Tuesday, March 20, 2012/
Becoming carbon neutral? It’s not a huge imposition, says Jacqueline Arias, the founder and director of Fair Trade and organic coffee company Republica. And the upside is huge.
The Sydney-based company has become the first food brand in Australia to become carbon-neutral certified, completing the same process as the top 500 polluting companies will under the carbon tax.
According to Arias, a former journalist, the carbon-neutral status is a stepping stone to become the country’s most ethical food brand.
Hi, Jacqueline. Let’s start out with the how Republica came about and your interest in starting up a coffee company.
Well, I used to be a journo for the ABC, and my kids were born in Australia and my husband comes from Canada. And I went back to Colombia, which grows beautiful coffee – it’s got these majestic high-altitude mountains and coffee, you find it everywhere in Colombia.
And I said to him, ‘We’re going to be drinking fabulous coffee in Colombia,’ but it was a bad coffee in Colombia that actually led to the start of Republica.
What I realised was we couldn’t get a good cup of coffee because everybody drank really bad instant coffee so there was no such thing as a cappuccino or a latte. And to get a half-decent cup of instant it had to be an imported product, such as Nescafe, because the local coffee was really, really, really bad.
I realised the coffee grows in Colombia, then most of it leaves for overseas to First-World places like Europe and the US, where it gets manufactured into ground coffee and sold to international brands around the world, and some of it gets manufactured into instant and gets sold back to countries like Colombia, to be sold at inflated prices to the locals.
That kind of got me thinking. I mean, how fair is that? And I think for me, I’d always wanted to do something with coffee but I didn’t know what it was until that happened. So I came back to Australia and resigned, and I started researching as to what I was going to do with coffee that was different, because we do have fabulous coffee in Australia.
It was 2005 and nobody had really heard of Fair Trade in Australia, but I came across those words on the internet and I went to UK to look at the market over there and realised that it made perfect sense.
I really didn’t know anything about coffee apart from what a good cup of coffee tastes like, so it was just a matter of picking up the phone, doing a lot of research about building a brand, reading books and publications like BRW and SmartCompany, so that I understood the language that I needed to go and create this company.
Did you have a mentor?
No, I didn’t have anything. I didn’t have a mentor.
I knew that I wanted to create a brand that had access to mainstream Australia, and what I mean by that I wanted to make Fair Trade accessible to everybody – not just at the odd cafe or the odd little grocery store. I you want to have an impact on the Third World, you’ve got to have a huge amount of people consuming Fair Trade products.
Hence the supermarkets.
Hence the supermarkets. It took me 18 months or so to launch it, so I always gave myself enough time to research it and find out what a product positioning is and where you sit in the marketplace. This was all new to me.
And a lot of people said, ‘Don’t go to Coles and Woolworths because that will be the death of you,’ but when your vision is to create something that is available to all Australians then you need to be in Coles and Woolworths, and so that was it.
Once I had the product ready and I had all my presentations including what was happening in the market overseas, how big the market was in the UK, why it was a consumer-led movement, why it was important, the growth of it, I created a big presentation and I went down and met with Coles and they accepted my products, and I went from no customers to suddenly having a national customer.
And what about online, were you investigating that as well?
Solely on commercial.
How did you fund that 18 months or so when you were researching and planning?
I opted not to earn a wage so I was lucky enough that my husband could support us and basically we did without one wage.
I also realised that a lot of companies don’t do big roll-outs like the one that we did because they may not have the funding and they don’t know necessarily when they’re going to get the money back.
But I knew that Coles and Woolworths had 60-day terms, so once I sold them the product I would get my money back in 60 days, and I think one of the real primary reasons we have survived this long is because they are our main customers and they pay on time and I never have to chase money. There may be bad things to say about them, but there’s a lot of good things as well.
How long did it take you to be profitable then?
We were profitable from day one because of that formula. A lot of coffee companies start off by selling to corner stores and cafes etcetera, and a lot of those businesses can’t pay their bills, but I never had that.
I always had people who paid on time, straight away, 60 days. So it was always cashflow positive from day one.
And what was your most recent revenue?
Slightly under $4.4 million.
Who do you see as your competitors? Is it do-at-home coffee machines, or specialty teas?
My main competitors are big brands: Lavazza and Vittoria. And the reason I say that is because our product is equally as good, if not better. We also offer more than just coffee beans that are freshly roasted in Australia – we offer ethics. And that is, it’s organic, it’s Fair Trade, and now it’s carbon neutral. We’re the only brand on the shelf with that positioning.
And what premium can you attach to those positions?
The research from the UK says anywhere between 10% to 20%, and we’re about 10% above. One of the other things that really gets me going is that a lot of companies create an ethical product and then they charge a huge premium for it, and they’re not doing the customer a service because fewer consumers are going to be able to buy the product if it’s sold at a premium.
For me, it’s really important to make it as accessible to mainstream Australia as possible at a price that can be reached, and also do the right thing by Third World farmers to make it big.
So how do you swallow the lower premiums? The products are coming from Latin America and Africa, I suppose, and processed in Australia?
Look, we launched in the market place in 2007 and our primary product, which is ground coffee, was $9.99. Four years later, we’re still sitting at $9.99.
So $10 is a key point for consumers?
It’s a key point. We’re successful financially, we’ve been cashflow positive. It’s hard for people to understand this, but I don’t need to be greedy. It’s as simple as that.
But I guess my biggest driver is to be recognised as the most ethical food brand in Australia, and if I achieve that, then I will rest in peace. I want to be recognised for something good. Anybody can kind of make a lot of money.
What do you plan to do next? Are you looking at other food sources?
Yes, definitely. When I say the most ethical food brand, we’re in coffee now, we also have a drinking chocolate product, but this year we’re launching into new categories so not only will you find us in the coffee aisle, you’ll also find us in the muesli aisle or the rice aisle or the spices aisle.
In Australia a few years ago, there was widespread support for action on global warming, and now a carbon tax is on its way and people are unhappy about it. Do you expect sentiment will change again and people will seek companies that are friendly to the environment?
I think there is a lot of negativity around carbon and a carbon tax, but I think that’s a short-term reality. The reality is that it is the future. We can’t ignore it, we can’t avoid it; it’s like climate change, we can’t ignore it and we can’t avoid it. This is happening.
For me, it [going carbon neutral] was a perfect fit and an extension of the ethics that we stand behind. And I also wanted to be a leader, I wanted our brand to be a leader in this space. I didn’t want to be pushed into doing something. I want to show the others that you can do this and it’s not that difficult and it is really important.
I think that once it gets a critical mass and more people understand it, it will just become a natural extension. Fifteen years ago, we didn’t have an environment minister and now the environment minister is an essential portfolio. It’s the same thing.
Can you talk us through the steps in becoming certified carbon neutral. This is exactly the same process that the top polluting companies will need to take under the carbon tax, is that right?
The authority that manages the process on behalf of the Australian government is Low Carbon Australia. Before that body came into being, companies could become carbon neutral but the way they went about doing that is they chose some agency and then they offset whatever they wanted to offset – so there wasn’t any kind of government standard for what becoming carbon neutral is.
What the process involved was you commission an auditor who basically comes in and spends a considerable amount of time measuring everything for the past year – looking at anything from your electricity consumption to your paper and general rubbish waste, or it could be the cars, petrol, taxis, just about everything that a business does. And for us, it was freight because we bring in products from all over the world.
There are particular formulas that will calculate your emissions and what your footprint is, so they go through this whole rigorous process and once for the past 12 months and that gives you your footprint for the year so that will be your starting year, that’s your benchmark year.
And from then on, it becomes a process of are you going to reduce. And if you’re in a company like ours, which is a growing company, we’re going to increase, so where can we reduce because we are going to increase our carbon footprint? So that’s a tricky bit for us. But it was one of the things that was really also important to understand that.
If you look at, for example, our ground coffee product, the coffee beans come from Timor, the bag is manufactured in Taiwan, the carton is manufactured in Australia. So we have to count the miles from Timor to Australia for the beans, we have to count the miles for the bags from Taiwan to Australia, we have to count the miles from Visy, which is the company that manufacturers our cardboard cartons, from them to us. So that’s called upstream. Anything that happens before the finished product that goes into the manufacturing process.
And then from there when you have the finished product you call it the downstream so it’s from us to the customer so then we have to account for all our mileage of delivering from our warehouse to Coles and Woolworths around Australia.
You’re a growing company so therefore emissions are likely to increase, so how do you keep the company neutral?
One of the things that we need to look at this company year is how do we influence the companies that we use for transport, to carry our goods? If becoming carbon neutral is not on their agenda, how do we influence that decision making?
So therefore we will be opting to do business with companies who have similar philosophies and are opting to go down this path. That’s some of the critical things that can have an impact.
So it’s also about looking at who you do business with?
Absolutely, it’s that whole supply chain. And I think that’s the biggest way that industry and business can have an influence, by looking at your supply chain. We supply to Jetstar and Virgin, and they’re looking at that, they’re looking at your entire supply chain.
How long has this process taken? At least 12 months?
It has. We became carbon neutral towards the end of last year.
And you’ll update it year by year?
Yes, and I think also that one leads to the other. We’re the first brand that will carry this logo, and as more brands begin to carry that logo it just puts pressure on others to follow suit, so it has a domino effect.
Thank you so much Jacqueline.