For millions of consumers, part of the daily routine is to have a cup of coffee or more to start the day and sometimes throughout it. There are multiple coffee shops to choose from, you can buy the beans or instant, coffee products are there to help you. In the depression, there was an expression, brother or buddy can you spare a dime or enough to buy a cup of coffee. Coffee was and is still part and parcel of living in America. Have you ever wonder about why coffee and the business behind it? In a book called Coffeeland by Augustine Sedgewick published by Penguin Press, NY, 2020, the author looks at the history both good and bad of coffee.

After the California gold rush, the Central Valley of California was planted with wheat and soon San Francisco companies were being exchanging wheat for coffee, spices and chocolate and companies such as Ottis McAllister, Hills Brothers and Folger’s were developing into larger entities.

In El Salvador, Mr. Hill had settled into a plantation near the town of Santa Ana and the Santa Ana Volcano. He did not know much about the coffee growing business but there were many books about coffee planting available. In the coffee business just as any agriculture product, access to credit is essential to longevity. The price of coffee beans rose, Mr. Hill borrowed and expanded operations to include a mill, which became the place to wash the fruit from the seed.

Regulations and standards are important in every industry, the coffee industry through the New York Coffee Exchange helped established standard grades of coffee. At first, the standards were on the consistency of the bean and lack of other stuff in the bags. It evolved to what does it taste like? At the time, Brazil was the biggest supplier, they had a very consistent bean but not the greatest of taste. Coffee grown in Columbia and El Salvador had better tastes. Technology in terms of vacuum-packing coffee in tin cans allowed none Brazilian growers to compete in the marketplace. The growth of the advertising business and emphasizing a better taste.

During the war years of WW I, San Francisco merchants, operating in a commercial vacuum, collected their intimate knowledge of every plantation and mill in Central America. By the end of the war, San Francisco merchants had taken control of the Central American coffee trade. They were buying 5 times more coffee than a decade earlier or 12% of US imports and rising.

Another change was where a typical American shopped. For a long-time the grocer and dry goods store was the place to shop, the grocer helped customers from behind a counter, listening, advising, selecting, portioning, weighing, wrapping, tallying, packing and making change.

Neighborhood grocers served people who could walk to the store, or they depended on a steady profit from the items they sold most frequently, especially coffee. Most grocers padded their margins by pushing bulk coffee, which was cheaper than packaged coffee and could be blended and diluted to meet almost any preference and price level.

The war changed things, a new store that was centrally managed, vertically integrated chains of hundreds or thousands of stores, the store that led the change was A&P. The company started as a tea shop, where it could be the tea importer, roaster, wholesaler and retailer and beat other grocer’s by a third. A&P developed a new store, called Economy Stores that grew to 16,000 by 1930.

In 1908, A&P opened its own coffee-roasting plant in Jesey City, it began to import coffee from Brazil and by 1921, A&P was selling more than 40 million pounds of coffee at retail, it had become the largest coffee business – the largest importer, roaster and retailer in the world. The brands were Eight O’Clock, the top selling coffee in the world; Red Circle and Bokar. By 1930, A&P was selling over 100 million pounds of coffee.

If all coffee tasted the same, A&P would have been unbeatable. A&P used Brazilian coffee which was inexpensive and low quality.

Central America typically produced high quality, mild coffee or sweetness in a cup. San Francisco based Hills Bros in 1912 offered 23 varieties that customers had around a thousand choices a coffee for every price and quantity. By 1926, it had consolidated and cut to high-grade vacuum packed Red Can. Hills Bros and Folgers would embark on advertising programs to sell the high quality.

In many ways, coffee was the ideal supermarket product. First, quality advertised brands were usually packaged in brightly colored tin cans that were light by volume and perfect for piling into the eye-filling displays supermarket retailers favored. Second, as a daily drink, coffee was on the list of weekly shopping lists which makes it an attractive bargain item to tout in newspaper ads and circulars. Coffee was the most important branded staple of the American diet that was also produced outside the US. As a result of the depression around the world, coffee was cheap in the US.

For Mr. Hill, his plantation grew from 1,600 acres to 3,000 with over 300,000 trees planted and still operates you can check out the website http://www.jhillcoffee.com

WW II, coffee accounted for 10% of all imports between 1941 and 1945. Hills Bros won a government contract to deliver 18 million pounds of coffee vacuum-packed in 20-pound cans painted army drab.

In 2011, we have a third wave of Americans drinking coffee. The first was made up of big supermarkets such brands as Hills Bros, Folgers and Maxwell House. The second is coffee shops such as Berkeley-based Peets and Seattle’s Starbucks, which grew up in the high-quality mild coffee. And the third was a farmer-obsessed coffee movement made up of boutique roasters and stylish shops.

Linking to dividend paying stocks, from the book, although the author runs into many tangents, all industries go through change and processes and there are many risks and challenges along the way. Not all will survive, but they add their mark as time goes by. It is hard to determine who will be a winner and who will be in business and that is where your homework continues.

There are more questions than answers, till the next time – to raising questions.