Creating a company with private label

[Justing30]

Hey everyone. So long story short we had customers with our non coffee business asking for coffee at our business (we do trade shows and events for all kinds of different stuff) so did some research and came across private label. Contacted a bunch of companies and found one that has 3 blends we really like and will cost us about $4-$5 per 12oz bag with one of the blends being organic. Just in dealings I have, a local grocery store wants to test the product in store and farmers market. So here's my question.

Has as anyone started a coffee company based solely on private label and selling it?

is there anything special I should know or do prior to putting in retail?

if anyone has done this, was it a sustainable business model? Basically you just getting in stores and selling at farmer markets?

thanks

 

[Mr.Peaberry]

If you sell to customers who purchase their coffee at grocery stores, you won't have much margin to compete with what is essentially a commodity market for coffee. If you desire to offer specialty Coffee that is also fresh, you will need to learn to roast otherwise the stale Coffee you can't sell will eat up your margin. This is a gamble pure and simple...to be the guy in the middle you will shoulder all the risk.

 

[expat]

Everyone I know who has done it, about three different coffee sellers, did make a go of it but eventually just gave up because of the narrow margins. They decided it wasn't worth the time and effort.

That said, if in your business selling coffee would create additional sales of -- mugs, pastrys, etc., then that would be a reason to have the coffee but for the grocery store apply the grain of salt that Mr Peaberry contributed and tread carefully.

 

[Justing30]

I'm getting a 12oz organic bagged and labeled and delivered to me for $4.55 a bag. The private label company will roast in 50lb minimums for me so I receive fresh coffee (they are approx 3hr drive). I'm thinking retail on the organic would be $10 and wholesaling around $6.50. At our shows we will be selling by the cup also and the bags are a bonus.

 

[clipart125]

Me agree with Mr.Pebrrer ..As he said that if you will sell to those custimers who purchase their coffe from grocery stores..Then it will be definately not good for your business .Due to the least margin.. .You should have to sell other stuff to attract he customers as well Thanks !

 

[ChefDavid]

Starting a New Brand, with the intent on keeping a Private Lable, as your Co-Packer, is going to meet you with a lot of opposition on these boards. The reason that you are getting the Push-Back is because you don't seem to want to sell Specialty Coffee, but you are erring more on the Commodity Coffee, position, and that is why you are getting chopped up here.

If you are thinking about getting into Coffee to Make a Quick Buck, then you will last as long as you Accounts Recievables don't bury you. That should take you 7-9 months unles your pockets are particularly deep. Don't be mistaken, all of us are in the business of making a Delta on the difference in price between, what we buy for and how much that we can sell for. But planning on making in a couple of dollars a pound, will put you out of business faster than anything. Let me play Devil's Advocate for a moment to hopefully make you understand.

When starting up my own Coffee Company, before I buy my own Roaster, I intend to pay a Reputable Roaster to "Toll Roast", for me. I am an Executive Chef and told a few of my Fellow Chef's that I was starting a New Specialty Coffee Roasting Company. I got calls in the next week from 6 of my Friends who were also Executive Chef's, that wanted to begin ordering a total of 10,000 lbs a month. Only making a few dollars a pound. Now let me give you a few realities of the Restaurant Industry. Let's say I said yes to all 6 of these accounts and started selling 2,500 lbs of Coffee a week. Restaurants are Notorious for letting the Vendors finance their Restaurants, so even though they are customerally on a 30 day net, they do not pay you right away and most take 60 days. So a Recap of the math Week 1 - you drop off 2,500 lbs of Coffee to your clients at $4.50 a lb, remember, you have to pick this up and drop it off, yourself, you have not figured out you cost of delivery. So the first week you have to pay to your Roaster $11,200.00, you can't bill them yet. Week 2 you have to pay another $11,200.00, you are owed $11,200 from last week, total of $22,400 you still can't bill. Week 3 another $11,200.00 + $22,400 owed for the last 2 weeks. Now it's week 4 and you pay your Roaster another $11,200 and you are owed $33,600.00. Now you bill, but they don't pay you right away, you can't cut them off because they owe you too much money. Week 5 you pay your Roaster another $11,200.00 a total of $56,000 in the last 5 weeks and nobody has paid you yet. Week 6 now you pay another $11,200.00 for a total of $67,200.00. Week 7, you pay your Roaster another $11,200.00 for a total of $78,400 and the checks have still not come in. Week 8 and you pay another $11,200.00, for a total of $89,600.00, and this week, you got in $12,000, so you are still at a $77,000 minus. I think that you can run out these numbers to see that making a $2.00 a pound mark up, can not sustain a continuing business model.