Cafe Direct

Premium aroma of fair commerce: connecting producers and lovers of the highest quality coffee

Tuesday 20 January 2009

Cafédirect is the largest UK Fairtrade hot drinks company. It was set up in the UK by four Alternative Trading Organizations (Oxfam, Twin Trading, Traidcraft and Equal Change ) with an objective to provide a solution to coffee crisis which began in 1989 with the collapse of International Coffee Agreement since which prices for coffee dropped enormously. Since CafeDirect does not want to fall into the hands of large investors it involves consumers and producers into the running of the company by establishing strong links with them and treating them as partners. CafeDirect faces very strong competitors on the market from the side of such strong brands as, Nescafe, Folgers, Jacobs, Yuban, Maxwell House, etc (produced by ‘Big Four’ firms) . Obviously, it is very hard to compete with such giants. However, the figures show that the company is growing stably.

In 2007 CafeDirect’s share in coffee, tea and drinking chocolate markets of UK (with its CaféDirect, TeaDirect and CocoDirect products) equaled 34%, 32% and 14% respectively . The firm’s turnover surpasses £22.3 millions (around $43 millions) for 2007 financial year; its international penetration increased almost 2 times for the past year (from £0.4 in 2006 to £0.7 in 2007). Its profit before tax jumped from £48 000 in 2006 to £705 000 in 2007. What makes this company unique is the fact that it functions as a `Profit-Reinvestment Company´, meaning that instead of paying large dividends, it reinvests in societies and the skills of the small coffee grower (concerning the 2007, CafeDirect did not payout any dividends to its shareholders ).

The main beneficiary of CafeDirect’s business are the local and small coffee growers whose living standards and far from ideal. The profit figures shown above impress even more when one understands that there numbers account for £1 million paid to farmers “above and beyond the market price for tea, coffee and cocoa raw materials, and growers additionally benefited by £1.3 million as a result of … a unique Producer Partnership Program (PPP)”. The company itself has invested £0.6 into this program, which enable to attract another “£0.7 million without additional cost to CafeDirect” (therefore, the total benefit for growers amounted to £1.3 million). The company is able to achieve such results due to its policy to work with producers directly and not through traders or resellers. This enables CafeDirect to avoid ‘unnecessary’ commissions to third parties and pay 47% above the market price to its producers.

The company’s mission is, above all, to ensure the long-term survival of the coffee cultivators and, thus, it promotes fair commerce . Its core value is its commitment to fair trade, aside from the quality (proven by its Gold Standard Pricing Policy), sustainability (it helps planters to develop organic and gourmet techniques to produce coffee) and no-discrimination (it treats all staff equally).

Moreover, in 2007 CafeDirect launched a partnership with Gewrman Technical Corporation which aims to support small farmers to analyze the effects of climate change on their production and develop adaptation strategies. CafeDirect is also working closely with the African farmers to help them adapt energy-saving and deforestation programs.

There are two types of challenges CafeDirect might face in the future. First of all, it might have even heavier threats from the side of the established coffee and tea brands. Though in 2007 comparing to 2006 the company’s international operations grew it has lost some share of the UK market. Secondly, some customers perceive Fairtrade practice as a good and healthy initiative; while others believe that it is just ‘window-dressing’ used by companies to be able to charge higher prices and increase its sales. Therefore, CafeDirect might face some resistance from the society which would directly affect its sales.

Bibliography

http://www.cafedirect.co.uk/CafeDirect 2006/2007

Annual Report; available at http://www.cafedirect.co.uk/pdf/annual_reports/Annual_Report_0607.pdf

http://en.wikipedia.org/wiki/Cafedirect

http://dryden.eastmanhouse.org/2007/01/

http://www.bized.co.uk/compfact/cafedirect/cafeindex.htm

http://www.smartplanet.com/news/people/10001275/rikke-s-blog-lunch-with-cafedirect.htm

Location: United Kingdom of Great Britain

Sector: food

Official website: http://www.cafedirect.co.uk/

Key figures:
  • Revenue: £22.3 millions
  • Profit before tax: £705 000

Nbr. visits: 2342