Sunday, December 23, 2012

Coffee Districts

Alterra ("Highland") Coffee is a roaster and small chain of cafes in several Wisconsin cities. I have not yet found them on my Wisconsin travels, but will be looking out the next time I am in the Badger State (which I hope will be soon, since I love Wisconsin, especially Appleton).

I mention these cafes I have never visited because of an important bit of coffee geography that I found in a recent interview with George Bregar, Alterra's Director of Coffee (shown above). In response to a question about competition from the Wisconsin Foodie blog, Bregar explains why it is sometimes good to have competitors near each other. Rather than taking business away from each other, a cluster of specialty cafes can create a culture of interest in quality coffee that actually helps all of them.

In terms of economic geography, what Bregar describes is one aspect of external agglomeration economies of scale. Conventional microeconomics recognizes the economies of scale that can be realized internally in an enterprise. A large company can save money through bulk buying and through distributing fixed overhead costs over a large number of units.

But a number of small companies clustered together can also achieve economies of scale, simply by being near each other. Despite the inherent risks of cost competition, the combined cultural and educational impact mentioned by Bregar is one important aspect of this for coffee. Other possibly benefits might include shared purchases of container-loads of coffee or the ability to support other kinds of service providers, such as those who maintain espresso equipment.

The interview also mentions Alterra's new business arrangement with Kraft Food. I do not know the details of this, beyond what is in the interview, but on that basis I can make two observations. One is that if it takes a small business more than one sentence to explain how it has not "sold out," then it has sold out. The other is that the company is accepting money in exchange for putting its name on single-serve coffee products. As with the arrangement between Green Mountain Coffee and Keurig (the former actually purchased the latter), no amount of positive news about coffee sourcing can obviate the damage done by a wasteful, unsustainable brewing method that also kills flavor.

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