How Supply Chain Problems Have Affected Sagebrush
Earlier this week, Jonathan and I ran out to get Christmas decorations for the coffee shop. We started at Lowes, then went to Hobby Lobby, and ended at Target. There were none at any of those stores. Not just a poor selection, nothing. No tree, garland, lights, or anything. It was crazy. You hear everywhere about the problems at the port, the logistics issues companies are having, inflation being at a 40 year high, and a lack of stock anywhere. The question I hear the most is, how is this all affecting Sagebrush? Well, let me try to answer that in a brief blog post.
As I've thought about writing this blog post, I've decided to highlight 3 areas of our business that have been impacted by the current economic times. We'll start by looking at our bean supply, then I'll give you a brief overview of the costs impacts, and I'll close out the blog with an update on our shipping carriers.
I think this is the most common question on people's minds, and my answer at this point is, we haven't been super impacted this year. We had a delay on Ethiopian coffees, and a couple of our producers' coffees were delayed, and we've still had a great year finding amazing coffees. I honestly feel like the offerings we have this year are better than ever. I think delays have forced me to get out of my buying comfort zone and branch out a bit. In that, we've been able to try new exciting coffees. I anticipate next year may be a bit trickier, but one of the things I love about the coffee industry is the creativity of everyone involved. I expect that to continue, so I'm not super worried.
This is where we've been impacted the most. I split our costs up into 3 categories. I use a spreadsheet to calculate the price of each of these, and that gives me the selling price. There is a fixed cost that impacts the margin percent that I use to calculate the selling price. Those costs went up last year, but hopefully, our growth will offset those costs (and that seems to be). We have a great long-term lease in the new space, so I'm pretty confident we'll be fine for a while on fixed costs.
There is the cost of the beans themselves. This includes both the money going to the producers and the money involved in transporting the beans to our shop. Both of these have skyrocketed this year. I've seen a bigger percent gain on transport costs, but they're both going up. When we release each coffee, this is the part of the price that has the biggest impact on the variability in price from bean to bean on our site. If every bean cost us the same, they'd all be priced the same. We try to get a few beans that are a bit less expensive, but that has been more difficult of late. That's why you'll see our brown label going over the $20/bag price for the first time. I hate that, but I don't want to sacrifice quality to get to a price point, so even our brown label coffees have pretty high standards.
Finally, there is the cost of goods sold that doesn't include the beans. This is for the outbound shipping, packaging, processing fees, and direct labor. I typically calculate these costs annually and add them to the spreadsheet. I just ran that analysis this week and was astonished at the increase in costs in some areas of the business. Each of these have gone up by such a large percentage that our cost is now around $10 per bag before we even factor in the bean costs. I will work this coming year to find ways to reduce this cost, but I think it'll be tough to accomplish until prices start going down.
So as I think about the supply chain problems and their impact on Sagebrush, I remember when we started this business in 2012. I had bags of coffee selling for $13-$17 per 12oz bag, and we didn't have gold labels yet. I've worked hard to gain savings to keep our prices as close to that as possible, but I think those days are over. I think I have to come to terms with the fact that Sagebrush is a $20+ coffee supplier.
I've talked about this one recently, but the biggest impact has been reliability. We started this business using only USPS and could really trust their priority service to get you your coffee in a timely manner (2-3 days). In fact, I said early on that if they weren't around, we wouldn't have a business. With our volume back then, we couldn't get affordable rates from FedEx or UPS. Thankfully as USPS's reliability has decreased, our ability to bring on other carriers has improved. We've had FedEx as a partner for a while now, and this time last year, they were a godsend. This month we've added UPS ground as an option, which really helps the customers within 750 miles of us, so that's a good start. However, this is one I'm keeping a close eye on. We're constantly in communication, looking for better deals. Truth be told, we spend almost exactly the same on outbound shipping as we do on coffee beans. I've said for a long time that I am happy to give the producers the price they ask for their beans because I want to support them. However, I'm less gracious with the shipping companies. I'm constantly beating them up on price and feel like we have some of the best rates in the industry.
All in all, we have been impacted by the supply chain problems, but nothing like many companies in other industries. We're grateful that these impacts haven't hindered our ability to find amazing coffees and put on display the hard work of the producers with the coffees we offer.