters every day, they know that most of us simply don’t have cash to pay them right now, and without coffee we will have no way to generate cash. They’re paying financing on that coffee as it sits in warehousing anyway—in a market without specialty roasters, it’s a dead asset. This gives you room to work with your importer and, for example, make progress on outstanding debts to show good faith and help your importers with their own financing obligations—or perhaps an importer will extend credit terms under the circumstances and allow you to release more coffee.
Pick up the phone. Call. Talk to someone. We’re all dealing with the same shit. Let’s figure it out together.
And—while this may sound absurd to some of you—put your Cropster subscription on hold. I know (!!). But really, Artisan is incredibly powerful software with most of the same feature-set (including native support for Loring and Giesen and a host of other machines) and available for free. If we live through this thing, throw Marko a donation for helping us all survive. Save yourself (at least) $189 a month without losing roast logging capabilities.
3. Extend your inventory.
In addition to having fewer customers and thus (obviously) having your coffee last longer, you can extend your coffee position by roasting a touch lighter. The effect isn’t colossal—but at scale, it’s not nothing: If you have 40 bags of coffee sitting in inventory, for example, the difference between a 14% roast loss and 15% roast loss is a yield of 52.8 pounds, which, at $10 per pound for wholesale is $528 of added value extracted from that same inventory (or, at $22 per pound direct to consumer prices, is $1161 of found value).
You’re sitting on the coffee already. Think of it as a sunk cost. In times like these, even a few hundred dollars can be meaningful—every spare dollar above variable costs goes toward paying down accrued overhead and not (a) getting kicked out of your roastery, (b) getting cut off from coffee suppliers, and/or (c) having to close your doors (probably forever).
If you’re running low on coffee and don’t have any remaining positions—congratulations! You’re probably in better shape than most.
As you look to book additional coffee as forward contracts, it’s important to recognize the amount of uncertainty we face as an industry. You can’t reasonably predict when things will return to normal, nor can you predict what “normal” looks like in our brave new post-COVID world. Be conservative in your contractual commitments. Don’t simply use flat sales as an estimate. The specific estimate you should use depends on your blend of volume (specialty coffee shop, grocery, traditional restaurant wholesale).
When you contract coffee, you’re obliging producers to produce it to that spec and importers to import it—placing strain across the value stream. The spot market was created for moments like this—uncertain moments. Yes, you can expect to pay a little more for spots and will have less intentionality in your purchasing—but it’s safer in times like this, when we’re running across fracturing ice. If you need to, just buy split bags—a few importers offer smaller quantities of green coffee (Crop to Cup comes to mind). This can get you coffee to fulfill all of your product lines without a huge outflow or needing to carry more inventory than you’ll turn in the next few months.
Keep moving, and keep your head up—above water.
4. Grow your revenues, however you can.
On the flip—maybe roasting a little darker is what you need to do in order to reach a broader audience (not everyone likes coffee that tastes like lemongrass). If you put a little more development on there and roast to 13% shrink instead of 12%, the math is the same as above, but in reverse—but if it increases demand and thus generates cash more immediately, do it.
Grow whatever sales you do have. Maybe that means finally getting that web store up and running or maybe it means figuring out contact-free local delivery to customers so they can stay in quarantine and still drink your coffee. We’re running local bike delivery for a $5 flat-fee to meet that need. The demand for coffee is still there—the question is if you can fulfill the need and do it profitably. The green coffee sitting in your warehouse is worthless if the bank shuts you down—find a way to sell it.
Prioritize higher-margin business which tends to be direct-to-consumer, either through your website or phone-order or app-order or whatever it is. Make yourself available to curbside pickup. If you have to spend $10 on an Instagram ad so your posts show up in the feed, do it. Cash will get tight for customers, too, as layoffs spread—free shipping or a discount on bulk orders or a discount code you get from buying from a partnered business are all worth exploring.
Your local, established customer base is your lifeline during this crisis and can help you grow your clientele. The people who enjoy your brand and your product have an interest in your survival and understand the peril we face. Engage with them on social media. Be present. Show up for them in the right ways and they’ll show up for you.
Talk to the local media. Talk to anyone who will listen—tell them that the industry and thousands of jobs and a global supply chain are on the brink.
Phone a friend. Ask around. Call in favors.
Fate 2: Deus ex machina
Don’t wait to be saved. Call your Senators. Call your Representatives. Demand that we are a part of the federal stimulus plan.
We need bailouts. Federal relief. Break the goddamn switchboard. Call 202.224.3121.
Put that shit on speed dial.
Fate 3: Slipping under the ice
It’s all outflows if you take this road—out goes the rent, the lease on your roaster, the van payment. If you’re thinking of going this way and don’t have the cash to burn, find someone who wants the business and structure a sale. Or consider merging with a local competitor.
Or look into that SBA loan.
Otherwise: count your pennies. Call your lawyer. Wind things up.
Close the doors, hope for the best. Keep the virus out.
And call your goddamn Senators.Tags: coronavirus covid-19 roasting