Products for Non-Profits: Developing and Launching Coexist Coffee

Coexist had a problem. For years they had relied on a single backer. After years of poor results, he walked away. With the last vestiges of their once rich coffers, Coexist decided they wanted to capitalize on the growing ubiquity of the Coexist icon and the popularity of the bumper sticker. They owned a brand that people tatooed onto their body – something most for-profit companies would envy. But how to make it work?

 

 

Coexist Coffee – a non-profit/for-profit hybrid

I was hired by Coexist Foundation America, Inc, a US 501c3 to develop business lines that complimented the charity’s stated mission – advancing social cohesion – while also creating a long-term sustainable source of income for the charity.

COEXIST COFFEE – “BECAUSE THE REAL ENEMIES ARE POVERTY, DISEASE & IGNORANCE”

The above quote is from JJ Keki, the Chairman and co-founder of Peace Kawomera Coffee in Mbale, Uganda – the source of Coexist Coffee. After decades of religious fighting in one of the densest areas of Jews, Muslims and Christians in the world, JJ helped form Peace Kawomera – a coop of Jewish, Muslim and Christian farmers. JJ realized that the true enemies were poverty, disease and ignorance and that they could only overcome these problems by working together. Over the past ten years, Peace Kawomera has changed the region and spurred economic growth. Farmers that once fought each other as enemies, now call each other brother. When you drink Coexist Coffee, you help spread the story of peace and prosperity through collaboration.

Social Impact

The social goal of Coexist Coffee was to break the cycle of conflict in post-conflict communities by supporting business and entrepreneurs that were getting people working together. The “Coexist Cycle” that replaced the cycle of violence was one where local communities worked and learned together, reinvesting in their own community and increasing productivity and human capital while forging a common narrative and bonds. Coexist Coffee bought direct from Peace Kawomera, where I worked with them to improve their quality and reliability as direct exporters, while giving them access to other customers in the global market. The overarching goal was to create impact by becoming an economic partner and reinvesting in the community. I designed a mark-up into manufacturing unit cost of every product that is intended to ensure a fund was created to fund scholarships for the farmer’s children. This structure ensured that the funds for education would be available, even with limited sales and board members would not have to face difficult decisions on whether to reinvest or donate bottom-line profits.

The Problem

Initially, Coexist had started funding a local school system (a primary and secondary school) associated with the local Jewish tribe, but that worked hard to be inclusive of all religions in the area. At first glance it seemed like the right thing to do, however, this funding actually did more damage than good. The solution of grants to the school as a social impact vehicle was unsustainable and hurt the Coexist mission. First, funding a school’s operations is no small system, it involves grants in the tens of thousands of dollars – difficult to produce from a nascent business selling coffee. This business model was unsustainable. It would take years and containers of coffee to create a business model that could maintain that level of funding. Second, while the school was honest and well deserving of funding, as a Jewish school, it created the perception of the Jewish tribe, as a minority in the area, gaining favor. In addition, as a small school with private enrollment, most farmer’s children didn’t have access to the school. The coffee came from thousands of farmers, but the benefit of education was only favoring a discreet few – hurting social cohesion in the community.

The Solution

The sustainable funding solution was to create a manufacturing cost mark-up that funded scholarships for deserving youth. The coop themselves would then decide, which youth would receive the scholarships. Funding students via scholarships is a much more sustainable solution, especially in the early stages of a program, because scholarships cost hundreds of dollars vice tens of thousands of dollars when funding the school itself – and it scales better. Allowing the cooperative to have a say in who and where the funding goes helps advance social cohesion in the society. The community works together and uses a democratic system to ensure scholarships are distributed fairly.

Developing Coexist Coffee

Coexist Coffee was a very difficult challenge. By the time I started working on this product, over a million dollars had been spent on branding, marketing and events for a product that didn’t really exist and that was not testing well in a highly competitive market. I had to carefully reverse direction and try to instill a lean-startup system to essentially start from scratch while still trying to use the branding that had been developed.

I had to take an ill-formed product where over a million dollars had been spent just developing a coffee concept and branding that had potential but that was also not working, was losing money on a per product basis and had zero market penetration. A big challenge was that Coexist had spent hundreds of thousands of dollars developing a new “dove logo” and moving away from the old logo that most people are familiar with (the religious symbols). I was in a position where I had to use the new logos and materials, balancing the organization’s desire to use the new mark while trying to create awareness and connection with the old mark.

I developed a crop-to-cup solution, spending months testing the product in customer interactions and trying to replace the spend-at-all-costs mentality with a lean-startup mentality. We developed new product lines, changed the branding and developed a strategy to transition to the new branding. An entire back and front-end system was put in place, buying direct from farmers in Uganda, out-sourcing storage, roasting, packing and fulfillment and using testing new branding that won us a national broker, multiple high-end local clients and place in KeHe as a Host Product.

Coffee in America

Coffee is a difficult market to crack. It’s attractive because of the rapid growth especially among millennials – in 2012, 40% of 18-24 year olds (up from 31% in 2010) and 54% of 25-39 year olds (up from 44% in 2010) said they drank coffee daily. Specialty coffee makes up 37% of the $30 billion dollar coffee industry in the US by volume, but 50% by value. It is both the fastest growing industry and the most recession proof, since it is often seen as an affordable luxury.   But there are very low barriers to entry, so coffee and especially specialty coffee is a highly, highly competitive market. There are two trends in the coffee market:

Fairtrade, Organic (FTO) Coffee

These coffee companies try to differentiate based on real or perceived social impact. This trend may be reversing. Just as Fairtrade is gaining popular acceptance, there is also a growing backlash as it tends to attract poor quality coffees and it hasn’t stopped middle men from taking advantage of farmers (I saw this first hand in Uganda). A recent report in the Economist suggests that buying fairtrade coffee is not really helping poor farmers. Also, as competitive differentiation these labels are quickly becoming standard. Certifications are easy to get.

Third-wave Coffees

These coffees are being driven by hipster culture but are quickly gaining in general popularity. These coffees differentiate themselves by their brand and an insane focus on quality, normally serving only single-origin coffees. Counter Culture, Intelligentsia, Blue Bottle, Stumptown and Ceremony Coffee are just a few successful brands in this segment. Everything about their branding is tied to quality and the larger ones, like Counter Culture, have also helped develop the term “Direct Trade,” whereby they buy directly from the farmers/plantation, cutting out in-country middle men.  Direct Trade practices eschew the “FTO” certifications stating that direct sales (cutting out middle men for the farmers) and working closely with the growers to ensure they are using high-quality, sustainable practices is the most important social aspect. These brands trade on their reputation for quality and try to develop direct to consumer sales channels. The challenge with these brands is that they are hard to differentiate. They all have similar branding, look and feel and most of their coffee offerings all come from the same regions, if not the same farms. To compete in this segment a new brand usually starts as a cafe with its own roaster first – the cafe helps establish and develop the brand and the reputation. The second step is developing direct sales channels to customers through online sales and finally, most of these brands then develop a “Cafe Solution,” – they sell a fully-packaged solution to new Cafes, including equipment and barrista training that then locks the Cafe into an exclusivity agreement to buy their beans.

The Problems

When I arrived at Coexist, there was a “product.” It was a white-labeled product that took another company’s coffee and put it in Coexist packaging. It was an excellent method for testing the market, but the problem was that the organization mostly felt that is was a “finished product.” and it had unsustainable economics. There were a few problems with the coffee product:

The quality was initially poor

The roast profile was being cupped and graded as a “commercial” and not a specialty coffee. Most of the problem was with the roast, which was too dark, oily and burnt. Coexist had spent less than an hour with a cupper getting the coffee evaluated. Not enough due diligence or market research had been conducted.

The Branding didn’t Tell a Story

Artistically, the packaging was gorgeous. No cost had been spared, top talent had been hired and the craft bags and new “Dove Logo” were beautifully laid out. But very little customer facing interaction had taken place and the competitive landscape had not been studied at all. The coffee “blended in” with other third-wave coffee bags (many of which are also craft paper) and the marketing differentiation focused on fair-trade, organic and the money going to education. While these are not terrible things to focus on – these points look like every other FTO coffee on the market…a very, very crowded market. Coexist’s differentiation – it’s name, the Coexist brand and the focus on developing post-conflict areas was completely lost in this branding. The incredible story of Peace Kawomera was barely mentioned in any material!! The Coffee did not stand-out.

The economics of the product were completely unsustainable

Coexist was paying for 12oz of coffee (not including packaging and shipping costs) at a price that would normally be the specialty retailer delivered pricing. Costs were also not being accounted for correctly, on most sales Coexist lost money when they thought they were making $6.00 per bag.

The sales channels were confused

Coexist did not know where they wanted to sell the coffee. Initially, their focus was pure B2C, but despite the insnane brand and name recognition, most people don’t know their is an organization. Customer reach was abysmal and customer on-boarding was also especially poor. Events in 2013 where they sold coffee resulted in major losses and extremely poor lead generation. Even after tens of thousands of dollars spent on two marketing events, the online store saw less than five hits a day.

The Solutions

The challenge was how to take this “failed” product and turn it into a flag-ship product that could potentially save the entire sinking brand while restrained by the new branding. The key was lean startup thinking – not coming in with a brand new strategy, but spending months testing, learning and adapting.

Use Financial Models Early On

Even my earliest financial modeling could demonstrate three hard realities about the business:

  1. the current product was losing money on a per product basis;
  2. even specialty coffee is a low margin, high volume business – it would likely take years of market growth and a volume of about ten containers per year before cash flows could cover any real overheads;
  3. the B2C market was not big enough, coffee needs to be sold in bulk and this the per product cost had to come down and the key to success was sales & distribution.

Lean-Startup / Lean Impact became a mantra early on.

I pushed for testing, testing, testing. We focused on the local Washington DC market and tried to pop-up at every event we could and I spent hours in Whole Foods and other grocery stores analyzing shelves and speaking with buyers and industry insiders. Nothing was changed quickly. We stayed small and tested the market and ran online tests before changing wording or packaging.

Own the Coffee. Outsource Operations. Focus on Sales & Marketing.

Most coffee roasters and companies don’t buy their own coffee, it’s easier and smarter to buy small batches from high-quality importers like Royal Coffee. But, Coexist Coffee’s value (and entire purpose) was its origin – the story of the farmers of Peace Kawomera in Uganda. We needed to own that story and own our coffee. So I developed, Peace Kawomera’s first direct trade sale and bought a  container of coffee. Luckily, everything else can be outsourced – shipping, storage, roasting, packing and fulfillment. Coffee development can be completely outsourced without ever touching a coffee bean. Economically, roasters are so cheap and easy to operate that it is often better financially to buy a roaster. But that strategy puts a cap on growth – harder to scale and limits geographic expansion – and requires sunk costs and in-house expertise that is hard to acquire. Outsourcing and co-packing allowed Coexist to find partner roasters in different geographic regions, allowing for quicker scaling and faster potential growth.

Don’t skimp on Quality

With coffee, expertise is easy to hire, but hard and expensive to bring-on in-house. By buying direct, we helped the farmers improve their quality and received much high quality beans that finally cupped in a specialty range. Then, by outsourcing our roasting and working with our expert consultant – Kerstin Mercer – we were able to develop roast profiles that while still below many third-wave coffees, were high-end enough that they differences would be imperceptible to the vast majority of palettes. Further work with the cooperative and the farmers and driect investment in their processes, like providing advances for solar dryers, helped continually increase the quality.

The Story is EVERYTHING. 

Coexist had spent hundreds of thousands of dollars on different, talented creatives to develop branding guidelines and a look and feel…unfortunately, no time or effort was focused on the Brand Story and the history of Coexist. The best design in the world is useless without a story. I slowly and steadily started changing the brand taglines using customer interactions and  facebook ads as tests. We changed “Understanding changes everything” and “Drink Good” – nice and sweet, but soft and confusing tag lines to “Break the Cycle of Conflict” – a tag line that demanded action, separated Coexist from other brands playing on the core differentiation (post-conflict products) and attracted interest with an interest building hook. I also changed the focus of the blog posts and other content to not be about the organization in DC, but the farmers in Uganda. Peace Kawomera, the farmers and their story needed to be upfront and personal.

The basic strategy that I developed for the  coffee product, followed three steps in building awareness and customer loyalty:

  1. Focus on the name (Coexist) and tag-line to grab customer interest and pique curiosity.
  2. Use the story – post-conflict products and the story of Peace Kawomera – to convert the first purchase
  3. Develop reliable, high quality products to build customer loyalty.

Or, more simply: the Coexist name grabs customer interest, the story creates the first sale and the quality creates brand loyalty.