There’s a huge shift in coffee trends coming

Westrock Coffee Co-Founder & CEO Scott Ford joins Yahoo Finance Live to discuss the company going public through a $1.1 billion SPAC deal, coffee trends, product pricing, inflation, and the outlook for the beverage industry.

Video Transcript

BRIAN SOZZI: Westrock Coffee said Monday it will combine with a SPAC to go public, valuing the business at more than $1 billion. Joining us now is Scott Ford, Westrock Coffee co-founder and CEO. Scott, good to see you here this morning. Congrats on the transaction. For those not familiar with what you do, who are some of your biggest customers, and what are you hoping to achieve? SCOTT FORD: Well, Westrock Coffee is, we think, the preeminent coffee, tea extract service provider to, basically, the major restaurant chains, distributors, C stores and travel centers, CPG companies whose products you know the brand names of. We are the provider of services. We’re the brand behind the brands, as we like to speak. So we don’t go into exactly who we serve because that’s really their information. But if you’ve been through a drive-through restaurant or you’ve been to a C store or you’ve been through a travel center, you’ve been to A Major League ballgame, then the chances are very high that you’ve had our product. We sell about 20 million cups of coffee a day through other people’s brands. JULIE HYMAN: Scott, it’s Julie here– Oh, sorry. Go ahead. Go ahead. Pardon me. BRIAN SOZZI: Scott, what made you found the company? You were in wireless technology before this, right? SCOTT FORD: Yeah. A lot of people– I used to run a company called Alltel. Ran that for 13 years before we sold it to Verizon. It’s about half the map of Verizon today was the former Alltel. My wife and I had been doing charity in Rwanda for years even when I was doing that. And as part of that experience, I came to figure out that there were really only two mills in Rwanda that farmers could sell their coffee. And unfortunately, the daily price they could sell that was about half what the market price for that would have been in any other part of the world. And so we built a mill and said we’re going to open up a third mill, and we’re going to have a competitive price. We can make a profit and pay these people a fair wage. And frankly, it doubled the price of coffee for everybody in the country. And then I was just going to do that as part of a sabbatical for a year after we sold to Verizon. And I decided after starting in one, we bought another. We built another plant in Tanzania. We bought a trading company in the UK. We opened a plant here. We’ve made a couple of other acquisitions. Today, we’re the largest brand-behind-the-brand service provider in the country with an ambition to take that globally. Because as we grow our customer relationships, we create a demand pull for the farmer partners that we work with on the ground at origin. And as that demand pull is effectuated, we can raise the price and raise the volume and raise their income, which is the purpose of the business from the beginning. JULIE HYMAN: So now I’ll dive in there, Scott. I’m curious– if a lot of your coffee is sold through other vendors, I’m curious what has happened over the past couple of years and what the trajectory has been like when people weren’t going through drive-throughs for a lot of the time or they weren’t drinking their coffee out. And I know some of your stuff gets sold into home channels as well. But what has that cadence been like, and where does it stand right now? SCOTT FORD: Right. Well, fortunately, we’re very balanced across a number of industry sectors. As you can imagine, the seated restaurant business was just shut down. Some of the drive-throughs struggled mightily. Some of the drive-throughs opened up double, triple lanes, figured out how to do that really efficiently, and actually were performing, year over year, above where they were before COVID. And then we have a large retail presence. You’ll see in this little video, we do single-serve products for major retailers. So the in-home kind of offset the out-of-home. But there was a real share shift, and there’s going to be another one coming as some of the trends that took place or were taking place around the move to cold-based coffee instead of hot, the desire to have it in a ready-to-drink format in a can or a bottle instead of going and pulling a tap– those trends were really accelerated, which is what’s driving our next investment cycle as we move to stay in front of our customers’ demand for those kinds of products. BRIAN SOZZI: Scott, what type of inflation have you been seeing just from a coffee bean perspective? In terms of price increases, how have you been able to pass that on to your customers? SCOTT FORD: At the end of the day, we are a conduit for our customers, and we help them manage their price risk. We have a big trading operation that helps them, but it is for their balance sheet. So our customers bear the risk of coffee prices. If they go up, we pass those prices through. If coffee prices go down, we pass those through. Overall, coffee in the last year– this chart is a little shorter term– in the last couple of years, coffee has basically doubled from $1, $1.25 to $2.30, $2.40. And that has been there, and that has been priced through. And frankly, I’m not so worried about the coffee price because, number one, it passes through. But $2, $1.60 to $2 represents a living wage– affordable living wage, if you will, for farmers at the export countries. $1 really doesn’t. And so I’m glad to see coffee come up. It’s plastic and paper and freight. I mean, they’re up 30% and 50% and 75% in the last 18 months since everybody came back online at the same time. JULIE HYMAN: Well, and not only that, but to your point, the folks who are growing the coffee, they’ve got higher input costs too, right? I mean, I would imagine things like fertilizer, labor, et cetera. So if the original mission of the company is to get those people the market rate, what’s happening on their end with their margins? SCOTT FORD: So the actual dollars per pound that they can put in their pocket had been trending up, even on a net basis, for those things. In the smallholder farmers where we primarily serve– not the big plantations in Brazil, but the individuals who grow coffee in their backyard– fertilizer is actually a fairly light expenditure for them. It’s not inconsequential, but it’s not like you would think about in a large corporate farming environment. So the actual net proceeds through to them have been able to go up substantially with this price run. But even in a price-declining environment, we’ve got great studies where just going in and training farmers around agronomy practices, how to manage your money, how to wash, how to dry, how to clean the coffee– those differences have allowed people to get 200% and 300% more for their crop even in a market that was down 40% on the C price. So detaching the farmers’ income from the C price was the first thing we worked on when prices were low, and then letting them benefit as prices move up is what we’ve been able to pass through now. BRIAN SOZZI: All right, we’ll leave it there. Scott Ford, Westrock Coffee co-founder and CEO, look forward to staying in touch. We’ll talk to you soon. SCOTT FORD: Thanks so much.

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