Coffee is sold at retail in the United States through seven distinct channels of trade; the independent retail grocers (about 350,000) handling about forty percent of the 1,300,000,000 pounds sold annually; and the other sixty percent being sold by chain stores, mail-order houses, house-to-house wagon-route distributers, specialty tea and coffee stores, department stores, and drug stores. Since the beginning of the twentieth century, the independent grocers' monopoly in retail coffee-merchandising has been dwindling at a rate that has seriously alarmed those interests and their friends.

B.C. Casanas of New Orleans, addressing a convention of the National Association of Retail Grocers in the United States, in 1916, said that the wholesale coffee roasters of the country had invested in their business $60,000,000; and that $135,000,000 worth of roasted coffee was sold by them every year.

Considering the methods of merchandising, the seven retail distributing agencies may be grouped into three distinct classes. The first class would comprise the independent grocer, the chain store, the department store, the drug store, and the specialty store, all of which maintain stores where the consumer comes to buy. The second class takes in the mail-order house, which solicits orders and delivers its coffee by mail, and sometimes by freight or express. The third class covers the wagon-route dealer, who goes from house to house seeking trade, and delivers his coffee on order at regular periods direct to the consumer in the home. As an inducement to contracting for large quantities to be delivered in weekly or bi-weekly periods, the house-to-house dealer generally gives some household article, or the like, as a premium to establish good-will and to retain the trade of his customers.

New impetus was given to the method of selling coffee by mail when the parcel post system was adopted by the federal government in 1912; and since then this plan has become an important factor in retail coffee-merchandising. Generally, the mail-order houses confine their sales efforts to agricultural districts and small towns, soliciting trade by catalogs, by circular letters, and by advertisements in local newspapers, and in magazines which circulate chiefly among dwellers in rural districts.

The majority of wagon-route distributers depend upon the lure of their premiums, and on personal calls, to develop and to hold their coffee trade. The leading wagon-route companies, sometimes called "premium houses", maintain offices and plants in large cities adjacent to the territories to which they confine their sales efforts. At strategic points, they have district agents who engage the wagon men that do the actual soliciting of orders and that deliver the coffee. All wagon-route companies handle other products besides coffee, specializing in tea, spices, extracts, and such household goods as soap, perfumes, and other toilet requisites that promise a quick sale and frequent re-orders. Some of their competitors complain that they handle only the more profitable lines, leaving the independent local grocer to supply the housekeeper with the items on which the margin of profit is comparatively small.

Wagon-route coffee-retailing began to make itself felt seriously about the year 1900. At first, the premiums usually consisted of a cup and saucer with the first order, the customer being led to continue buying until at least a full set of dishes had been acquired. Later, the range of premiums was expanded; until today the wagon man offers several hundred different articles that can be used in the home or for personal wear or adornment. Practically all the leading wagon-route concerns favor the advance premium method; that is, a special canvasser induces a consumer to contract for a large quantity of coffee and other products in return for receiving the premium at once, though the coffee is delivered only as the customer wants it, generally two pounds every two weeks. The wagon man delivers the coffee, and is usually held responsible for the customer fulfilling the agreement, and is expected to secure repeat orders with other premiums.

The importance of the wagon-route plan of coffee-retailing is shown by the fact that in 1921 there were six hundred houses of this kind in the United States; and it was estimated that they distributed eight percent of the total amount of the coffee consumed in the country. The biggest company was capitalized at $16,000,000, and operated eleven hundred wagons. Most of the wagon-route concerns were operating in the central states, practically one-third of them covering the states of Illinois, Wisconsin, Indiana, and Iowa. Pennsylvania is also a wagon-route-dealer center.

The premium wagon-route distributers have an organization called the National Retail Tea and Coffee Merchants' Association. It is composed of 126 members—all of whom use premiums—who operate over two thousand wagons. The largest single wagon-route operator is the Jewel Tea Company of Chicago. The members of this organization claimed to have served more than 2,000,000 families in 1920.

In the chain-store system of merchandising we see the opposite extreme of coffee retailing. The wagon-route man features his delivery service; while in the chain-store plan, all customers must pay cash and carry home their parcels. Though the earliest established chain stores gave premiums, the practise has now been generally abandoned. Roasting, blending, and packing coffee in a large central plant, the chain-store operator advertises that he can sell coffee at a price lower than his competitors. As a rule, only one grade of coffee is offered for sale. While it is generally a good medium value, many consumers prefer better quality and go to the independent grocer for it. Others patronize the grocer because of his convenient delivery service, and because he gives credit on purchases. Chain-store organizations seem to be growing rapidly, however; the largest of the chains, the Great Atlantic & Pacific Tea Co., reporting in 1921 that it had nearly five thousand branches throughout the country, which sell 40,000,000 pounds of coffee annually. This chain has a capitalization of $12,000,000, and in 1920 sold $225,000,000 worth of groceries, as compared with $154,718,124 in the preceding year. This company opens about five hundred new stores every year.

The chain-store men are organized in the National Chain Store Grocers Association, having thirty members, representing 12,000 stores, operating in eighteen states. It is estimated that there are fifty responsible chain-store grocery organizations in the United States, representing about 30,000 stores. The chain-store grocer turns his stock over from twelve to twenty-five times a year, sells for cash, makes no deliveries, and claims to save the consumer an average of fifteen percent in buying. These stores do business on a net margin not exceeding three percent on sales, as against the average retail grocer's thirty percent, while their average gross cost of doing business has been stated as between thirteen and one-half percent (lowest) and eighteen and one-half percent (highest).

According to Alfred H. Beckmann, secretary-treasurer of the National Chain Store Grocers' Association,[337] "Public appreciation of the chain grocery store is rapidly growing. Ten years ago it was estimated that chain stores in what is known as the Metropolitan district of New York did about 121⁄2 percent of the volume of business in their line, while today it is estimated at about fifty percent".

It is estimated that the fifty-odd chain store organizations in the United States distribute through their 30,000 stores 270,000,000 pounds of coffee a year, or about twenty percent of the total amount consumed in the United States.

Starting in the Retail Coffee Business

When taking up the retail merchandising of coffee, the practical grocer learns all he can about the popular grades to be had in the principal markets, and how the coffees are grown, roasted, blended, and ground. He also ascertains the best methods of brewing, testing out each grade and kind on his own table, if he does not have testing facilities in his store. He studies the relative trade values of different varieties of coffee, and the requirements of his particular clientèle.

An interesting analysis of some 250 grocery stores in the United States[338] made in 1919, showed that twenty-nine percent of the dealers bought all their coffee from wholesale grocers, forty-eight percent exclusively from roasters and specialty wholesalers, ten percent got over one-half of their coffee from wholesale grocers, and thirteen percent bought less than one-half from the wholesale grocery houses.

There are two fundamental plans on which a retailer builds a successful coffee business—by buying coffee already roasted, and by buying it green and roasting it in the store. Each plan has its advantages; but its practicability depends upon conditions in different localities.

Beyond acquiring a general talking knowledge about coffees, the retailer buying his stocks roasted in bulk or package form does not generally need the intimate knowledge of his goods required by the grocer who roasts his own coffee. If he grinds the coffee for his customers he must know the type of grind best suited to the way the coffee is to be brewed, and must be able to tell the best brewing method.

The practical grocer who makes up his own blend is acquainted with blending principles and methods. "While he can not expect to be as expert as the large wholesale blender, he should know that green coffees are generally classified by blenders in five great divisions; (1) Brazils, including Santos, Bourbon and flat bean, Rios, Victorias, and Bahias; (2) Washed milds, embracing, as of the most commercial value, Bogotas, Bucaramangas, Guatemalas, Mexicans, Costa Ricans, Maracaibos, and Meridas; (3) Unwashed milds, such as Maracaibos, Bucaramangas, La Guairas, and Mexicans; (4) Javas, Sumatras, and Padangs; (5) Mocha, and Harari."

The Pacific Stores Co., Los Angeles, cutting out deliveries, premiums, and solicitors, has built up a business of more than 100 bags of coffee daily, selling direct to the consumer in a chain of 100 booths patterned after the country-roadside gasoline stations; each one having its own roaster]

It has been found by experience that a good assortment for the average retailer to carry consists of Santos, because of price; a natural unwashed Maracaibo or Bucaramanga, because of full body and general blending values; and a washed coffee, preferably a Bogota, which gives quality and character to a blend. In stocking up with these coffees, the practical merchant avoids Santos with a strong or Rioy flavor, bitter or "hidey" Maracaibos, and acidy or thin Bogotas.[339]

A grocer equipped with these coffees has the Santos for his low-priced seller. For his medium grade he blends Santos and Maracaibo, half-and-half. The next higher grade is made up of one-third each of the three coffees; while the best blend consists either of half-and-half Bogota and Maracaibo, or three-quarters Bogota and one-quarter Maracaibo.

The chief advantage of these three coffees is that they blend well in any way they are mixed; and the dealer with a little experience, and working with the two necessary ideas in mind—satisfactory coffee and price—can make up various combinations.

In view of the fact that the United States imports coffee from more than a hundred different sections of the world, and that there are wide variations in flavor among the coffees produced in each of the hundred, it is easy to understand that the blender has an almost unlimited supply from which to make up a blend with a distinctive individuality. Practically all coffee importers, and most wholesalers, are thoroughly acquainted with the relative trade values of the different coffees, and help their customers make up desirable blends.

Small Roasters for Retail Dealers

While the wholesale coffee roaster is obliged to instal a large and somewhat complex equipment, the retailer must use a small, compact, self-contained unit that does not take up much space in his store, and that is easily operated. Retail roasting machines are constructed on the same general principle as the wholesale roaster. The roasting cylinder is generally revolved by electric power, and the heat is derived from gas or gasoline fuel. Cooling is by air suction in a box attached to the roaster. The capacities of the machines range from ten to three hundred pounds, the operating cost running from approximately eight cents per hundred pounds for gas fuel and ten cents for electric power. The roasters cost from three hundred dollars for the smaller sizes, to fifteen hundred for the one-bag type; and to two thousand or three thousand dollars for the two-bag type.

One coffee-roaster-machinery manufacturer has recently brought out a gas-fired, electrically operated fifty-pound miniature coffee-roasting plant designed for retail stores, which comprises a roaster, a rotary cooler, and a stoning device, that sells for six hundred and fifty dollars.

Retail coffee roasting is similar to the wholesale operation. When the cylinder has become heated, the green coffee is run in and allowed to roast in the revolving cylinder for about half an hour. If the coffee is the average green kind, the full heat may be applied at once; but if old and dry, a lesser degree is used. When the roast begins to snap, the flame is turned lower to allow the beans to cook through evenly; and when nearly done, it is almost extinguished. During the operation, the roasterman, who may be the proprietor or a clerk delegated to the work, frequently "samples" the coffee by taking out a small quantity with his "trier" and comparing the color of the roast with a type sample. When the colors match exactly, the coffee is dumped automatically into the cooler box just below the cylinder opening; and when sufficiently cooled off, is ready for grinding to order.

A large number of retailers roast coffee in their stores; and the most successful find that besides being able to make a feature of freshly roasted coffee, they can save money and increase their sales. One progressive grocer found that he was able to get eighty-eight pounds of roasted coffee out of one hundred pounds of green coffee, as compared with the wholesaler's eighty-four pounds; that he could buy green coffee at a closer price than roasted; and that it cost him less for labor, fuel, overhead, and similar items, than it did the wholesale roaster to turn out a roast.[340]

A chain of coffee specialty stores in which the coffee is roasted fresh every day was started in California about the year 1916; and according to reports, it met with almost instant success. In this system, the proprietor buys the green coffee in large quantities, and it is roasted in each of his specialty stores, which are located in public markets, store windows, and alongside heavily traveled highways. The roasting machinery is invariably set up in front of the store where passers-by can easily see it in operation—and also smell the coffee roasting. Four years after starting the first store, there were fifty in operation along the Pacific Coast, doing an annual business of about $600,000, some units taking in more than $7,000 a month.

Model Coffee Departments

Authorities generally agree that a well laid out coffee department not only increases a grocer's coffee business, but speeds up sales in other departments as well. Coffee lovers, and they are legion in the United States, are inclined to "shop around" for a coffee that suits their taste; and when they have found the store that sells it, they buy their other groceries there also. Another argument advanced in favor of a coffee department is that coffee pays more money into the retailer's cash drawer than any other grocery item.[341]

Most successful retail coffee merchandisers establish the coffee department near the entrance to the store, where it can be seen through a window by passers-by, especially if there is an ornamental roasting and grinding equipment. It has been found that a department situated at the left of the entrance is almost certain to draw attention because people are inclined to glance in that direction first. Some merchants, having the space, erect attractive booths, designed somewhat like the familiar food-show booths, directly in front of the door, after the fashion of department stores when holding a special sale on a certain article. Such a booth is generally used for demonstration purposes, and is decorated with signs and possibly with bunting. A permanent department is usually less ornamental, but still attractive. In telling how he made a success of his department, one American grocer said that he was careful that his fixtures were not so ornamental as to draw attention from the goods. While the decorations were always attractive, they were subordinated sufficiently to form a background for his coffee display.

The most popular layout is the conventional counter system behind which the clerk stands to serve the customer on the other side. There are many advocates of the counter that is built into the shelving, believing that the closer the customers are brought to the coffee, the more they will be inclined to buy. This system also makes for cleanliness, doing away with the possibility of the runway behind the counter becoming a catch-all for dirt, torn paper, bits of wood, and the like.

The modern coffee department has counters divided into compartments having glass fronts. This type serves both as a storage place for coffee and for display purposes. The top of the counter is used for wrapping up parcels, etc., and also for displaying bulk and package coffees. In the well regulated store, the counter top is never used for storage, all stock being kept on shelves or in the counter's compartments. Good merchants find that cleanliness pays; and that a "littered up" store drives away desirable custom. The wise proprietor never allows a clerk to weigh out coffee after handling cheese, onions, and other odorous articles, without first thoroughly washing his hands. He knows that few food products in his store will more quickly absorb undesirable odors and flavors than coffee; and consequently he is careful to protect his coffee from contamination. In the better stores, the proprietor will either take charge of the coffee department himself, or will delegate a competent man who will do nothing else.

The wide-awake retail coffee roaster always features his roasting machine, which is generally highly ornamental and draws attention even when not in use. Some progressive merchants plan to roast coffee at noon time and at night, when homeward-bound passers-by are hungry and are particularly susceptible to the pungent aroma of roasting coffee. It is a quite common plan for the retail roaster to arrange the exhaust of the machine so that the full strength of the odor is blown into the street.

Creating a Coffee Trade

Because of steady sales and quick profits, there is keener competition in retail coffee-merchandising than in other food products. But, all things being equal, any intelligent person can create and hold a profitable trade if he follows approved business methods—and works. The best practise among coffee merchants shows that the prime essential is good coffee, freshly roasted and ground. After that comes intelligent and unremitting sales-promotion work.

The many ingenious trade-building plans worked out successfully by grocers in all parts of the country are too numerous to describe in a book of this character; but the methods cited in the following, all of which have been tested in actual working conditions, will serve to indicate the fundamentals of good retail coffee-sales promotion.

Among the chief sales-winning methods are demonstrations in the store, at local food shows, and at church socials, picnics or functions, judicious sampling either in person or by mail, personal canvassing from house to house, circularizing by mail, linking up window displays with current happenings, local newspaper and outdoor poster advertising, and selling coffee by telephone. Most of the foregoing plans are worked intermittently. The telephone, however, is a most important sales factor and should be employed constantly and consistently.[342] Many successful stores consider the telephone, properly used, the greatest single sales-help in retail coffee-merchandising.

One grocer had such faith in this method that he paid half the annual telephone rental for a large number of his best-paying customers. Another large merchandiser put in an individual telephone for each of his salesmen, who called up his regular customers each day to suggest articles for that day's order, always of course mentioning their "superior brand of coffee." Telephoning is the next step to personal contact; and if tactfully done, is considered to be even more advantageous, because of the time it saves both the customer and the store keeper.

Coffee demonstrations in stores are easily arranged, in most cases. The main consideration is fresh coffee of good quality served daintily and hot. Lacking a coffee urn, some grocers make their brews in large-size home-service coffee-making devices. Those most advanced in the correct method of brewing use the drip process. It is generally agreed that demonstrations should not be held too often. They not only cut into profits, but lose much of their advertising value. Food-show demonstrations require more elaborate equipment, consisting of a decorated booth, educational booklets, posters, and exhibits of different kinds of coffee, both green and roasted, whole bean and ground. Generally, coffee packers co-operate with retail demonstrators by supplying gratis the coffee to be brewed, if the names of their brands are suitably displayed. They supply also posters, signs, samples, and booklets for free distribution.

Window displays form one of the best means of advertising at the command of the average grocer, and one of the least expensive. A popular coffee display consists of a series of educational "windows," starting with green beans in the bags in which they are shipped from the growing country. Generally the bags, mats, or bundles are obtained from the wholesale house, and are filled almost to the top with some inexpensive stuffing, the green coffee being spread over the top to give the appearance of a full bag. Pictures showing how the coffee is grown, harvested, prepared, and shipped, are frequently used in such a display. The next exhibit consists of whole roasted coffee spread thickly over the window floor to create the impression of bulk, accompanied by a few pans of green coffee by way of contrast, and with pictures showing scenes in coffee roasting plants. A barrel, lined with blue paper, and lying on its side with roasted coffee beans spilling out, serves as a centerpiece for such a display. Following this, comes a coffee package window, accompanied by pictures showing how coffee is roasted, ground, and packed. This completes the series; but there are many variations that have proved successful as trade builders.

Meeting Competition

Since the advent of the wagon-route distributer and the chain store, the independent retail grocer has been faced with the problem of how to regain at least a fair measure of the coffee trade he has lost. The grocer is not only concerned about his profits on coffee sales, but on other goods as well; for a trade investigation has shown that a large percentage of the regular customers of the retailer are held to the store by their purchases of coffee and tea. This means that if coffees and teas are bought from the wagon-route distributer and the chain store, the balance of a family's order is "shopped around."

To meet this competition, the best authorities agree that the independent grocer should feature coffee in every practical way, such as soliciting coffee trade from each customer that enters the store; give up offering coffee on a price basis, and make up his own blends from good quality growths; perhaps make up his own brand and push it at every opportunity; display coffee artistically, with frequent changes of layouts; and have occasional store demonstrations. He should see that the coffee is roasted properly, and that it is always fresh; that the selling effort is not expended on the lowest-priced blend, but on a grade that can be recommended for cup merit. This should be a leader, but a lower-price coffee could be carried to suit the trade that buys on price. Persistent efforts should be made to educate the last-named class of customers to use the better grades, which in the end are cheaper and give better satisfaction. In short, the grocer should work consistently to establish a vogue for his leader blend on the basis of merit.

Profits and Costs

Because of its influence on other grocery items, coffee can often be sold at a close margin of profit, particularly if a competitor's store or wagons are cutting into a grocer's neighborhood trade. Twenty-five percent is recommended as a reasonable gross profit on coffee in most cases, although some grocers make less, and not a few make more; the range being usually from twenty to thirty-nine percent. The independent dealer should meet chain-store competition in coffee on a price basis, making a special on a superior grade and figuring to get not more than three cents profit per pound, like his competitor. A bag of roasted coffee will bring back three dollars gain, and the cash to pay for another—and the grocer has kept his customers, ninety percent of whom, theoretically, will have bought their other food supplies from him. As a matter of fact, in the last year of the World War retailers showed a tendency to demand cash on sales of all grocery items. This practise reduces the cost of operation and allows the storekeeper to reduce his prices. A large number of grocers charge a small percentage of the total sale for credit privileges, and five or ten cents for each delivery below a certain total value of the purchase price of the articles to be delivered. As a result, they have been able to meet chain-store competition. Collective buying has also been a factor in offsetting the inroads of the "chains."

Splitting Nickels

One of the reasons advanced for the loss of coffee trade by retail grocers is that they price their blends in "round numbers", that is 20, 25, 30, or 40 cents; while their competitors "split nickels", selling their product at 18, 23, 28, or 38 cents.

Most of the retail enterprises in other lines of trade have built up their business on the penny-change plan; and many coffee men believe this should become the universal merchandising method among retail distributers of coffee.[343]

One of the leading advocates of "splitting nickels" has worked out a chart to show how coffee should be priced to make predetermined profits. (See next page.)

Figuring Costs and Profits

While the cost of conducting a retail grocery business naturally varies according to local conditions and the size of the enterprise, an investigation among some 250 stores in small and large cities made in 1919 by the Bureau of Business Research, Harvard University, showed that the average cost was fourteen percent; that the net profit averaged two and three-tenths percent; and that stock was turned about seven times a year. Gross profits ran from ten and one-half percent to twenty-six and four-one-hundredths percent of the net sales, the most typical figure being sixteen and nine-tenths percent. Sales cost formed the largest single item of expense, varying from three and forty-one hundredths to nine and ninety-four hundredths percent, with the bulk of figures showing around one and eight-tenths percent.

According to advanced business practise the cost of doing business should be based on these fourteen points:

A Credit Policy for Retailers

While the minor factors governing a credit policy for retailers vary with local conditions, the fundamental principles are alike everywhere, and should have the thoughtful consideration of all retail distributers of coffee. After a retail grocery store experience of twenty-five years, a past president of the National Association of Retail Grocers of the United States[344] found that a grocer should insist upon references and a thorough investigation of every new applicant for credit, refusing the privilege when the prospective customer hesitates to give the needed information; that he should arrange a date for periodical payments, explaining that this is necessary so that the storekeeper can arrange to meet his own bills, which will enable him to discount his invoices and to sell his goods cheaper; that statements of accounts should be sent out promptly and never a few days late; that he should insist on payment in full when due, requesting the customer to call if an extension of time is asked; that he should not let the customers decide when they will pay bills, bearing in mind that the possible loss of a few customers who do not pay promptly is offset by the advantages of cash when promised; that he should never abandon the hope of collecting an old account, but should try the method of sending statements only to the surest customers, sending a clerk for the collection of all other accounts; that he should personally examine all uncollected accounts every month, insisting on a reason for failure to pay; that he should study his customers and not trust those who give a bad impression; that he should have the courage to say "No" when necessary; not to be satisfied with merely a financial rating on a credit applicant, but to ascertain his general reputation and character; and to help to eliminate the "dead beats" by giving careful attention to all requests received from other retailers for credit information.

Premiums for Retailers

House-to-house dealers are the largest users of premiums among coffee distributers. Most of them operate under what is known as the advance-premium method.

The plan followed by house-to-house dealers until about 1910 was to issue checks redeemable in premiums after a certain amount of tea, coffee, or other products had been purchased. This practise has not been entirely abandoned; but in most instances, the premium is now handed to the consumer in advance of the initial purchase, in consideration of the buyer's promise to use a stipulated quantity of tea, coffee, or other merchandise. The driver of the wagon generally carries a portfolio illustrating numerous premium items redeemable through the purchase of varying amounts of merchandise.

Many retail coffee stores also employ premiums, using both the old-style and "advance" methods. This type of store, however, is being supplanted by the chain grocery store.

Some independent retail grocers use premiums to a limited extent. These usually carry a small line of premiums, featuring a piece of kitchenware, or other inexpensive item, with bulk coffee.

It is significant that one of the largest chain-store organizations in the United States—the Great Atlantic & Pacific Tea Company—uses few premiums today, although its business was founded on the premium idea.

Trading stamps, which are sold to grocers and other merchants by firms making a specialty of this form of premium-giving are little used nowadays. The average retail grocer is antagonistic to trading stamps, as a result of the methods of certain unscrupulous stamp-dealers. Legislation against trading stamps is in effect in many states.