26. WHOLESALE MERCHANDISING OF COFFEE
How coffees are sold at wholesale—The wholesale salesman's place in merchandising—Some coffee costs analyzed—Handy coffee-selling chart—Terms and credits—About package coffees—Various types of coffee containers—Coffee package labels—Coffee package economies—Practical grocer helps—Coffee sampling—Premium method of sales promotion
Coffee is sold at wholesale in the United States chiefly by about 4,000 wholesale grocers, who handle also many other items of food; and by roasters, who make a specialty of preparing the green coffee for consumption, and who feature either bulk or trade-marked package goods.
Much the largest proportion of the wholesale coffee trade today is made up of roasted coffees, though some wholesalers still sell the green bean to retail distributers who do their own roasting. Most of the roasted coffee sold is ground; although in some parts of the United States there is at present a growing consumer demand for coffee in the bean. Of the coffee sold in trade-marked packages in 1919 in the United States, about seventy-five percent was ground ready for brewing.
The larger wholesale houses generally confine their operations to the section of the country in which they are located, but some of the biggest coffee-packing firms seek national distribution. In both cases, branch houses are usually established at strategic points to facilitate the serving of retail customers with freshly roasted coffee at all times.
In recent years, too, it has become a general practise for the home offices, or main headquarters, to advertise their product in magazines, newspapers, street cars, and by mail and on billboards; while the branches solicit trade in their territories by means of traveling salesmen, local newspaper advertisements, booklets, circulars, and demonstrations at food shows.
The traveling salesman is probably the most effective agency in securing the retailer's orders for coffee. A good coffee salesman not only sells coffee, but he teaches his customer how he can best build up and hold his coffee trade. He acquaints the retailer with all the talking points about the coffee he handles, how to feature it in store displays and advertisements, how to stage demonstrations and to work up special sales.
If he is a good salesman, he does not permit the merchant to buy more coffee than he can dispose of while it is still fresh. And he shows the dealer the folly of handling too many brands of package coffees. If he sells coffee in bulk, the efficient salesman has also a sound working knowledge of blending principles, and is able to suggest the kinds of coffee to blend to suit the particular requirements of each grocer's trade. In short, he takes an intelligent interest in his customer's business, and co-operates with him in building up a local coffee trade.
In estimating the price at which he must sell his coffee to make a fair profit, the wholesale coffee merchant has many items of expense to consider. To the cost of the green coffee he must add: the cost of transportation to his plant; the loss in shrinkage in roasting, which ranges from fifteen to twenty percent; packaging costs, if he is a packer; the items of expense in doing business, such as wages and salaries, advertising, buying and selling, freight, express, warehouse and cartage, postage and office supplies, telephone and telegraph, credit and collection; and the fixed overhead charges for interest, heat, light, power, insurance, taxes, repairs, equipment, depreciation, losses from bad debts, and miscellaneous items. The average loss for bad debts among grocers in 1916 was 0.03 percent of the total sales, according to the director of business research, Harvard University, who estimated also that the common figure for credit and collection expense was 0.06 percent. The total cost of doing business has been estimated as ranging between twelve and twenty percent of the total annual sales, so that a bag of green coffee costing $16 in New York or New Orleans costs the coffee packer in the Middle West from $22.33 to $24.56, according to the expense of carrying on his business.
Wholesale coffee trade contract terms and credits are not dissimilar from those in other lines of commerce. The wholesaler helps the retailer finance his business to the extent of granting him thirty to sixty days in which to pay his bill, offering him a cash discount if the invoice is paid within ten days of date of sale. Until recent years, these terms were frequently abused, the customer demanding much longer credits and often taking a ten-day cash discount after thirty or more days had elapsed. This abuse was particularly prevalent from 1907 to 1913, when coffee prices were low and competition was especially keen. In addition, the retailers often demanded special deliveries of supplies, which added to the wholesalers' costs; and some retailers refused to pay the cost of cartage from the cars to their stores.
With the coming of high prices after the close of the World War, the wholesalers showed a tendency to tighten up their credit and discount terms, the National Coffee Roasters Association especially recommending thirty days' credit, or at most sixty days, and a maximum cash discount rate of two percent.
Another trade abuse which has been corrected almost altogether was the practise of "selling coffee to be billed as shipped"; that is, the wholesaler held coffee on order, and billed only when delivered, even though several weeks or months had passed before shipment.
Since the beginning of the twentieth century, the sale of coffee in packages has increased steadily until now (1922) this form of distribution competes strongly with bulk coffee sales. While bulk coffee is still preferred in some eastern sections of the United States, coffee packers are making deep inroads there, to the extent that practically all high and medium grade retailers feature package coffees, either under their own brand name, or that of a coffee specialty house.
The prime requisite for success in any package coffee is the composition of the blend. One of the leaders in the field, which we will call Y, is said to be composed of Bogota, Bourbon Santos, and Mexican. In March, 1922, it was being sold at retail in New York for 42 cents. A competing brand, which we will call Z, is said to be a blend of Bogota and Bourbon Santos. It was being sold at retail in New York, at the same period for the same price. Simultaneously, in the retail stores of a well known chain system, a bulk blend composed of sixty percent Bourbon Santos and forty percent Bogota was to be had loose for 29 cents.
The second important factor that contributes to package coffee success is the container. It must be of such a character as will best preserve the freshness—the flavor and the aroma of the coffee—until it reaches the consumer.
Package coffee has not yet won universal favor. Some of the arguments used against it are: that the price is generally higher than the same grade in bulk; that it leads to price-cutting by stores that can afford to sell it at about cost as a leader for other articles; that the margin of profit is frequently too close for some retailers: that when the market advances, some packers change their blends to keep down cost and to maintain the advertised price; and that, when packed ground, there is a rapid loss of flavor, aroma, and strength.
Friends of package coffees point to the saving in time in handling in the store; to the fact that the contents of a package are not contaminated by odors or dirt; that the blends are prepared by experts and are always uniform; that the coffee is always properly roasted; and, in the case of package ground coffee, properly ground; that the brand names are widely and consistently advertised; and that the retailer has the benefit of the packer's co-operation in building up sales campaigns, by means of booklets and local advertising.
Five types of containers are used for packing coffee, namely, cardboard cartons, paper bags, fiber or paper cans, tin cans, and composite (tin and fiber) cans and packages. Fiber packages include paraffin-lined as well as those that have been chemically treated with other water-proof and flavor-retaining substances.
The carton is popular, because it takes up less room in storage and in shipment to the packing plant, and also because the label can be printed directly on the package. Another economy feature is its adaptability to the automatic packaging machine, which transforms it from a flat sheet into a wrapped and sealed package of coffee. Moisture-proof and flavor-retaining inner liners and outside wrappers are generally used to prevent rapid deterioration of the coffee's strength and aroma.
Paper bags are the least expensive containers to be obtained; and when lined with foil or prepared paper, they are considered to be satisfactory. Like the carton, the label can be printed directly on the bag. They also lend themselves to close packing in shipping cases.
Another popular type of container is the paper, or fiber, can which is made of fiber board with a slip cover. Fiber cans are also made with tin tops and bottoms, the metal parts supplying a measure of rigidity to the package. These composite packages are made round, square, oblong, or cylindrical.
Paraffined containers are characterized by an outer covering of glossy paraffin, and are made in various shapes. In some makes, the paraffin is forced into the pores of the paper base, making for added flavor-retaining and moisture-proof properties. In this type of package the label may also be printed direct on the package.
In recent years, vacuum packed coffee has won great favor, first in the West and latterly in the East. Tin cans are used. Vacuum sealing machines close the containers at the rate of forty to fifty a minute. Private tests by responsible coffee men are said to have shown that coffee in the bean or ground, when vacuum packed, retains its freshness for a longer period than when packed by any other method.
Coffee packers must give due attention to certain well defined laws bearing on package labels. Before the Federal Pure Food Act went into effect on January 1, 1907, many coffee labels bore the magic names of "Mocha" and "Java," when in fact neither of those two celebrated coffees were used in the blend. Even mixtures containing a large percentage of chicory, or other addition, were labeled "Pure Mocha and Java Coffee." The enactment of the pure food law ended this practise, making it compulsory that the label should state either the actual coffees used in the blend, or a brand name, together with the name of either the packer or the distributer. When chicory or other addition is used, the fact must be stated in clear type directly following the brand name. The reading matter on the label should contain facts only, and should not bear extravagant claims of superior quality or of methods of preparing or packing that have not been followed.
During the United States' participation in the World War, tin became practically unobtainable, and coffee packers turned to paper and fiber containers as substitutes in packaging nearly all grades. In this war period, commercial economy became a fetish in the business world; and coffee packers worked to save not only material, but shipping space, labor, and time. Paper and fiber containers proved to be not only practical but economical packages. Because of their war-time experience, many packers changed permanently to square and oblong containers. They found these containers could be packed "solid" in shipping cases, leaving no unfilled space between packages as is the case with cylindrical cans; also, smaller shipping cases could be used. As a further measure of economy, several packers changed from the square "knocked-down" paper or fiber carton to the oblong carton that is made up, filled, and sealed by automatic machinery from a flat, printed sheet of cardboard. This type of container is generally lined or wrapped with a moisture-proof and flavor-retaining paper.
There has been a tendency in recent years to standardize coffee packages as a means of working out packaging and shipping economies. One of the leading American proponents of standardization said:
One of the first arguments raised against standardization is that it eliminates individuality, and individuality is one of the big guns covering the front line trenches in the war of competition. The folly of recommending that every one-pound coffee carton, for instance, should be of exactly the same size and shape is immediately apparent; but let us not confuse such unification with standardization.
Assuming that a pound of coffee may be safely contained in seventy-two cubic inches, we find that a carton three inches thick by four inches wide by six inches high will serve our purpose; and, as an illustration of extremes, a carton three inches thick by three inches wide by eight inches high, or one [carton] two inches thick by six inches wide by six inches high, will each have exactly the same cubical contents. In fact, there is an almost infinite variety of combinations of dimensions which will contain substantially seventy-two cubic inches.
As an example of how coffee packages can be standardized this authority cites the following sizes of flat-sheet containers and their respective dimensions and capacities:
This Group of Leading Trade-Marked Coffees Illustrates the Wide Variance in Styles of Containers Used by Coffee-Roasters. The Packages Shown Are as Follows:
1—Double carton. 2, 3—Cartons. 4—Fiber sides, tin top and bottom, friction cover. 5—Vacuum tin can. 6—Fancy paper bag. 7—Machine-wrapped paper package. 8—Fancy paper bag. 9—Carton with patented opening and closing device. 10—Wrapped paper package. 11—Tin can with slip cover. 12—All-fiber can with slip cover. 13—Tin can with slip cover. 14—Lithographed tin can with friction cover. 15, 16—Tin cans with slip covers. 17—Squat tin can. 18—Napa-can. 19, 20, 21—Vacuum tin cans.
The advantages claimed for these packages are that each is well proportioned and makes a good selling appearance; each bears a direct relation to the other two; and all may be handled with uniformly good results on the same set of standardized packaging machinery. One size of shipping case, instead of three, may be used to hold exactly the same number of pounds of coffee, regardless of whether shipped in one-pound, half-pound, or quarter-pound cartons. For smaller dealer assortments, any two, or all three sizes also exactly fit the following standard shipping cases:
For 36 lbs., 137⁄8" by 161⁄2" by 123⁄4" high
This standardization of packages and shipping containers results in a lower cost of containers and a smaller stock to carry, with attendant reductions in details in purchasing and billing departments, in inventories, and in many other overhead expense factors.
Wholesale coffee merchandising does not properly end with the delivery of a shipment of coffee to a retailer. The progressive wholesaler knows that it is to his best interest to help that grocer sell his coffee as quickly as possible; to make a good profit on a quick turn-over; and to dispose of it before the coffee has deteriorated.
Practical co-operation between wholesaler and retailer is one of the most important factors in coffee merchandising. In these days of keen and unremitting competition, neither agency can stand alone for long. The progressive wholesaler does not sell a retailer a poorer quality of coffee for any particular grade than his trade calls for, and he does not load him up with more than can be disposed of while still fresh. He gauges the capacity and facilities of each retail customer, and then gives him practical help to keep the stock moving.
The packer of branded coffees helps by advertising to the consumer in magazines and newspapers, always featuring the name of his brands; and he supplies the grocer with educational pamphlets and booklets on the growing, preparation, and merits of coffee in general, with an added fillip about the desirability of his particular brand. Through his salesmen the packer shows the grocer how to display the coffee on the counter and in the window, and often supplies him with placards and cut-outs featuring his brand. He co-operates in staging special coffee demonstrations in the store; instructs the retailer in the importance of teaching his clerks how to talk and to sell coffee intelligently; and how to prepare advertising copy for his local newspaper, so as to get the fullest measure of profit from the wholesaler's national or sectional advertising.
The sampling method of creating a demand for merchandise has been tried in the wholesale coffee trade, only to be abandoned by the majority of packers. With other and more satisfactory ways of creating consumer interest, promiscuous sampling was found to be too expensive, in view of the comparatively small returns. One indictment against sampling is that it does not make any more impression on the average person than does an advertisement that appears only once, and is then abandoned. Wideawake merchants have learned that the public's memory is exceedingly short; and that they must keep "hammering" with advertisements to establish and to maintain a demand for their products.
It would seem that the logical place for sampling is in the retailer's store, especially in connection with demonstrations. Many progressive grocers stimulate interest in their coffees by serving, on special demonstration days, small cups of freshly brewed coffee, giving the customer a small sample of the brand or blend used, to be taken home to see if the same pleasing results can be obtained there also. Generally this form of sampling, when properly conducted, has shown a larger percentage of returns than any other method.
For many years, the premium method of sales promotion has been an important factor in wholesale coffee merchandising, as well as in retail distribution. The premium system has been characterized as a form of advertising; and many coffee packers and wholesalers prefer to spend their advertising appropriations in that way rather than in transitory printed advertisements in newspapers and general magazines.
While certain forms of the system have been legislated out of existence in some states, friends of the plan claim that it is a true profit-sharing method which "blesses both him that gives and him that takes"; and that it is an advanced and legitimate means of promoting business, when properly conducted. They assert that it is a system of sales promotion whereby the advertising expense, plus a large percentage of the profits of the business stimulated thereby, is automatically returned to the dealer buyer, without increasing cost or lowering the quality of the product so advertised; that it eliminates advertising waste by producing a given volume of sales for a given expenditure of money; that it reduces the cost of advertising by prompting a continuous series of purchases at one advertising expense; that it promotes cash payments and discourages credit business. Premium users claim that the force of a printed advertisement is often spent in stimulating the first purchase; while to secure a premium, the purchaser must continue to buy the commodity carrying the premium, or trade with the giver of the premium until merchandise of a stipulated value or quantity has been purchased.
In general practise, the premium-giving coffee packer or wholesaler may either offer the retailer an inducement in the form of a desirable store fixture, household article, or item for his personal use; or he may offer it to the consumer through the retailer.
The methods of giving the premium are numerous. To the retailer he may give the article outright with each purchase of a stipulated quantity of his coffee; or he may offer it as a prize to the retail distributer selling the most coffee in a certain period in a specified territory. Frequently the premium is of such value that the wholesaler can not give it with any quantity of coffee a distributer can dispose of in a short time; so he issues coupons or certificates with each purchase, permitting the retailer to redeem the premium when he has saved the required number. Or, the retailer may get the premium with the first purchase by paying the difference in cash.
In giving premiums to consumers, the wholesaler follows the same general plan used with retailers, except that in most cases the coupons are packed with the coffee and are redeemable at the retailer's store. Sometimes, however, the consumer sends the coupons or certificates to the wholesaler, getting the premium direct from him. In another phase of the premium system, the retailer works independently of the wholesaler, buying and giving away his own premiums to promote or to hold trade for his store. This phase is explained in the chapter on retail coffee merchandising.