Eleven Questions for Paul Stack of Marco

I have posted several times on the subjects of manual brewing and equipment purchasing as they apply to financial statements and profitability modelling. As a special feature heading into the Specialty Coffee Association of America annual trade show and conference in Houston Texas, I have posed some questions to Paul Stack of Marco located in Dublin Ireland. Marco is on the leading edge of technical innovations in hot water delivery systems suited to shops and roasters alike.
Coffeekings: Marco and Uber project may be something unknown to many in the North American coffee business. What core business was the company founded on?
Paul: Marco is 30 years old this year, which is surprising to some. The core business is the design and manufacture of hot water delivery systems for the food and beverage industry. This is embodied in the design and production of both hot water systems and automatic filter (drip) coffee machines. However we only sell hot water systems in North America for now.

Coffeekings: Innovation, research and development, and entrepreneurship are extremely challenging at the best of times. Do you perceive Marco in an R&D/building phase or approaching a marketing/management phase of the business cycle?
Paul: Both, to be honest. Innovation and R&D is incessant in Marco. It is our future. Parts of our business are very much on the marketing/management side but probably more so in the more traditional mature Marco markets.

Coffeekings: There are plenty of examples within the coffee industry that support the notion that great talent is attracted to great companies. Marco is also blessed with some knowledgeable and skilled staff. Tell me about some key staff and what they contribute to the company.
Paul: People are attracted to companies which will offer them an experience aligned with their own personal and professional ambitions. To be part of something they believe in. We have a lot of great people and I am loathe to single any out. An exception- Drewry Pearson, our Managing Director is something of a visionary and singular in the drive for innovative product offerings with an underlining belief in continuous education. We have very knowledgable and caring people looking after customer service including after sales care. To use sporting parlance, they play in a position to which they are suited. They give the business a solid spine. Our R&D team is a great mix of abilities from mech eng to software design to industrial design to innovation and research into market need. I could go on but it's a bit trumpet-blowing. In short, we have a good team.

Coffeekings: Ireland is undergoing a very challenging time for businesses and finance due largely to banking and real estate collapses. Describe for me the sentiment among Irish businesses regarding access to needed credit, availability of willing buyers for your products, and prospects for the future.
Paul: Ireland has been gorging in the greedy trough for too long and it's payback time. As always with these things, those who gorged and those who pay are misaligned. Established businesses like our own are lucky to have cash strength and a strong banking history, allowing us to continue to invest in our chosen strategic direction even in the face of market uncertainty and revenue dips in our home market in '09/'10. Newer companies with great opportunities are being hamstrung by the lack of credit available. Some banks in Ireland are money collection bureaux rather than financing institutions. Thus, the gears of Irish recovery are sticking as the lubricant that is fluid financial structures is lacking.The core economy in Ireland is strong. A stupid decision to make bank debt sovereign debt is the millstone we carry as a nation. For that, business sentiment is a mixture of simmering anger tinged with embarrassment as brand Ireland has taken a blow.

Coffeekings: Ireland is a touchstone for millions of Diaspora generations removed from the Island, and in many ways has always influenced the world well beyond their population. On my first visit I was struck by how advanced Bewleys on Grafton Street was compared to North American counterparts in terms of quality and traceability. To what do you credit the incredible depth of coffee talent in such a small population?
Paul: I'm not sure the coffee talent in Ireland is that deep, loud maybe...... Regarding coffee and Ireland, Patrick Bewley was at the forefront of a lot of what has become the Irish speciality coffee scene. He invested heavily in the SCAE, both personally and professionally. He was a founder member and is a past president of SCAE. In his own company he invested heavily in the training and education of his staff. Most of the coffee companies in Ireland with speciality leanings have either a founder or some of their team who is ex-Bewleys, including Marco. In the last five or so years Drewry Pearson has taken up the baton, more so from a patron viewpoint nationally while being at the forefront internationally, being a board member of the SCAE and WBC (now WCE). Nationally, he was the prodding stick behind 'internationalising' the Irish Coffee Championships, the SCAE Gold Cup and a strong education content in the Irish industry.

Coffeekings: I had been following the progress of Uber boiler online for some time before marveling in Anaheim at its beauty, advanced technology and logical solution to problems faced in manual brew methods. Please describe the problem it was designed to solve and some technological barriers to achieving success.
Paul: As most know, the Uber Boiler was the result of a one off project with a nascent London coffee company called Square Mile Coffee Roasters in 2008/2009, at the time comprising the impressive trio of James Hoffmann, Anette Moldvaer and Stephen Morrissey. Our challenge was to produce one under counter water delivery system with counter top font to deliver water to within 1 degree Celcius of a chosen temperature, which could pour directly onto a weighing platform. This would allow James et al cup coffees with accuracy allowing them highlight nuances. While we already had undercounter systems, their accuracy was approx +/-2.5C and there was no weighing platform. Tightening the accuracy was the key challenge. The rest was packaging and having a will to do it.

Coffeekings: Where are the uber boiler manufactured and how much time is required to take one from shop drawing to tabletop? Have you considered licensing the technology to larger manufacturers and focusing on marketing and distribution?
Paul: Uber Boilers are manufactured in our production facility in Dublin, about 7 miles from the city centre. We build four Ubers per run. Build time from punching steel to boxed Uber is 4 days. As the Uber Boiler is a constant work in progress I haven't considered licensing the technology. Is someone interested ?

Coffeekings: It seems to me that the past 5 years or so have become a period where companies are applying increasingly advanced technologies to address problems posed by increasingly simpler brewing techniques. One of the problems I see with manual brewing is the increased labour and wait time. How has the uberboiler addressed these problems?
Paul: It has and it hasn't. That's a bit Irish, eh? It has by giving the Barista a workstation from which (s)he need not move and can engage with a customer, thus maximising efficiencies and customer service. More importantly, it hasn't as it is not designed to decrease wait time. The ECOBOILER & ECOSMART series do that.

Coffeekings: The most visible elements of the high-end coffee market communicate at length about the subtle nuances and characteristics of their coffees cupping profiles. This sort of customer interaction can pay big dividends but only if the customer can distinguish the traits too. What about the uberboiler increases the chances of successfully brewing coffee to reveal the desired profiles.
Paul: Precision. At its heart is the UberBoiler's capability to allow the Barista change every brew variable, from coffee to water ratio (+/-0.5g) to contact time (+/-1s) to temperature (+/-0.1C) to turbulence (via flow rate and flow direction).

Coffeekings: Marketing and distribution are for me big black holes for profits and cash flow. What is the marketing strategy for Marco and how are you addressing distribution in North America?
Paul: Never a truer word spoken. We never targeted North America. The uber project dragged us there. It would have been too big a step for us to set up Marco USA when that opportunity presented. La Marzocco USA handle our brand and our product in North America, exclusively in the US. The alignment of both companies' brand positioning, strategic intent and vision coupled with the simple fact that we get on well made it an easy decision.


Coffeekings: One thing I like to repeat to staff is we don’t get to choose our customers, they choose you. Are there any customers using Marco’s products and services that surprise you by not fitting the target customer profile. Is anyone using the uber boiler for products other than coffee and do you market to any other industries?
Paul: It's a great question to which I am unsure how to answer. Our products are used widely in catering institutions where the need is often basic regarding brewing but crucial regarding reliability, ease of use and service. Cost of ownership and our products' energy-saving credentials are fast becoming as big a decision factor as the customary features of well-designed, well-made kit which do the job. Regarding Uber Boiler, it's main and happiest home is the cupping room or the Barista-driven brew bar. It is also used in gourmet tea shops.

Manual Brew Costing Part II

I've felt the need to dig a little deeper into Manual Brew Costing since it is a relatively new revenue stream for many coffee shops, and very different metrics apply to determining it's profitability. I really appreciated the comments, and hope to provide some more info for discussion. So here goes my second instalment in a complete workup of Manual Brewing.

My first assumption is that Batch Brewing and Manual Brewing are perfect substitutes from the consumers perspective. That means that a customer would be equally happy ordering a manual brew coffee and a batch brewed coffee in most circumstances.
Second, I am assuming that most customers are accustomed to ordering their coffee as a batch brew, and therefore it is the default order for most customers. Because it is the default, most customers are acquainted with "normal" wait times when ordering a batch brew, and are familiar with normal pricing associated with it. This is important because if Batch Brewing is the default, the exogenous inputs of "Wait time" and "Price" affect only Manual Brewing.

Using these assumptions I have come up with the following equation to represent the consumers demand for Batch Brewed and Manual Brewed Coffee:

Demand for Coffee = Brewed Coffee + (Manual Brewed Coffee/Wait Time and Price)

In this equation, the + sign indicates that both are substitutes for each other and combined demand equals total demand for coffee. (I understand that in parts of Europe the Americano factors strongly, but I'll examine that at a later date.)

It has been pointed out to me that Intelligentsia is successfully using all manual brewing and achieving a high profit through efficiency by brewing approximately 4 brews in 6 minutes negating my 7.5 minute assumption. I spent some time thinking about this, and of course came to the conclusion that efficiency is best met when output is maximized, ie a busy shop like Intelligentsia. So the question is how can a smaller operation achieve the same efficiency? I think the equation provides some revealing info.
If Brewed and Manual are perfect substitutes, then eliminating one simply means more volume of the other. If a shop eliminates Batch Brewed (like Intelli) the full volume shifts to Manual Brewed where there is the possibility of achieving efficiency though volume. Further, because there is no Batch Brewed Coffee, the expectations for speed and pricing may be altered negating the drag on demand by the denominator in the equation. (Assuming there isn't a super fast direct competitor next door tempting impatient customers away) In the equation, the default was Batch Brewed, and the drag was placed on Manual because it introduced unfamiliar inputs of extra time and elevated price. However, eliminate Batch, and the default changes to Manual. I expect that there would need to be a transition period where staff would build skill levels and determine best sequencing, as well as a period of preparing customers for a change. I still have serious reservations about whether cost effective manual brewing is possible in most situations, but am intrigued.
I'm sure Intelligentsia went through this exercise, but thinking through it step by step helped me realize that perhaps in the right circumstance, labour can be applied efficiently in Manual Brewing. I will sit on this for a few days and expand on it by costing a manual brew only shop with quicker brew times and maybe an equation that capture the Supply side of the transaction.
Please share your comments, they help me work through things I hadn't thought of and bring different perspectives to an important subject.