Sintercafé November, 2011 - Sintercafe

Sintercafé November, 2011 - Sintercafe

MANAGING GREEN COFFEE ARBITRAGE: A Roaster Perspective on Portfolio Usage & Consumption Sintercafé November, 2011 Agenda • Massimo Zanetti Beverage...

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MANAGING GREEN COFFEE ARBITRAGE: A Roaster Perspective on Portfolio Usage & Consumption

Sintercafé November, 2011

Agenda • Massimo Zanetti Beverage Group / MZB USA • MZB USA Portfolio • Green Coffee Market – 24 Months of Volatility • MZB USA Changing Consumption • Why Change? Complexity, Diversity, Volatility & Necessity • Green Coffee Strategy • Business Segment Decisions • Q&A

Massimo Zanetti Beverage Group • Italian-owned, privately held, vertically integrated Coffee Group

We aim to offer our coffee, • Multinational group of nearly 50 companies

our cafés, our quality and our service world-wide.

• Working in over 100 countries • Global sales of US$ 1.4 billion • Growers:

– Brazil, Hawaii (Kauai), Costa Rica • Roasting plants in 11 Countries; nearly 140,000 tons Annually • Processing & Milling: Brazil, Costa Rica, Honduras, Kauai • Trading Operations: Switzerland, Vietnam, Indonesia • Professional equipment: San Marco & Office Coffee Systems

Massimo Zanetti Beverage USA • Coffee heritage dates to 1871: – Chase & Sanborn, Hills Bros., Chock full O’ Nuts – The first Company to vacuum-pack coffee • Headquarter Operations and Roastery in Virginia • MZB USA created December 2005 following acquisition by the Group • Primary businesses: Retail, Private Label, Foodservice and Cafés • Manufacturing capabilities include: Canned, Flexible, Flavored • Sourcing Coffees to meet all segments: – Estate, Single Origin, Fair Trade, Utz Certified, Rainforest, Organic • Largest single producer of Hawaiian Coffee in the U.S. – Kauai Coffee

MZB USA Portfolio / Segments • Branded: Chock full o’ Nuts, Hills Bros., MJB, Chase & Sanborn – Comprise 40% of volume – Broad range of products, sizes, packaging, origins, quality segments to meet consumer demand – Cup quality and profile internally controlled • Corporate Brands / Private Label / Own Brand – Comprise 50% of volume – Extensive range of products, sizes and qualities required – Cup quality determined by customer specification or NBE • Contract Manufacturing – Comprise 10% of volume – Very specific specification and participative green buying – Large volume with limited SKU complexity, no variability

NY ‘C’ WEEKLY

LIFFE WEEKLY

NY – LIFFE ARBITRAGE (cents/lb)

5 YEAR ARBITRAGE CHART (cents/lb)

20 YEAR ARBITRAGE CHART (cents/lb)

Why Change? Complexity, Diversity, Volatility & Necessity 1. Economic conditions have driven changes in coffee consumption 2. 24 months of unprecedented volatility in both cost and supply 3. MZB USA competes in all channels of North American coffee business 4. Manage in excess of 1600 SKUs 5. Provide opening price point (OPP) to single-origin estate-quality finished goods

Why Change? Complexity, Diversity, Volatility & Necessity 6. Compete in the highly promoted, mainstream canned market (60% promoted sales) 7. Large % of volume (PL) is customer controlled via specification 8. Managing “cup profile” & acquisition costs of green is critical 9. Utilize multiple origins, qualities, and roasting methods to manage costs 10. Quality expectations balanced against final price to consumers

Green Coffee Strategy • Cup Profile #1 Priority – Blend & Recipe Development – Differentials – Origin Availability • Increased Robusta Usage (YTD +26%) – Customer Demand – New Products and Customers – Supply – Cost • Risk Management – Volatile Markets drive delivery uncertainty – Higher risk of quality rejections – Strong supply chain relationships

Business Segment Decisions & Drivers of Change • Branded – Package downsizing across much of the category (10-15%) – Introduction of value blends to manage customer cost – Blends composition – Type & Origin – Manage the “CUP” – Multiple price advances across the category – Green Coffee increases have outpaced promoted pricing

NY Retail Market: Can Pricing vs. Green Pricing $4.00 $3.50

Coffee Prices

All 1#

Arabica

Robusta

Av. Green Coffee

$3.56

$3.00

$2.73 $2.52

$2.50 $1.95

$2.00 $1.57 $1.50 $1.00

$1.17

$1.16 $0.74

$0.50 Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

• Consumers pay 38% more for coffee today than in Q1-2010 on promotion • Meanwhile Arabica prices have risen 80% while Robusta prices are up 57% Source: Nielsen ScanTrak, NY $2MM and indexmundi.com

Q3 2011

Business Segment Decisions & Drivers of Change • Corporate Brands/Private Label – Downsizing packages to meet the National Brands – OPP offering now required in mix (Extreme value) • Value positioning for a certain consumer segment – Blend optimization to manage cost & cup • CAFÉS – Out of Home quality remains unchanged – Added menu items and promotion to attract customers

Thank You. Questions & Answers