Coffee Memo | Rob Talks Back to Basics in Turbulent Times Ep. 5
Episode Summary
In this episode of Coffee Memo, Rob Stephen addresses the significant challenges facing the coffee industry today, including unpredictable coffee pricing strategies and evolving coffee consumption patterns. He emphasizes the essential role of community engagement and peer support in overcoming these obstacles. Rob offers practical strategies for managing burnout and feelings of being overwhelmed, while also examining the complex dynamics of supply and demand in the coffee market. He highlights the importance of stakeholder involvement in shaping effective responses to industry trends. Listeners are encouraged to adopt a flexible mindset and seek out peer support to successfully navigate the current chaos within the coffee sector.
Episode Notes
- Introduction to Coffee Memo and Overview of Coffee Industry Challenges
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Analyzing the Volatility in Coffee Pricing Strategy
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The Role of Community Engagement and Peer Support in the Coffee Sector
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Addressing Burnout and Overwhelm Amid Shifting Coffee Consumption Patterns
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Exploring Market Dynamics & Coffee Industry Trends: Supply, Demand, and Climate Influences
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Effective Decision-Making During Uncertain Times in the Coffee Industry
- The Critical Role of Stakeholders in Navigating Industry Trends
- Achieving Stability in a Chaotic Coffee Market
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Conclusion and Encouragement to Take Action
MIKE FERGUSON: Welcome to Coffee Memo with Rob Stephen, a podcast where we talk about coffee industry news and current affairs. This is episode five and Rob is in the studio to talk about going back to basics in these turbulent coffee times. We spent a few episodes talking about what's happening in the coffee industry and we continue to do that in this episode. But this time Rob wanted to talk about how we might respond to the current environment, both personally and professionally.
So Rob… I'm known around these parts for being pretty pedantic when it comes to describing any given coffee price as unprecedented because they just aren't when we adjust for inflation and use the true definition of unprecedented. At the same time, I've always admitted that this fact isn't very helpful, especially to those who entered the coffee industry over the last 25 years, which at this point is most of the people we know.
However, when it comes to the sheer variety and volume of pressures currently being experienced by the coffee industry,I think a case can probably be made that the number of variables that are out of whack compared to “business as usual” or business as it was once usual is unprecedented, at least since the Napoleonic Wars. And only a few people we know in the coffee industry are old enough to remember the Napoleonic Wars.
ROB STEPHEN: Yeah, I don't remember the Napoleonic Wars. I started 1812, the War of 1812, which actually had an intersection with the Napoleonic Wars at the tail end, but still, let's not be pedantic. This is going to be an interesting episode for me. So, I listened to the last four coffee memo episodes that we did in a long car ride I had to take. I went to pick up my son in Western Mass.
I listened to them, you know, I hate the sound of my own voice, but I like our conversation and what we talked about and I felt like it was useful. But I also said to myself, “man, that was a huge bummer.” You know, was like, just, I gave all crisis and no release, you know? Right. And so, I thought it would be good in this episode to talk about just putting everything into perspective. Okay. I have a few areas that I want to talk through and I think we should probably talk about current events as we do every time. But to your point, when you started here, we're in this unprecedented time of volatility, at least for those of us who aren't from the 1800s. And so, I think that none of us have the capability of putting it in perspective against something else because we haven't seen anything else. So, let's just talk through some of the things that are going on. Talk about putting it in perspective. And hopefully that can be a starting point for people to figure out what to do. Cause you know, listening to Mike, myself talking, kept saying, “you need to have a plan” but how do you, how do you go about making that plan?
MIKE: Well, we're trying to strike a balance. We want to be honest. We don't want to pretend.
ROB: Right, so we talked about it is unprecedented in that, yes, prices if you adjusted them for inflation have been higher, but that market factor of pricing is one factor that we're dealing with. We've talked about working capital. We've talked about the inverted market. We've talked about extreme levels of volatility within those. We've talked about tariffs. We've talked about supply chain issues, EUDR. List goes on.
MIKE: Even when we had prices that were higher than now, there were sort of these slowish ramp ups. And then we came off of them. The volatility is truly, I think you could definitely argue, is unprecedented.
ROB: Yeah, and volatility creates a sense of whiplash and just sort of, don't know what's going on, right? It's like finding yourself on a roller coaster instead of intentionally getting yourself on one, right? You could make the argument that the current political environment has created the chaos, and it certainly hasn't helped, but this was happening before that. So, it's like the market was in a supply-demand deficit and creating huge price swings before the election. So, we've just got more things happening now, adding sort of fuel to the fire or creating even less certainty than there was before. I think one of the things I thought about when I was listening to the episodes was that people must be burnt out. It's a lot, right? I mean, especially if you have a small business and you're trying to decide what to do next and there's no certainty about anything that's happening, that's got to be a lot of pressure.
MIKE: Yeah, every day, starting from scratch every day, it feels like for some people.
ROB: Right. And so even for me, you know, as someone who has seen some of this before, I've been through a high market before, I've been through a low market. I've been through different areas of volatility. I've had supply chain problems, you know, even though they were only one at a time, it always helped me to have somebody to talk to about it. Right. And so, if you don't have anyone to talk to, at least you, can have a one way conversation with us. Yeah. But I would encourage you to, to find a peer group to talk to. Right. Because this, this kind of burnout can make you disengage. And this is not the time to be disengaged.
MIKE: Okay, and disengage, mean just...
ROB: Put your head in the sand. It all blows over, right? You wake up without a business if you do that right now, I think.
MIKE: Yeah, I think a lot of people are doing that and it's not the time.
ROB: No, no. And I mean, I think our goal here is to keep the conversation about coffee, right? But yeah, the overall environment we find ourselves in can also lead yourself to say, just don't have the strength to engage. So, I think when it comes to this, engagement is different than prediction. Nobody knows what's going to happen, and you probably can't know what's going to happen. But it's sort of like being on the deck of a ship in a storm. You at least want to pay attention to where the next wave is coming from.
You know, that was something I wanted to address. And I think if you're feeling burned out and you're feeling disengaged, that's one reaction. Another reaction you could have is, to just be scared witless, right? You know, or other things that rhyme with witless. And that is, you know, fear could be a motivator. It can make you do things that you normally wouldn't do, but it can also be a paralyzer. Yeah. And so what I would love to do is start a multi-episode conversation. Maybe we can bring more people in to talk about what people are doing in this environment. Because I think that people need to hear what their peers are doing in a way that is constructive.
MIKE: Well, what are you doing?
ROB: Well, I've got a team here that I've got to lead. I've got responsibilities. What am I doing? I'm doing the opposite of disengaging in that I have a steady news diet every morning. I probably spend an hour every morning just pouring through two different newspapers and then a financial paper and then reading origin reports and listening to this and that and talking to some peers just so that I feel in a place where when stuff comes at me, I've got my feet on something.
MIKE: Well, it's important for you to do that just psychologically for being active and not dwelling in the problem or the struggle, but also it's harder for people to lie to you.
ROB: Yeah, and I'll be honest, my first thing I do in the morning starts with Wordle. It's a little victory there and then I'm good to go. Got it in three today.
So, I think fear's a motivator, fear can be paralyzing. I think that in general, fear comes from ignorance. It comes from ignorance or from a sense of being overwhelmed.
MIKE: Overwhelmed or helpless.
ROB: Right, and so, I feel like having a steady diet of information and having as much perspective as I can removes the sort of ignorant and helpless part. You can still feel overwhelmed, but at the end of the day, I have goals. And I think everyone who's listening who has a business also has goals, which is sort something we can move into as we talk through this. But it's times like this that, going back to my goal,is super helpful to me.
So, what are my goals? My goal is to make money for the company and to create a place where me and my team have solid careers, to make the lives of the producers that we buy coffee from better, and to add value to the roasters that we serve and their businesses, right? So, everything that I am doing, I can hold those things up in front of me and go, is this helping that or not?
MIKE: Is what I'm planning to do, helping out…
ROB: Or is it endangering it? And is my inaction endangering it, if I'm finding myself stuck on what to do? Which I find more and more. Something comes up and I turn to my team and I say, wow, this is a tough one. What do we do here? And I'm constantly reminded that unless I choose to not make a choice, not making a choice is a bad choice.
MIKE: Earlier you said that you can't help being overwhelmed. Telling someone not to feel overwhelmed is like telling them to be happy. It doesn't work, but it helps if you understand the components of what's overwhelming you. Here's a list of the things that are contributing to feeling overwhelmed.
ROB: Yeah, I can't, no one should tell you how to feel right now. But I do think that you can manage your feelings if you can identify them. So, if nothing out of this five-minute lovely conversation, we've had lands more than “I see you and it makes sense that you're overwhelmed,” then great. Yeah, and the other thing is there's this sense… I think I've talked to some people in the past few weeks who have called me and said well “You must know what to do.” And I laugh. A, because anyone who knows me knows that that's crazy. I mean, I'm one of the most wrong people I know on most things, but I do pivot really well, which has been helpful to me. But I also learn from my mistakes. And so, just going back through the last couple of episodes, I didn't really make any predictions, but I talked about sort of how things were and where they were headed in a way that it was like, well, it looks like this. Not this will happen, but it looks like this. And I just went back and it took me about 45 seconds to list a bunch of things that have either gone the other way or changed since those conversations that we've had.
MIKE: Since we started…
ROB: Since then, the market went shooting way up, even after this non-frost event. Suddenly, the market shot way up, and then it went way down comparatively. There was the spread when we were talking about it was 12 cents, it's 20 now, right? And has been higher. Tariffs did not go away. They have increased in some places. And things like, well, this talks with the trade representative and this is going to... None of those things happened.
MIKE: There's always talks.
ROB: Apparently, Lula and Trump met for 15 seconds and bumped into each other in a hallway that did not make the tariffs go away. These kinds of rumors masquerading as news continue to happen. The EUDR is now looking very, very likely to be postponed for another year.
We talked about that a lot and the sort of impact that that was gonna have on everything. Arguably it makes things simpler, but if you had made strategic decisions based on that being a reality… that didn't go your way.
MIKE: Thanking you.
ROB: That didn’t go your way.
MIKE: So, if we could stop for a second and just talk about a few things that it means that it's delayed.
ROB: Sure. Yeah. So EUDR looks like it will be postponed for another year because there's infrastructure problems with implementing it mostly around the IT. We're supposed to have a portal that you would put the information in and it has to work for everybody and there's problems.
MIKE: Yeah, ironically, right, since the infrastructure is on this side of the...
ROB: When it's on our side we get to delay another year. When it's on their side, nope, gotta comply. Right, so hypocrisy. We'll make another episode on that one. But I think that if you, for example, are in Europe and you bought a whole bunch of coffee for Q4 delivery with the EUDR certification, you paid for that. And oh well, if they were buying up a bunch of coffees that they knew had the ability to comply, those are now not available to US.
MIKE: Yeah, so sort of a double whammy there. All sorts of... A whammy for them and one for us too. Right.
ROB: All sorts of knock-on effects, right? So, I think as we think about things unfolding, just how much it's all in flux is one of those things of, there's a tendency for us to beat ourselves up over decisions that we make with the best information that we had at the time and not look back and go, the information changed in a way that no one could have predicted. Right? And so, I want to sort of give everyone permission to do that. You know, so for example, there's a lot of noise out there about demand. You and I were having a conversation last week about the National Coffee Drinking study and mixed bag in there.
MIKE: Yeah, mixed bag. People feeling less secure about their personal finances. Overall consumption, we haven't yet seen a drop, but we are seeing shifts in how people take their coffee, purchase their coffee, what types of coffee they're drinking.
ROB: Yep. so, but yet you wake up and find out that Starbucks is closing 900 stores. And that can't, you know, not land. Right. You know, even if it's part of a turnaround plan, it's, you know, Costa Coffee is not finding buyers in Europe and they're trying to sell it. Right. You know, suddenly coffee is not ⁓ something that is seen as a growth industry out of the market.
MIKE: Well, unfortunately, the one area of out-of-home consumption that has started to see a drop is quick-service restaurants. And these days, those types of cafes fall into that category. People are just spending less money for coffee at retail.
ROB: Yeah. So if you look at the global supply demand balance, right, there's a thing called a balance sheet, which actually is a topic I want to talk about in an upcoming episode. But it's just generally looking at how much coffee do we expect to be available in the world and how much do we expect to be consumed and what's the difference between the two. So, then you're either in deficit or supply. And it's been kind of a just break even or just a little low or just a little high for the last few years. But, this sort of structural deficit that people continue to talk about, as climate change hits coffee-growing countries, there's less coffee available, potentially in a sort of decreasing way, like less coffee every year. And then if demand increases at the same rate on the other side, you could find yourself in this place where there's 10 million, 15 million bags deficit. Suddenly, that’s permanent five-dollar coffee. Right. So, people pay a lot of attention to that.
MIKE: Yeah, well, and all of those variables we're talking about, the one that our coffee ancestors definitely never experienced was climate change.
ROB: Right, so I think that's my sort of long, long-winded argument of keep an eye on all these variables, but understand that some of them move glacially and some of them move really fast. And some of them can move, like, that market move a few weeks ago, it went higher than anybody thought and then lower than everybody thought and then back to the middle before people could react. Experienced traders just scratching their heads going, “glad I missed that.”
MIKE: Yeah. On my drive to work.
ROB: So, trying to get around “your podcast is a huge bummer kind of thing.” I wanted to talk about, you asked me sort of how we deal with it here. And I said I have my goals, I have my sort of north stars of what I wanted to do. But I guess to get into them a little sort of, specifically, one of the things I pay attention to is when it feels like things are chaotic. And so, if you're a Game of Thrones fan, there's a famous line, “chaos is a ladder.”
CLIP: Chaos, a gaping pit waiting to swallow us all. Chaos isn't a pit, chaos is a ladder.
ROB: And it can be true when one thing or two things are going on. And you can see a path to what you're doing. But when things are chaos like this, I don't think chaos is a ladder. It is a time to play in a defensive manner and not try and make a big gain out of the situation.
MIKE: Well, and there's values included in that. Also, I mean, if that's your game...
ROB: We might not be the podcast for you. I think that, for example, we have a philosophy here when things are like this. If we're going to lose money, let's lose the least amount of money possible. And I think that is a kind of, if you can give yourself permission to think that way right now, think that could A) take the pressure off you a little bit and could also be quite healthy.
MIKE: And remembering a reporter I spoke to years ago and I was talking to him about how we did business at the roaster where I was working, and he asked me he goes who “who benefits by doing business that way” and I said “as many people as possible.”
ROB: So, I think that when I go back to goals, embracing chaos is not one of our goals. And so here we are in chaos. So, what I'm trying to do is avoid chaos. So, I'm looking at things like the sort of principles that I always talk to coffee buyers. So, I'm talking to coffee buyers right now in terms of you're on the hook, usually in your organization for making fixation decisions. Or how much are we going to buy? Or when are we going to buy? At what price will we buy, under what terms, all these kinds of things. Amazingly huge, hugely consequential decisions right now. And my first question to you is, unless you were the sort of owner-operator of your business, are you doing that alone? Do you have people invested in the decision-making? And are those people also invested in the outcome?
MIKE: Yeah, and if they say no, then your response is, well, let's talk about that.
ROB: Right, right. And I've always encouraged the people that I've worked with to make sure that they have as many contributors to the consequential decisions as possible. Those should all be stakeholders. And then you all own the failure together. The downside of that is that you all own the success too. You don't get to be a rock star. But you get fired for failure when things are big enough, right? And nobody wants that to happen, especially now. So I think widening your circle of people who are involved in these consequential decisions can only help you right now.
MIKE: And widening the resources from which you draw decisions. So, talking to peers.
ROB: Yeah, I mean, committees are not awesome. They can create a lot of hassle and bureaucracy and aren't sort of biased towards action. But when you're trying to make decisions that can significantly hurt or end your business, the people who will be impacted by the outcome should probably have a seat at the table.
MIKE: Absolutely. You know I'm biased against committees in creative context, but when it comes to money, I'm 100%. It’s until we can't shut the door.
ROB: You gave me a phrase, I don't even know if you remember giving it to me about 25 years ago, “stakeholder soup.” I always think of that one. At the SCA, we had too many stakeholders.
MIKE: Yeah, we had 30,000 members when you count every company, average of 10 employees, and they all think they're my boss, and they were.
ROB: I would say that, you when I think about making those decisions, I end up a lot of times in conversations with roasters where they say, “well, it could go up another 10 cents or it could go down another 10 cents.” And that's usually when I gently remind that person that they've lost the plot. Right. I'll give you a perfect example. So, two weeks ago, market jumped up over $4. Everyone lost their minds, rightfully so.
Not blaming anyone for losing their minds because they were like, my God, now I'm living in a $4.20, $4.30 world. What's going to happen to my business? I don't know that I can operate under these conditions. Cool. Market dropped to $3.40. None of those people fixed. Right? You know, so 60, 70 cent drop down to a place that they were, would have been begging to have a few weeks prior. And suddenly it was, you know, crickets. And it's that mindset, I think that is the, well, my job is to predict this the best as possible instead of my job is to make a decision when things are inside the range that I identified back before things were crazy. Tough one. Yeah, really tough one. But having that sort of sense of, I know what I should say yes to before things look like a casino.
MIKE: How does that change? How do people change that mindset?
ROB: Well, I think we should probably start with how do they get it. Right? So, in the capitalist society that we all live in, more is better. And so if more is better, if it's gone down $0.40, $0.50 would be better. Right?
MIKE: Reminds me of a famous video online where somebody asks him if this, that, and he goes, if my grandmother had wheels, she'd be a bicycle.
ROB: That's gonna get used again, all right. But, I think that I hesitate to call it greed, because that's not what it is. In some people it is, but I think it's more a sense of it's my job to do better. And what I'm trying to point out to people is that in an environment like this, it's your job to do good enough. Better is always, you know, the enemy of perfect. You know, or good enough, I mean, you know, so what we want here is I see an opportunity to do something that I know will actually work and I should feel empowered and liberated enough to take it.
MIKE: Yeah, and do get enough in both directions.
ROB: Yeah, right. Because when the seas are calmer, there'll be plenty of chance to chase really great things because you'll be standing on a solid foundation. Right now, it's sort of like, if that price works, say yes to it.
MIKE: Yeah, do you think people don't know the right price or the price that works for their business?
ROB: I think that's a huge problem. I think that there's a lot of people who are just looking at it as it's either too high or I don't know what will work. And so, I also want a chance to sort of refine my thing of make a plan. It's that kind of stuff that's in the plan, right? It's like knowing what my customers and constituents can afford or where that sort of upper threshold is and what that looks like should make it easier to say yes to it.
The good thing about volatility is you do find yourself in places where in the middle of a swing, you can find yourself inside this very small window that you've outlined for yourself. It's frustrating to me sometimes to know that we're inside that window and the phone doesn't ring.
MIKE: Yeah, yeah, it is frustrating.
ROB: Yeah, or that they haven't, you know, preset instructions, right? I like to go play poker once a year in Las Vegas. When I do, I take whatever amount of money I'm prepared to spend and lose that day and I put it in my pocket. I put the rest of my money in the safe in my room and I don't go back up there again. And that way I've decided what I'm willing to lose. And that discipline of I made the decision before I was at the table and I felt like I was hot. And therefore my, whatever happens, that decision's already been made. And so, I think that having that sort of mindset as you head into a fixation decision or into a pricing decision is super helpful.
MIKE: Yeah, I sort of picture, I'm thinking about this ideal green coffee buyer watching the market and thinking here it comes, here it comes, here it comes, call Rob. Then go in the other direction, here it comes, here it comes, here it comes, call Rob.
ROB: Don't call me, call Price Fix. Anyway, you know what I mean. So, I think we live in a world also where people are very competitive and they're wondering what other people did. Did my competitor buy coffee cheaper than I did? That's not a helpful thought to be having right now.
MIKE: That's a bit of a recipe for bad things to happen.
ROB: So, let's sum up. We're in a place, as we've discussed, where it's really hard to know what's going to happen next. We're in a place where people could be excused for feeling burned out, could be excused for feeling afraid, they could be excused for feeling paralyzed. And all of those things are valid, but they're not helpful. If we're going to protect and maintain the businesses that we have, we have to have the mindset that this too shall pass. So, I will end with the same sort of advice or plea that I've had for the last few episodes, is talk to as many people as you can, especially your trader, but also your peers, people whose opinion that matter. They don't have to know anything about coffee, by the way. I'm in a difficult situation. What do I do? There's people that you know in your life that you can go to for that. This is a good time to do that.
MIKE: Absolutely.
ROB: I think also you should be very open and honest about your own biases, especially your biases in times of crisis. If you are a person who freezes, you're a person who procrastinates, you're a person who likes to take crazy risks… Time to sort of lay that out on the table, find ways to hold yourself accountable to those things. And I think that most importantly, is set the standards for what a good option is for you and be prepared to say yes to it. Windows of volatility occasionally throw you a bone. You just want to be ready to take it. The worst regret you can have is, that would have worked for me. It happened and I didn't do it. That's a tough spot to be in.
But I would say at this point, I would really love to hear from you, not you Mike, you the listener, about what we could talk about that would be helpful. I don't know what next two weeks of market will bring us in terms of current events, but I do think that I've heard from some people that they're enjoying the conversation. I'd like to broaden it and hear from people.
MIKE: No, that's definitely feedback we're getting. Great. Thanks, Rob. Thank you.
