1. Survey of Coffee Industry
Emphasis on Specialty Markets Known as “Third Wave” and Ethical Consumer Decisions
Ethan Gipp
Outline:
1. Introduction
a. Purpose of paper and target reader
b. Impacted groups
i. Consumers
ii. Cafes and Roasters
iii. Importers and Direct Trade Roasters
iv. Farmers and Producers
2. General Overview of Industry
a. Brief History of Coffee and its rise in production
b. Size of markets and key issues facing the industry today
3. The Consumer
a. Who is the consumer?
b. Trends and behaviors in consumer markets
c. Consumer ethical buying decisions
4. Specialty Coffee and the Third Wave
a. What is “The Third Wave” and what defines it?
b. Two key issues: creating careers in the industry and educating consumers
c. Trends, investment, and growth potential for the industry
d. New products from rising companies: cold brew and pre-ground packets
e. How Starbucks is reacting to the Third Wave
5. Importers and Direct Trade Roasters
a. Direct Trade as Alternative to Commodity Pricing
b. Informing the consumers while avoiding the trap of green-washing
c. Transparency and Long-Term Relationships as the Keys to Better Practices
6. Farmers and Producers
a. Discussion and Research
b. Thoughts on Fair Trade
c. Brewing Justice
d. Perspectives from the Producers
7. Applications and Conclusions
Introduction:
Coffee is one of the world’s most traded commodities. In developing nations, it is the second
most exported commodity and it is the most imported food commodity in the United States. The
industry is rapidly changing with shifts in farmers’ access to markets and information as well as

2. consumer-led movements to ensure better ethical buying practices for coffee. The income and
livelihood of tens of millions of farmers throughout the world depends on the economics of coffee, and
the daily habits and rituals of consumers all around the world are run by their morning cup of coffee. At
times, markets have favored convenience and at other times they have favored quality, but now we are
entering into a phase where consumers want both. The market is demanding quality and convenience,
all while pushing for a more ethical, sustainable, and transparent supply chain.
In this paper, I will walk the reader through the supply chain of coffee and give them an
overview of the key issues and trends that are occurring throughout the world. After giving a brief
overview of the coffee industry I will divide the paper into four sections: The Consumer, The Third Wave
(Roasters, Cafes, etc.), Direct Traders and Importers, and The Farmers and Producers. I will finish with
some conclusions as well as condensed observations from the studies in these sections.
In the consumer section, I will begin by walking through some of the values and feeling of the
consumers in order to try to understand their perspective. I will then present some market trends to
analyze the behaviors of the consumers. Finally, I will discuss ethical consumerism and how these
behaviors typically progress as well as how companies should adapt to meeting the needs of the
consumer with sustainability and ethical practices. Most of my discussions regarding consumers, cafes,
and roasters will revolve around markets in the United States.
In the next section I will cover the growing movement in specialty coffee known as the “Third
Wave.” Once a niche market, this movement has expanded tremendously in the past five to ten years
with its heavy emphasis on quality, sustainability, and authenticity. The movement takes great strides to
contrast itself against the large coffee chains such as Starbucks, and I will briefly discuss at the end of
this section how Starbucks is beginning to take notice and react to this movement, slowly blurring the
lines between independent coffeehouse culture and corporate coffee progress.
The third section will focus on roasters that practice the poplar buying practice known as “direct
trade”, as well as how green coffee importers have shifted and adapted their strategies to meet the
growing demand for transparency and ethical buying practices. It will highlight the need for ever-
evolving practices based on the unique needs of farmers, as well as how various forces, such as
technology have greatly increase the ability of farmers and importers to have traceability and
transparency along the supply chain.
Finally, I will discuss the farmers and producers of coffee, analyzing the situation in which they
find themselves in the global supply chain, as well as strategies that are being developed in order to help
lift them out of poverty. I will discuss actions that many farmers have taken such as abandoning their
farms, or adopting a vertical integration strategy in order to help take their financial destiny into their
own hands. There will also be a discussion on the downfalls of regulations that are developed away from
the people who the regulations were designed to help.
The two recurring themes of this paper are ethical and sustainable buying practices as well as
the specialty coffee industry, or third wave movement. By the end of this paper the reader should have
a broader understanding of how movement towards quality, consumer demand for transparency,
developments along the supply chain, and improvements of technology are all leading to a rapidly
changing industry that will ultimately lead to better options for the farmers and higher quality for the
consumers.

3. General Overview of the Industry:
In the introduction the 5th
annual Specialty Coffee Association of America Re:Co Symposium,
Peter Giuliano spoke about the history of coffee and how it is and is still impacting human society and
culture. It has been speculated that the shift away from alcohol and towards coffee in the 1500’s helped
spark the enlightenment in Europe and paved the way for the world we live in today. Speaking with a
professor of psychology and neuroscience, Peter explained that there is good reason to believe that
there are actual chemical properties in coffee that help spark creativity, connectivity, and better social
innovation within cultures (14). During the course of my research I have heard it speculated numerous
times that it is no coincidence that silicon valley, a leading community in technological innovation, is also
one of the key hubs and drivers for the emerging specialty coffee movement.
What we have come to know today as the coffee bean is actually not a bean at all. In fact it is
the seed of a cherry-like fruit that grows off of a tree or a shrub (1). There are two main varieties of this
plant, Robusta and Arabica, and the latter is what is used in nearly all specialty grade coffee today due
to the superior taste and quality (1). The coffee tree originates in Africa with Ethiopia being the home of
the Arabica tree (2). The coffee plant spread out from Africa east and west to create a belt around the
equator with roughly 30% of production being Robusta varieties and 70% being Arabica (2). The coffee
plant is a source of income for about twenty-five million families in the developing world (2). Some key
growing regions include Brazil, Columbia, Indonesia, Vietnam, Mexico, and Ethiopia. Brazil produces
roughly a third of the world’s coffee and Vietnam’s production has risen dramatically making it one of
the world’s top producers (2). Columbia is the only South American country with ports on the Pacific and
Atlantic costs, and its coffee production is so vital to its economy that cars crossing the border have
been sprayed in the past to prevent any diseases for the coffee plant to be taken into the country (2).
Indonesia is one of the world’s top producers of Robusta coffee (2).
Numerous sources, including MIT, Stanford, and the UN Chronicle have all identified coffee as
being the second most traded commodity in the world (2)(3)(4)(6). This is an almost universally accepted
fact. However, upon further research it is clear that this fact is not as simple and straightforward as
people would think. Mark Pendergrast, author of Uncommon Grounds, wrote an article where he
discusses this fact. He explains that when he originally wrote the book he had included this fact in the
introduction because it seemed universal based on everyone that he interviewed. Upon encountering
some economists that expressed concern that the fact didn’t sound right he explored the data a little
further. His research led him to understand that where coffee ranks among global commodities is really
more of a semantic and categorical issue than one of measurement. It entirely depends on what kind of
commodity contracts one is considering as well as whether or not you include the trade of coffee after it
has been roasted. If you count the trade of green coffee as an agricultural product and then add in the
cost of trading coffee after it has been roasted then it generally comes out as second. However, we
would then have to do this with other commodities rather than simply tracking the raw material of steel
or wheat, and this would change the picture significantly. Overall, no matter how you calculate it, the
actual agricultural product of coffee always comes out as one of the top five or ten commodities, making
it one of the most important resources for our global economy. Pendergrast points out the truly
important thing to keep in mind when considering this problem is not where coffee ranks among global
commodities but where it stands in the economies of developing countries. The primary reason it is
important is because of the economic, social, and cultural role that coffee plays for people in developing
countries. And when looking at the numbers, coffee as a raw agricultural product is the second most
exported commodity for the developing world (4).

4. In the United States, coffee is the largest food import (6). With over 400 million cups of coffee
consumed per day, the United States has also been recognized by some sources as the largest importer
of coffee in the world (7). However, similar to the issue of the commodity rankings, this fact depends on
how importers are categorized. One source has listed the European Union as the largest importer of
coffee by grouping the countries together, making it an importer of about half of the world’s coffee and
leaving the United States as second in the global economy for importing coffee (9). Multiple reports
from IBISWorld have observed a steady growth in consumption and demand for coffee and predict
optimistic figures for growth in the coming years, especially for specialty-grade coffee, espresso-based
beverages, and bottled coffee drinks (10)(11). The SCAA (Specialty Coffee Association of America) has
estimated there being roughly 10,000 coffee cafes in the United States with 2,500 of them being
specialty stores (6). 30% of those are made up of chains and the rest are independently owned (6).
Specialty coffee sales have been increasing by about 20% per year and account for about 8% of the
eighteen billion dollar U.S. coffee market (7). Over 50% of the U.S. population drinks coffee with an
average of 3.1 cups per day and 50% of the population regularly consuming espresso-based beverages
(7). Independent coffee shops account for about twelve-billion in annual sales and the number of cafes
and coffee shops is expected to triple in the coming years (7).
The price of coffee is generally driven by the commodities market (6). Between 1972 and 2016,
the commodities market price for coffee has ranged anywhere between $.42 and $3.40 (5). It would be
inaccurate to view this as a price floor because many farmers of small lots do not have access to proper
channels of export and often have to sell to middlemen known as “coyotes” for a price that is often half
of the commodity price (6). Specialty coffee importers will often pay a higher premium than the
commodity price for quality and fair trade certified farmers will receive whatever the set price above
commodity price is (6). The only farmers that regularly receive the set commodity price are typically the
large plantations such as the high-production farms in Brazil (6). Much of the conventional system based
on commodity pricing has locked many farmers into a long cycle of poverty and debt which is nearly
impossible to break out of without significant financial investment or an entirely new model of
purchasing coffee (6). Brazil is the single largest producer and exporter of coffee. Because of the global
supply and demand for coffee as well as the supply from Brazil, the biggest factor impacting the
commodity price is the weather in Brazil (6). Many experts believe that Brazil’s focus on quantity has
had a negative impact on their quality (2). The 1994 frost of Brazilian coffee crops destroyed a great deal
of the crop that year and significantly raised prices of coffee worldwide (2). Much of the cost paid to
import coffee in the United States never reaches the farmers as it is spread out between various
middlemen and certification systems, which disincentivizes the farmers to improve their methods and
processes (6). In this industry, the highest profit margins come from the roasters while the lowest are
typically from the producers (6). The global coffee production is split up between a very large number of
small families that farm only a few lots and a smaller number of very large plantations that have high
production. With this in mind, a large portion of coffee farmers are fair trade farmers while the majority
of coffee sold is not fair trade because it is grown by only a few large farms (6). There have been efforts
and investments in the past by the United States to push farmers towards higher production methods.
However, adopting these higher yield methods often lead to the abandonment of traditional practices
and the degradation of the environment and working conditions (6). It seems that the best way to
improve living conditions and protect the environment is not to produce more coffee but to pay more
for the coffee that is being produced through traditional methods and drink less overall (6).
Before 1990 coffee markets were highly controlled with regulations and quotas (8)(12). Since
the end of this highly regulated market the price of coffee has been incredibly volatile and based on the
supply and demand of the free market (8)(12). With deregulation came the loss of many structures and

5. resources that small farmers depended on, making their livelihood highly susceptible to the highs and
lows of the commodity market pricing (8). There have been two significant falls in the global price of
coffee since deregulation with the most significant crisis occurring between 1999 and 2004 (12). While
production has gone up in Brazil, many other producing countries including those in Africa have
decreased their production (8)(13). Small farmers need to be provided with better support and access to
financial assistance in order to improve the quality and yield of their farms (12). Without adjusting our
agricultural infrastructure to meet the rising demand in the coming years we will be heading into a
global supply deficit of coffee (8). Beyond the standard issues of raising yields, there are also numerous
key problems that farmers need to address such as losing crops due to the plant disease known as
coffee leaf rust (12). Financial provisions may need to be made in order to help farmers deal with these
threats to their crops (8). In his SCAA Re:Co Symposium talk, Mauricio Galindo discusses the challenges
facing the global supply chain of coffee today. He explains that the majority of coffee is being
concentrated in a few growing regions, Brazil and Vietnam, while the global demand of coffee is growing
steadily all across the world in a much more scattered fashion (13). If this pattern continues then the
global supply of coffee will lose its regional diversity and the price will be determined primarily by the
yield from two or three growing region (13). In this speech he was addressing individuals in the specialty
coffee industry, which means that his audience was more focused on quality over quantity. With this in
mind, their perspective is not necessarily one of raising yield across the board as Brazil has done, but it is
also important to keep in mind that this issue of rising global demand with diminishing global supply due
to a wide variety of factors is an issue that cannot be ignored and must eventually be addressed before
either the regional diversity of coffee is eliminated or the global price skyrockets (13).
The Consumer:
In order to have an accurate understanding of the consumer market trends and behaviors, we
must first step back to take a close look at who the consumer is and what their values are. Once we do
this we will be better equipped to understand their behaviors and buying habits.
A University of Virginia report gives a brief picture of the modern day coffee consumer in
America. Today’s consumers have an elevated sense of style and preference for the products that they
look for. It is not enough to simply provide a fast-food or general café atmosphere. Older consumers
often want a more thoughtful and comfortable atmosphere for cafes while younger coffee consumers
look for trendy and stylish environments (15). There is a significant rise in the amount of money that
today’s coffee consumers are spending outside of home, and there is a rising interest in being able to
purchase breakfast food items that can complement the coffee and be taken on the go (15). Overall, the
distinguishing factor is that coffee consumers in America today are looking for whatever is perceived to
be the highest quality brands of all coffee-related products and this can vary depending on whatever the
consumers’ perceptions of quality is (15).
In two separate articles by the Specialty Coffee Chronicle, industry experts give their in-depth
understanding as to what the modern-day specialty coffee consumer is looking for. Specialty coffee is
specifically targeting millennials ages eighteen to thirty-five, which makes up about twenty-five percent
of the population (16). These consumers expect a high level of quality, value, and convenience and have
sophisticated palates with a variety of flavor preferences (16).These consumers are highly interested in
sustainability and innovation and want to buy local whenever possible (16). They have a desire to learn

6. and understand the farms where the coffee was grown (16). They are generally willing to experiment
and will go to multiple shops to get the best possible product (16). The modern day consumer is
becoming increasingly aware of trends in the specialty coffee market. What was once considered to be
only for coffee snobs is now being adopted by many people as a preference for micro-lots, complex
coffee, and moving away from sugary and flavored drinks (17). These consumers are looking for
transparency and sustainability when it comes to social issues, because spending is a concern for them,
they are generally will to buy smaller portions of higher quality beverages rather than larger portions of
sugary beverages in order to save money and have a more enjoyable experience (17). In the midst of the
economic downturn as consumers cut their discretionary spending their willingness to maintain their
spending on coffee drinks has remained stable (17). The typical customer can be divided up into two
groups,: those who genuinely want to learn about the product and experience new coffees and those
who are looking for caffeine in a sugary drink (17). Coffee shops will need to develop strategies to meet
the demands of these two groups of consumers.
In three different presentations given by Tracy Ging at the SCAA Re:Co Symposiums, market
research was conducted directly with consumers of specialty coffee and interpreted for how owners of
cafes can adapt to the needs and desires of their customers. In the first presentation, her group had
interviewed two different focus groups in Portland, OR and Los Angeles, CA (18). Consumers of specialty
coffee were divided up into two categories: Specialty Adopters and Super-Specialty Drinkers. The
specialty adopters are generally interested in independent specialty coffee roasters but they will still
move back and forth between different qualities and different brands. They are not quite as interested
in exploring new coffees and want to stick to whatever they already like. The Super Specialty Drinkers
are extremely interested in learning about and trying as many coffees as possible. They have significant
loyalty and preference for very high quality coffee and try to avoid whatever they perceive to be low-
quality (18). There was generally a great deal of confusion about what the word “specialty” meant and
what companies and products would qualify as “specialty.” They did, however, have an easier time
defining what they saw as not specialty coffee (18). Many of these consumers were in lower income
brackets, which meant that they were not paying more simply because they had the extra money. This
means that there must be something specific about these coffees and these brands that resonated
enough with the consumers to make them willing to pay more for the product (18). Many of these
consumers struggled to explain specifically what it was that made their particular brand of coffee special
to them. It was clear that there was an incredibly meaningful feeling towards their preferred brands of
coffee based on factors such as taste, better quality, freshness, daily rituals and experience, and
personal feeling of reward (18). The overall café experience, familiarity, and feeling of community had a
huge impact on how the consumers felt about their preferred brands (18). One common factor among
all of these consumers is that many of them had been all across the spectrum for what quality coffee
products were available. The consumers who had been exposed to the widest range of brands and
products often had the strongest preference and emotion towards their preferred brand (18). These
consumers all strongly felt that they did not want to be lectured or told what coffee they should like.
Rather, they felt the most acceptance and resonance in environments where the barista simply helps
them explore the different options and discover what they personally like the best (18). When it comes
to social issues and techniques to brew the perfect cup of coffee, these consumers are generally
interested, but they want to learn about these things in the right time and place, and stopping in at a
café to get their morning coffee or socialize with a friend is generally not the right time or place (18). A
common feature among these consumers is that there is a significant drop in quality preference when
they buy coffee to make at home. This is because many consumers do not feel confident enough that
they can make coffee of the same quality that their barista does in a café, and this is a challenge that
companies targeting the home market need to be aware of if quality is their focus (18).One thing that

7. Tracy Ging noticed is that people’s knowledge if specialty coffee does not typically grow by learning
about better coffees. Rather, consumers tend to adapt their knowledge of specialty coffee by redefining
what “bad” coffee is and adding different drinks and companies to that list. Overall, consumers want a
drink that they love and can get excited about. They are interested in learning about coffee, but they
don’t want to be lectured by it and want the primary responsibility of understanding it to be that of the
barista. Consumers are often looking for inspiration in their coffee and are often given issues and
statistics. One consumer in the focus groups put it like this “I don’t want to become the expert, but I
love that the person serving me is an expert” (18).
In the second presentation that Tracy Ging gave she interviewed consumers and assigned each
of them personal blogs to tell their stories about what they prefer with coffee and how their taste has
developed over the years. The focus of this study was trying to understand how consumers of high-
quality specialty grade coffee can to drink the coffee that they do. One of the most interesting findings
of this research is that with the exception of a few outliers, most of these consumers began drinking
sugary drinks from large chains such as Starbucks or Peet’s Coffee (19). She explains how these drinkers
typically had a slow progression from these drinks to the higher-end micro-lot coffees served in smaller
shops. The most interesting aspect is how these shops like Starbucks seem to be sort of “gateways” to
funnel people in to experience the super high end side of specialty coffee (19). It is clear that smaller
“third wave” shops have a lot to owe to Starbucks from introducing people to specialty coffee to making
consumers comfortable with paying three to five dollars for their morning coffee (19). In many of the
cases people who became interested in coffee gained their interest because of friends that they would
spend time with at shops (19). Consumers are often confused by the wide variety of terms and new
language developed among coffee professionals, and the view seemed to be that there needs to be
fewer terms and more effective ways to explain the products (19). Finally, the consumers were asked
about their thoughts of why they liked the brands they do and encouraged to give their thoughts on
sustainability and ethical practices. In general, the consumers did seem to care about sustainability and
ethical practices, but they were not altogether clear on how these things are accomplished. They
seemed to believe that the companies that they bought from were promoting ethical practices and that
they were doing good by buying from them, but they were not entirely sure how their purchases were
having a positive impact in the world (19). This is one core issue that needs to be dealt with when we
look at ethical consumerism because many consumers seem to base their decisions on a vague feeling
that they are doing something good for the world than an actual deep understanding of the issues and
how they can be solved.
Finally, for the third presentation Tracy Ging gave some more general market data and
interpretations about millennials with a focus on young millenials in particular. While older consumers
drink most of their coffee at home, eighteen to twenty-five year olds are twice as likely to drink coffee
away from home (20). This provides them with a wide variety of exposure to different products in the
industry, which leads to stronger preferences as to what types of products they are looking for and
ultimately leads to a greater increase in the amount of coffee they drink outside of the home (20). While
in the past, consumers have typically either consumed brewed coffee or coffee drinks, these new
consumers maintain a regular purchase of coffee-based drinks no matter how much their consumption
of brewed coffee goes up (20). Their consumption of one category seems to increase their consumption
of the other. There is typically no single factor that will attract these consumers. Simply serving a better
product is necessary but not enough to differentiate in the consumer’s eyes (20). Friendliness,
cleanliness, and speed are factors that nearly all age groups look for in a business, and this younger age
group is no exception. There have been instances where young consumers have chosen to go to a shop
that is lower quality coffee because they met these foundational needs while the higher-quality shop did

8. not and assumed that selling a quality product was all they needed to attract consumers (20). There are
a wide variety of factors that this group is looking for: creativity, craft, locally produced, sustainably and
ethically sourced, and authenticity. A business that wishes to succeed in this market cannot settle to just
focus on one of these qualities. Rather, they must cover all of their bases and meet the broad range of
needs that these customers have (20). These consumers have made it clear that they do not want to be
lectured or educated. They want to be included (20). One final and separate note in this presentation is
that the element of sweet and sugary drinks being served is something that needs to be addressed.
There has been a sharp divide in the past between the intensely sweet flavored latte and the black
coffee with no sugar added. It is clear from research that even the most sophisticated of consumers still
wants to consume sweet drinks from time to time, and this is a need that the industry will need to
eventually address (20).
Now that we have a basic foundation for understanding the thoughts, feeling, and values of the
specialty coffee consumer, we can begin to take a look at some of the larger scale market research for
behavior and trends. A Mintel marketing report states that 76% of consumers in the United States had
bought some kind of coffee for their household in the past month (21). Production and demand of
sustainable coffee is rising with 16% of the global coffee production being certified by some kind of
sustainable standard (21). For consumer buying habits and purchasing decisions, fair trade has been the
most successful sustainability initiative on the consumer end of the market (21). Older consumers are
generally more likely to prefer name brand coffee while younger consumers tend to try many different
brands and types of coffee. For the household market, larger households with 5 or more people are
more likely to buy whole bean coffee while smaller households with four or less people tend to buy pre-
ground and instant coffee (21). The preferred sizes for buying whole bean coffee are 16 ounce, 12
ounce, and 25 ounce respectively (21).
A report on the European consumer coffee market shows many similar trends in the United
States markets. There has been a significant rise in concern among consumers for ethical and
sustainable issues including how problems such as climate change will impact the lives and income of
coffee farmers (23). The Third Wave, a movement in specialty coffee which we will discuss later in this
paper, has also grown significantly in European markets. This movement is characterized by presenting
coffee as an artisanal product rather than a cheap commodity (23). Consumers in this segment are
willing to pay significantly more for their coffee and prefer to try different coffees from small lots known
as “micro-lots” (23). Within this segment there has been a rise in the number of small coffee shops and
roasters that serve blends and coffees that highlight the farms from which they came. Among the
interest in quality is also a significant concern for ethical buying practices with transparency such as the
rise in direct trade coffee (23). As specialty third wave markets grow there has also been an increase in
small niche markets catering to home roasters of coffee (23).
In a large-scale survey of global preferences for hot drinks, it is clear that there is a rise in
consumption of both coffee and tea with tea just slightly ahead as consumers are looking for healthier
and tastier alternatives to soft drinks (26). The category of coffee known as “coffee pods” (k-cups) is
beginning to mature as the growth has been slowing in the past few years (26). While consumers are
very interested in convenience, they are looking to move away from these categories in search of better
tasting options, which has opened a greater opportunity for specialty markets (26). This report also
observed a global rise in the third wave coffee segment (26).
In Zagat’s 2015 coffee consumer survey, consumers were willing to pay more for their coffee
beverages than in past surveys (25). The average price deemed to be too much for a cup of black coffee
was $3.67 and the average price deemed to be too much for an espresso beverage prepared by a barista

9. was $5.07 (25). With only 43% of these coffee drinking consumers reporting that their coffee most often
comes from home, the majority of customers seem to be getting their coffee from outside sources such
as large chains and independent coffeehouses (25). Finally, when asking about drink preferences the
majority of women preferred lattes and the majority of men preferred black coffee (25).
According to a Specialty Coffee Association of America market survey, the United States coffee
market is worth about forty-eight billion dollars and specialty coffee takes up about a 55% market share
(22). In the latest survey, 31% of consumers eighteen or older drank specialty coffee yesterday, which
was slightly down from the last survey but shows a general and consistent trend towards growth in the
market (22). In an SCAA Re:Co Symposium presentation, researcher Heather Ward breaks down the
numbers and results from these SCAA consumer and market surveys. She explains that there has been
steady and consistent growth across all segments of the specialty coffee market (24). There is still a
great deal of market information within this industry that needs to be gathered. Her team at the SCAA is
currently working on projects to gather information about roaster market share in the United States as
well as creating a consumer price index to get a clear picture of consumer buying habits and prices paid
for specialty coffee (24). Based on this research and the consistent trend towards growth, there is a
major opportunity for gaining market share. Two key strategies that need to be developed in the
industry are further expansion of coffeehouses to reach all customer segments and improved marketing
of specialty coffee in order to reach further differentiation and sell for higher prices (24).
One of the key elements that we have discussed with trends in specialty coffee is the move
towards more ethical and sustainable practices. However, this territory is not quite as clear and easy to
navigate as we would generally like. In an article by the Seattle Metropolitan, a general overview of the
expectations of consumers for sustainable certifications as well as perspectives from Starbucks
representatives on fair trade coffee is given (27). At the time of the article Starbucks was selling fair
trade coffee as 3.7% of its supply. Critics responded by stating that this is only a drop in the bucket and it
should be at least 5%. There were also complaints about this only being fair trade and not organic or
bird friendly. Representatives from Starbucks felt that the expectations of consumers were somewhat
ridiculous and wanted to know where it would end. They explained that shifting over to a huge supply of
fair trade for a company the size of Starbucks isn’t quite as simple as a local coffeehouse choosing to buy
a different coffee from their supplier (27). They also seemed to feel that there was no end to the
consumer demands as once they had started serving fair trade consumers were complaining because it
wasn’t “triple-certified” (27). It was also pointed out that due to the massive scale of Starbucks the 3.7%
had a significantly larger impact than almost any other company in the industry that sells fair trade (27).
These are all important factors to consider when criticizing a large company such as Starbucks, although
the consumers tended to be very skeptical of these excuses as they should be in many cases since it is
the job of ethical consumers to push companies forward to better practices (27). After all, it was
because of the pressure from ethical consumers that Starbucks began serving and increasing its supply
of fair trade coffee (27).
While it is important for consumers to pressure companies like Starbucks to serve more ethically
sourced products, it is also important to step back and realize how complex and confusing the world of
sustainable marketing and certification can be. In an article interviewing the head of sustainability for
the SCAA, consumers are given a brief overview of the different certifications and terms as well as what
they mean for the farmers. Many of the terms used by green and sustainable marketers often have no
legal meaning, and it is often incorrectly assumed that just because a coffee costs more that the farmer
must have been paid more (29). It is reasonable to assume that if a coffee is cheap then the farmer must
not have been paid well, but it would not be accurate to assume the opposite if a coffee is expensive.
Also, descriptions of companies’ values and how much they care about the farmers are generally nice

10. things to read but they do not necessarily mean that the company has actually done anything
substantial for the farmer (29). Direct trade is also something else that has no official certification, so it
can mean whate3ver the roaster wants it to mean (29). The article was quick to explain that these are
not necessarily bad things and that many companies who follow these practices are doing good work,
but it needs to be understood that these are not part of any official certification or legal system (29).
Organic is a term that does actually carry legal weight. Some terms such as “Fair Trade” are a bit more
tricky. In the case of fair trade the product needs to have the complete phrase “Fair Trade Certified”, but
if it only says “Fair Trade” or “Fair Trade USA” then there is not necessarily any legal bearing on the
phrase (29). It is also important for consumers to know that there are different organizations and types
of fair trade certifications. Finally, there are a few certifications such as “bird friendly” and “rainforest
alliance” that can be confusing to the consumer and don’t do an effective job of communicating what it
is that they accomplish (29). Overall, consumers who wish to be ethical in their buying habits have to
stay informed and be aware of more than just purchasing the item labeled “ethical.” This complexity and
confusion of certification and marketing has led to many frustrated and skeptical consumers.
After looking at the issue of Starbucks and fair trade as well as the complexities of the
sustainable and green certification systems, it is clear that having a deep grasp of ethical consumerism
goes far beyond just buying products that have a certain label. It also seems that there is a growing
frustration among consumers because of this confusion and often there is a divide between the values
and the actions of consumers. It is not only the consumers that need to take action for change but also
responsible companies that can take the lead in making this change. We cannot simply assume that
consumers will always trust companies that claim to be ethical and buy their products. There needs to
be a clear analysis of how consumers behave and what causes them to buy ethical products.
In an article from Stanford University, the question of how we can cultivate an ethical consumer
is raised. There is a definite hypocrisy between what the majority of consumers say they value when
compared to how they actually shop. The majority of consumers say that they care about ethical
practices and preventing climate change, but when surveyed about their actual buying practices only
about a third practice ethical and sustainable practices (32). Among those who do buy sustainable
goods, very few of those goods exist outside of the realm of food and sustainable light bulbs (32).
Consumers want companies to take the lead in sustainable practices rather than relying on buying
decisions (32). The article outlines a few areas where improvement could help encourage ethical
spending. The three biggest factors are that consumers need to be aware of the problem, they need to
believe the product is helping, and they need to be willing to spend extra money (32). One of the biggest
problems among consumers with ethical spending is that they simply don’t trust the companies that
make sustainable and ethical claims. They have generally had so much exposure to green and
sustainable marketing that they begin questioning the motives of companies that say they are saving the
world (32). With this in mind, it is up to the company selling ethical products to regain the trust of the
consumer and give them true and honest reasons as to why their products are helping with
sustainability.
A survey of consumers in the United States and the U.K. also support many of these claims.
According to the survey, 80% of consumers believe it is important for companies and brands to behave
ethically (30). Unfortunately, when evaluated for their most important factors when shopping, price,
value, and quality were the key decision factors respectively showing more weight in their decisions
than ethical considerations (30). For many of these customers convenience was ranked as more
important in their purchases (30). While it is good that they care about ethics, it is important that we
study and understand the difference between what consumers say they care about and what they
actually purchase (30).

11. More research on ethical consumerism shows that the consumers who do purchase ethical
products generally don’t base their purchasing habits entirely on facts (28). The factor that turns facts
and values into action is ultimately how emotionally charged about an issue a consumer is (28). An
article in the Journal of Consumer Research lays out three basic narrative factors that influence how a
consumer feels about an issue and ultimately how their buying practices will unfold: contempt for
villains, concern for victims, and celebration of heroes (28). While this may seem like a pessimistic
outlook to those who wish to rely entirely on facts and statistics, it is important to understand how
putting ethical values into practice works in the real world. This brings us back to the earlier research
about customers in specialty coffee that are looking for inspiration from their baristas rather than facts
and figures.
We don’t just need to understand what drives ethical purchases we also need to understand
what drives people away from them. In a series of studies at Ohio State University, researchers wanted
to understand what drove certain individuals away from purchasing ethical products (31). It seems that
consumers who have not bought ethical products and are then exposed to people who have are then
less likely to purchase ethical products in the future (31). In the initial studies consumers were only
allowed to view a portion of the information available for a pair of jeans that they would purchase. Most
consumers chose to be willfully ignorant about the ethics in the production of the jeans (31). After
choosing willful ignorance and then being exposed to people who had purchased ethical jeans they then
presented certain disdain for the ethical shoppers and were less likely to purchase ethical jeans in the
future (31). At first look, it seems that this is just presenting a negative attitude that unethical
consumers have towards ethical consumers, however, if participants who had not made any purchase
decisions were exposed to ethical consumers they were generally indifferent or neutral towards them
and their future decisions were relatively unaffected (31). Furthermore, if consumers who were willfully
ignorant in the earlier part of the study were later given a chance to donate money to a cause or make
some other positive ethical decision then their attitude towards the ethical consumers was much more
positive (31). In other words, a great deal of ethical practices and feeling towards ethical consumers has
little to do with how we feel about the actual issues. Instead, there is a sort of comparative effect where
most consumers dislike feeling unethical and will paint the ethical consumer or ethical product in a bad
light in order to make themselves feel justified about their earlier decisions (31). With this in mind, the
strategy to make the unethical consumer ethical is not to make them feel bad or compare them to
better shoppers but to move on from the original purchase and give them additional opportunities to
begin reinforcing ethical practices (31).
Specialty Coffee and the Third Wave:
A movement has been mentioned a few times in this paper called the “Third Wave.” This is a
movement in specialty coffee that is quickly growing in popularity and only occupied a small niche
market just over a decade ago. The term was first popularized by Trish Skeie in an article she wrote in
the early 2000’s categorizing what she referred to as the three waves of coffee. In this case, the first
wave is represented by mass marketers of packaged coffee such as Folgers and Maxwell House. Its chief
innovations were bringing coffee up to an industrial scale and packaging it for the home (34). The
second wave was an artisan driven movement that began to promote whole bean coffee, differentiate
between roasting styles and blends, and introduced an entirely new vocabulary of coffee terms and
drinks to the American public such as “espresso” and “latte” (34). Starbucks is listed as an extreme

12. example of second wave (34). In the brief description of third wave it is described as a reaction towards
those who want to automate coffee production and take the craft and skill out of it (34). In this initial
article, the move away from automation is the key driver of the third wave, but simply doing a Google
search and reading the first five or six articles that come up about third wave coffee will show the reader
that this term has taken on a complete life of its own. The culture of third wave coffee has evolved into
something entirely different than anything presented by the previous waves. The number of
distinguishing facts is continually growing as more articles are written, and what makes studying this
movement even more difficult is that every time an accurate and concise definition is made that
pinpoints the factors uniting the third wave there is quickly an exception that rises up and shoots down
that definition. In some instances a trend in the third wave has been to steer away from flavored
beverages, but as we will see later in this paper that is a trend that is coming to an end with rising
popularity of signature drinks. I have even found some papers discussing the rise of a fourth wave of
coffee which sounds nice but doesn’t seem distinguished enough from definitions of the third wave (38).
The only uniting factors that I perceive are a relentless drive towards quality, sustainability, and
authenticity. Perhaps the problem is that because this is a dynamic and evolving movement in the
present rather than the future it is always changing. We can only categorize the things that are in the
past rather than the things in the ever-changing present.
In her book, God in a Cup: The Obsessive Quest for the Perfect Cup of Coffee, author Michaele
Weissman takes a deep dive into the world of third wave coffee. She interviews and travels with
numerous professionals in the industry ranging from Nick Cho of Murky Coffee in Washington D.C. (now
co-owner of Wrecking Ball Coffee in San Francisco), Geoff Watts of Intelligentsia, Duaine Sorensen from
Stumptown, and Peter Giuliano of Counter Culture coffee as well as various other representatives from
the SCAA and green coffee buyers from companies like Green Mountain Coffee and Peet’s Coffee (33).
In her book, she lays out what she interprets as the third wave of coffee and describes the obsessive
quest by which these individuals seek the perfect cup of coffee. She talks about George Howell, the
industry legend who helped start the Cup of Excellence Program in Central America which helps to
reward farmers for growing higher quality coffees. She also gets the perspectives of farmers and how
this new movement has impacted them. In many cases, it has changed the way they do business and
make money by allowing them to differentiate their coffee. At one point in the book, assuming based on
the radical social justice views of the coffee buyer she is speaking with, she asks how she (the coffee
buyer) can reconcile her desire for social justice with the fact that she is representing a business. The
coffee buyer simply looks annoyed by the question and explains that business is a tool that needs to be
properly used to help bring many farms out of quality. In one instance, Peter Giuliano of Counter Culture
Coffee tells her about a moment in the mid-2000’s when he and a partner went to a co-op in Guatemala
and broke down the pricing system for different qualities of coffee as well as methods for measuring
that quality (33). The farmers were nearly in shock as this was the first time anyone had ever been this
transparent with them about how much money would be spent and who that money would go to. The
group from Counter Culture was not even aware before this point just how in the dark many farmers
were about how money is handled along the supply chain, and this new level of transparency rattled the
politics within the co-op and completely changed the way they handled their operations (33). Among
the benefits of third wave specialty coffee buying Weissman also got to hear some negative parts of the
system. The Cup of Excellence has been an excellent program for rewarding coffees and raising quality,
but that doesn’t change the fact that coffee is a relatively unpredictable agricultural product which will
change from year to year no matter how good the farming practices are. While the program has been
rewarding to those producers that won, many farmers feel that winning the Cup of Excellence is like
winning the lottery as they don’t have complete control over how their coffees will turn out from year to
year. Returning to the emphasis on quality that the third wave has, every once in a while a program like

13. the Cup of Excellence will radically shift how people come to view what a coffee can be. In fact, this
book was inspired by a coffee that won that competition and Panama and the title came from a quote
during the tasting of that coffee. In the early 2000’s, there was a unique coffee varietal known as
“geisha” that appeared on the cupping table. The coffee’s name was the “Panama Esmeralda Geisha,”
and its flavor was so incredible that one judge was overheard saying to another judge that he wasn’t a
very religious man, but he thinks he just saw “God in a Cup” (33). Whatever it is that defines the third
wave, it is clear from Michaele Weissman’s account of it that passion and obsession are two integral
characteristics of the movement.
With its exceedingly high emphasis on quality and paying farmers higher prices for their quality,
some have begun to question how sustainable the third wave market is when considering consumer
demand. One concern raised is that the limited supply of specialty-grade coffee paired with the higher
premiums being paid and the sharply rising demand will lead to a massive rise in price and make
specialty coffee as expensive as artisan wine before it can even reach a mainstream audience (37).
These claims are based on the idea that third wave coffee is only a fad in its early stages and that the
direct trade model of buying coffee by which this movement is based is inadequate to meet the
potential demand (37). This makes sense if we assume that the growth and cultivation of coffee works in
the same way that wine does, but coffee is an entirely different plant. Whereas wine’s quality is based
on the vine and vines are sometimes hundreds of years old, coffee trees must be re-planted every 20 to
25 years (37). Also, the direct trade model referred to earlier is about far more than just cutting out the
middlemen. It is also about developing long-term relationships and investing finances in better
infrastructure (37). In this case, as demand for high-quality coffee is projected to rise we can already see
investments in specialty farms to begin growing better varietals to meet this consumer demand (37).
With advances in agronomy and productive farming techniques, we still haven’t seen the kind of quality
or supply that specialty coffee producers can bring us (37).
As market demand rises for third wave coffee, there are numerous ways that the market has
adapted, through new avenues in the supply chain, companies capitalizing on consumer interest, and
even mainstream companies taking interest and developing their own products. Joyride, a company out
of New York, has made it their mission to make office coffee amazing (35). They have teamed up what
the companies deemed “The Big Four” of the third wave (Intelligentsia, Stumptown, Counter Culture,
and Blue Bottle) to fully equip, train, and supply offices to have the best coffee possible (35). They are
looking to get rid of k-cups remarking that offices have been purchasing coffee in the same way they
restock printer cartridges when coffee should be one of the highlights of a person’s day (35). Joyride
even goes beyond coffee brewers and espresso machines and supplies offices with a variety of cold-
brew coffees in kegs (35).
In the International Home & Housewares Show 2015 in Chicago, vendors were unveiling new
products for the kitchen, including coffee brewers. What was unique about this event was that
KitchenAid had unveiled its brand new electric pour-over coffee brewer (39). The pour-over has been a
popular coffee brewing method within the third wave, and they have had no shortage of innovative
products to brew coffee with, but this was the first time a large, mainstream company like KitchenAid
had jumped into this once niche market, showing that third wave preferences are beginning to have an
impact in the mainstream market (39).
In an article by Nick Cho, we are given another way that third wave coffee had changed the
industry. With the growing preference for higher quality coffee the home-roaster market has grown
tremendously. With this rise in demand suppliers of green coffee to home market’s such as Sweet
Maria’s have expanded their business and offerings. Prior to these expanded home roasting selections

14. companies that wanted to roast coffee had to buy coffee in huge quantities which required a large
capital investment, making the barrier of entry high enough to keep hobbyists out of the market (36).
With green coffee available in smaller quantities, the barrier to entry has lowered significantly, and
anyone with a small roaster can start their own roaster. Eventually, Sweet Maria’s expanded into Coffee
Shrub to be a provider for green coffee to those roasters in between large-scale production roaster and
home roaster (36). Now the market foundation has been laid where more and more cafes are opting out
of buying wholesale and roasting their own instead. A “micro-roaster” is defined as a roaster that
produces less than 100,000 pounds per year. With this new trend of people roasting just enough for
their cafes we are talking about an entirely separate category which Nick Cho has termed the “nano-
roaster” (36).
Andy Brennan, an IBISWorld senior beverage analyst explains that consumers are willing to pay
a premium now for a high quality experience (40). Third wave coffee is growing fast and catching the
interest of many groups including investment firms that have invested in companies like Blue Bottle,
Intelligentsia, and Stumptown. Stumptown is now worth an estimated 52 million dollars (40). James
Freeman, owner of Blue Bottle and described by some as the Steve Jobs of coffee, has over 45 million
dollars of venture backing (35). There is a U.S. coffee market of over 30 billion dollars, and third wave
shops are fighting to see who will get the largest chunk of that market (35). Even Starbucks has acquired
a third wave café operating outside of the Starbucks brand to conduct research into third wave markets
(35). Although, Stumptown executives say that Starbucks isn’t too worried about third wave shops
cutting out its well-established market share (40). The potential expansion and competition of key
players in this market is exciting, but before we go further into this topic we need to discuss two key
issues in the third wave industry: careers and customer education.
As this is an industry that puts quality and sustainability at the center of its mission, having
informed and educated customers is exceedingly important in order to foster loyalty among customers.
The problem that often occurs is that in attempting to inform or educate consumers baristas can easily
come off as arrogant coffee snobs and turn their customers away from specialty coffee. Various
professionals in the industry have spoken and presented alternative models for education the
consumer. One professional encourages baristas to read and engage customers at their level. Be able to
know when it is that they just want a cup of coffee and no information (41). Baristas shouldn’t be too
heavy with the information that they are presenting, and owners of cafes should strongly consider
passive engagement instead of active. Passive education is where information is made available to a
customer where they can engage with it as they please without baristas pressing them, such as
pamphlets or books. One coffee shop had a set of glass jars on a table with coffee beans from different
stages of the roasting process to help show consumers about how coffee is made (41). Popular industry
blogger and world barista champion, James Hoffman, wrote about how he is generally conflicted as a
consumer. One the one hand, he loves learning about new things and getting to experience how they
work, but on the other hand, he hates it when he goes somewhere like a restaurant and servers try to
talk down to him and give him irrelevant facts about the food he is enjoying (42). At first, he feels like
this is contradictory to the goal of the industry, but he explains that baristas should not be forcing
education on consumers and that ultimately the goal is to produce loyal customers and not well-
informed customers. He admits that he always feels proud whenever a customer of his has finally
noticed the factor that makes their cappuccinos better than the competition and a week later the
customer returns complaining that they can’t enjoy anyone else’s drinks anymore (42). Finally, for those
industry professionals who still can’t pick up on when it is and is not a good time to educate consumers,
another industry professional even included the words “coffee education is boring” in the title of his
article about marketing specialty coffee (43). After conducting market research in the U.K., this author

15. found that while customers did retain information from speaking with workers, they were typically not
very interested in it. However, if they learned something by reading about it while waiting for their
coffee they remembered it and were far more interested in it because they were not forced into
learning that information (43).
Another core issue is that of employment in the specialty coffee industry. It doesn’t take a lot of
industry research to realize that a large portion of the jobs in the industry are café and barista jobs, and
these typically do not pay competitive wages. In his industry talk at the Nordic Barista Cup, industry
expert and world barista champion James Hoffman talks about his greatest concern as a business owner
for the specialty coffee industry (44). It seems there are a huge number of passionate individuals who
love working in coffee but need to eventually leave because their barista job doesn’t pay a reasonable
wage (44). Hoffman explains that if we want to retain this passion into longstanding careers, we need to
be willing to ask difficult questions about finances and where the value is coming from. First, for all of
the passion, enthusiasm, and knowledge that these professionals show we are often placing them in
environments where instead of utilizing those qualities they are turned into glorified coffee brewers (4).
If we want talented people to stay in the industry, then we need to provide them with jobs that utilize
that talent. Another thing that Hoffman asked was whether or not customers care if these workers are
retained. His answer was that if they do care then they need to be willing to pay to incentivize long-term
employees (44). One of the biggest fears of business owners is that if they raise their prices then
customers will leave, but in this case the waters need to be tested if the baristas are to have a chance at
a livable wage (43).
It is still unclear whether or not barista should be a long-term profession. It seems clear that this
job will never be financially lucrative, but the real issue is whether or not it can be held long-term by
those who are genuinely passionate. America’s barista’s have an average salary of about 22 thousand
dollars, which is 28 thousand below the U.S. median income (45). When looking at the numbers, many
cafes have a difficult time as it is paying what they do. The average café has to make 1 million dollars in
revenue to even begin paying reasonable wages, and some larger cafes in big cities set their revenue
goals at 1 million just to break even (45). One café in New York, Everyman Espresso, was able to solve
this problem by raising the prices of their drinks, but it is hard to tell how well this strategy would work
for other shops (45). For those seeking a career in the industry, some of the best advice written by an
industry professionals was that people looking to work in coffee should know exactly what it is that they
want from the industry and what it is that they want to give, and they shouldn’t join the industry until
they can answer that question (47).
As mentioned earlier, there has been tremendous growth in the third wave markets and certain
industry players have had significant backing from venture capital. One such roaster is Blue Bottle
Coffee, which has more than 45 million dollars invested in it from a wide variety of firms and investors in
Silicon Valley (50). Many investors believe that Blue Bottle is the best bet in the third wave due to the
authenticity and attitude promoted by the founder, James Freeman. There is an incredible attention to
detail and control over the customer experience that he exhibits. Blue Bottle differs from its key
competitors, Intelligentsia and Stumptown, in that it has a minimal wholesale program so it can
maintain its complete control in its cafes. Shortly after receiving venture funding, Freeman invested it by
acquiring two companies: Handsome Coffee Roasters in L.A. and a coffee subscription service called
Tonx (50). One investor persuaded his firm to invest in Blue Bottle because he believes that third wave
coffee is the most lucrative sector of the artisanal food movement (50).
While Blue Bottle seems to have won the hearts of Silicon Valley investment groups,
Intelligentsia and Stumptown are in a fairly unique situation. Both of these companies had the majority

16. bought out by several large investment firms, and just after Stumptown was acquired by Peet’s Coffee
and Tea, it was announced that Intelligentsia would also be acquired by Peet’s (51). Peet’s has
announced that both of these brands will still be allowed to run independently and the key role of Peet’s
will be to facilitate financial backing as these brands expand (51). Consumer perception of these
acquisitions and investments has been mixed. Many consumers view these as signs that the brands are
losing their authenticity and third wave is going mainstream. Other people are wondering if maybe
America is moving past the Starbucks phase of coffee. One writer posed the question like this: “If
Starbucks is the Microsoft of coffee, is Blue Bottle the Apple of coffee?” (51).
It seems that the space to compete to lead the third wave is getting tighter and tighter. While
Stumptown, Intelligentsia, and Blue Bottle are leading the way in expansion, they are not the only
companies fighting for a share of the market. There are a handful of other roasters that have had
significant investment over the last five years (55). As we will discuss in a later section, even Starbucks
has taken notice in this market and wants to get involved. It seems the only prominent roaster in this
industry that doesn’t seem to care about market share is Counter Culture Coffee based in North Carolina
(55). On observing this high-end market trend, IBISWorld states that more and more Americans are
viewing coffee as an experience rather than a utilitarian pick-me-up. The key question is whether or not
markets outside of the wealthy urban environments will be receptive (53).
One of the most interesting questions when observing this expansion is trying to figure out
which direction this industry will go. Various experts have speculated on this problem, and in an article
asking this very question, industry professionals are asked to give their thoughts. A representative from
Stumptown believes that we are in the beginning of innovation with cold coffee. We finally have ways to
optimally brew cold coffee and bottle it and now we can experiment with different ingredients and
recipes. Any flavor that goes well with coffee, whether chocolate, milk, fruit, or even one shop’s recipe
with hops can be used. Cold coffee has even been stored in kegs normally used for beer. Years ago bars
would only have three or four kegs on tap, but now they have 20, 30, or even more. It may be this way
with cold coffee at cafes (54). Signature drinks may play a role in the future. Initially, the third wave was
against flavored lattes, but now they have their own variation. The issue wasn’t necessarily the flavors.
The issue was the mass produced syrups, and these new signature drinks are the equivalent of high-end
cocktails with their fresh herbs and ingredients (54). There are numerous other predictions about the
industry made by professionals, some of which sound reasonable and others sound insane. One industry
professional explained his thoughts by explaining that if the last forty years in coffee were about
tradition then the next era of coffee is going to be about innovation and breaking all of the rules (52).
There are two products in particular that I want to highlight for how the third wave is likely to
progress in the coming years: bottled cold brew coffee and pre-ground coffee packets.
First, anyone paying attention to the third wave in recent years has likely noticed an explosion in
cold brew coffee offered by Stumptown Coffee and Blue Bottle. Even if someone is not paying attention
to coffee, if they live in a large city or shop at whole foods they have likely noticed bottles of these
drinks. There has been significant expansion of these products since investment began in these roasters.
A Mintel report shows that there was a 115% growth in the cold brew beverage market from 2014 to
2015 (59). After Stumptown began selling its cold brew, Blue Bottle began selling its own New Orleans
Iced Coffee in Whole Foods (56). Other companies like Black Medicine and Project Juice have also begun
entering the cold brew coffee market (56). This bottled beverage market is one area where these
ventures could pose a threat to some of Starbucks market share (56). One concern posed by some
people with Stumptown and Blue Bottle is that this seems more like they are trying to become another
Starbucks. The writer of one article asked this question: “Can James Freeman turn Blue Bottle into

17. Starbucks without turning it into Starbucks? (56)” With market concerns still in mind, although the
Mintel report did report significant growth within the last year, it also noted that much of the market for
these cold brew beverages is made up of millenials whose motivation to buy these drinks is trying and
experiencing new things, so it is likely that if a new product was to emerge then customer attention
would be drawn away from cold brew (59).
The second product, pre-ground coffee packets, is a lesser known product to watch in this
industry. An article in the coffee news website Sprudge covers a new San Francisco startup called
Perfect Coffee. The founder of Perfect Coffee became extremely interested in third wave coffee and
realized that the problem of brewing the perfect cup of coffee was simply just a chemical engineering
problem (57). All of the variables in coffee brewing were perfectly set except for grinding. Grinding is the
only variable that can’t easily be measured and standardized (57). He realized that he had two problems
to solve: 1. Figure out how to easily measure and replicate whatever grind size a company uses for their
coffee, and 2. Find a way to make pre-ground coffee shelf stable (57). As one could imagine, the first
problem seemed a lot more interesting to professionals in the industry. Eventually both goals were met.
The goal of pre-grinding coffee was met through a variety of techniques, but the key factor that made
the difference was that they packaged the coffee in individual brewing packets rather than one large
container where most of the coffee would go bad after it has been opened (57). The testing for this
product was done with Blue Bottle and Chromatic coffee (57). In 2015, Blue Bottle acquired Perfect
Coffee. This process was a unique and humbling experience for the founder of Blue Bottle. While being
interviewed about the acquisition, James Freeman explained that when he first found out that his coffee
was being used to test pre-ground coffee he was furious, then after calming down he decided to try it
(58). He was blown away by how the packets were nearly as good as the fresh ground coffee. In taste
test after taste test his team could never consistently pick out which coffee was which (58). Shortly after
deciding to make the acquisition, Freeman had a moment where he realized just how great this new
product would be. His family was driving up to their cabin outside of San Francisco and he realized that
he forgot to bring his coffee. He then realized they had a few packets of Perfect Coffee. He brewed a few
cups and his enjoyment of this coffee helped him realize that the quality of this product matched with
its convenience is a significant step in competing and offering alternatives to instant coffee and k-cups
(58). After all, the market of consumers seeking convenience is the key market that the third wave has
yet to truly reach.
I mentioned earlier in this paper that Starbucks was beginning to take interest in the markets
created by the third wave. In late 2014 and early 2015, Starbucks began selling online subscriptions of
their “Starbucks Reserve” coffees, which are designed to compete with third wave roasters through
higher quality coffees (62). It seemed based on the type of strategy Starbucks was pursuing that they
were gathering significant inspiration from Blue Bottle (62). As they progressed they announced that
they would be opening a roaster and tasting room specifically to highlight these Reserve coffees.
Starbucks officials insisted that this move was not third wave. They used terms like “super-premium,”
“reserve,” and “small-lot,” but the elephant in the room was still third wave coffee (61). Upon the
opening of the Starbucks Reserve Roastery and Tasting Room, a writer on staff for Sprudge Coffee News,
which typically focuses on third wave coffee news, wrote a full article about the location (60). The writer
described it as an increasingly blurry line between independent coffee culture and corporate coffee
progress. The shop is 15,600 square feet and built to LEED (Leadership in Energy and Environmental
Design) specifications. There are two levels with an espresso and brewed coffee “megabar” on the
second floor as well as another full espresso bar with manual coffee brewing stations on the first floor.
There is a gift shop with ceramics and pottery from some of Seattle’s finest artisans, an ice cream shop,
baked goods and salads made fresh, and a pizza restaurant from Seattle celebrity chef, Tom Douglass.

18. The building has two different coffee roasters, four different espressos available and six different coffees
to be manually brewed (60). The list goes on for awhile, and the writer even mentions in the article that
he has gone over his word limit, but the key point to take away is that Starbucks has been watching the
third wave closely and has spared no expense in equipment, architecture, technique, and practice, to
mimic the best of the best in the industry (60). Starbucks would not comment on how much was spent
on the location, but after doing a quick estimate of the equipment in the building, the writer estimated
that the equipment alone cost over a million dollars (60).

19. Importers and Direct Trade Roasters:
With a basic understanding of the consumer as well as the third wave coffee industry, there is
one more link in the supply chain to examine before viewing the farmer perspective: green importers
and direct trade roasters.
In order to properly understand the discussion around these key players, there needs to be an
adequate understanding around the terms “fair trade” and “direct trade.” Fair Trade is an official
certification system promoted by Fair Trade U.S.A. and other organizations while “Direct Trade” is a
term with a definition that varies depending on the roaster that is using it. There is no certification for
direct trade (64). ). It seems like due to the standardized nature of fair trade that most people will either
be on one side or another, but when it comes to direct trade there are a wide variety of opinions. In an
article interviewing various green coffee buyers and professionals about direct trade, Geoff Watts of
Intelligentsia and a handful of other professionals give their thoughts on direct trade ((63). The
foundations for Intelligentsia’s direct trade program were laid in 2001 when they began making trips to
Guatemala and Mexico (63). By 2008, Intelligentsia had developed a network of over thirty different
farms in eighteen different countries (63). The initial motivation for this direct trade was a frustration at
not being able to get the type of coffees or transparency in the supply chain that they wanted from their
importers (63). When asked to define direct trade, Watts gave an incredibly long and complex definition.
At the core of Watts idea of direct trade is that it is more of a philosophy of buying rather than a
program or practice (63). Direct trade is the concept of building a relationship with farmers that lasts for
more than just one harvest. This relationship will help provide financial investment that improve the
quality over the years and is beneficial for all parties involved (63). Watts was asked about direct trade
as an altruistic venture. He does not believe that companies should engage in altruistic ventures.
Instead, he believes that they should engage in ventures that are mutually beneficial to the farmer and
the roaster (63). This idea is core to his beliefs because it is what makes this program economically
sustainable. If it is altruistic then it would just be another charity and its benefits would only last as long
as people are willing to give with nothing in return. Upon being asked about the fact that direct trade
isn’t an official certification and can be taken advantage of by unscrupulous companies, Watts
responded that he thinks there will always be companies that try and take advantage of industry terms
to seem more ethical than they really are, and there really isn’t a lot that we can do about that. The best
that a company can hope to do is to be as up front and honest with the consumers as possible and hope
that they will be discerning when it comes to ethical practices (36). He went on to explain that in the
early days of Intelligentsia buying direct trade he would post lengthy papers on the website explaining
in-depth detail of the companies buying practices along the supply chain. The problem was that almost
no one ever read these documents, and whenever he would point people to them they would ask if he
had a shorter way to explain it (36). Eventually Intelligentsia began using the term direct trade to
encapsulate the overall philosophy and buying practices of the company. Watts feels that it would be
bad to create an official direct trade certification for the industry because each roaster and producer has
their own set of needs that can’t always be met with an overarching set of rules. To create rules for
direct trade would be to make it static and destroy its ability to evolve over time and meet the needs of
farmers on the supply chain (36). It seems sad at times that customers want proof that a company is
doing social good, but when they ask about a problem they only want short and simple answers.
Unfortunately, this is a reality that ethical business owners will need to face as the back and forth
between ethical companies and those that only market ethics will be with us for far longer than we
would like.

20. This discussion about marketing and ethical practices leads us into the dangerous realm of
green-washing, where companies mislead consumers to believe their products are ethical or
environmentally friendly. Green marketing makes up a significant portion of the nearly 150 billion dollar
U.S. advertising and marketing industry (67). There is often a consumer backlash when they begin to
suspect a company of green-washing (67) In general, it is important to follow the money that a company
receives to find out where their real motivations lie. In some cases companies have marketed
sustainable products when all they were really doing was following laws and regulations that were
already in place (67). Properly informing consumers about your ethical practices without being accused
of green-washing has in some instances been compared to walking a tightrope. A key way to avoid
consumer backlash is to remain humble about product claims. Companies that market their products as
being the most important thing for saving the world are opening themselves up for attacks from the
public, while companies that simply state the facts and nothing more about their product will win loyal
consumer bases (65). There are also organizations such as NSF International that offer guidelines and
tips for better and more accurate communication about sustainability between companies and
consumers (66). The key thing for companies to understand is that sustainability is not the core reason
they sell their product. Their product is sold because of its value proposition, and any features that make
it ethical or sustainable should be the standard and not the key feature. A great example is with
consumers and electric cars. Consumers do not buy electric cars to save the world; they buy electric cars
to move from place to place, and they purchase the electric option because it coincides with their values
and standards. With this in mind, companies that make ethical practices the core of what they do will
eventually fail because they have forgotten their value to the customer, but companies that make
ethical practices the standard or prerequisite with whatever they do will succeed because they realize
that sustainability is not the product, it is a part of the product.
In this paper we have described a wide variety of issues and claims about what the best
methods are for supporting producers. For both direct and fair trade models, I have found articles
supporting and criticizing them. I have presented benefits of paying premiums for quality, but, as we
have already seen in some instances and will cover further when we discuss the farmers, the model of
paying premiums for quality is also not always a perfect model. In reading about a wide variety of
strategies from importers and direct trade roasters I have concluded that while certifications, quality
premiums in purchasing, cutting out the middlemen, and various other popular strategies are certainly
moving the industry in a positive direction, there are two underlying factors that I believe will lead and
make the difference between those who say they are ethical and sustainable, and those who are
actually leading the way in better practices: greater transparency and long-term relationships with
suppliers.
It can be easy at times to simply assume that cutting out middlemen or raising quality to
differentiate farmers’ coffees will fix all of the problems. It can also be easy to assume that all
middlemen along the supply chain are willingly making decisions to keep farmers in poverty. The
“coyote,” which is a common term for middlemen that pay far below market value for coffees is often
portrayed as a villain that wishes to keep the farmer in poverty and prevent any information from being
passed along (68). However, in some cases these coyotes are equally as ignorant about the market price
as the farmers are. In one case in particular, a coyote middleman was simply another smallholder farmer
that would transport all of his neighbors’ coffees to the mill where they would be bought and processed.
In this case, he was only slightly less ignorant of market prices than his neighbors and his neighbors
considered him to be doing a vital service (68). At times, it is tempting to view a system as being run by a
group of inherently good heroes and inherently bad villains, but perhaps the reality along the supply
chain is a long chain of uninformed individuals who are only given just enough information to

21. accomplish their specialized task. In this case, when we speak about cutting out the middleman, while
this is a great idea for improving the payment to farmers, we also need to ask ourselves what the role of
that middleman was and how we are keeping that service in tact while paying better wages to the
farmers (68). Another key factor to keep in mind is that simply cutting out the middlemen to establish a
direct channel does not always meet the goals it sets out to. Many large multi-national corporations
have already found ways to cut out parts of the supply chain and go directly to the farmer, but it doesn’t
necessarily follow that this will mean higher wages for the farmers. Often times this just helps the
company lower their costs (68). This goes back to our earlier example of cheap coffee versus expensive
coffee. You can generally be certain that if a bag of coffee is sold for a cheap price that the farmer was
likely not paid a very high wage, but this does not mean that an expensive coffee always equals higher
wages for the farmer. The key, in this instance is not just shorter supply chains but transparent supply
chains. When companies and organizations make claims about the ethics or sustainability of their
products, we will never know for sure until we can actually see the tangible and reliable data along the
supply chain. Transparency for all parties involved from the consumer to the farmer is the only way that
we can begin to make real progress for a better and more equitable supply chain.
Two companies that I would like to highlight for their efforts in leading the industry with
transparency and long-term relationships are Counter Culture Coffee and Bird Rock Coffee Roasters.
Many companies will provide pictures and stories about the farmers that grew their coffee on their
websites, but they will oftentimes not be very forthcoming with the quantitative data such as exactly
how much the farmers are being paid. Counter Culture was a leader in the industry by beginning to
publish a yearly transparency report giving the numbers of how much different farms were paid from
year to year as well as other data such as the quality or cupping score that the coffee received, and Bird
Rock was among some of the first roasters to follow the transparency report model set by Counter
Culture (69)(70). With each new year of purchasing coffee, Counter Culture has been able to go even
more in-depth with the data in their transparency reports (69). In the 2014 transparency report, the
average price paid for coffee was $3.37 compared with the $2.03 average commodity market. These
prices listed are the FOB (free on board) prices, which is the amount paid for the coffee at the time of
export (69). The Counter Culture website goes on to explain to consumers how to interpret this price. It
is generally below the final price paid by the roaster or importer and it is generally above the price paid
to the farmers (69). As this is the most commonly used number to discuss green coffee prices, it is an
ideal starting point for roasters and importers wishing to begin the process of transparency. The FOB
price is an example of how Counter Culture wishes to improve the detail and depth of their data with
each new year of the transparency reports (69). Within these reports Counter Culture also includes the
number of years that they have partnered with specific farms. In this case, their longest partnership has
been twelve years (69). I have covered earlier that there is no specific direct trade certification. Counter
Culture has a somewhat unique way of solving this problem. They have established their own clearly
defined rules for what they will and will not consider direct trade certified and have even gone so far as
to hire third-party auditing firms to check and back their claims up (69)(70). In an earlier section, we
covered how Geoff Watts was unsuccessful with publishing large reports because consumers were not
interested in reading long reports on ethical buying practices. They wanted simple and easy marketing.
Counter Culture is no exception in this case. They fully acknowledge that gaining the full attention of
their readers is a challenge and that the key readers of the transparency reports are generally farmers
and other groups along the supply chain. However, Counter Culture believes that it is not only the job of
a company to meet the demand of consumers but also to help shape the demand of the consumers. In
this case, they are finding ways to bring these reports to the full attention of consumers that visit their
website rather than shuffling them to the back of a group of articles (69). This may not receive the
immediate attention that industry professionals would hope, but it does begin the process of getting the

22. consumer’s attention on a deeper level. While representatives from Counter Culture recognize that
consumers may not yet be fully equipped to make meaning out of the numbers and information they
post, they believe that bringing this information into the light is essential to begin a dialogue among all
parties involved (69).
Another roaster that has stepped forward with transparency reports in their direct trade
program is Bird Rock Coffee Roasters. They cite and refer to Counter Culture as a heavy influence and
leader when it comes to how they handle their transparency and ethical buying decisions (70). As this is
a company that has not yet achieved the scale of Counter Culture or the experience in international
trade, they have yet to obtain their entire selection of coffees from direct trade (70). Because of this, it
is primarily their Central and South American Coffees that are presented in their transparency reports
(70). They hope to expand their buying practices over the years and produce these reports on all of the
coffee they sell (70). They also include breakdowns of certain portions of price to show where money is
going. In this instance, one coffee that they purchased alongside other direct trade roasters had an
additional five cents added per pound in order to go to a clean water project in the area (70). They also
discuss a longstanding five year relationship with a farm in El Salvador that began when they purchased
certain experimental lots for above market value (70). Finally, their summary of the transparency report
provides some brief observations that while for a number of years the price of specialty coffee has been
based in comparison with the commodity market price, it is finally starting to move into a category of its
own that is not dependant on global coffee prices. As this trend continues it will likely lead to more
stable prices paid to farmers of specialty farmers rather than the wild fluctuations that the commodity
market is prone to (70).
It has become increasingly popular over the years for consumers of specialty coffee to seek out
roasters that market their brand as direct trade. This has been a positive trend for all parties involved,
but it is also important not to get caught up in the marketing as this trend continues to develop. In this
case, the rise of direct trade coffee has led to somewhat of a demonization of importers because of the
lack of transparency in the past. However, it is vital that we realize that there were specific reasons why
the importers in the past were doing a poor job, and many of those reasons are not inherently
connected or limited to green importers. Even direct trade roasters can fall prey to many of the harmful
practices from importers in the past if they do not maintain their transparency. As for the issue of
cutting out the middlemen, many direct trade roasters still need to work with third-party firms in order
to import their coffee. Even Bird Rock Coffee Roasters and Counter Culture Coffee, some of the leaders
in transparency, listing their prices as FOB prices acknowledged that this is a price between what the
roaster pays and what the farmer is paid. The difference between these prices has to go somewhere and
that is the supply chain. The question is not whether or not money is paid along the supply chain but
whether or not it is spent in an equitable and transparent manner, and green importers, if they adhere
to these principles of equitable payment and transparency in practices may serve a vital function and
value in the industry.
Two companies that exemplify these values in the industry are Café Imports and Sustainable
Harvest. Café Imports has been importing coffee into the United States since 1993, and among their
driving principles are maintaining long-term relationships that are beneficial for all parties along the
supply chain (72). They regularly engage in educational initiatives, quality incentive programs, and
financial and health projects in the communities where their coffee is grown (72). As they are primarily
geared towards specialty markets, they have an incredibly highly developed sensory analysis teams that
continually cups coffees for quality in order to be the bridge between quality growers and quality
roasters (72). Their staff is also highly involved in various industry trade organizations and participates in
bringing their knowledge and experience to the next generation of coffee professionals (72). Sustainable

23. Harvest started about fifteen years ago in the early 2000’s (73). They were a pioneer in the relationship
coffee model and collaborate closely with all members along their supply chain to benefit all parties
(73). They are also among the companies that are leading the way in transparency and traceability (73).
One key concern and area of involvement for Sustainable Harvest is that as climate change continues to
affect our planet the global supply of coffee will be significantly impacted. They are working closely with
farmers throughout the world in order to help prepare and mitigate the potential damage caused by this
threat (73).
In an article titled “The Direct Selectors,” Noah Namowicz from Café Imports describes the
problems that can occur if consumers blindly follow direct trade marketing and forget the vital function
that importers play in the market. He explains that for a long time in the industry, coffee importers were
often viewed as “the man” (71). He talks about old commercials for diamonds that he used to see where
they would sell diamonds for incredibly low prices by cutting out the middleman. This seemed like an
easy sell, and when it came time for him to purchase diamonds he didn’t really need to think too much
about where the low price really came from (71). In the article, Namowicz makes it clear that he is not
attacking all direct trade roasters and certainly is not attacking coffee professionals going to the source
and meeting the farmers. He believes that having communication between roasters and farmers is one
of the most important things that our industry needs for better practices along the supply chain (71).
The problem that he has really comes when lots of small roasters who want the best of the best coffee
year after year will go to origin and “cherry-pick” the coffees they want with no guarantee that a
relationship will be established (71). This practice carries all of the benefit for the roaster with little
benefit for the farmer. The roaster is able to put the direct trade stamp on their coffees while serving
the best possible micro-lots without any further commitment of purchases in the years to come (71).
Furthermore, as this farmer will only be selling one or two lots to this roaster they still need to figure out
what to do with the rest of their crop, which will typically be sold on the commodity market (71).
Oftentimes what the farmers want and need goes far beyond receiving extra payment for one or two
lots for one or two growing seasons. They are looking for stability. These farmers need to be able to
have access to financing and investment that will help them reach that same level of quality year after
year. They need reliable partners that will continue to buy their coffee even when the new crop doesn’t
quite live up to the standards of the last crop (71). Simply paying more for one year of good coffee is
nice, but collaborating and investing to consistently produce better crops year after year is a significantly
better proposition. Noah Nomwicz makes the argument in his article that because of the size and scope
of Café Imports and because it is independently owned it is able to meet these needs. Café Imports has
the financial and logistical resources that many small roasters simply do not. They are able to partner
with and pre-finance certain lots and crops of coffee. They can commit to purchasing coffee even when
it doesn’t meet their initial expectation because they know this is about long-term relationships rather
than one good crop. Also, because they sell to a wide variety of roasters they are able to find buyers
even for the coffees that did not come out as high-end excellent micro-lots. There is a whole range of
quality in-between commodity quality and micro-lot quality, and this is the range that is often
overlooked by small direct trade roasters (71). Café Imports also invests in providing sample roasters for
farmers and teaching them how to roast and cup coffees so that they are aware of how farming
methods impact taste (71). Oftentimes if a micro-lot comes in to the warehouse with a cupping score of
less than 85 Café Imports will lose money on that lot, and that is a financial hit that they are able to take
and many small roasters cannot (71). Overall, just as there is a new generation of coffee roasters
sourcing coffee there is also a new generation of importers partnering with quality farms. Rather than
grouping different categories of the market into “good” or “bad” and simplifying issues we need to
remember that all players have a key function and specialized value in the supply chain. We ultimately

24. want to move toward a supply chain where each member is holding the other members in check rather
than simply taking over each others’ functions.
In this case, moving beyond transparency and making that a prerequisite for all buyers of coffee,
we need to evaluate the direct trade buying programs of roasters based on whether or not they are
maintaining these long-term relationships with producers and reinvesting in the farms to produce better
infrastructure. Larger and more established roasters such as Intelligentsia, Stumptown, Counter Culture,
and Blue Bottle may be able to maintain and support these relationships while smaller roasters that
focus on micro-lots and extremely high-end coffee may need to partner with an importer. If a smaller
roaster wants to be able to effectively impact farmers on the supply chain with direct trade then they
need to be willing to invest in long-term relationships with the farmers. One great example of this is Zion
Coffee in Peoria, Illinois. When I met with one of the owners, Mike Hatfield, we discussed numerous
aspects of their business as well as how they planned to move forward with direct trade. He made it
clear that they want to be about both quality and developing relationships with producers. However, in
our discussions he also stressed the belief and need for them to maintain these relationships rather than
going from farm to farm. If a small roaster wishes to engage in direct trade, then this long-term
relationship is the type of model that needs to be embraced, but if they are going to lean more towards
jumping back and forth between micro-lots from year to year, then it seems like the best solution for all
parties involved would be to seek out a quality importer that upholds these standards of transparency
and long-term relationships.
It seems increasingly clear when observing the industry that these trends of transparency and
building relationships will only increase as the market progresses. To finish off this section I want to
briefly bring up two factors that I believe have greatly influenced the rise in these better practices in
coffee buying.
The first factor may seem like an odd cause for better buying. In the past roasters were
extremely limited in the options they could receive from their importers (76). Importers were not willing
to send samples of coffee to the roaster before purchase and the information given was minimal at best.
If a roaster purchased a bag of coffee that did not meet their quality standards then they would
generally have to consider that a loss (76). Today, roasters have significantly more buying power and
information when speaking with their green coffee importers. If an importer is unwilling to provide
samples before purchase or refund for coffees that did not meet expectations then the roaster is free to
choose among numerous other coffee importers to purchase from (76). Today’s small coffee roaster has
significantly higher standards from their importers from the quality of the coffee to the information they
receive about the farms. This new movement in transparency and quality has raised the bar for all green
coffee importers and forced them to rethink how they approach the market as a whole (76). I believe
that this dramatic increase for transparency and communication between the roasters and the coffee
importers has fed back into the relationships between the importers and the farmers. The importers
cannot communicate effectively to the roasters if they have not gathered accurate information about
the farmers, and they cannot gather that information without going and speaking directly with the
producers. It seems in this case that even demanding a little bit of transparency on one end of the
supply chain can ultimately contribute towards better transparency across the whole supply chain.
The second factor that I believe has aided tremendously to the rise in transparency and better
buying practices is the rise of technology and the internet. In an interview with a coffee buyer that had
been in the industry for over thirty years, technology was listed as the single greatest factor to change
how coffee farmers managed their business (75). With access to the internet farmers finally were able to
get information about markets and supply chains that had been hidden from them for years (75). Better