Premium Coffee Shipped to Aficionados Gives Roasters a Lifeline

(Bloomberg) -- Like most cafes, Broadsheet Coffee Roasters near Harvard Yard in Cambridge, Massachusetts, has been hard hit by Covid-19. But the roastery in the back of the shop is booming, churning out close to 2,000 pounds (907 kilograms) of high-end beans a week — about twice as many as before the pandemic.

The lifeline came in May, when Broadsheet started using Trade, a premium-coffee subscription business, to sell bags of beans through the mail.

“When we added Trade into the mix, that totally stabilized the business,” said founder Aaron MacDougall, who was a banker at Deutsche Bank AG before switching to coffee. He’s been able to hire back three of the nine workers he laid off in mid-March — even as sales to coffee shops and offices remain slow.

New York-based Trade, a two-year-old startup, is getting a $9 million cash infusion in a financing round led by Seattle’s Madrona Venture Group. Also in the round are previous investors such as JAB Holdings BV, the firm of the billionaire Reimann family, which has investments in coffee companies like Keurig Dr Pepper and Peet’s Coffee.

Trade built a marketplace that enables small roasters of premium raw coffee to reach people well beyond the local clientele, said Scott Jacobson, managing director at Madrona. “It’s a super high-quality product that could have a much bigger demand footprint if they could only figure out how to reach customers all over the country,” he said.

The time is ripe for the company. U.S. sales of at-home coffee rose during the pandemic-driven lockdowns, with sales of beans and coffee equipment booming, said Duncan Fox, an analyst with Bloomberg Intelligence. Even as cafes have started to reopen, home sales are still up 7% to 10%.

“What people realized is that at-home coffee was an affordable luxury,” he said. “So rather than spend, say, $3 for a coffee at a cafe or more, you could have as good a coffee at home for 50 cents!”

Trade helps customers new to home-brewing choose products from its 56 roasters by asking questions about their level of coffee experience, whether they prefer darker roasts or light and whether they want something traditional or surprising. They can sign up for a subscription or buy single bags — ranging from a $14 bag of Colombia decaf to $92 for 10 ounces of Lancaster, Pennsylvania-based Passenger’s naturally processed Hacienda La Esmeralda (notes of grape jelly and kiwi).  

“Coffee had premiumized so much, but the in-home experience was still really mediocre,” said Trade Chief Executive Officer Mike Lackman. “We asked ourselves why you had this unbelievable explosion in great brands and smaller shops and all these bespoke coffee experiences, but coffee in the home didn’t look like that.”

For roasters, the startup and its active subscribers — which have tripled to almost 75,000 from January — have been a boon during the pandemic. Will Shurtz, co-founder of Methodical Coffee in Greenville, South Carolina, said he saw 90% of its wholesale business dry up at the onset of the health crisis, before turning to Trade. 

“It really changed our business and it really helped secure us,” Shurtz said.

Trade also let businesses like Methodical keep commitments with farmers in Central America, Africa and other coffee-growing regions that were hurt by lower demand and higher labor costs. Rather than having to back out of his contract with producers in Huehuetenango, Guatamala, as he initially feared, Shurtz instead doubled his order for the region’s beans, which Methodical uses for its  Ixlama blend (notes of chocolate, apple and caramel).

It’s unclear whether the at-home specialty trend will last once aficionados eventually return to their favorite cafes and office workers to whatever’s in the corporate kitchen. The majority of the home-consumption market is still made up of  lower-end beans and instant granules — instant coffee is a high-margin product that makes a lot of money for producers, said Bloomberg Intelligence’s Fox.

Trade and the roasters who use the service are betting the expansion is here to stay. 

“The work-from-home trend is going to have a lasting impact on the way people consume coffee,” said Broadsheet’s MacDougall.  “Once you’ve trained yourself to make things at home, you tend to continue with that.”

©2020 Bloomberg L.P.