The Rise of Small Producers– July 10, 2019
Smaller business’ ability to drive growth through a people-first strategy shows that in the scheme of things size doesn’t matter, but people do.
In America, bigger has always been better. We like our houses, sodas, and even our businesses supersized. In fact, the United States has the world’s most Fortune 500 companies, with over a quarter.
However, today we’ve seen a different trend, especially in the food-and-beverage world. We’re witnessing a modern-day David and Goliath where small businesses are starting to challenge the giants. Nielsen, a consultancy, reported that between 2011 and 2015 the 25 biggest food-and-beverage companies generated 45% of sales, but only drove 3% of industry growth. Who was driving the growth? 20,000 companies outside the top 100 were responsible.
Taking a look at various powerful micro-brands, there is a provocative fil rouge or guiding principle among them. All of these small companies have put people instead of profits at the center of their work. Instead of the traditional strategy of cutting costs, they looked for ways to build value by designing better business practices and elevating the quality of their products.
Intelligentsia is just one example of many small pioneers who dared to transform its industry by focusing on people before profits. The tiny powerhouse’s ability to drive growth shows that in the scheme of things size doesn’t matter, but people do. Doug Zell founded the company in 1997 when he saw a growing demand for better coffee. Quickly afterward he developed Direct Trade practices when he realized Intelligentsia should be working closer with the growers. With Direct Trade, Intelligentsia buys directly from farmers guaranteeing that the farmer instead of the exporter gets all the profit. Beyond paying farmers above the national fair trade level, Intelligentsia develops meaningful relationships with the farmers. The coffee roaster has a team dedicated to traveling to each farm every year to exchange knowledge with the growers.
This approach to the workers became foundational to the coffee roaster’s value proposition. The website states, “It is the ultimate paradigm of mutual advantage—better coffees for consumers, and better prices for growers.” When Intelligentsia focused on the farmers, their work got better. They became more passionate about growing better quality coffee and as a result Intelligentsia was better able to cater to the growing desire for fuller flavored drinks. While conventional coffee roasters burn their inferior quality Robusta beans to cover up any bad tastes, Intelligentsia roasts its coffee at low temperatures for a short time in order to preserve the natural flavors and aromas present in the superior quality Arabica beans. It’s coffee is a success. Today Intelligentsia roasts 3 million pounds of coffee for 700 restaurants and cafés in the US.
Since 1997, other coffee entrepreneurs have followed Zell and started companies focused on creating a better experience for all stakeholders. By focusing on ingredients, origins, and preparations, other small players like Blue Bottle, Stumptown, and Verve have changed how people drink coffee. Coffee consumption in the US is now 59% specialty according to the National Coffee Association. This was the first time it surpassed conventional coffee. It also reports that over the past 18 years, specialty coffee has seen the strongest growth in the sector. With this success, the small guys have been able to challenge the big guys.
As a result, the big players began implementing a people first strategy. Starbucks developed its Reserve brand that offers premium, single-origin Arabica coffee. Like its new competitors, Starbucks partners with small growers to help them boost the productivity and quality of their Arabica beans. McDonald's, the other major US coffee company, has also introduced sustainable practices in its McCafe line with the McCafe Sustainability Improvement Platform, which is a framework for sustainable sourcing and investment in coffee growing communities.
The coffee industry is not the only US industry being transformed by small companies who decided to be the best in the world while being the best for the world. The chocolate, beer, bread, and wine industry are just a few other examples where this dynamic developed. As more American businesses, both large and small, realize the power this strategy holds we can look forward not only to better products but a better world.