September Update Letter from Matt

     I hope you all are able to take this weekend and use it for its intended purpose. A short break with your family while the weather is still nice. Or if you're in Arizona, this weekend is a chance to escape, take a deep breath, and prepare for the last of this terribly hot summer.  It has been too hot to swim all month, so there is very little relief here.  No wonder no one lived in Phoenix before there was air conditioning. 

     Before my weekend starts, I wanted to use this email as an opportunity to update you on Sagebrush.  During the peak of COVID, I tried to write a personal email each month.  I enjoyed doing it. They were well received, so I'm going to plan into our marketing calendar one of these emails each month indefinitely.  In this email I'll be talking about ways we have been impacted by COVID.  I think some of you are starting to feel the effects of that, so I'll write a paragraph or two about it.  We also have a very exciting September of coffees coming, so we'll preview that.  In June, we signed a lease on a new production facility that we're very excited about.  We're starting buildout this month, and our goal is to be up and running in time for the holidays.  Jonathan plans to keep you all up to date as construction progresses with a video or two. I'll finish the email off with a quick Kellso family update.

     To start, I want to get some housekeeping out of the way.  In the last email, I mentioned that our shipping carriers were having problems.  I have since had meetings with both USPS and FedEx.  Although USPS isn't as bad as advertised, they are struggling.  Both companies saw an unplanned surge in volume and didn't have the capacity to handle it.  FedEx is recovering better, so I would encourage you to pick them when you can. I'm working on a new contract with them to get our pricing down so we can use them more and more.  Our internal tracking data shows them on average one day quicker than USPS, and they have one-tenth of the issues.  Something I've learned from all of this is that people have STRONG opinions about shipping carriers.  It doesn't matter which carrier we use; someone hates them.  None of them are perfect.  Analytically FedEx is the best for 99 percent of our shipping lanes, so we picked them over UPS.  Many companies offer USPS, UPS, and FedEx.  USPS has pretty fixed rates that are best in the business, but they also have the most problems.  When it comes to negotiating rates, the more volume we can direct to a single carrier, the better.  If we split between UPS and FedEx, we'd lose our discounts and end up shipping more on USPS, which is not optimal.  So we took the company that has the best delivery performance for the majority of our lanes and negotiated the best rates possible. We're continuing the policy of picking the least expensive carrier if no preference is picked. However, if it is close, we default to FedEx.  If you have a preference, we have a $3 shipping charge for that preference, which usually is the difference between the two.

     Every single business in this country and likely the world has been affected by the response to the Coronavirus.  We haven't had a wholesale order in maybe three months.  Our primary wholesale channel was co-working spaces, so it makes sense those would go to zero.  Thankfully, I never had the time to focus on wholesale, so we didn't really feel that dip.  However, the biggest impact COVID has had for us has come on the supply side.  Typically during the summer we're transitioning from the previous year's crops to the new ones.  However, this summer didn't work out that way.  We had several factors that make this a very difficult transition. Our demand was up from what we forecasted.  This isn't a bad thing, but in coffee your forecasts are annual.  Since every forecast is wrong, this time of year is a juggling act.  This year we were able to flex some, but we ran out of a few favorites earlier than we'd hoped.  (See El Salvador Loma La Gloria or our Kenyan coffee.)  If you pair that with the fact that many of the countries we import coffee from are still on total lockdown, the problem is exasperated.  For example, we had our limited-edition Panama scheduled to launch in July.  However, they were on a strict quarantine.  When I say strict quarantine, I mean nothing like what we experienced here in the US.  In June, they were allowed to leave their homes for two-hour windows based on the last digit of their passport number.  They also rotated so on every other day either men or women could leave their homes.  Many countries had eight-hour windows that people could leave their homes, even for essential activities.  So, as you can imagine, crop production was down as much as 40 percent in many parts of the world. That's the cause for both in-country delays and a significantly diluted supply.  That is step one, then the coffee ships on a boat.  It took weeks longer than normal to hit our docks and get through customs.  So with all of that, we had to pick some intermediate coffees to get us to September.  They were good but caused some extra coffee turnover. I've sampled more coffees in the last three months than most years.  One day I sampled so many coffees that I felt sick that night.  But I think we're through that season of transition.

     The new coffees are not the only exciting thing happening at Sagebrush these days.  This week we received the permit on the buildout for a new shop.  The new space is three and one-half times as large as where we are now, and we need it.  I remember nearly five years ago when we moved into the space that we're in now. I could not imagine a scenario where we would outgrow that space.  I was so confident that I put three five-year options in the lease so we could stay there for twenty years if we wanted to.  However, here we stand, stumbling over coffee bags while we package coffee on about half the space that would make it efficient.  I don't think any of us can wait to move our production, and Jonathan will be putting together blog posts to track the progress of the move.

     That leads me to the final section of this letter, a Kellso family update.  As has been the case many times over the last six months, there isn't a lot to report. This evening I write this email having come from our first movie in a long time.  We saw Tenet at the local Alamo Drafthouse.  If you aren't sure what that movie is about from the trailers, don't worry; watching it doesn't help. We've been playing quite a bit of Catan, and bowling is still in our regular evening escapes.  The two younger kids have started school 100 percent online, and although they're making the most of it, we've found it to be lacking much of what you go to school for.  Their school district announced this week that they'll be returning to campus on October 13, so we're praying that date doesn't get pushed.  These kids need to be in class with their friends.  Jonathan (music production) and Jenna (nursing) have started their college classes online and will be for the entire semester.  Jonathan is really pouring himself into Sagebrush, as is Noah.  Our church started meeting in person a few weeks ago, and it is so refreshing to be back together as believers worshipping God as commanded in the New Testament.

     One of the most fun parts of writing these emails is hearing from you.  So if you have time, feel free to reply to this email and give me an update on what's going on with you and your family. We're an online company and somewhat disconnected from our customers.  I'd love to hear how you're handling the ever-changing landscape of this season in our country's history.