How to Start a Coffee Capsule Business
Where to Begin?
This hub explains how to produce your own coffee capsules and create a small business using your capsules as the product. It's a starting guide for those who are considering starting a small business based on their passion for coffee. If you have spare time and/or are searching for a hobby involving coffee then maybe this is for you?
Considering this is business orientated, start with a business plan in order to develop and grow. It is highly recommended you re-evaluate your status throughout each stage of the process. First, lets break down the steps in order:
- Evaluate the market
- Create the product
- Design packaging
- Market the product and increase sales
Evaluate The Market
Lets start with our evaluation of the market. The coffee capsule industry is doing very well and there is an abundance of opportunity because the market is large. The coffee industry is a multi-billion dollar sector but we are only going to focus on the capsule segment.
You may have noticed the famous television advertisement with George Clooney promoting coffee capsules - this is a good reason to enter this market. Advertisers spend thousands of dollars on research in order to predict what will sell. If you keep seeing an advertisement for a product, its an indicator of re-occurring sales. Our job is to find a niche in the coffee capsule market in order to promote our capsule business. In terms of target marketing, Nespresso are using George to target the high end of the coffee consuming market by using advertising that will appeal to a certain demographic. In this case it is aimed at the more affluent demographic.
Your first step is to determine the demographic or target market that you would like to sell your coffee capsules to. (It is not a requirement to determine your demographic but knowing your target market is a proven sales strategy)
The importance of a targeted market:
By evaluating and targeting your market, you will find direction in terms of your marketing campaigns. If you don't have a targeted market then you could be asking the wrong people to buy your product, and in some cases, possibly damage your good will. The concept is simple - market directly to your demographic in order to be efficient with your time and energy.
Lets start with a demographic that you actually can relate to by answering these questions yourself:
- What age bracket are you in?
- What are your hobbies?
- Are you male or female?
- Where do you spend your leisure time?
- What's your favorite color?
- Where do you live?
- How much coffee do you consume?
- What type of coffee do you consume?
- How do you drink your coffee?
- Do you currently have a coffee capsule machine at your job?
- Do you know others who consume coffee capsules?
- How can you cater to a specific capsule niche?
- Do you know others who would like to be supplied with coffee capsules?
- Do your friends or family members have coffee capsules at their workplace?
- Can you write down a list of places that might benefit from having coffee capsules? Waiting areas? hospitals? receptions? work places? food and drink retailers who don't supply coffee?
The most important question is; how do you relate, and/or, what do you have in common with a person who drinks capsule coffee? (besides coffee)
You will find a list of common denominators between yourself and others who enjoy capsule coffee. The fact that capsule coffee is the quickest and most convenient form of brewing coffee leads me to believe that you value convenience and therefore your time. Efficient people tend to have habits such as being proactive, perhaps going to the gym? How keen would gym enthusiasts be to purchase a coffee before an early morning workout? What if you supplied the capsule machine for free in exchange for a gym to stock your capsules? Better yet, how about supplying a vending machine full of your capsules and a free capsule machine in order to help a gym provide better facilities for their patrons?
More than likely you know of places that could benefit from having a coffee capsule machine at their premises and that's advantageous for you because you could potentially start supplying them with your coffee capsules.
This is but a brief glance into targeting a specific demographic. Your personal situation may have differences but there are definitely pro's to targeted marketing.
You'll find that I've split the remaining 3 stages into different modules on this page. This is because I believe that its better to have a break in between the stages rather then hitting you with all the information in one gigantic long-winded post!
- In 2013, Nespresso sold an estimated 28 billion coffee capsules (independent consumer group Choice)
In the USA:
- Retail coffee capsule volume increased by 523% between 2006 and 2011
- The National Coffee Association of America says that 83% of American Adults have had at least one coffee or drink coffee regularly in 2013
- 26% of regular coffee drinkers consume 4+ cups per day
- Packaged facts reports that in 2013, the capsule/pod dollar sales made up 28% of total coffee sales
- In the first 9 months of 2014, US consumers used 30 billion pods
In the UK:
- Consumers spent 87 million (pounds) on capsules in 2014
- 35% of businesses changed from filter/instant made coffee to capsule coffee
- Another 38% are considering the change in 2015
- There has been a 10% decrease in instant coffee purchases due to capsules
- The total sales prediction of capsules in 2015 is expected to rise to 100 million (pounds)
(UK statistics from The Grocer Trade & BigGreen.co.uk)
A Good Looking Coffee...
Create Your Own Coffee Capsules
This is the easiest process of the 4 stages.
There are a number of ways to complete this stage but depending on your access to/availability of fresh coffee, you could be limited in terms of what coffee you can offer in your coffee capsules.
The most basic form of this scenario involves purchasing ground coffee from the supermarket and filling empty capsules. This will satisfy the need to supply your customers but I hope you have higher quality intentions than this...
I would recommend approaching a local coffee roaster who roasts coffee on-site and provides an amazing product at a reasonable price. Ask to purchase regularly from your local roaster and perhaps ask for a discount considering that you will be purchasing regularly.
Another option is to contact a large contract roaster who specializes in customized blends that could put something together for you. These roasters are usually cheaper than a local roaster and generally have a lot of other product lines going for other customers. The real bonus here is that you could save 50% on what you may have to pay a specialty coffee roaster or local roaster.
No matter which route you choose, there are some value for money options that you need to consider because the less you spend on coffee, the more you will make when you sell your capsules but keep in mind that quality should not be compromised - although, some circumstances require adjusting. If you would like a demonstration on how to make a coffee capsule, watch the video below:
How To Make Capsules
Which stage of the process seems the most difficult?
Design Your Packaging
Designing your packaging can prove difficult unless you have access to production line machinery and/or an affordable marketing consultant.
I recommend you play it safe and simple - organize your coffee capsules into appropriate packaging. Also remember your target market and the demographic that you profiled - try to make the packaging and marketing as appealing as possible to them. If your target market are grandparents aged 50-60 then refrain from promoting a bright green grim reaper on your logo... Think about what will be appealing and appropriate for your target market - perhaps a picture of a piece of gym equipment for your gym demographic?
In terms of capsule packaging, I seal my capsules in a plastic wrapper, similar to a wrapper on a bar of chocolate (but maybe its slightly thicker plastic). I find that this keeps any moisture out of the capsule and also because the capsules I use are very basic - the wrapper is a nicer way to present them. So here's how I seal them:
Firstly you will need a long sleeve of colored plastic (diameter should be just enough so you can slide a capsule inside and choose a color that suits your market), scissors and a heat sealer:
- I use long black sleeves of plastic (they usually come in rolls) and seal the end with the heat sealer
- Slide the capsule all the way down to the bottom of the sleeve until the capsule stops at the end of the sleeve (because it is sealed and can't go any further anyway)
- Use the heat sealer to seal the open plastic end together (so the capsule is encased by seals on either side)
- Use the scissors the cut the plastic sleeve so you have a capsule now with a plastic cover!
So that's how you seal up the coffee capsule in order to keep it from oxidizing any further. Now you have to consider the box that you will use to pack the sealed capsules inside.
I recommend using a colored cardboard box with the smooth plastic finish on the outside - the types that some cafe's use for takeaway food. These boxes come in flat packs of 100/200/300/etc., so you will have to make them up by folding along the creases but it only takes a few seconds per box.
If you want to be really fancy (like Nespresso) you could look for a plastic molding company and ask them to design a mold to hold each capsule individually. Otherwise you can leave this step out. We've already sealed up the capsules so that's a nice touch and to have them loose inside the box is also fine.
The final step for your packaging requirements will be the stickers. Instead of paying for a printed box I've decided to go with designing stickers and labels to attach to the box. Its a lot cheaper than having printed boxes and you don't need to order as many stickers as you need to do a run of printed boxes. Any decent stationery or office supply store that offers photocopying will usually offer to print onto stickers as well. Just make sure your design is in the correct format that the printers need and you can design what ever you like!
Here's a tip: try using the website Canva to design your logo and possibly your outer stickers as it is a free tool (unless you choose to include some of the premium pictures).
If you need ideas for packaging, take a trip to the supermarket and analyse the coffee capsules that are for sale. You can also go one step further and buy some if you find some that are quite intriguing.
Marketing And Sales
There are many sales and marketing strategies available but starting with the basics provides a solid foundation. My recommendation is to start using the following sales strategies:
- Distribute samples to friends, family & work colleagues
- Asking your friends, family and work colleagues if they know interested parties who will want to purchase capsules, or if their places of work use capsules/have a consistent supply?
- Have business cards printed and ask your networks to pass them on if its not too much trouble.
- Online: make your own website using a free site and/or advertise on ebay and local classifieds
There are various ways to distribute your capsules but try to keep focused on your demographic because you can learn more about your market and build on your current sales strategies. From here the rest is up to you.
The best attribute that starting a coffee capsule business affords you is that of freedom. You get to control what happens - if you want to grow it big and then sell it, well so be it.
You will notice over time that your customers will develop an order cycle. A business you supply might need a fresh delivery of capsules every week, as opposed to a friend or a colleague, who may only need a delivery once per month. The overall advantage regarding an order cycle is that you will have re-occurring sales.
A useful idea is to buy an inexpensive mobile phone and only use it for orders. When an order is placed for capsules via your mobile phone, message them back with your bank account and ask them to deposit the money in order for you to courier the capsules to them (or deliver them yourself if they are paying cash). A home delivery service would be the possible next step in terms of growth.
Regardless of what method you use, if you turn your leads into sales then your revenue stream will continue to grow.
Hub Author's Final Words
On a more personal note, I never planned to start a coffee capsule business.
I originally started by producing my own coffee capsules using ground supermarket coffee for personal use. After furthering my coffee knowledge, I wanted better quality coffee and starting purchasing ground coffee from specialty coffee roasters. I handed my capsules out to friends and family who enjoyed them and recommended I sell them.
I bought an ebook called Coffee Capsule Cashflow to assist me in starting my business. There were some stand out sales strategies that helped immensely and I fully recommend it if you are heading down this road.