At the front end of most up-market and consumer changes, lie an influx of intangible assets, i.e., the development, execution, and continuity of specific, competitive, and revenue generating arrays of intellectual, structural, and relationship capital.
After all, it is an economic fact that today, for the irreversible future, 80+% of most businesses value, revenue generation, competitiveness, and sustainability lie in – emerge directly from intangible assets!
Estimates suggest 3 billion cups of coffee are consumed daily…no surprise to mostthat coffee is and remains a,
- staple presence in the daily lives of a significant percentage of the world´s population,
- significant agricultural commodity that is traded internationally, and a
- positive social and economic influence for 25+ million families – mostly small farmers who live – work in 50 +/- coffee producing countries.
As in many ‘commodity value chains’, in this instance, coffee…(a.) brands, and (b.) processors, are generally based in higher income – wealth bearing countries, and therefore, develop, build, and retain most of the (coffee) industry’s value.
To date there are 50+/- climate suitable countries which grow – produce coffee…with their (total) export value estimated to be <10% of the estimated $200 billion value assigned to the global coffee industry….
- in other words, to no readers’ surprise, most small, coffee growing – producing farmers receive a comparatively small percentage of the retail price consumers willingly pay for coffee-by-the-cup or at any one of the growing numbers of (coffee) specialty retail establishments or purchase (retail) at grocery stores.
The ‘difference’, as is variously the case, a consequence of the asymmetries of…power, control, and wealth-based influence over…
- the governance of market driven (coffee) value chains, and
- when, where, and how to create,
develop, and market coffee’s intangible value(s),
- which generally accrue to – emanate from specific coffee brands,
- that largely manifest as retail-level experiences and the expanding culture – demographics of coffee drinking consumers, which
- collectively denote the end of coffee’s value chain.
Not surprisingly, most of the value generated by and within the coffee industry…accrued through (1.) mass (coffee) distribution outlets, i.e., grocery chains, (2.) higher-end beverage (coffee) preparation technologies, and (3.) retail coffee chains ala franchises and licensures.
On the demand side (of the coffee industry) there were significant (intangible) changes occurring, particularly noticeable in the U.S…
- and, largely commencing in the mid-1960’s and 1970’s was the advent of independent ‘coffee houses’,
- and, arguably, what was to become an even larger leap, occurred on March 31, 1971, at Pike Place Market in Seattle, Washington; the first Starbucks officially opened for business.
- the presence of Starbucks would serve to further distinguish and influence the coffee industry insofar as the when, where, why, and how coffee would be consumed,
- by ever discerning consumers who would seek further differentiations in coffee, mean- while,
- the growth in Starbucks’ properties would produce value laden foundations for what would become an expansive global empire of coffee specialty retailing, and, in doing so,
- usher in an array of comparably unique – specialty competitors and coffee drinking (retail) experiences,
- many of which produced, by design, or perhaps mere coincidence, their own and variously distinctive intangible ‘assets and value’, which in turn,
- generated an array of new opportunities in the ‘global coffee value chain’ i.e., demand and differentiations in coffee, farmer growers, coffee origin, and retail expansion.
With respect to the demand-side of coffee…differentiation in origin, taste, and consumer experience (intangible assets) have evolved. It’s instructive to recognize that in the first 65+/- years of the 20th century,
- there was little, or no demand for – distinctions insofar as coffee bean origin, either at the retail or consumer level, with
- the west’s coffee market largely dominated, almost exclusively, by brands and slogans, ala ‘good to the last drop’, Mrs. Olsen, Juan Valdez, etc., which advocated taste differential was directly linked to brand, not coffee beans, origins, or production technologies,
- and, consumers’ purchase of (packaged) coffee was influenced by retail grocers’ adherence to standardization, volume, and the mysterious ‘locked in freshness and aroma’, ala intangibles.
Conventional coffee buying and consumption were indeed undergoing experiential (intangible) changes…prompted in part by the independent ‘coffee house’ movement occurring throughout the U.S. and beyond, in the 1960’s and, of course Starbucks in 1971 which…
The new specialty coffee players began aggressively…marketing the largely intangible (felt, perceived, real) distinctions of coffee’s purchased for retail consumption as ‘beverage attributes’, also intangibles. The inference being; their brand held ‘coffee quality – taste comparables (intangible assets) whether produced and consumed at a specialty coffee shop, or in one’s home ‘by the cup’, the consuming experiences (intangible assets) would equate, so they said.
- became the proverbial ‘first adaptors’ of a soon-to-be highly differentiated segment of coffee consumers, ala intangibles!
As more distinctive – differentiated (intangibles) appeared, associated with the national and regional coffee brands, began to appear…particularly in how specialty coffee, i.e., beverage attributes, would be prepared technologically and by ‘baristas’.
- I visited an early version of a ‘specialty coffee brand’ (production) plant on or about 1980, in Evansville, Indiana, of all places. The brand’s packaging (on the day I visited) included most of the coffee specialization buzz words – marketing language relevant at that point. The processes I observed were coffee beans being roasted in large vats without any distinction of bean origin. At presumably a designated time in the bean roasting process, a ‘watery mix’ of artificial flavoring was introduced and blended with long wooden paddles. In 1980, I presumed the flavoring was added to the beans to accommodate consumers discerning tastes.
- It’s not much of a stretch, in 1980, to assume that some of coffee consumers’ discerning (distinguishable flavor) tastes were naively thought to be organic to (a.) growing different varieties of coffee beans, relative to (b.) the 50+/- countries with accommodating climates.
The (coffee) consuming experience, and, higher price points, were elevated by the infusion of ‘new – marketable’ intangibles…which melded together nicely and profitably, thank you very much.
In many instances, leadership of the conventional coffee brands conveyed receptivity to…either replacing or adding detail to their standard coffee’s, by endeavoring to distinguish – draw attention to coffee bean origins, provenance, aroma, and taste as worthy differentials. Of course, this was prompted in no small part by evolving – accommodating preference for retail coffee consuming experiences. Each experiential – taste adjustment contributed to elevating the interest and value of the coffee industry over the last 30 years which few would disagree, had previously been largely flat, if not dormant.
Collectively, what was obvious by the 21st century, were…abbreviated ‘value chains’ as a rather natural result of direct coffee grower – specialty coffee trade cooperation, ala farm-to-table, so-to-speak. This, of course, was married to innovative ‘beverage attributes’, an increased role of agri-science and bean origin and a multitude of ‘intangible’ product differentiators which manifest as enlightened consumers and elevated value propositions throughout the supply and distribution chain.
This purposeful trade cooperation can lead to a business model…whereby individual and joint intangible values emerge which provide incentives for establishing longer-term relationships at prices that are not limited by the vagaries of commodity markets and can develop a relational value chain governance where both farmers and retailers depend on one another to create additional value. Scaling up this model may both increase overall value and shift more of that value to producers. This can provide significant opportunities for farmer-owned brands and Geographical Indications to conquer new segments and create a measure of consumer-level recognition for notable origins and farmers, enhancing prospects for upstream actors to capture consumer loyalty and appropriate value. Certainly, the wine sector has achieved a high level of development for its intangibles that capture consumer value and there is no reason why coffee growing communities and the industry overall cannot achieve a similar outcome
In today’s barista – specialty dominant coffee retail market…coffee bean growers-producers and specialty retailers may have fewer, or, at least, narrower options upon which to develop – create appealing – attractive distinctions and competitiveness, aside from (a.) pricing, (b.) introducing new-more specialty beverages, and/or (c.) introducing ‘robotic baristas’ driven by AI, with the presumed outcomes being ‘novelty and specialty beverage consistency’. All considered and/or executed in an effort to avoidthe now, somewhat proverbial ‘race to the bottom’ wherein competition occurs primarily on the basic factor of price.
On the other-hand…developing and leveraging (a.) supply side, and (b.) demand side intangibles (assets) is generally a much preferred solution (option).
This post was inspired by a World Intellectual Property Organization Report, Working Paper 39, (November 2017) titled ‘The Powerful Role of Intangibles in the Coffee Value Chain’ authored by Luis F. Samper, Daniele Giovannucci, and Luciana Marques Vieira.
Michael D. Moberly St. Louis July 1, 2019 [email protected] ‘the Business Intangible Asset Blog’, since May, 2006, 650+ (long form) posts published, ‘where one’s attention span, business risks, realities, intangible assets and solutions converge’!
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