Three years ago, Frank Lanzkron-Tamarazo traded a 15-year career as a cantor singing prayers in a synagogue for roasting beans at Chazzano, a company he started after a friend suggested he follow his passion. While his Ferndale (Mich.) roastery and cafe have steadily gained traction, Lanzkron-Tamarazo wanted to expand beyond his local market without diminishing the time he had for roasting exotic varietals. He mulled franchising but realized he needed to establish a national brand first.
To boost his profile among coffee cognoscenti, he began selling on the website Roaste.com. The specialty marketplace has some 2,200 coffees from more than 100 vendors and expects an additional 150 roasters by yearend. Lanzkron-Tamarazo says online sales have quadrupled since he first started selling on Roaste in 2008, accounting for about $36,000 a year, roughly 5 percent of Chazzano’s revenue. “I’m not getting the same prices that I get from someone walking in off the street or even with my own website, but the exposure is worth more than I can quantify,” he says.
Three-year-old Roaste (pronounced ROAST-ee), which relaunched with an expanded site in April, surpassed the 10,000 customer mark in July. Founders Scott Lush, 43, and Eyal Rosen, 40, say a goal of the redesign was to increase the site’s sense of community. Users can now write reviews and gossip with fellow coffee lovers on blogs; one contributor praises an espresso blend for its “buttery mouthfeel,” while another sounds off on an Ethiopian organic for its “unpleasant smoky bergamot” flavor. Lush and Rosen, who discovered a shared love of coffee while working at Alcatel-Lucent (ALU) eight years ago, started the company in their Boston homes. They expect to triple revenue, to $3 million, next year. Although the seven-employee company, which has raised $1 million from angel investors, isn’t yet profitable, Lush aims to get an additional $5 million in financing by December. “Starbucks (SBUX) raised expectations for gourmet coffee but hasn’t given people a place to go after they’ve had their thousandth pumpkin-spice, half-caf latte,” says Lush. “There needs to be a destination website … for gourmet coffee.”
Will java snobs, accustomed to buying from their local coffee shop, place enough online orders to please the bean counters at the roasters? Ric Rhinehart, executive director of the Specialty Coffee Association of America, thinks so. Home consumption jumped during the recession, he says, but dropped last year as people returned to favorite cafes. He estimates the 3,000 independent roasters account for about $6 billion of the nearly $37 billion U.S. retail coffee market, though many are having trouble getting financing and have been hurt by rising prices for beans. Rhinehart says early online coffee marketplaces simply supplied offices with standard brews. “Roaste’s got a little more evolved business model and a little tighter focus on who they want to sell to,” he says. “They want to sell to an informed consumer.”
Roaste keeps up to half the retail price of coffee sold on the site, roasters say, a figure Lush declines to confirm. When an order comes in, Roaste sends the vendor an e-mail with the customer’s address. Most then roast the beans within hours and drop the package in the mail the same day. They get prepaid postage labels from Roaste, which also handles returns. “It’s very convenient for me—like, brainless,” says Tracy Swanson, who oversees marketing for Avion Coffee in Hayden, Idaho. Swanson is using Roaste to expand her $200,000 wholesale business into online retail and says her sales on the site have doubled annually since she signed up in 2008.
Although Roaste still accounts for a small part of most roasters’ sales, Lush says he can help change the economics of the roasting business. Small coffee roasters “were slammed the past 20 years by Starbucks, Caribou (CBOU), Seattle’s Best, and other megabrands,” he says. Lush aims to help little guys fight back by letting them reach a much larger clientele. And he claims his focus on coffee connoisseurs gives Roaste an advantage over rivals such as Amazon.com (AMZN), which says it has more than tripled its coffee business since 2008.
Gary Strawn believes Lush’s strategy is working. Strawn operates a 13-acre farm in Kona, Hawaii, and sells about 5 percent of his crop on Roaste. “I’m a farmer—that’s my primary job. My second job is trying to sell the coffee, and I’m not nearly as good at that,” he says. “It’s great to go through someone like Roaste, because that’s what they do full-time.”