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i’ve been thinking a lot about the idea of whether or not a large business can function ethically, specifically as it relates to coffee:
just a year or two ago, i was sitting at a cafe owned by a friend, talking about the Intelligentsia buyout. i was on board! a majority investment stake has been purchased, it that meant Intelligentsia still had some level of autonomy that wasn’t afforded by others.
stumptown, blue bottle, la colombo: all of these business were bought and sold outright MULTIPLE times. with a just an investment stake, that meant Intelligentsia would have access to capital but be able to continue to function the way it has always been.
i remember running into @NickCho in korea a few years ago (hi nick!) and one of the things he asked me about where Net365 terms for farmers.
Net365 means that the buyer doesn’t have to pay money for the coffee they buy for a full year! that’s devastating to producers, and apparently something that JAB had been implementing to all its new roaster roster.
i told nick that no, Intelligentsia hadn’t done that. in fact, one of the best things Intelligentsia was doing was paying producers directly and following money all the way to the farm. they could do this easily because Intelligentsia runs its own import logistics.
and payments were usually pretty swift to farmers. i don’t remember all the details, but it some instances, coffee was paid for at the time of purchase, or even pre-purchase. pretty cool!
back to me and my friend arguing at the cafe: i was on board with the idea that access to capital and a bigger sales goal for a company that ethically sourced its coffee was a net positive.
at the time, Intelligentsia roasted probably twice that of Blue Bottle, and was about 30% bigger than Stumptown and Counter Culture. i’m not sure people know how big Intelligentsia’s roasting was, but itclose to 4-5 million pounds a year.
i couldn’t see a world in which Intelligentsia was routinely paying $3-$3.50 a pound for green coffee (sometimes $4-5/lb) for at least 3 million pounds of coffee they were buying each year was a bad thing.
i still don’t think i’m wrong. those numbers are a bit net positive for sustainable coffee prices. but my friend was arguing that the bigger a business gets, the less likely they’ll be to operate ethically.
and he’s not wrong. history usually supports this argument. what i didn’t expect was how quickly a company focused on growth could shift its priorities.
when everything comes down to the bottom line. small shifts can make a huge difference. cutting staff, cutting wages, paying less for coffee. and implementing Net365 terms, which, i think Intelligentsia has now been implementing ( @NickCho you called it)
what that does is make a company look profitable on the books: the top line sales numbers are still big, but the bottom line operating costs are reduced, and with longer terms, they’re hidden off the books.
this makes the company really attractive for investment or for going public: it gives a false sense of protiability, and profits are what investors are looking for.
THAT MEANS YOUR COMPANY HAS TO MAKE ALL OF IT’S OPERATING COSTS LIKE IT USED TO, BUT THEN EXTRA PROFITS AS WELL TO PAY SOMEONE ELSE
so, functionally, Intelligentsia was a roastert who’s operating costs were too high: things like big needed structural changes to the roastery weren’t affordable. bringing on investors means there’s some access to capital for those things...
... but it also means you need to take a business that was barely breaking even and somehow turn it into a profit factory. and then there go the things that made you different: higher wages and good salaries take a dive, prices to farmers take a cut, etc.
so i think of my friend arguing the importance of small businesses and why that has to be a focus. and now i agree: small businesses are woefully inefficient, but that means there’s little argument by volume to cut costs.
if instead of roasting 4 million pounds a year, you roast 20,000... well; then a $.50 price difference for coffee is a $10,000 cost not a $2 million cost. sure that small company could use that $10,000, but it’s not a profit anyone’s chasing.
i don’t think that bigger companies choose to ignore standard ethical practices, but there’s just no incentive to. and that’s why capitalism as a system will always fail the people: because people will choose to pursue the path that is laid out for them.
capitalism isn’t evil: people aren’t generally evil. but people making decisions to serve the nature of a free market society will constantly make evil decisions willfully because there’s no other choice to make.
tale as old as time: Inteligentsia, a company founded on the priciple of doing things better, has just become another cog in the system to help the rich get richer.
