Larry Davidson had nearly 20 years of industry experience when he turned to selling coffee wholesale. He found he still had a lot to learn about marketing – specifically the packaging used for his product.
In 2008, Mr. Davidson and his wife Melissa switched from running a café to opening Vancouver-based Terrelli Coffee, a wholesale coffee-roaster business, with the aim of selling premium Italian beans through cafés and, eventually, in supermarkets. Early in their new enterprise, the couple made a major investment in packaging, designing a distinctive bag with their brand. However, they quickly discovered that bag manufacturers in China – where prices were cheapest – require massive print runs, which made it difficult to do test runs and to make adjustments to perfect their brand.
They needed a new way to approach packaging that would allow them to be light on their feet to create attention-grabbing designs that would sell best.
Twenty years ago, Mr. Davidson and his wife started Bean Brothers café in the Kerrisdale neighbourhood of Vancouver, employing 30 staff and roasting their own coffee. By 2008, with all their time spent running their shop, they realized they wanted a change from retailing. They started to look for alternative businesses that could draw on their expertise in the coffee industry.
“Through the café, we did our own market research and refined our products according to the types of coffee customers preferred,” Mr. Davidson says.
He and his wife regularly travel overseas to meet coffee growers in Central America. With this knowledge of the market under their belt, they decided to start their own wholesale business. With four staff, Mr. Davidson and his wife sold approximately 100,000 pounds of coffee in their first year.
“We initially sold our coffee to other cafés,” Mr. Davidson says. “But three years ago, the cost of coffee tripled so we looked at scaling up to sell our product instead to supermarkets in Vancouver, like Urban Fare and Bosa Foods.”
Terrelli Coffee then had to create packaging that would stand out on a crowded shelf. “You’ve got two seconds to grab that customer’s eye as they’re going for their usual brand. It all comes down to how strong your artwork and packaging is,” Mr. Davidson says.
He sourced coffee bags from a company overseas, since it was the cheapest, charging 35 cents a bag. Mr. Davidson was required to buy in batches, with 35,000 bags the minimum. Including shipping and delivery, it cost $20,000. For the artwork on the bags, he hired a graphic designer and paid more than $40,000 for designs and printing-plate charges.
Mr. Davidson was now deeply invested in a product design that had never been market-tested. Several supermarkets were willing to try out Terrelli Coffee, but they would only have trials with 100 to 200 bags of a new brand, and they wouldn’t commit to buying more until they knew it would sell. Mr. Davidson soon found that his product wasn’t moving as quickly as he needed it to. He was forced to stick labels on the bags to differentiate between coffee types, which, with labour costs, pushed his costs even higher.
“Thanks to (the company’s) stipulations, we did a far larger bag production run than we needed and, all in all, went well over budget for what I call a ‘maybe,’” Mr. Davidson says. “This bag didn’t work and barely sold in the supermarkets. It hurt our business and we were left with a surplus of bags that we couldn’t use.”
Mr. Davidson needed to find a way to design and produce coffee bags far more cheaply, and to do smaller production runs. This versatility would allow him to experiment for supermarkets and quickly produce coffee packaging that sold successfully.
“In the end, technology was the solution to our packaging problem,” Mr. Davidson says.
In September, 2012, he and his wife discovered a U.S.-based company that had developed a method of printing coffee bags digitally, using laser printers.
While not quite as cheap per individual bag as the previous ones, these digitally printed bags could be produced in far smaller print runs of 1,000 bags for $1,000 all in, with no addditional costs for labelling and print plates, and reduced waste for bags that didn’t move. This more versatile approach also allowed him to design packages to change with the client, with the season or with special occasions.
This also allowed Mr. Davidson to work directly with bakeries, grocery stores and even a car dealership to create packaging using their brands and his beans. Sales increased dramatically. With the greater volume of sales and more of the bags actually making it to market, Mr. Davidson started to see profits rise.
Terrelli Coffee is already seeing results from its new approach to packaging, with 29-per-cent more product sold compared with a year ago.
“Between November, 2010 and 2011 we were selling 1,500 pounds of coffee a week at a total of 78,000 pounds a year,” Mr. Davidson says. “From November, 2011 to 2012 we sold 2,000 pounds a week at a total of 104,000 pounds a year.”
Creating packaging that directly targets individual businesses and that is reactive to clients’ needs has been instrumental in allowing Terrelli Coffee to increase sales to new clients by 25 per cent between February and November of 2012. It also allowed the company to bump year-over-year sales by $220,000 to $832,000.
Special to The Globe and Mail
Jeff Kroeker is a lecturer in the accounting division at the Sauder School of Business at the University of British Columbia.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on theReport on Small Businesswebsite.