Level: Alchemist
Read Time: 18 minutes
I am opening a chocolate factory and want to make the best chocolate and know price is very important to sales. What is the cheapest bean you have? They must support the farmer. And can you turn them into nibs for me so I don’t need to buy so much expensive equipment.
As a reminder, there is the question that kicked this off and it is kind of amazing how often I get some variant of that and it really embodies the The Iron Triangle of Anguish.
Ok, it isn’t really called the Iron Triangle of Anguish, but damn I love the phrase. It’s called the Iron Triangle of Project Management. For those that are just joining us, this is a multiple part mini series that started in Ask the Alchemist 310.
To review, it goes something like this. You have three options: good, fast and cheap... three things nearly everyone wants. The rule (based in reality) is you can only have two of them. A nice way to think of it is that you have $2.00 and each of those options requires $1.00 to get it fully so you have to make a choice how to divide up the $2.00 in a way to make you the most satisfied.
Assuming everyone is now up to speed, look at what is being asked for above:
Best Price
Best Quality
Lowest Extra work
But wait, we have more. They also want:
Ethically traded
Read All The Articles In This Series:
The Iron Triangle Of Anguish (ATA #310)
All about Cocoa Beans (ATA # 311)
Only a Drum, Motor and Some Heat (ATA 312)
Cracking and Winnowing in baby steps (ATA 313)
Melangers et al (ATA 314)
Tempering (ATA 315)
In this case, they have 4 sides to their Iron Triangle (maybe it is a three dimensional pyramid) and still only have $2 to spend. What is even worse is that two of the conditions are more than passively linked, they are directly linked.
Best price vs ethically traded.
You literally can’t have both extremes. You MUST give way and compromise and then you can go ahead and combine them to make this list.
Best Price for ethically traded beans
Best Quality
Lowest Extra work
I want to manage your expectations. I won’t be giving you answers. I’ll be laying out the complexities of the situation as I see them so you can do the same based on your own needs and desires.
My Iron Triangle points might be and probably are different than yours....and sometimes they compete with one another. Likewise, your triangle is going to be different than your customer’s triangle, and worse than that, each of your customers may or may not have a different triangle. Welcome to the free market.
I would be remiss to not talk about the pink elephant in the room present whenever talking about restrictions (only having $2 instead of the $3 you’d like), physical laws (like gravity, its not just a suggestion, its the Law) and very specifically, free energy/perpetual motion machines (they are impossible). Some people seem to think I have a closed mind about this and believe that IF ONLY I had an open mind I would see that maybe there are other solutions. Let me say this. My mind is open....and very full of data which formed and still supports my view of things. You’re absolutely free to add more data and I will consider it. If it is compelling and defensible, you have a very good chance of changing my view.
What won’t ever work is to tell me I’m close minded. To prove to me that a perpetual motion machine is not impossible you will have to show me more that some illusionist’s parlor trick that you find on Penn and Teller’s on Fool Us (famous magicians if you didn’t know). Why do I need proof? Because it is so damn easy to fake shit (Penn and Teller do a great job of faking the impossible) and really hard to present data that you can really and truly defy gravity or that you have invented a machine that runs forever with no fuel. Let’s get back to the topic at hand my open minded readers.
When I source beans I am considering selling I look at the following things.
Quality/flavor - That is obvious.
Price - is it acceptably priced?
Can I sell it? - related to price and quality
Is it novel - also related to price and whether I can sell it (new shiny things sell better)
You will notice that Fair Trade or Ethically sourced is not on the list. It is because I won’t budge on that. Everything I carry I have done my level best to confirm the supply chain is ethical. Sometimes that is based on certification, or that I’m directly paying the person who farmed and fermented it and I know what I’m paying is well above commodity grade, which is NOT a high bar. Occasionally it is based on a relationship cultivated over many years and the person(s) in question have shown themselves time and again to be ethical. In short, it is complicated, much like this whole series.
That list up there is basically in order. I must like the bean I’m buying or at least know it is quality. I say it that way as I have an admission to make. I can’t stand Madagascar Sambirano but it has been a staple for many years because people love it, it has a fine price point and I agree it is a quality bean. I just don’t care for it just like I don’t like grapefruit or kale.
There is also a subset there that quality is kind of subjective. I can’t tell you how many conversations I have had over quality and how quality is defined. For the sake of this conversation I’m mostly talking about a consistency of product harvest to harvest (or knowledge it won’t be consistent). And of course (for me), NO ROCKS. That is where I draw the line since it kills equipment and....well, it kills equipment. Occasionally you’ll see me warn of rocks for an utterly spectacularly flavored bean (Ecuador Cayapas was one)....but it is only after my customers (yes, you) give an outcry when I discontinue it.....and that leads into overlapping triangles. At times I have decided I don’t want something due to some criteria like price, flavor or quality (rocks) but that can get overridden. When my customers look at their own Iron Triangle and go ‘The flavor is FANTASTIC ($1), the price is fine ($0.50), I’m willing to put in sweat equity to deal with sorting due to equipment murdering rocks ($0.50)’. When that happens I have to revise my own Iron Triangle for this one case and where “Can I sell it” was nil due to rocks, suddenly I’ve been informed rocks are ok...IN THIS ONE CASE…..see, opened minded about rocks when presented with competing and compelling data!!
As for the rest of those, price (fair price of course), the ability to sell it and how novel it is (part of the customer triangle I’ve learned) all constantly slide back and forth along that scales of their given worth and ultimately allow me to decide whether to purchase and offer a given cocoa bean. The thing to realize is there is no one formula or metric. Very often it is a gut feeling based on past experiences, and often notable bad decisions.
Let me give you a couple examples.
Recently I purchased a very tiny amount of a rather expensive micro lot of Fiji. The price I paid is over what I sell my wholesale beans for leaving little room for markup if I want it to sell well. So why buy it? I applied the Iron Triangle in a very organic nature.
First off wanted to support the farmer/supplier. I’ve purchased from him for years and they were hit very hard by Covid and bad weather. They are struggling and buying them even at at higher rate barely lets them break even. But to buy them I still have to sell them and no matter how good they are, or how good of a story I tell, if I marked them up by my traditional formula, I’m pretty sure I could not even sell the small amount I’m getting. I looked at my Iron Triangle and decided to make my own profit less important this time. They also sell consistently, so there was little risk.
That said, if one of those Triangle sliders shifted, I might’ve needed to pass on the purchase. Which slider? I’m so glad you asked. It is how much there was to buy. Basically scale affects everything.
If they needed me to buy 6 MT I simply would have had to pass. It would have shunted my ability to sell the beans to the point that I might not be able to sell what I purchased before they were past prime. That risk was too great.
Scale can be part of the triangle and as we go through this series you are going to see the theme come up time and again. A lot of small makers flinch at the cost of our beans when sold in small increments. “We can’t make a profit if we buy them at $xx.xx.” Like the buyer has come up with a business plan where somehow they have decided beans must cost this much.....but that isn’t how pricing works on a small scale, or maybe any scale. You can’t dream reality into being. if you want to buy a $500k house for $100k the seller is just going to laugh at you.
The same goes for cocoa up and down the supply chain. I can’t arbitrarily set a price of $1/lb over fair trade prices and expect to get. If I am buying 1 container (over 20,000 lb), maybe it will work as the seller is making enough on that sale to finance their next harvest. But if I am buying one ton there is no way they will accept my offer. They are only making a fraction of what they would make but still doing nearly the same amount of work. They need a higher sale price for the same beans.
Similarly, I can’t satisfy someone buying 20 lb but demanding 2 ton pricing. Inefficiencies of scale make small batches more expensive. If I ignore that law, how do I pay my employees for their time?
It continues up the supply chain. If you are a maker, your customer might balk at a chocolate bar costing $10 when they can buy a bar at Costco or Trader Joe’s for $2. Customers rarely understand volume pricing and scale and they absolutely won’t get you are processing the chocolate with more expensive but less efficient small-scale machinery. At a smaller scale you also lose the massive savings from shipping and on and on. It means nothing to them.
I realize this sounds like I am just kind of rambling and it’s because this is complicated. Humans and their conflicting desires are complicated. Over the years I have had customers tell me they only buy Organic and Fair Trade beans.....and in the same breathe complain that the beans are just too expensive.
Excuse me? That is either ignorance (which I hope I’m addressing here) or American entitlement (which I have no patience for). Per the Iron Triangle you just can’t have great beans, at a cheap price, that supports everyone up and down the supply chain. You MUST pick the two you care about.
I would LOVE to sell many of my beans for less than I do. If I was my own customer I’m not sure how much I would buy. I would have to measure it out and weight the options and decide much like I approach buying green coffee. I am an avid coffee roaster. I buy all my beans from Sweet Maria’s Coffee. They are absolutely not cheap. But, I’ve tried cheaper beans and regretted it. I very much got what I paid for.
Tom Owens, the owner, has ethics. He pays the farmers well, he has integrity, he pays his employees well, he has an amazing selection and he has set up a sustainable business model. When I look at all of that, that is something I want to support (and absolutely try to emulate with Chocolate Alchemy) and willingly and happily pay what he is asking. I’ve picked the two (or more) things that are most important to me and price turned out not to be one of them. Selection, quality, ethics and choice are important to me.
I want to bring up one more thing that I plan to come back to in the end of the series. There is an entrepreneur out there named Dan Price. He is known for paying ALL of his employees at a starting rate of $70K/year and appears to have no sympathy for businesses that say they can’t do that. This is where scale comes into play and not selling a physical product that has a supply chain. I do get he is really aiming at businesses where there is a HUGE difference in CEO wages to entry level wages, to the order of sometimes 1000x....but I still think about it and know there is simply no way I can do it in my own business. That isn’t to say I come anywhere close to paying minimum wage, but I have to still meet some reasonable price for what I sell. If I paid all my employees $70K a year and took no salary myself, I would still have to double if not triple the price of my beans....at which point sales would plummet, I would not have money to pay my employees and then they would be out of a job.....and that would be good them and you how? (BTW, if anyone EVER wants to pay me 3 times what I’m asking, I’m more than happy to funnel that money directly to my employees and the people who are growing the beans....NOT JOKING).
As it relates to us, I’ve seen the situation way too often (Honduras Wampusirpi, Venezualan Chuao and Porcelano) where a great bean is no longer is produced. People are shocked. “It was so great”, “I loved that bean”, etc. When I ask why they didn’t buy more I get some variation of “Well, it was just too expensive” or “It didn’t sell due to the price”. True, but what I want people to think about is their own shock it’s out of production. Prices were set to be sustainable (and high because they are small lots). .If sales continued to increase all would have worked out...but due to price, they didn’t. People ask why they just didn’t set their prices lower in again the same breathe as demanding fair and living wages for everyone....I’m not going to bother with the conclusions here. You folks are smart.
You are now going to get two more anecdotes related to why I think you should buy from Chocolate Alchemy (and other small sellers in general) vs Amazon although you might get things cheaper from Amazon.
There is value you might not realize you are getting from Chocolate Alchemy (as I do realize I get from Sweet Maria’s). The biggest thing you are getting is sustainability and someone who gives a shit. You are also getting my experience and an assurance you never have to wonder if what you get is suitable for chocolate making. After that you are getting quality, a huge selection, known chocolate focused roasting, integrity and connection to real people. I’m totally shilling about buying from Chocolate Alchemy because I believe in what I do and if your Iron Triangle aligns with ours, fucking fantastic. And if it doesn’t, no harm, no foul.....just beware of why you are making the decisions you are making and if the chocolate you make from the marketing spun beans from Amazon sucks.....maybe you should rethink what you value....and how much money you just wasted while trying to save a buck or two.
Tom Owens and I have talked at length about scale and how due to coffee being an established market, he wasn’t able to sell at the prices he really needed to to make a living at first. This was about 20 years ago when it was the size of Chocolate Alchemy now. He didn’t have the buying power to get the prices needed to sell for much of a profit. His hands were tied due to his customer’s Iron Triangle. He had to sell a LOT of beans to barely scrape by because he was making pennies on the dollar. His prices have not radically changed now, but his profit margin has because he went from 3 containers/year to 3 containers/month. Scale matters.
So whether you are buying for yourself or your business you need to think about scale.
Where do you fall here in your buying expectations? Are you buying metric tons (MT) or pounds (lb)?
1,000,000 MT/yr vs 100 MT/yr vs 10 MT vs 1 MT vs 1 bag vs 1 lb
Businesses simply can’t expect to buy beans by the bag for the same price as conglomerates who are buying a million times more. That trickles down. If you want to buy one bag or pallet direct from a farmer. You are going to have to pay a lot more to make it worth their time and effort.
I’m asked often enough why I don’t carry beans from Hawaii. American privilege and scale. The last time I was offered beans from Hawaii the price at a wholesale discount....you better sit down....was $22.43/lb before shipping. Why? Because the people growing them expected to be paid an American living wage and that’s the price that was required to do that. Isn’t that really interesting to think about when some other American complains about a 3 oz chocolate bar costing $12 but they also demand everyone be paid a fair price. I’ll just let you unpack everything there.....
Lastly, read this anonymous comment from a grower. (slightly paraphrased)
‘we don’t care if you come visit. Frankly it takes time away from us producing beans. Your visit does not put food on the table. We are not honored by your visit or the relationship you think you have with us. You want to honor us? Respect us by buying our beans and lots of them at the price we have deemed sustainable, so we can keep producing them and put food on the table.. In that way , we all win’.
Can I please have a mic drop for that?
Ok, I told you I was not going to give you answers. Even though I’ve not answered it directly I think you can see how the person who asked that question about the expense of buying roasted nibs from me was trying to get around that TANSTAAFL by not appreciating that it takes us a lot of time and energy that they themselves were not willing to do. They need to pay for that service one way or another (pay us or buy the equipment)...and that that is incompatible with also the beans being ‘fair trade’ and that they are only buying a comparatively small amount.
I think I’ve now beat this horse to death. I have shown you how everyone’s needs and wants and desires play against one another with their own very personal Iron Triangle of Anguish. As you now go forth, consider those things and the judgements and assumptions you make. You might find it makes some of your decisions remarkable easier knowing there the no way to cheat the system.
Next up is Cracking and Winnowing.....