Coffee prices continue to be volatile, as do many other costs associated with running a roastery. At times, it can be hard to know where to look in the never-ending onslaught of price increases. We often hear roasters are watching the market waiting for the price to fall slightly in order to hit best price. And yet, particularly for those that buy 10 bags or less, there is often money left on the table.
Any perceived market gain is easy to give away through failing to maximise your deliveries.
When working out the cost of your coffee, do you include the cost of that product being delivered to you? In the same way as gas or electricity can have an impact on your final pricing if included, so can delivery, and to overlook this can be critical.
Lets look at how we find our Cost of Goods Sold. If you include the cost of delivery into the raw cost of goods as part of your freight in, then the difference between 5 bags on a pallet and 10 can add as much as 20p per kilo on to the final price. The difference between 1 bag and 10 is even more stark, being over £1.80/kg difference in cost.
How does that all work?
- An average bag of coffee weighs 69kg
- Delivery costs are £120 per pallet
- The price of coffee is £10 per kilo
Essentially, your freight-in cost is the cost of your pallet delivery, divided over the total kilos you have bought. Then, factor in your roasting loss (I’ve used 16%), and you end up with the actual cost of that coffee, excluding any of your energy, labour and other expenses.
Cashflow is King
We know that what is good in theory isn’t always appropriate in practise. If you don’t have the cashflow then you can’t buy a bigger lot. But perhaps it’s worth holding back a little until you can?
A 5c/lb swing using the current market (early November) would save you somewhere around 9-10p per kilo. This saving can also be achieved by switching from 4 bags to 5.
It is a diminishing return, so not so efficient between say 8 bags and 9 – a saving of 3p per kilo- but then the difference between 1 bag and 2 is a whopping £1.04.
Bigger orders, more pallets
Wondering about what happens for 2, 3, or 4 pallet deliveries? Here the impact is less stark. Whilst the end kilo cost for a full pallet is consistent (in this example, £12.11/kg), the single bag dilemma is much less. 11 bags across 2 pallets starts at £12.28/kg instead of £13.98, and 21 bags across 3 pallets £12.20. Not negligible, but not as painful as it is for that one pallet.
What if we use 60kg bags instead of 69? If you are a roaster that uses a lot of Brazil in your blend, then this may even be your most common weight for a delivery. As the bags are 9kg less than others from the Americas the costs increase. With less coffee splitting the cost of delivery, the difference between 1 and 10 bags grows to a whopping £2.14 per kg.
The takeaway
Understanding the exact impact is key when making decisions, not least because, as a kilo business, getting it wrong here can compound and affect the growth or return on investment of your roastery. Getting it right though, means you will not only pay yourself back quicker, but make it easier to buy those bigger lots and concentrate your money elsewhere in the company.
