DAUNTED BY EQUIPMENT DISTRIBUTION?

Clearing a Path Through the Myths and Musts

by Shanna Germain

photos taken at Boyd Coffee Co., Portland, Ore.

QUICK, DECIDE IF THIS STATEMENT IS TRUE OR FALSE:
As a roaster, you must give equipment away to your customers in order to succeed.
    Well, what did you decide? True? False? It might surprise you to know that whatever your answer, you were partially correct.
    Distributing equipment to customers—whether you’re giving, loaning, leasing or selling it—is by no means a “one answer fits all” type of scenario. Despite what you may have heard, there is no one way to do it—or not do it.
    Still, urban legends abound about equipment distribution, from the ever-present idea that you must give away equipment to the one that says you have to have a warehouse that takes up a full-city block.
    So if you’re feeling daunted by distribution, don’t be. We’re here to help. And just like those Myth Buster guys on the Discovery Channel, we’re willing to do whatever it takes to determine if the most commonly held beliefs about distribution are Myths or Musts.

“You must give away equipment”
Myth and Must

Giving away equipment has become par for the course among many mid- to large-sized roasters. For these companies, it’s another way to distinguish themselves, develop relationships with their customers and maintain quality control. But for small roasters, or for those just starting out, the idea of loaning equipment can be emotionally and financially daunting.
    “This is one of those ongoing misconceptions,” says Scott Svihula, director of marketing for Fetco Corporation. “I don’t know where it started, but I hear it from both ends. Food and beverage managers expect to get equipment for free if they sign a contract and roasters expect they’ll have to give away equipment. It’s one of those industry items that doesn’t seem to go away.”
    When roasters loan equipment, they typically enter into an agreement with the customer that states the roaster will lend specific equipment if the customer agrees to buy a certain number of pounds of coffee over a set time period. If a customer switches roasters, they must return the equipment back to the roaster.
    For large companies like Boyd Coffee, which supplies equipment to more than 14,000 customers, loaning equipment, such as grinders and brewers, is a no-brainer. “For us, loaning equipment has been very beneficial,” says Jason Chin, marketing manager of hotels, restaurants and equipment for Boyd.
    Boyd will loan a company everything it needs to brew coffee. “The only thing we ask in return is that the company purchase our coffee,” says Chin. “We’re able to do this because the volume of coffee we sell allows us to get a return.”
    If the customer stops using Boyd’s coffee, it must return the equipment. But Chin says, “we’ll work with them,” so the company isn’t left high and dry without equipment. “There’s no use burning bridges. If they switch to a new company and that doesn’t work out, we want them to come back to us.”
    Although loaning equipment works for large companies—both by bringing in accounts and, in the case of companies like Boyd, by bringing in money—it isn’t something that’s absolutely necessary. And even if you do give equipment to one customer, it doesn’t mean you have to give it to everyone, says Tim Dominick, chief operating officer for Sacred Grounds Organic Coffee Roasters in Arcata, Calif. Sacred Grounds, which roasts less than 100,000 pounds per year, only loans equipment to customers that seem like a good investment.
    “A lot of smaller, newer start-up roasteries are under the misconception that there’s only one way to do it,” says Dominick. “But that’s not true. We say ‘No, we can’t help you with equipment’ to just as many people as we offer equipment to.”
    Dominick says the company doesn’t lose business when it says no to loaning equipment. In fact, he says, many customers want to use their own equipment. “We have customers that we offer equipment to and they don’t want it because they’ve had bad experiences with using equipment from roasters in the past,” he says. Other customers prefer to buy their equipment through the roaster, which then becomes a potential revenue stream for the roaster.
    To decide if you should loan equipment, look at it like any other business decision. Start by doing the math: How long will it take you to pay off the equipment? Will the upfront expenses be justified by long-term sales? For many roasters, a good goal is to recover the cost of the equipment in six months or less.
    “We’ll estimate the usage that an account will have,” says Dominick. “If it’s an account that needs a double brewer and 18 airpots, we’ll really consider it if they’re willing to give us an exclusive arrangement. If it’s someone smaller, we’ll say no, because it doesn’t make any sense for us to give someone a brewer and two or three airpots when they’re only going to brew five pounds a week.”
    If customers do expect free equipment, and you’re not in a position to offer it, you can try another tactic: explain that nothing is ever really free. Typically, customers pay for the “free” brewing equipment in the cost of the coffee. “Giving away equipment is never, ever free,” Svihula says. “Roasters are always including some charge in their coffee, either by charging a dollar more per pound or in some other markup.”

“Loaning is only for large roasters”
Myth

If small roasters do decide they want to loan equipment, it might seem like they’re at a disadvantage—they probably don’t have the necessary capital or credit to buy the equipment right out. But there are ways around that. Many equipment manufacturers offer assistance to small roasters.
    “The idea that ‘loaned coffee equipment is expensive and I can’t compete with big national roasters’ is a common misconception,” says Ric Martin, vice president of national accounts for BUNN Corporation. “By understanding the fundamentals of loaned equipment and getting assistance from a profit calculator program, many of the road bumps commonly associated with these types of programs can be eliminated. We have designed programs that will allow a small roaster to compete on a much larger scope.”
    Because equipment manufacturers want to create long-term relationships with roasters large and small, they offer additional supports and services beyond just selling equipment. “Sometimes there may be a small roaster who’s just getting into it,” says Svihula. “We have a whole program that gives them some added benefits. And a lot of times we help them get started with things—we have coffee 101-like training classes, we do meet and greets, we give them the materials they need to help promote their brand with our equipment.”
    Fetco also offers tools to help roaster customers help their customers. “We have a coffee consumption chart, where you can tell statistically how much coffee you need and how to put together a package that can meet that volume in any given time,” says Svihula. Fetco also offers a Site Survey, which is a checklist that roasters can use when they walk though potential customers’ property to determine how much and what kind of equipment they need to purchase.

“You need an in with an equipment company”
Myth

Most big equipment companies are only too happy to work with roasters. Often, manufacturing companies have special pricing structures for roasters in addition to offering support and services.
    “Coffee roasters are looked upon as coffee consultants,” says Martin. “The recommendation of a coffee roaster helps add credibility to BUNN coffee brewing and grinding equipment.”
    The one stumbling block roasters may find is establishing credit. “For some of the smaller roasters, establishing credits seems to be a challenge,” says Svihula. “We look for bank references as well as three trade references.” If a roaster doesn’t have much credit, the company may ask him or her for some other form of payment in the beginning to establish some credit history.

“You have to supply everything”
Myth

While it’s common practice to loan grinders, brewers, airpots and bean dispensers, very few roasters loan more expensive equipment, such as espresso machines. Instead, roasters offer to sell espresso machines to their customers, often at a reduced cost. “With espresso [machines], it would take a long time to get a return on our investment if we loaned them,” Chin says. The company invites their customers to purchase the espresso equipment from Boyd. Because it’s a moneymaking venture, Boyd can also sell espresso equipment to companies that aren’t customers. “We don’t insist that they use our espresso product,” Chin says. “But if they do purchase the espresso from us, there’s an advantage when it comes time for repair and servicing.”
    A second alternative is to encourage customers to purchase all of their equipment from the roaster. Since most roasters qualify for discounts with the major manufacturers, they can sell the equipment rather than lease and still offer a deal to their customers.

“You need a lot of storage space”
Myth and Must

If you already distribute allied products like syrups and cups, you know how much room products can take up. If you add equipment to the list, will you have to double the size of your storage facility? Luckily, no.
    Often, roasters can order directly from the manufacturer who will then ship the items directly to the customer. Roasters may never see the equipment until they’re ready to help calibrate it or teach the customer how to use it. “We can ship stuff to the roaster or directly to the customer,” says Svihula. “Sometimes we ship it to the roaster first so they can do labels, calibrations and installation.”
    Other roasters choose to keep their own equipment on hand. This is especially true if you plan to reuse and refurbish the equipment. Boyd, for example, has a huge storehouse of equipment that’s either waiting for a home, ready to be refurbished or being repaired.
    “We basically take new equipment and run it into the ground,” Chin says. “Then we refurbish it so it appears brand new.” This allows the company to keep everything on hand, ready to ship out as soon as someone needs equipment.

“It’s a never-ending job”
Must

In most cases, if you loan—or even sell—equipment to someone, it’s not a one-time gig. Instead, you must remember that you’ll likely be responsible for servicing the equipment, helping the customer to calibrate and use the equipment properly and taking care of getting the equipment returned if the customer goes belly up or switches coffee roasters. And, on top of all that time and energy, none of that is going to make you any money.
    “Boyd’s has service technicians around the country,” says Chin. “One concern is that we loan the equipment and we have a service department that supports that. The service department is not a revenue center. By the sheer fact of what they do and the quality and scope of what they do, they’re not a profit center.”
    Still, Chin says, the service and support helps strengthen the relationship enough that it makes it worthwhile. “It helps accentuate a true partnership,” says Chin. “Once we have our equipment in there, we take on ownership of the maintenance. Most of the time, this doesn’t matter, but when your equipment is down, it’s a big deal.”

“You’ll gain a loyal customer”
Myth and Must

By loaning equipment and offering service, you can create strong, lasting relationships with your customers. But only if you do it right.
    First off, make sure you have written or oral agreements with your customers. That way, both parties understand the guidelines and expectations. And even then you might run into trouble. “When you go into a contract, although the contract should be binding, it really isn’t,” says Svihula. “A lot of times I’ll sell an equipment package to a roaster for a specific account and then another roaster will come in later and order the same equipment package for the same account.”
    While you can’t control what your customer will do, you can make sure you’re holding up your end of the bargain by following up with anything you’ve offered, whether it’s education or equipment servicing. “One thing that’s important is if you offer support, make sure you follow through,” Chin says. “If you can’t do that, it might be better not to get involved. It must be incredibly frustrating to be on that side of the business and not be supported by those who said they’d support you.”
    And if customers feel supported, both on the service side and on the quality side, they’re less likely to feel the need to go out and find a new roaster. “If you give them a couple of brewers, grinders and airpots, it makes it that much more difficult for another person to come in and take that account away,” Dominick says. “There are a lot of good roasters out there, but not a lot can make sure that customers not only get their coffee on time, but that their equipment needs are met, too.”