And he’s going to charge them more in order to do it
Poul Mark is trying to convince his customers to pay more. After all, he certainly does. The founder and majority owner of Edmonton coffee chain Transcend Coffee pays an average of six dollars per pound of green coffee beans, when the across-the-board average is between one and two dollars. But, he says, this premium isn’t reflected in the price consumers pay, and while the company recently increased its prices by an average of 25 cents per cup, that will barely cover the 50-cent-per-pound increase in the price Transcend will pay for its green coffee this year. His margins are razor thin, and he’s not alone. Niche coffee companies across North America, from Canmore’s Mountain Blends to Calgary’s Phil & Sebastian, are struggling with the same pressures.
So Mark has spent the last five years trying to change the way Albertans think about coffee. He’s emphasized the importance of quality and technique, trained his employees to the standards of a java-phile and made a point of establishing clear and transparent relationships with his growers: Transcend sources its beans directly from farms and co-ops in Latin America and Africa, which Mark often visits, and pays them a living wage for their work.
Whether he succeeds in re-setting the expectations of his customers remains to be seen. John Pracejus, a University of Alberta associate professor of marketing, says this attempt to encourage the public to think differently about coffee has to be done carefully. “Having an extreme product can raise the public’s perception of what the average product is,” he says, “but you can’t push the boundaries too high unless people learn how to appreciate the finer points of the very expensive end of the range.”
And this fall, Mark is taking his campaign to a whole new level. He’s unveiling what is almost certainly the rarest cup of coffee in Alberta, and perhaps all of Canada. The coffee for this cup will come from a Costa Rican farmer named Mauricio Montero, who only produces 40 to 50 150-pound sacks of the beans a year. Because it’s grown 2,000 metres above sea level, the coffee plant has to work particularly hard to fully ripen and mature, which gives it more complexity than the average bean – think of it as the Pinot Noir of the coffee world. When it’s ground and brewed it features a rich and round nose with floral aromatics and notes of dark chocolate and lime. Oh, and the price? $10. A cup.
To some it’s a logical extension of a trend that Starbucks started more than a decade ago, when it showed millions of North Americans that coffee was more than just a low-cost source of wake-up juice. And while companies like Starbucks might look like competitors for a business like Transcend, Mark says it’s almost the opposite. “We see it as a feeder system,” he says. “It introduces people to the concept of coffee done better.” More important, says Alberta School of Business professor Robert Fisher, is the fact that companies like Starbucks also introduced people to the concept of coffee done more expensively. “[Since Starbucks,] people are much more likely to accept a higher price point and appreciate variations on that quality,” he says.
That’s not the only favour that Starbucks did for companies like Transcend, either. After creating the market for higher-priced coffee, it vacated some of it in the early 2000s in order to try and capture more of the mainstream market, the people who usually buy their daily fix from places like Dunkin’ Donuts and Tim Hortons. Starbucks has reversed course a bit in recent years, but the damage was done – and companies like Transcend were more than happy to fill the void that it had created. Mark opened the doors to Transcend’s Argyll Road location in 2006, and after spending its first few years in business finding its feet, Transcend made big moves in 2010, adding a new location in the popular Garneau neighbourhood near the U of A and opening up on Jasper Avenue in 2011. At nearly the same time as it was opening these new stores, the company bought a large new roaster from Europe, installed it in a new location, and turned the suddenly empty space in the back of the Argyll café into a bakery.
But, as it turned out, this growth spurt nearly killed the company. The company’s payroll jumped from around $8,000 to $85,000 per month, and it struggled to keep pace with the fixed costs associated with its new locations. “It was almost disastrous,” Mark says. As a result, he put a moratorium on further growth in order to stabilize existing operations, and in recent months has added features like premium beer and wine sales at two of his cafés and a live performance space at the Jasper Avenue location. In time, Mark says, he’ll add new locations, but they won’t be as big or as flashy as the ones he opened in 2010. Instead, he’s aiming for smaller, neighbourhood-integrated locations where he’ll break the mould of the quick-service café model by adding a maître d’ and table service. He also sees Transcend purchasing its own coffee farm in Costa Rica, opening a research facility and even offering eco-tourism.
Photographs Ryan Girard
Although Starbucks opened the door for Transcend to sell a four-dollar cappuccino, Mark believes that the drink, at least the way he does it, should cost closer to six. “There is this perceived price barrier that is crippling most coffee companies in North America because their margins are so low,” he says. His locations are no exception to that: the Jasper Avenue café has to bring in $2,000 a day to break even, while the Garneau store currently runs at just a five per cent profit margin. Mark wants to push these margins to 10 to 15 per cent. “Something’s got to give,” he says. “We’re not waiting for the industry to figure it out; we’re just going do it. I can’t keep doing what we’ve been doing for the last six years.”
For his part, Mark acknowledges that Transcend’s increasing prices may deter some customers, but it’s a risk he’s willing to take. “As we start to charge a more representative price for the coffee we sell, some people are going to be offended,” he says. “That’s okay.” At the end of the day, Mark isn’t expecting the $10 cup to make a big impact on the bottom line. Instead, it’s about recognizing the input cost and the quality in the most recognizable way available: price differentiation. “We’re trying to create choice for the consumer and provide them with another tool to assess quality.”