Whenever I start something new, I do this weird thing. I go and follow unknown people on Instagram who happen to be relevant/important to my objective. For example: if I started a page on coffee, I'd go and follow pages of coffee estates, roasters and even influencers. Just for the heck of attention with the hope that they follow me back (never happens). I'm guilty as charged. And I'm sure some of you have done it too.
A result of this was me following someone called Nakul Mysore. He happens to be coming from a background of coffee, with his family owning the famed filter coffee brand, Jayanthi Coffee and Sunshine Enterprises, a roastery. He is massively active in the coffee space and seemed to be moving towards specialty coffee. He started "World of Coffee Experience", a cafe designed around an educated concept and based in Chikamagalur. He was also running a brand of convenience coffee called "I Love Black Coffee". All of this seemed as valid reasons to follow him. But a little later, something interesting happened.
I met Nikunj Tejwani. An eccentric guy with plans to start a cafe in Nagpur and build a business out of a passion of his. Ideally, running a roastery of his own would have been satisfying. But the scale of capital investments required as well as the wafer thin margins could deter anyone from entering into the coffee roasting business. So he got in touch with Nakul, who happily took up the job of white-labelling coffee for Nikunj. This is where it all gets interesting.
Enter tripartite agreements.
Nakul and Nikunj engagement in something called a tripartite agreement. But then who is the 3rd party? Kerehaklu, an estate!
A tripartite agreement is one where there are 3 parties involved. In this case, we have an estate, a roaster and a cafe.
Why?
It allows to play on economies of scale. An outcome of this is reduction in cost of transaction.
How?
Nakul runs a roastery in Chikamagalur. He has a massive warehouse which can hold 100s of tonnes of coffee. He also has access to all the estates in the area. The coffee industry is dominated by players who are family owned and hence the bonhomie is on a different level altogether. This allows for relationship driven sales and not just mere transactions to happen in the industry. And Nakul, for having the advantage of a legacy brand like Jayanthi, is able to command a position where he can act as an aggregator of coffees. So he does it and gets coffees from multiple estates into his warehouse against a guarantee of business.
There is a little bit of history that needs to be shared here before we go further. Nakul worked the advantage of Jayanthi Coffee's brand legacy to build an exports and private labelling business for 70+ brands. In the true sense, he aggregated coffees at the estate level. But none of this would have been possible without the extensive efforts put in by 2 others alongside Nakul to build Hoysala Coffee and Spices, a network of farms which forms the backbone of the specialty coffee supply chain in India. They are Sunil Rasquihna and Mohan Alwaris - legends in their own way (more on this in an upcoming blog).
Now that he has the supply in place. What about the demand? One of Nakul's critical role at Sunshine Enterprise is to develop business accounts. And what are business accounts? Mass consumers of coffee aka hotels, cafes and darshinis. They can either buy this coffee under the label of the family brand or get private labelling done. Hence, they have division which purely works on private labelling for cafes.
But why would cafes want to have a private labelling done? Competition is stiff. And to differentiate, they need to have a crisp-n-clear identity in place. If a cafe can say they have a coffee or a blend in their name, then the chances of them being able to sell it more is higher. Otherwise, differentiating themselves from their competition is a task. And how well they are able to do this differentiation along the lines of identity is challenging. So they turn to people like Nakul who can help them build a brand of their own.
Enter tripartite agreements (again).
Nikunj transacts with Pranoy from Kerehaklu and signs up for a fixed amount of coffee from his estate. Then Pranoy ensures that the coffees are delivered to Nakul for profiling and roasting. Eventually, Nakul is responsible for roasting the coffee and shipping as needed by Nikunj. This model of roasting and shipping on demand is known as drop-shipping, which can even be expanded to Nikunj starting an online B2C brand where coffees of CoffeeBoo (btw, this is the name of his company) are shipped directly to the consumer (I need to learn how to set context better; next time)
This is how briefly how this business model works. Nikunj is able to get his custom profiles in place, Nakul earns his commissions via roasting the coffees and Pranoy creates an accessible market for the coffee he grows. It's a win-win-win for all.
We need businesses like this for multiple reasons:
Estates need buyers for their coffees. Being a high investment space for estates, it is pertinent that they fulfil demand to be able to sustain over the longer run. Labelling allows these brands to capture a share of voice in the coffee market.
Coffee industry works on volumes. If you don't have the demand then getting the product across becomes challenging and cafes/roasteries risk falling into debt traps within a few months of operations. Hence, you need to maintain this agility/flexibility.
Estates need demand commitment to be able to plan their harvests. This requires a significant investment of time, money and effort. With a stable demand in place, estates are able to comfortably approach their practice of growing/harvesting/processing coffee and are able to explore more.
In essence, Nakul maintains a 2-sided marketplace between estates and cafes. He takes orders from cafes for their private labelling. He then either sources coffees on his own or the cafe already has a sale agreement in place. And finally, he roasts on demand and ships it to the roaster or the desired customer. A superb way to re-organise the value chain.
Today, he has 40+ estates and 100+ cafes associated with him and manages drop-shipping for 5 brands. This is impressive. Simply because I believe that drop-shipping is one of the lucrative segments where the future of Indian coffee is. I'm sure a lot of cafes will look to explore partnerships with him. Let's see how this phenomenon pans out.
P.S. Nakul is working on a bombastic idea. He's told me about it. Will share with the world soon. Stay tuned.
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