Cream, sugar, social awareness: Fair-trade coffee firm looks beyond profits

Keywords Philanthropy
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When one considers the new company pays about 40 percent more for its raw product than do its non-fairtrade competitors-and it gives roughly $1 from every bag it sells back to the farmers who produce the coffee beans-it might seem like the McLeans are destined for drinking macchiatos in the poorhouse.

But the couple didn’t build Advance Interface Solutions into a successful business by accident. And Beans for Better Life, their foray into the cappuccino craze, is hardly reckless.

Local entrepreneurs and Fortune 500 companies alike are quickly realizing there’s gold in the hills of sustainable and organic agriculture. Products such as fair-trade coffee and chocolate-which cost more because they guarantee a fair wage to third-world producers-are flying off the shelves.

National sales of fair-trade coffee alone rose from $47.8 million in 2000 to $369 million in 2004, according to industry group TransFair USA.

“By some counts, there are as many as 50 million Americans interested in buying products from socially responsible companies,” said Philip Cochran, a business professor and expert in corporate philanthropy at Indiana University’s Kelley School of Business. “And it’s a growing number.”

Just ask Endangered Species Chocolate, which moved its headquarters and production facility to Indianapolis from Oregon last July. Similar to Beans for Better Life, it donates 10 percent of its profits to charities-in this case organizations that protect endangered species.

In January 2005, the company sold $163,000 worth of chocolate. In January 2006 it sold almost $1 million worth of products, said Marketing Director Jae Park.

Nationally, the balance sheets of similar companies are also bulging.

Massachusetts-based Equal Exchange sells fair-trade coffee and chocolate. In the past three years, the company’s wholesale numbers have doubled from $10 million to $20 million.

Best of all, “The market is still nascent,” said spokesman Rodney North.

That might be why some retailing giants are eager to join the fray.

Illinois-based McDonald’s started a partnership with Vermont-based Green Mountain Coffee Roasters in October to sell fairtrade organic coffee in its New England restaurants.

Green Mountain Coffee had $160 million in sales last year alone. And although a few of the company’s products aren’t fair-tradecertified, its fair-trade sales have gone up an average of 40 percent annually.

“It used to be that you’d go to a natural food store and get a handful of dirt and it’d taste like it, too,” said Ted Ning, executive editor of Lifestyles of Health and Sustainability, an annual journal that tracks the growth of the $230 billion industry for sustainable products, which includes everything from fair-trade items and organic produce to acupuncture and yoga. “And you’d grab a burlap sack and get to say, ‘I’m a great person.’From a mainstream point of view, that’s a stereotype that is definitely changing.”

Ironically, the prospect of Fortune 500 companies like McDonald’s getting into the business doesn’t frighten the McLeans or their counterparts. In fact, they hope more companies join the movement.

“There are lots of people in fair-trade organic coffee roasting and we applaud all of their efforts,” said T.J. Whalen, Green Mountain’s vice president of marketing.

Why? Because once people start consuming eco-friendly products such as fair-trade coffee and organic bananas, they tend to go back for seconds. Whalen said 50 percent of people who learn the story behind fair-trade coffee become regular customers.

That’s why Equal Exchange gives 10 percent of its profits to other fair-trade companies. It’s also why Jerry Cravens, co-founder of Indianapolis-based Hubbard & Cravens Coffee Co., provides free warehouse space for Beans for Better Life. The McLeans contract with Cravens to roast and package their product.

“The number of people who become aware of the proposition, like it, and continue to buy it leads me to believe the market is still growing,” Whalen said.

That’s good news for Beans for Better Life.

While the company has been plugging away for almost a year, it’s sent only a little over $500 to its coffee producers in Papua New Guinea, Bolivia, Nicaragua, Tanzania, East Timor and Indonesia.

That’s far from the world of Advance Interface Solutions, which regularly sold software systems for double that amount. The McLeans would not disclose the sale price of the company.

But the bottom line at Beans for Better Life might not be so slim for long. The company should break even this year.

And Cochran, of the Kelley School of Business, said the Midwest is notoriously behind the curve on business trends, meaning it’s quite possible the McLeans are getting into the business at just the right time.

That might be why Chip McLean thinks sales can jump a hundredfold this year. The company’s goal is to sell 50,000 bags of coffee-and hand out checks for $50,000 to its coffee growers on top of the cash it pays upfront for beans.

He should keep in mind two simple lessons, analysts said: Keep it as cheap as possible and make sure it tastes good.

“There [are] limits to what people are willing to pay,” said Jeff Marr, a vice president at Indianapolis-based research firm Walker Information, who co-authored “Stakeholder Power,” a book on corporate philanthropy.

While he agreed people are willing to pay more for eco-friendly and fair-trade products, customers will go elsewhere if prices get too inflated.

On its Web site, Beans for Better Life charges $9.95 for a 12-ounce bag of fairtrade organic coffee from Papua New Guinea. While Starbucks doesn’t sell coffee with exactly the same origins, it offers a 16-ounce bag of non-fair-trade coffee from the nearby Indonesian island Sulawesi for $11.69.

In other words, Beans for Better Life coffee costs about 3 cents more per cup.

The one area restaurant serving it is willing to eat the price difference based on how much more coffee it’s selling.

Keltie’s, in Westfield, started serving the brew five months ago. Customers like it so much that chef and owner Keltie Sullivan Domina asked the McLeans for individualsize portions she could give away. She was tired of dipping into her own stash the halfdozen times a week customers asked for some coffee beans thrown in with their doggy bag.

“Initially, some [restaurant owners] say it’s too expensive, which is sad, because the cost isn’t that detrimental,” Domina said.

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