sentence I suddenly saw the answer to my issues. My mistake was to think that because I was selling in convenience stores the customer wouldn’t expect real, freshly ground coffee made from beans and fresh milk as they would in a coffee bar. Clearly they would. That was the opportunity – to put a coffee bar product into convenience stores.
My other mistake had been to look at the cost of espresso machines and decide I couldn’t possibly justify that expense. It was now so obvious. How could I have missed this? Giving people a Nescafé drink called cappuccino with whisked up powdered milk and thinking that would work because it was a c-store had been my error.
A low price won’t guarantee sales – if you wow people with the product, then sales will rocket. You then have the makings of a proper business. The next dawning realisation was that this was the pull I had been thinking about, as opposed to trying to push more with signage and promotions. The product itself had to be the champion, the hero, the attraction.
This realisation was the answer to my prayers. All it had taken was for me to get out and spend time listening to what people told me. I had been so close and now I had the answer.
The product must be the hero
Everything fell into place in my mind very quickly. I had been trying to build this new concept with a grocery brand of coffee because the machines were low cost. But the growth of coffee was all in roast and ground. I’d been backing the wrong horse.
Within days I had shared my insight with my accountants and my bank manager. The latter was sceptical – I think he’d heard it all before, but did sign off my facility for another three months.
There was no time to lose. I approached several espresso machine companies in the UK and found a small Swiss-built machine that appeared robust, did a good job of steaming and foaming fresh milk, and was easy to clean. This was a different game altogether though; it was a £4000 piece of kit.
I realised that the coffee itself had to be the focal point. We needed to create an in-store destination. We worked with a product and brand design company to create a concession unit that would house the espresso machine (and a small hot chocolate dispenser). The Nescafé name was gone and the Coffee Nation logo sat proudly at the top, beneath which it said “Fresh ground Coffee”. I decided that a price rise of 10p, to 69p, was in order.
I approached one of the UK’s largest coffee roasters to work with me on the product. I chose a 100% Arabica blend of beans from Brazil, Nicaragua and Kenya that would give a great espresso but also work well with milk for cappuccinos. We’d now be able to talk about where our product came from – it wasn’t just somebody else’s grocery brand anymore.
For both the espresso machine and coffee bean supply I couldn’t offer any guarantee of volumes or business growth. The truth was I couldn’t even pay them. The machine distributor agreed to lend me four machines and the roaster – as they were quite entrepreneurial – said they were happy to develop the blend up front without any minimum volume commitment. They could genuinely see that there might just be something in this and I was brimming with energy and wanted to move fast.
It’s often down to the persuasiveness of the entrepreneur in the early days and I was true to my word. Ten years later we were still buying our coffee from the same company. They continued to give us great service and pricing, and worked with us on product development. We went from my first order of 12kg of beans in 1998 to hundreds of tons a year a decade later.
The concession prototype came together and I had Coffee Nation branded cups produced. Now I had the makings of a brand, all because I had got the product right.
Creating a destination
I engaged with Alldays and Spar once more and sent them a glossy presentation under the heading of ‘The country’s first true self-service gourmet coffee concession’. I set out the journey we had been on to develop coffee in their stores and what I had learnt.
I explained how there just weren’t enough reasons to buy what we had been selling. Table-top instant coffee machines were commonplace in offices. We needed to create an experience, some degree of theatre and a destination. People were going to plan to visit a store for a Coffee Nation coffee in the future. They bought my vision and we identified four stores between the two companies from which the instant machines would be removed and replaced with the new offer.
The first was our original location in Faversham. My in-store unit had a back-lit menu panel to tell people what types of coffee drink were available. I had some menu cards produced for customers to take away and designed some branded loyalty cards. We trained the staff on-site how to clean the machine and look after the fresh milk.
The gamble paid off. Almost from day one we were outselling the old Nescafé offer, even though the price was 10p more per cup. Within weeks we were averaging 160 cups per week per machine against 85 per week with Nescafé. No promotions, no free doughnut offer, just great coffee and sales volumes were up 90%.
Of course, I couldn’t do all of this and spend nothing. My overdraft had now exceeded its limit and I could see a disaster looming. I finally had my proof but I was out of cash.
Search for new funding
I met with various espresso machine distributors and coffee companies and some of these suggested they could invest in the company in return for preferential terms on their equipment. Of course, they were starting to see there really could be a new market channel here. Convenience retailing was fast growing and I offered a new route to machine and coffee sales.
Various offers came in and I spent considerable time trying to close these deals. On many occasions since I have thanked God that none of them came off. They all came with conditions. I’d be tied into a single brand of espresso machine, I’d have to use their service team to maintain the equipment, base my company out of their site, use their call centre teams and administration support, etc. It was Nestlé all over again but in a different guise and all for small amounts of money and big equity stakes (I think the worst was an offer of £30k for 30% of the business).
Another realisation that came to me was that many of these companies, whilst successful, were all selling someone else’s product. They were decent businesses and great people but despite my precarious state I had something truly different and exciting. I wanted to build a high-growth consumer company that was doing something nobody else was. I’d got the formula right now – I just needed someone who believed in this.
I held my nerve and met with an old contact from my consultancy days. Martin and I met a number of times and I took him to Faversham to experience the new concept. He got it, we had good rapport and he saw it as the democratisation of coffee, or “coffee without the bollocks” as he put it (no newspapers, no leather armchairs, no muffins).
He agreed to invest £30k. We signed and he transferred the money at the end of the week. I still have the bank statements: -£40k went to -£10k. I had a stay of execution.
I gained an enthusiastic supporter in Martin. It was a fair deal for both parties. He is a dear friend to this day and he eventually made good money from his very bold and brave investment back in 1998. I gladly offered him a seat on the board, which he held until 2002. He helped me on many occasions.
Sales progress but on borrowed time
My two highest performing Spar sites were in Manchester so these were next in line for my new offer. Together with Faversham and Edinburgh that gave me my four new test sites. The cash burn resumed as I now had to buy those pricey espresso machines and have three more concession units constructed.
I was back on a steep learning curve, operating this new type of product. It was far from perfect. The concession unit was made of MDF, which wasn’t terribly robust, particularly if it got wet with coffee spills. The espresso machine was a pig to clean, with fiddly parts that had to be removed. The milk was kept cold in a small separate fridge with a pipe