Coffee subscriptions have been gaining steam for years, but nothing could have cemented their popularity like the 2020 pandemic. We heard from roasters all around the world that, as in-person coffee consumption declined, ecommerce and subscription orders skyrocketed.
While many roasters have built their own coffee subscriptions within self-hosted ecommerce stores, others have leaned into another option: selling coffee via third-party subscriptions. And when we learned that by the end of April, JAB-backed Trade Coffee had already quadrupled its customer base since the start of the pandemic, it was clear why.
We interviewed over a dozen industry experts to understand how selling roasted coffee through third-party subscription boxes like Trade, Mistobox, and others can be a viable path to growing your business.
For many of the experts we interviewed on this topic, partnering with subscription boxes didn’t just mean margin increases in orders—sometimes roasting volume doubled.
But third-party partnerships aren’t for everyone, so let’s dig into the details of whether this is a good path for your business and how you can get started. We’ll cover things like…
- The two key trade-offs of third-party partnerships
- How to prepare your operation for additional roast volume
- Why you can’t rely on building brand loyalty via third-party subscriptions
Let’s dig in.
The Trade-Offs of Exposure: Lower Margins and Control
Let’s focus on the positive first. Getting your brand and products into a third-party subscription box can feel like a shortcut to capturing customer interest and greater exposure.
Trade grew its subscriber base by over 400% this year and expects to ship over one million bags of coffee by March 2021. Bottomless, a tech-driven subscription company that uses a smart scale to automatically reorder coffee for customers, went from 750 customers in late 2019 to over 6,000 subscribers in October of 2020.
This kind of subscriber growth is stunning, especially when you consider that roasters on the major platforms were already experiencing high order volumes years before the pandemic.
Prepare for Extra-Tight Margins
Exposure comes at a cost: lower margins on each order.
Most third-party subscriptions pay wholesale price or lower per bag of beans, depending on the sales volume. If you’re a major name in the industry, you might have more leverage to negotiate a slightly higher rate. For most roasters, there are specific price points that vary from platform to platform that you must be able to achieve.
We strongly suggest digging into your wholesale pricing breakdown so you can identify a minimum viable price you can use to evaluate agreements with potential subscription partners. We also suggest reaching out to potential subscription partners about how they’ll provide shipping and labeling materials (and if you have to pay for any of it), as that will impact your margins as well.
Even in best-case scenarios, your margins will be significantly lower compared to retail sales or selling via your own ecommerce store. Like in any business arrangement, it’s best to go in with as much understanding of your financials as possible.
You’ll Have to Give Up Control
The second, and largely underestimated, cost of partnering with third-party subscriptions is the loss of control over the customer journey.
When you sell direct to consumer (DTC) via a retail shop or online store, you’re able to communicate with those customers again and again. You can send a personal thank-you email. You can offer loyalty rewards and discounts. You can build a relationship.
Partnering with a third-party coffee subscription means you delegate all of that to your partner—those customer relationships are out of your hands. Naturally, this means you’re stunted in your ability to connect with the people who receive your coffee on a deeper level. They’ll likely never think of you as a preferred roaster, just an enjoyable stop on their coffee exploration journey.
Our biggest initial hurdle was in letting go of some control over the consumer experience when our team isn’t actively shepherding every step of the journey. That being the case, partners like Breville and Trade have a phenomenal reputation for a reason – and our partnerships are built on trust and appreciation for our brand and that product experience.
— Josh Weichhand, Strategy @ Madcap Coffee
How to Prepare Your Operation for Third-Party Subscriptions
Subscription platforms want to partner with roasters who can reliably fulfill orders on time, without error, and with unwavering quality. Before you begin connecting with potential partners, you’ll want to make sure you’re set up and ready for a potential influx of orders.
- Measure your roast capacity. How close are you to max roasting capacity? Would you be able to fulfill 50 extra orders a week? What about 100 or 200? Different services will have different estimates on the volume of orders they can provide you, and it’s better to know what you can reasonably handle going into a conversation.
- Automate processes wherever possible. Larger order volumes at lower margins means you need efficient systems for roasting, labeling, and shipping for the numbers to work out. Optimize your assembly line, auto-print shipping labels, and consider using an electronic doser to cut down on bagging time.
- Create contingency plans. So you know you can handle an extra 100 orders per week. But what happens if you receive 150? Think through the steps it would take to fulfill those orders, if necessary. Would you need to train a second roaster just in case, or do you have a roaster anyone can use without special training? This will signal to potential partners that you’re a thoughtful and reliable planner.
If you’re only roasting one or two days per week, it’s likely you’ll be asked if you could roast instead 3-4 days. Subscription services need to ship coffee out to customers on rigid timelines, often within a day or two of the order being placed—can you meet those high-speed needs?
Given the low price requirements, you might want to create a new offering—or a few—that you can justify the low margins with (without sacrificing quality standards). Get as much information as you can from potential partners about what kinds of coffees their customers prefer, then you can tailor your subscription offerings to meet demand.
Try to make your coffees as compelling as possible with a detailed and interesting background on the origin, farmers, and other elements that will help elevate the recipient’s experience. This makes both you and your subscription partner look good. It will also likely result in higher ratings, which will make the algorithms more likely to suggest you. All of which improve the relationship between you and your partner.
Mindset Shift: Third-Party Subscription Customers Aren’t Yours
Resilient businesses don’t only rely on a constant flow of orders, but a constant flow of repeat customers (regulars, as we know them).
Trying to earn one order after the next can be expensive, frustrating, and unsustainable. Imagine having to purchase an advertisement or get on a sales call for each order of coffee. Earning customer loyalty, on the other hand, means you receive repeat orders organically over long periods of time after the initial conversion.
In most cases, earning customers, not just individual orders, is the key to sustainable and long-term growth.
Partnering with a third-party subscription, however, is like earning orders. You have to offer a significant discount for each order, but you rarely get the benefit of brand loyalty. They’re ultimately not your customers. They’re your partner’s customers who happen to get your product.
However, even if you can’t bring third-party customers into your own ecosystem, there are still significant benefits to getting your coffee out to so many people via a third-party coffee subscription.
2nd and 3rd-Degree Exposure. When Mistobox customers post on social media about their new delicious coffee, that’s hundreds or thousands of new eyeballs on your brand and product. Trade Coffee has built an impressive PR machine—maybe your coffee will get picked up by influencers or journalists. Smaller regional subscriptions are likely to get local press.
Purchasing Volume Discounts. The more coffee you order from importing partners, the more leverage you have to negotiate bulk discounts. Greater order volumes may also allow you to spread the cost of shipping across more volume, lessening the logistical cost per pound.
Reliable Incoming Orders. Many of the experts we interviewed commented that the reliability of third-party subscription orders is a major bonus. Even if the margins are thin, they’re regular, meaning you can build streamlined roasting systems with a more consistent schedule.
All that said, every now and then, you’re likely to turn a customer from your partner to your brand after they’ve had a great experience. Maybe they’re tired of picking new coffees each week and just want something consistent. Or perhaps they’d rather support a small business than a large subscription. It happens, but don’t rely on it.
Limit Risk: Roast on a Machine Anyone Can Use
The challenge of using a traditional coffee roaster is that the roasting technique itself is difficult to master and replicate from person to person. Some of the experts we interviewed commented that, during order peaks, it was a strain on the lead roaster to get all the orders out in-time.
That’s one of the challenges we solved with the Bellwether Roaster. Our first-of-its-kind coffee roaster is so precise and consistent, that once you create the roast curve in the Bellwether app, anyone—and we mean anyone—can roast the same way every time.
That means, when you get that +50% spike in orders, you don’t have to call your head roaster and tell them to cancel their dinner plans, or fail to hit your shipping deadlines. Any of your roasting assistants, baristas, or dishwashers can take over without risk.