Coffee industry ‘experiencing lower volatility’

Trade CEO, Mike Lackman, joins Yahoo Finance to discuss Trade’s accessibility to all types of consumers and the increased growth the company witnessed during the pandemic and how they have been able to maintain a steady growth.

Video transcript

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JULIE HYMAN: During the pandemic, a lot more people started drinking coffee at home. They couldn't get coffee out, for at least some period of time, and we'll see if that trend sticks. I want to bring in now a company that has a subscription coffee business. It's called Trade. The CEO is Mike Lackman and he's joining us now.

Mike, you guys just shipped, what, your two millionth bag of coffee here. So, talk to us about what the demand flow that you've seen has been like. And has it been consistent as things start to reopen again?

MIKE LACKMAN: Thanks for having me. Yeah, the demand flow certainly saw some spike during what kind of called the soup can-wiping phase of the pandemic, where people were buying anything they could get delivered. But aside from that, it's been really steady both before the pandemic and since then.

Our business is all about making it possible for anyone to make the very best cup of coffee they've ever had, and we do that by connecting them to the country's best roasters who make everything fresh on demand and use our technology to personalize the experience. So, we think there's a durable demand for that and we're continuing to see that even as the world around us changes.

BRIAN SOZZI: Mike, who is your core consumer? Is it millennials like our very own Myles Udland?

MIKE LACKMAN: Certainly, we do great with folks under 40. But what we're finding is-- we love the consumer type, which is the millennials parents who act like their kids. We really are a company for anyone who wants to make really outstanding coffee. And the connection to small business and main Street and the desire to elevate their home coffee experience is something that we see transcends both demographic and psychographic. We do as well with evangelical Christians as we do with folks who are more bi-coastal and don't identify with those sorts of things. And the appeal that's so broad is part of what makes the business so exciting.

JULIE HYMAN: Hey, Mike. So I'm curious what the sort of business model's like, right? Because you are partnering with some of these small roasters as you talked about. Do you charge them a fee? How does that work? What's the sort of value proposition that you're offering them?

MIKE LACKMAN: Sure. Our value proposition is better growth. So, our business is very much a technology-enabled retail model, where, when you look at the way that roasters grow their business, they buy coffee green a couple of times a year out of origin. They roast it on demand and ship it to either other coffee shops or to consumers or into their own shops.

We give them another outlet where the loss they're already making can get to market profitably. And we can incorporate that process where they do the e-comm seamlessly and we own all those costs around shipping, packaging, and those things that are harder for smaller businesses to adapt to, while bringing them to a new market. And that's really key.

Two-thirds of our customers are experiencing craft coffee or specialty coffee for the first time. They were buying stuff from the grocery before they came to us. Customers come to us because they love a variety of different roasters, and we're giving them access to geos all over the lower 48. And so when we can give them a better path to market, the profits they make on our business actually help them invest more in their other paths to market.

MYLES UDLAND: You know, Mike, when I think about your business offering a coffee subscription-- essentially as you kind of outlined there-- it's a broad customer base but it fits in that millennial subscription kind of basket. Did that sort of habit, that impulse that people had to subscribe to everything-- subscribe to their clothes, subscribe to their streaming, subscribe to their coffee, subscribe to their razors, shoot. I mean, did that change at all during COVID? And how have you seen any behaviors, if at all, change through your business?

MIKE LACKMAN: So, we think of our business as being so much bigger than just subscription. Subscription's not required to purchase, but there's certainly more and more appeal to certain subscription models. That said, I think what we're seeing is that the standards for subscription models are also that much higher than they used to be. The idea of being able to take people's money on a schedule is not a really exciting proposition for the consumer. The question is, can you deliver incremental value that's amazing for them, and happen to do so on a schedule?

So when you look at how it works for our model, for example, everything is made freshly on demand, and you're getting coffee that was green two or three days ago delivered to your house with free shipping. Very often, especially if that's from a roaster from the other side of the country, our ability to know that and put it on the road on the right day of the week is a real value.

And so, when people subscribe to the schedule, we'll be able to customize those things for them so no one's ever running out of coffee and everything's always perfectly curated and perfectly fresh. So when we can execute on that well, subscription can be very powerful. That said, pushing a subscription on the consumer is something i think they're more and more resistant to and something we're really humble about.

BRIAN SOZZI: Mike, how much have your coffee costs gone up during this inflationary boom we're seeing?

MIKE LACKMAN: You know, I saw the graph you put up about the sea earlier, and the specialty industry is actually somewhat insulated from the commodity coffee costs. Already when you look at our roster pledge and the amount of money that our roasters pledge to pay farmers, we're paying a material premium to any of those more global commodity-driven coffee costs, and so the volatility that we experience as an industry is lower.

That said, when we do see those costs being passed along, our business model's built around being able to either engage in variable price models directly with consumers where different coffees from different parts of the world cost something different, or the ability to evolve our subscription to accommodate the different realities of the economic environment that we're in.

JULIE HYMAN: Mike, thanks for being with us this morning. Mike Lackman is the CEO of Trade. Appreciate it.