Harvesting the Value of Processing:
A case for product differentiation based on coffee processing methods.
The craft world of coffee in the United States is booming, at least for my generation of millennials. “Trendy” only begins to describe it, as fellow millennials form Meetup groups around the idea and swap stories about their local roaster’s latest small-batch. It’s probably a hobby that dovetails, if not overlaps, with a similar rise in the craft beer market. Each new entry into the field increases the demand for distinction and variety, but the customer remains surprisingly uneducated on one particular aspect of coffee that could be the next key to product differentiation – processing method.
It’s not the customer’s fault though, because it is rarely the case that information regarding the processing method even reaches the customer, even in the specialty coffee market. This is a failure of information exchange in the supply chain, and if improved, could result in value being added throughout the chain. Because the processing method can have a significant impact on the flavor profile of the coffee, identical origins could even be sold side-by-side to differentiate them by processing alone.
The coffee supply chain is a very complex web of intermediaries. For centuries, the commodity world of coffee was built around the idea of aggregated product, where coffee was coffee and could be mixed, separated, stored and shipped with minimal traceability. But today, there has been a birth of what is known as “specialty coffee’ that demands a premium for higher quality, traceability to its origin, and most often at the consumer-level, a romantic story of coffee farmers in the beautiful rainforests of equatorial countries.
The Supply Chain for Specialty Coffee
For a farmer, producing and selling specialty coffee offers a higher price for their product, so they are encouraged to improve their practices to meet the unwritten quality standards of the specialty market. Their increase in profits is directly attributable to the higher price consumers are willing to pay at the end of the chain, though each level of the chain takes a cut for themselves.
There are many reasons for a coffee roaster or café to create product width and depth, not the least of which is to attract picky millennial consumers that are looking for membership into the coffee community. Product differentiation offers consumers a slice of knowledge that gives them that little extra bit of fulfillment. In this regard, the process is not unlike a sport’s fan comparing the stats of professional athletes. In the belief that every athlete, and coffee, is special, we need specifications to support each claim of superiority. Product Differentiation is what happens when you compare and contrast specific qualities between two items.
Single Origins and Blends
If you browse the offerings of your local roaster, you’ll often find a combination of single origin coffees and proprietary blends. Each has their own economic advantages, but both are relatively unique products in the local market because each roaster has a roasting style all their own. However, at the consumer level, both products offer different experiences from each other, creating product width on the roaster’s shelves.
Single origin coffees offer product identity, emboldened by the origin’s rich coffee history like Columbia, or offering something “exotic” like Kenyan. Single origins can also take traceability to the next level, which is beginning to happen more and more, as coffees are identified more acutely to the region, the Co-Op, or even the farmer by name. This trend begins to resemble what we’ve seen develop in the wine industry, with identity relating significantly to price. In the case of farm-specific coffees, roasters and shops can tell heart-warming stories with their product, creating an entirely new layer of value to the product.
But then there are blends, where the roaster is able to experiment a little more freely and offer an entirely new product that they conceived on their own. This again expands the product width of their catalog, as well as build their brand. Blends can often be offered at lower prices when the sourcing is done diligently, making it the ideal candidate for a “house” blend, or for B2B sales.
Single origins and blends are the two main tools for creating differentiated products, and with sufficient sourcing channels, can easily create enough variety in the product lineup. However, in order to begin distinguishing similar single origin beans from each other, a roaster will need to employ more specifics. Continuing with the professional athlete comparison, this is when we consult the stats page, which usually contains at least three primary stats: Cultivar Variety, Altitude, and Processing Method.
The cultivar is important to determine the expected flavor profiles of the coffee, though I’m not convinced this level of knowledge will ever be quite accessible to the final consumer, with the notable exception of particular varieties like Geisha. In the least, it creates an identifying characteristic for the consumer to distinguish between two coffees from the same country, region or farm.
The altitude is the easiest characteristic to understand, as its correlation with quality is linear. The higher the altitude, the better the coffee. While its significance doesn’t overcome other quality defects, such as variety, storage or preparation, its simplicity often brings it to the top three specs.
Which leaves us with the processing method, the under-rated and under-utilized characteristic of coffee that is easily accessible to the customer. Unfortunately, the processing method is often relegated to a list of specifications alongside altitude, temperature, and average rainfall.
THE EFFECT OF PROCESSING METHODS
As we’ll explore here, the effect of processing on cup quality is highly correlated and simple to understand. Like altitude, its simple relationship will make this effect easy to appreciate at the customer level, creating an easy differentiation tool for the roasters to expand their product catalog.
Natural “Dry” Processing
Natural processing gets its name from the idea that it involves the least amount of machinery to perform, and is therefore cheaper and uses the least amount of water. For these reasons, it’s most popular in hotter and drier climates likes Indonesia, Ethiopia, and Brazil. After the ripe cherries have been harvested from the field, they are set out to dry on a patio, which is usually nothing more than a concrete slab. The cherries take days to dry, and turn a dark red-brown color, to almost black, as the moisture content drops.
If all goes well, the effects on the coffee’s flavor is largely due to the long time the cherry fruit and bean remain together in the process. This creates a more “natural” and unadulterated flavor profile with more body. The sugars present in the fruit and mesocarp transfer a good amount of sweetness to the bean, which shows up in the final coffee as well. There are also stronger fruity notes, that depending on consumer preference, can be considered a positive or negative attribute. In any case, this set of flavor characteristics creates space for product differentiation.
Washed “Wet” Processing
Wet processing on the other hand, is used to remove the pulp before the beans are dried. This process involves several more steps, but replaces some of the manual labor needed in dry processing with machinery and water channels. The equipment needed makes this process a little bit costlier, but also a little bit more reliable for specialty coffees, although there are no hard and fast rules to which processing method is “better”. Typically, it’s used by countries that want to embrace the acidity of their coffees, like Costa Rica.
All said and done, the wet processing method will yield a cleaner cup because of the more rigorous process. This cleanliness will reveal the true nature of the bean, rather than covering it up with fruits and sweetness, and make the nuances of origin, climate, altitude and soil chemistry more noticeable in the cup.
Honey “Semi-washed” Processing
And last but not least, we have a hybrid process of the two above. The Honey, or Semi-washed, process is used in a lot of places that want to take advantage of some the benefits of each of the other processes. The skins and pulps are removed, and then the beans are immediately dried with the mucilage still on the bean. The mucilage contains a lot of sugars, so like naturals, the added sugars leave some sweetness behind, begetting the name “Honey”. The beverage also retains some of the body characteristics of the naturals, as well as uses less water than the washed method.
IDENTIFYING THE GAP
There are clear differences in the flavor profiles of natural, washed and semi-washed coffees, but this knowledge hasn’t been at work in the consumer-side on the industry for very long. A decade ago, the likelihood of a consumer, or even anyone in the supply chain, knowing the differences was extremely rare. But, in order to see how far the market has come with its recent boom in specialty coffees, I did a little study. I chose 10 of the most popular micro-roasters in 4 major cities, 3 across the US, and 1 in the UK:
Boston, a youthful American city with a plethora of college graduates;
Chicago, a central metropolis that is home to Intelligensia Coffee;
San Francisco, the American mecca for third-wave coffee;
London, the third-wave nexus in Europe.
|Roasters that identified the processing method used||Roasters that used the processing method to expand their catalog|
|San Francisco, CA||70%||29%|
Figure 4: Results from a study of micro-roasters (full results in appendix)
There are two main conclusions that we can derive from this data: There is definitely a heterogeneous diffusion pattern to this information, and it is being under-utilized everywhere.
The nature of the diffusion pattern seems to be correlated with the third-wave movements, where the known hubs for the trend show the strongest signs of spreading this type of information. In fact, based on the results in London, I would say that if your shop doesn’t have this information on processing methods, the educated consumer will likely identify the shortcoming and shop elsewhere.
However, the caveat to the excellent numbers in London is that even when the processing method is promulgated, it is generally included in a list of statistics about the coffee, to include: altitude, variety, farmer’s name, years in production, etc. This dilutes the significance of processing method to the cup quality, and in particular, to the flavor of the beverage the customer is looking for. Of the 40 micro-roasters surveyed, just 2 offered what’s called a “processing series”, when roasters sell identical origin coffees side-by-side on the shelf to distinguish the different processing methods from each other. (Figure 5)
Looking forward, as the coffee industry continues to globalize and expand the consumer-pushed requirements of quality and specificity, additional value will be created at multiple levels. While it’s true that consumers don’t always know what they want, they are certainly learning some of the qualities in coffee that they’re looking for. The inclusion of processing method in their decision-making will enable consumers to better seek out the tastes and flavors that they’re looking for, and in turn drive demand down the supply chain.
But this will only happen if they are educated by their suppliers. Roasters will need to embrace the advantages of a wider product line that is expanded through strategies like the “processing series.” Beyond the objective of consumer education, the wider product catalog will give the roaster an easy opportunity to broaden their catalog appeal with products from already-established suppliers. Processing methods offer a simple strategy for product differentiation.
The final responsibility falls on the farmer, who can enable the entire supply chain by offering their crops in 2 or more processing methods. This product differentiation from the bottom of the supply chain will create opportunities for product interdependence, giving the farmer the opportunity to sell their crops in bundles, or packages, and fetch larger quantity commitments from buyers and increased sales.
When working together to spread information and opportunity up and down the supply chain, all participants stand the potential to gain from increased market capitalization. The effect of processing method on cup quality, product width, and product interdependence will be a win-win for the industry.
This post has been synthesized from a paper I wrote for my master’s program. You can review my full paper here, if you’d like, because it’ll include more details about how processing works, it’s pitfalls, and also a list of all my references. The next topic will be water footprint, which should be coming soon!
Like this? Subscribe to the newsletter