The Green Bean

Business case

August 2008

2 The Green Bean

Contents

1. Introduction 4

1.1 Background 4

1.2 Strategic Waste Initiative Scheme grant 4

1.3 Scope of report 4

1.4 Structure of this report 5

2. Desktop analysis 6

2.1 Coffee waste generators 6

2.2 Quantities generated in study area 6

2.3 Means of current management 7

2.4 Current costs incurred by generators 7

2.5 Summary 7

3. Survey of local cafés 8

3.1 Survey introduction 8

3.2 Survey results 8

3.3 Analysis of survey results 10

4. Field trials 11

4.1 Collection trial 11

4.2 Media coverage 11

4.3 Compost quality 11

5. Potential market opportunity 12

5.1 Description of business 12

5.2 Competitors 12

5.3 Key selling propositions 12

5.4 Scale of market 12

6. Business Profitability 14

6.1 Business income structure 14

6.2 Business cost structure 14

6.3 Break-even point 15

7. Conclusion 16

3 The Green Bean

Table Index

Table 1 Major café franchises 6

Table 2 Summary of waste stream generated from study area 7

Table 3: Summary of survey form responses 9

Table 4 Business cost structure 14

Table 5 Break-even point for varying retail prices 15

Appendices

Green Bean Café Questionnaire

Media

4 The Green Bean

1. Introduction

1.1 Background

The Waste Management Board (WMB) plans for Western Australia’s transition to a zero waste

society. As part of this planning, the WMB has prepared a strategic direction for its activities,

including the establishment of “priority product areas”. The six current priority product areas are

listed in the Strategic Direction for Waste Management in Western Australia: 2004-05 Priorities. One of

these is organic waste, estimated by the WMB to make up about 20% of waste disposed to landfill

in the Perth Metropolitan Region.1

A discrete portion of the organic waste disposed to landfill is spent coffee grounds, and

investigating possibilities for the recovery of these grounds would both divert this waste from

landfill, and involve the hospitality industry in resource recovery.

1.2 Strategic Waste Initiative Scheme grant

A Strategic Waste Initiative Scheme (SWIS) grant was sought to investigate the etablishment of a

branded spent coffee ground collection and composting service, providing regular collections to

cafés around Perth and creating compost for resale through the collection networks. This project

was proposed to occur in two stages:

1. Investigate the market opportunities; and

2. Establish and operate the business

Stage 1 is proposed to fill the current data gaps regarding the management of spent coffee

grounds. Upon filling these data gaps, a decision can be made regarding the viability of the

business, and if viable, Stage 2 commenced.

1.3 Scope of report

This report details the information collected for Stage 1 of the project. It attempts to quantify

the quantities of coffee grounds generated in Perth and assess the viability of a business for its

collection. This was proposed to be achieved by collecting information around the following

points:

1. The quantities of spent coffee grounds generated in Perth.

2. The current destination of the spent coffee grounds, and the financial incentives for

cafés to use the Green Bean.

3. The charges that cafés would be prepared to pay for the provision of a green service, and

what they might expect in return.

4. The quality of the compost produced, and materials that might be blended with the

spent coffee grounds to improve its saleability.

5. The market for compost generated from the spent coffee grounds.

1 Waste Management Board 2006-07 Business Plan, p.5

5 The Green Bean

As the project commenced, it quickly became apparent that very few cafés have the necessary time

to talk about waste management. As a result, an alternative approach was taken where averaged

information was obtained from respondents, and this information used as a guide across the

industry. This was supplemented by information from coffee bean wholesalers.

A further element that emerged during the conduct of the project was the management of coffee

bean husks from the roasting process. Due to the potential synergies of husks being managed

with grounds, the management of husks is included in this investigation.

The review was limited, where possible, to the immediate vicinity of the Perth CBD, as this is

likely to represent the greatest concentration of coffee waste generators. This includes Perth, East

Perth, West Perth, Mount Lawley, Leederville and Subiaco. The restriction on areas of Perth did

create some confounding factors, as coffee wholesalers are not able to provide detailed

information on the exact quantity purchased by each café. This was overcome by establishing an

average quantity for each café.

1.4 Structure of this report

This report is structured as follows:

• Section 1: Introduction. Introduces the overall project

• Section 2: Desktop analysis. A desktop review to estimate the quantities of coffee

grounds and other coffee wastes in Perth, the current means of

management and the cost of management.

• Section 3: Survey of local cafés. Information collected from a survey conducted of

cafés in the Perth CBD, reporting on information in relation to coffee

beans consumed, and the interest in a coffee ground collection service.

• Section 4: Field trials. Reports on a four week long trial conducted of the collection

of spent coffee grounds from two cafés.

• Section 5: Potential market opportunity. Describes the market for spent coffee

ground generated fertiliser.

• Section 6: Business profitability. Provides initial estimates into the profitability (or

otherwise) of a business collecting spent coffee grounds and converting the

grounds into fertiliser

• Section 7: Conclusions. A summing up of the findings of the work conducted.

6 The Green Bean

2. Desktop analysis

2.1 Coffee waste generators

Coffee grounds are generated in cafés and restuarants, with lesser quantities generated in offices

and private dwellings. Clearly, the greatest quantities at a single location will be grounds at cafés.

For the sake of simplicity, this report only considers café generated grounds. There are

approximately 100 cafés in the study area. Of these cafés, the following key franchises can be

observed:

Table 1 Major café franchises

Franchise Cafés in study area Total cafés in WA

Caffissimo 9 14

Dome 5 24

Cino to Go 7 7

Aroma Café 8 27

Total 29 72

Thus, the major franchises make up almost one third of the cafés in the study area.

Husks from coffee beans are generated at roasters. These are both within the study area and

within the broader Perth Metropolitan Area. The majority of roasting is, however, conducted

interstate. The larger roasters in Perth are:

• Five Senses, Rockingham

• Caffissimo, Wembley

• Fiore, West Perth

• Bonissimo, West Perth

• Brew-ha, Subiaco

• Rubra, Myaree

2.2 Quantities generated in study area

Detailed information regarding the quantities of coffee ground waste generated at cafés is hard to

obtain. Cafés are typically busy, wary of potential competitors seeking information regarding

their business, and may not know the information anyway.

Using coffee beans supplied as a surrogate, it was established that the typical café will use between

15 to 20 kg of beans per week. The beans will absorb moisture upon brewing – simple testing of

this has indicated that 1 kg of coffee beans might become up to 1.3 kg of spent grounds. The

exact moisture content increase is reported to depend upon a range of factors, including in

particular the size of the grind. Coarse ground coffee is reported to contain more water than fine

ground coffee, though this might a perception based on the free moisture from coarse ground

coffee. Finely ground coffee probably contains a similar moisture content to coarse ground

coffee, with the moisture being better retained within fine ground coffee.

7 The Green Bean

The quantity of husk generated was not easily ascertained. Most roasters were either unable or

reluctant to provide this information, with all noting that it “weighs nothing”. One roaster was

able to estimate that between 100 and 150 litres of husk is generated from 400 kg of roasted

beans. This seems to be the most accurate figure that could be derived.

This information is collated into aggregated information regarding the particular waste streams in

Table 2 below.

Table 2 Summary of waste stream generated from study area

Waste stream Range per week Range per year

Spent grounds 2,000 – 2,500 kg 100 – 125 tonnes

Husk 400 – 500 litres 20 – 25 cubic metres

2.3 Means of current management

In speaking with all stakeholders, it was broadly understood that the material is “good for the

garden”. This does not necessarily mean that all of the wastes are in fact used on the respective

café owner’s or roaster’s garden, and in fact it appears that the waste is generally disposed of with

general waste. General waste in the study area goes to landfill (Tamala Park for most, with waste

from Subiaco going to Red Hill via the Shenton Park transfer station).

There are exceptions to this observation – one of the roasters reported that the husk is put in his

compost bin and “the worms eat it right up”.

2.4 Current costs incurred by generators

This information was unable to be obtained. The cafés contacted were reluctant to give any

information regarding their business, and no information was obtained regarding current costs.

This is presumably due to strong competition in the sector, and fears that competitors might be

seeking to gain an advantage.

2.5 Summary

Over 100 tonnes of spent grounds are generated in a relatively small area. Combined with the

husks from the roasting, this may be sufficient concentration of supply to enable a cost-effective

collection business to be established.

In the broader consideration of waste within the Perth Metropolitan Area, the quantities

considered are very small. Considering the latest year for which data is available for the Perth

Metropolitan Area, coffee waste within the study area makes up less than 0.01% of the 1,264,000

tonnes of putrescible waste (municipal and commercial & industrial waste) disposed to landfill in

2004.

8 The Green Bean

3. Survey of local cafés

3.1 Survey introduction

A survey was prepared and posted to 130 cafés and restaurants in May 2007 seeking more

detailed input in relation to their generation of spent coffee grounds and their attitude towards

the establishment of a coffee ground recycling service. The survey asked nine questions:

1 How many kilograms of coffee do you use each week?

2 How many cups of coffees would you make in a typical week?

3 How frequently do you empty your knock box?

4 Would you be interested in a spent coffee grounds collection service?

5 If this service prevented spent coffee grounds going to landfill, would you pay more for this

alternative?

6 Would you promote your participation in the service (such as through a sticker on the café

window)?

7 Would you sell small bags of organic compost at your café?

8 Would you be prepared to participate in a trial for the collection and composting of spent

coffee grounds?

9 If yes, when would be the best time to collect spent grounds?

A copy of the survey questionnaire is attached in Appendix A.

In addition to the surveys, the corporate Head Office of Gloria Jeans, Cino and Caffissimo was

contacted. Of these, Caffissimo was most helpful. Gloria Jeans did not respond to the request

for information, and the representative from Cino was unable to attend any of our planned

meetings.

3.2 Survey results

Of the 130 surveys posted, 11 were returned unopened (incomplete address or addressee moved

on), and 14 were completed. The remaining 105 are presumed to have been received and not

completed through a lack of interest, or sent to the incorrect addresses and not returned. The

former is assumed in order to give the most conservative of results, and each non-responding café

is assumed to have responded in the negative to all survey questions.

The results from the 14 completed surveys are tabulated below. The table does not present the

identity of the cafés to protect privacy.

9 The Green Bean

Table 3: Summary of survey form responses

Question 1 (kg/wk) 2 (cups/wk) 3 (times/day) 4 5 6 7 8

Café 1 1 20 1500+ 1 � � � ? �

Café 2 15+ - 1 � ? � � ?

Café 3 10 1500 5 � � � � �

Café 4 30 1800 2 � ? � � �

Café 5 2 40 2000+ 2 � � � � �

Café 6 50 2000+ 5 � � � ? �

Café 7 25 - 1 � � � � �

Café 8 3 100 5000 10 � � � � �

Café 9 45 2000 2 � � � � �

Café 10 18 200 1 � � � � �

Café 11 12 250 1 � � � � �

Café 12 4 8 ? 1 � � � � �

Café 13 20 600 1 � ? � � �

Café 14 22 2500 2 � � � � �

Totals 380 3,100 35 12 5 12 2 11

Notes:

1. I love this idea! My only concern would be the logistics. How would we store the spent coffee? Would

you provide us with bags to fill? How often would you pick up, as the coffee tends to smell a bit…

Most people would do this, as long as it was not hard work on their part.

2. No for all because we are part of a company who would have to be consulted. Please contact our Head

Office. Personally I think it’s a fantastic idea.

3. [Company] brought this up before. We are in a small place – where would we keep the grounds?

Heavy, inconvenient. If I had room in my store to keep the grounds, I would. Storerooms are too far

away. My store is very busy and tiny. Think it would work well in the suburbs.

4. Don’t think Health Department would allow compost sales in the café. Sorry!

10 The Green Bean

3.3 Analysis of survey results

As might be expected, many of the respondents are interested in the idea – if they were not

interested they chose not to respond. Of the 119 café’s that are presumed to have received the

survey, the following conclusions can be drawn:

• The majority of cafés consume about 20 kg of coffee per day, with a few very busy cafés

consuming up to 100 kg.

• The total coffee bean consumption across the 119 cafés is estimated to be between 2,500

and 3,000 kg per week.

• 10% of all cafés would be interested in a coffee ground recycling service. The remainder

is assumed to be not interested for a variety of reasons, some of which can be guessed to

be:

o Lack of space, particularly for inner city cafés;

o Real or perceived lack of freedom within their corporate structure to

implement new programmes. This is particularly the case in some of the

franchised cafés;

o General resistance to new ideas; and

o Lack of interest in environmental matters.

• Very few cafés would be prepared to pay more for a specialised coffee ground collection

service. In essence, the service would need to realise savings for the café that equal the

cost of the service.

• Basically no café would sell coffee grounds generated coffee in their café. This may be

due to health regulations, but may also be connected to the lack of space and the

disconnect between compost and coffee.

11 The Green Bean

4. Field trials

4.1 Collection trial

After looking at different models to trial the collection of spent coffee grounds, the company

Organic Waste Solutions was contracted to run a trial collection with two Caffissimo cafés on

William Street in Perth. Both cafés are owned by the same person, Nico Brutti, and his support

for this project has been unwavering. Organic Waste Solutions was selected because the company

offers an existing service of collecting organic waste from cafés for the purpose of feeding worm

farms.

The trial commenced on 30 April 2008 and concluded on 23 May 2008 (a period of four weeks).

Organic Waste Solutions placed a bin at each café, and emptied each bin twice a week

(Wednesday and Friday) in the early morning.. The coffee grounds collected were placed in a

compost tumbler and turned regularly over a 7-8 week period.

A total of 281.6 kg of grounds was collected from the two cafés, or 35.2 kg/café/week. This can

be contrasted with self estimates of the quantity of coffee beans consumed as 20 kg/week. Some

of the difference will be due to the increased moisture content from freshly ground coffee to

spent grounds, however it is likely that there is some underestimation of the weight of coffee

beans consumed.

If it is assumed that the 75% increase between self-reported weight of beans consumed, and the

weight of spent grounds collected applies across all cafés, then the likely total tonnage from the

14 cafés that responded to the survey is in the order of 670 kg/week, or almost 35 tonnes/year.

Across the estimated 120 cafés in the vicinity of the Perth CBD, the estimate of spent grounds in

the order of 2,500-3,000 kg/week would become 4,375-5,250 kg/week, or 230-275 tonnes/year.

4.2 Media coverage

A press release was prepared and sent through to the Guardian Express publicising the conduct

of the trials. This led to an article in the Guardian Express from 3 June 2008. The article is

reproduced in Appendix B.

4.3 Compost quality

At the time of commencing the trial, it was intended that the compost would be tested to

ascertain its quality. The testing was not completed in time for this report.

Notwithstanding the lack of test results, observation of the compost suggests that the coffee

grounds would produce a better quality compost if blended with coarse materials such as sawdust.

The grounds were observed to form “balls” from the rotation in the tumbler – a coarse material

would also assist in removing such balls.

12 The Green Bean

5. Potential market opportunity

5.1 Description of business

The business opportunity exists in the collection of spent coffee grounds and roasting husks,

composting these materials, and from the composting process producing a soil conditioner or

fertiliser product.

5.2 Competitors

The primary competitors are bagged compost (30 litre bags) and inorganic fertiliser.

A typical retail price for bagged compost is $5.00 per bag. As the bag weighs 10 kg, this equates

to a purchase price of $0.50/kg.

Inorganic fertiliser is more expensive, costing about $15.00 per 10 kg bag. This is equivalent to a

purchase price of $1.50/kg.

5.3 Key selling propositions

As soil conditioner is currently generated in bulk by large scale composters, the business would

need to differentiate itself from these products; their costs are such that the Green Bean could

not compete in the same market. As a result, the market niche that would be explored by the

Green Bean is fertiliser for indoor plants.

To fill this niche the product would need to:

• be marketed as an organic option;

• have no offensive odour, and preferably a pleasant residual coffee fragrance;

• be packaged in a way that it easy to handle for small applications, and

• associate itself with an inner city culture.

5.4 Scale of market

The product will be targetted at people that have indoor plants and lives in the inner city. This

will be primarily “lone person households”, a segment of the population that is more likely to live

in apartments or other smaller dwellings. The Australian Bureau of Statistics (ABS) projects that

this group of households will grow from 179,000 in 2001 to between 307,000 and 428,000 in

2026.2 dwellers. Based on this projection, it is estimated that the “lone person household”

population is 250,000 in 2008.

Naturally, not every lone person household will have indoor plants. The percentage of people

considered likely to have indoor plants and to fertilise these plants is estimated to be 30%. This

leads to a potential market of 75,000 households, with each estimated to consume about 2 kg of

fertiliser per year.

2 3236.0 – Household and Family Projections, Australia, 2001 to 2026

13 The Green Bean

Thus, the total market size is estimated to be 150 tonnes per year. As indicated in section 4.1, it

is estimated that the Perth CBD could generate up to 275 tonnes per year if all cafés participated.

With a 10% participation rate, the CBD tonnages would be about 30 tonnes per year. Thus, to

achieve the maximum scale of the business, greater participation would be required, either by

increasing CBD businesses participating or obtaining spent grounds from the broader Perth

Metropolitan Area.

14 The Green Bean

6. Business Profitability

6.1 Business income structure

Income can be earned from the collection of the coffee grounds, and the sale of the fertiliser.

Additional income could also be obtained from ancillary services such as consulting, however

income from ancillary services is not considered further in the business case.

Since the survey indicated that cafés would be reluctant to pay more for the service,

notwithstanding improved environmental outcomes, the charge per café would need to be less

than the estimated $100/year charged by Council for waste collections. As will become clearer

below, this is a small amount of money considering the number of cafés to be serviced, and thus

this income stream is not regarded further in considering the business case.

The second income stream, sale of fertiliser, is the only means for covering the costs of collection,

processing, packaging and distribution of the coffee grounds. The analysis below considers this

income stream alone.

6.2 Business cost structure

The cost structure for such a business is tabulated in Table 4. The cost structure includes the

following capital outlays:

• $32,990 for a collection van. This is repaid over a five year period at interest rates of 8%

and a residual value of 30% of the purchase price

• $760 per tumbler. Tumblers are also repaid over a five year period at interest rates of

8%, however their residual value is assumed to be 10% of the purchase price

Table 4 Business cost structure

Item Fixed

Cost/year

Capital repayment

Cost/year

Variable

Cost/bag

Salary $40,000

Salary on-costs $20,000

Rent $50,000

Tumblers $177.39 per tumbler

Vehicle $6,576

Packaging $0.50

Logistics $0.50

Fuel $0.02

The rent is relatively high because it allows for a small warehouse in close proximity to the CBD.

The figure used here is for a 350 m2 warehouse in West Perth as quoted on

realcommercial.com.au on 3 August 2008.

15 The Green Bean

6.3 Break-even point

Most of the costs associated with such a venture are fixed, including a salary, rent, the compost

tumblers and a vehicle. Variable costs are associated with packaging, logistics to distribute the

fertiliser and fuel to collect the grounds. The break-even point is obviously highly dependent

upon the sale price achieved for the bags.

An analysis has been conducted on the retail price for a 2 litre bag of fertiliser (the size of a sugar

bag), assumed to contain 0.5 kg of fertiliser and containing a mark-up of 100% at the point of

sale. This is tabulated in Table 5.

Table 5 Break-even point for varying retail prices

Retail price/bag Break-even point

Bags sold Kilograms of grounds Cafés serviced

$3.00 320,732 641,464 70

$4.00 135,009 270,018 30

$5.00 85,499 170,998 19

$6.00 62,558 125,116 14

$7.00 49,324 98,648 11

$8.00 40,711 81,422 9

$9.00 34,659 69,318 8

$10.00 30,520 60,348 7

From this table, it would appear that a retail price of between $5.00 and $6.00 per bag reduces

the bags to be sold to a reasonable number. Retail prices above this level do not reduce the

number of bags to be sold substantially, and make realisation of the sales targets more difficult.

For the purposes of the business analysis, it is assumed that the bags retail at $6.00 per bag, and

thus sufficient volume could be obtained from CBD cafés. The volume to be sold corresponds to

40% of the total assumed market.

Assuming each café receives two collections per week, and collections take 20 minutes each, all 14

cafés could be serviced in a two hour period each day, leaving the rest of the day for processing,

packaging, distribution and ancillary services as mentioned above. With all overheads covered by

the coffee ground processing service, ancillary services would immediately profitable. For

instance, if two hours in each day were used for consulting at $50/hour, then the overall business

would make an annual profit of about $25,000

16 The Green Bean

7. Conclusion

The Green Bean coffee ground collection service has attracted a broad level of interest, with

sufficient cafés interested in the service to enable a trial to be conducted. Media coverage of the

trial was good, and the trial itself ran smoothly, wielding more coffee grounds than initially

estimated. This is probably due to the increased moisture content between fresh and spent coffee

grounds.

The Green Bean coffee ground collection service is commercially viable, breaking even at a service

level that matches the number of cafés interested in the service, a completed fertiliser price that is

realistic ($6.00 for a two litre bag), and a market penetration for the fertiliser at about 40% of the

estimated total market size.

Appendix A

Green Bean Café Questionnaire

The Green Bean

Up to 1,000 tonnes of coffee beans are consumed in WA each year. The disposal of these beans in

landfill could generate up to 750 tonnes of greenhouse gases per year, or the equivalent of the emissions

from over 150 cars.

Based on the above and our backgrounds in environmental engineering and marketing, we have developed the

idea of the Green Bean. The Green Bean is the prototype for a branded spent coffee ground collection service.

The service proposed collects spent coffee grounds from cafés, and processes the grounds into small bags of organic

compost the size of a 2 kg sugar bag. This compost will be marketed for use on indoor plants and courtyards.

We have received a grant from the WA Waste Management Board to quantify the amount of spent coffee grounds

generated in the Perth Metropolitan Area. Please find the grant letter attached. To help us determine if the

Green Bean is a feasible business, we seek your assistance in answering a few quick questions. All information

collected will be presented in aggregated form to protect privacy.

Café name

Address

How many kilograms of coffee do you use each week? kg/week

How many cups of coffees would you make in a typical week? cups/week

How frequently do you empty your knock box? per week

Would you be interested in a spent coffee grounds collection service? Yes No

If this service prevented spent coffee grounds going to landfill, would you pay

more for this alternative?

Yes No

Would you promote your participation in the service (such as through a

sticker on the café window)?

Yes No

Would you sell small bags of organic compost at your café? Yes No

Would you be prepared to participate in a trial for the collection and

composting of spent coffee grounds?

Yes No

If yes, when would be the best time to collect spent grounds?

Thank you.

Adam Johnson & Michelle Kosonen

Appendix B

Media

Media release

Guardian Express article from 3 June 2008

Coffee grounds for greenhouse

Perth coffee drinkers could save the greenhouse gas emissions of over 150 cars each year through a new venture

recycling spent coffee grounds into compost.

Nico Brutti, the owner of two Caffissimo cafés in Perth, and Kim Holland of Organic Waste Solutions are working

with Adam and Michelle Johnson of The Green Bean to trial a novel service of collecting spent coffee grounds from

cafés to generate rich compost, ideal for Perth’s sandy soils.

The trial is looking at logistics, ideal compost brews, and development opportunities for the business. Spent grounds

from espresso coffee are simply emptied by the barrista into a bin that is collected twice a week by Organic Waste

Solutions. The grounds are then composted for sale.

“This service is so easy”, says Nico, “and it means that I can do my bit for the environment”. Kim agrees “Organic

waste usually goes into landfills where it forms methane, a powerful greenhouse gas. By collecting and composting

this waste, we are avoiding those greenhouse gases”.

“This is an idea whose time has come”, states Adam, a waste management engineer. “With all of the concerns about

climate change, we can all do our little bit. Making compost from coffee grounds not just helps reduce greenhouse

gas emissions, but it also makes compost that can enrich poor Perth soils. It is a little business that will hopefully go a

long way.”

The trial has been funded by the State Government Strategic Waste Initiative Scheme.

Contacts: Nico Brutti (Caffissimo) 0422 866 113

Kim Holland (Organic Waste Solutions) 9271 3941

Adam Johnson (The Green Bean) 0414 244 715

ends