Specialty Coffee Retailers Try to Prove They're Good to the Last Drop

When most people grab their first cup of morning coffee in a zombie-like state, few think about how the beans get from farm to percolator. Even fewer would ponder if, let alone how, the coffee industry revolutionized the business world. But for the past 20 years, the coffee industry has pushed the envelope in terms of how compassion can mold global markets and drive major profits.

Of course, this growth didn’t happen overnight. Coffee industry veterans say the world is in the midst of the third wave of java products. First-wave coffee is what your grandparents scooped out of a tin can, and likely loaded with cream and sugar to mask the burnt taste. Coffee wasn’t necessarily a pleasurable experience back then; it was just a way to wake up.

That utilitarian view transferred to how major coffee brands interacted with their suppliers. At this year’s Social Capital Markets conference, Sustainable Harvest’s Jorge Cuevas illustrated the coffee industry’s somewhat bleak beginnings. “When I first started [working on a farm] in Oaxaca, Mexico,” he explained, “you would see the ‘coffee experts’ come in in their white coats, sit in the air-conditioned rooms, and taste coffees. And the farmers sat in 100-degree weather, outside, just waiting.” The experts would come out and give a thumbs up, meaning the coffee was accepted, or they would give a thumbs down and the farmers would go home disappointed. “There was no control over what quality was, no insight, no real participation,” said Cuevas.

Without any meaningful communication, relationships between farmers and retail outlets began to suffer, resulting in increased production costs for both. Despite this paradigm, demand for coffee increased, and with the rise of Starbucks, the world moved into coffee’s second wave. Beans began to be inspected more thoroughly, and retailers matched the increased quality with increased menu options. Coffee could be topped with steamed milk, blended into icy treats, and infused with a rainbow of flavored syrups. A customer’s order became his or her calling card—the half-caff hazelnut latte type likely had a much different personality than the quadruple-shot Americano type.

As the $100 billion coffee industry grew (second only to oil in world commodities), and cafes became the fastest growing niche market in the restaurant industry, its troubling flipside became much more apparent. Coffee growers are largely located in developing nations, and the bottom of the supply chain is notoriously rough for workers, who struggle with little pay, child labor, and poor working conditions. Since the 1970s, when the world learned that growing coffee beans in full sun as opposed to shade could boost yields, the industry has also taken heat for promoting deforestation as it clear-cut acres for its growing operations.

If the coffee industry was to grow to meet the new demand, some felt it could only happen with transparency and accountability. That included members of the Specialty Coffee Association of America. Formed in the 1990s, the SCAA has developed protocols and standards specifically targeted to promote environmental sustainability. The organization also urged coffee companies to consider creating long-term relationships with the farmers and communities who actually grew and processed their products, and to start paying farmers an appropriate wage. Not only would this help the industry’s collective conscience, with the right marketing, it could help their bottom line as well.

These new standards strengthened a rocky system. For the first time, coffee companies were urged to measure and calculate every aspect of their transactions, and to be open about the results. This transparency proved to be a turning point. Businesses began to regularly document and share HR practices and climate impact reports.

Nicholas Cho of San Francisco’s Wrecking Ball Coffee Roasters (and a former director of SCAA’s board) compares the group’s behavior toward coffee retailers and roasters to parents asking their children what they did that day.

“If they did something bad, they aren’t going to tell you,” Cho says. “But forcing them to lie about it hopefully is like a little reminder. Either you're going to tell me the truth because you have nothing to hide, or you have something to hide and you’re going to feel guilty.”

The same goes for coffee branding. Consumers now note conspicuous stickers denoting shade-grown (vastly better for the environment, and perhaps preferable to full-sun for pickers working the fields), fair-trade (meaning first-world buyers paying fair prices to producers in developing nations), and direct-trade (fair-trade 2.0, which promotes personal communication between buyers and individual farms).

“The cultural norm that’s developed in specialty coffee is that you have to have that information,” Cho explains. “The experience of coffee is very social,” he continues, “and it lends itself to this idea that it’s about people sharing a cup of coffee together. When you actually drink the coffee it’s like you’re complicit. Something inherent to the coffee experience makes people want it to be free from guilt.”

Maybe it’s the frequency of that experience—every morning and then some. Maybe it’s the common knowledge that the way big farms work does affect the environment. Whatever the reason, whether they frequent Dunkin’ Donuts or Starbucks, customers increasingly want to be free of coffee-related guilt. And they’re willing to pay for it.

Welcome to third-wave coffee. The term, coined by Trish Rothgeb of Wrecking Ball Coffee Roasters, describes a high-quality product that mirrors the wine industry in the way it was appreciated by consumers. Coffee drinkers now care about where their beans came from and form an opinion about what varieties they prefer. Purveyors like Stumptown Coffee Roasters and Intelligentsia made catering to those connoisseurs their business plan.

In this third wave, retailers have the resources to source the highest quality products, both in flavor and ethics, and, more importantly, sell them for what they are worth. Customers are less likely to scoff at a $4 cup of black coffee when they know and care about what goes into it.

“It’s about investing in different communities, it’s about market access, and it’s about access to capital,” said Cuevas at the Social Capital Markets conference earlier this month. “It’s about many of the ways in which you can grow.”

And the commercial coffee world has noticed this growth. Take Starbucks, the reigning king of coffeehouse chains with a 36.4 percent market share. They’ve created the C.A.F.E (Coffee and Farmer Equity) Practices program, which somewhat mirrors SCAA guidelines. This month, the popular chain also announced plans to open a Starbucks Reserve Roastery and Tasting Room, a cafe that features small-batch roasting of what they call rare beans—similar to what you might experience by visiting a specialty cafe like San Francisco’s Four Barrel or through purchasing Counter Culture Coffee. If Starbucks didn’t want to change a thing, they would never, ever have to. But their shift toward a contemporary, conscious coffee experience could pay off—socially, monetarily, and environmentally—just like it has for smaller purveyors.

“Yes, we are in a business transaction; yes, it is about buying and selling coffee—but it’s just one of the multiple connection points that we have in growing communities,” Jorge Cuevas said toward the end of his conference presentation. “But we don’t limit ourselves to just buying or selling, with price as the only defining measure of success.”