Small South African business causes big stir in coffee market

Above a Putney pizza restaurant two South Africans are steadily taking on the consumer giants. Not only has their business, CaféPod, announced a deal with Tesco to stock their coffee capsules in 650 stores, but last week they launched in Selfridges too. With stiff competition in the multi-million pound coffee capsule market from big players, Peter Grainger and Brent Hadfield’s achievement is undoubtedly impressive.

The South African caught up with Peter to find out more about their business journey and why coffee caught their imagination.

How did the idea for CaféPod start?

After the hedge fund business [Brent and Peter quit jobs at a hedge fund company to start the business] I went travelling. On the last leg I was in South Africa and I saw someone selling capsules there. It’s a very small market in South Africa, but I thought it was worth investigating for London. Brent was the exact target market and he saw it working. People who have coffee machines always talk about how they struggle to get hold of the capsules. They make the consumer reach [Nespresso sells capsules online or through designated shops only] which works to a degree but then they get frustrated. They’re thinking “I’m doing all my shopping in Waitrose, I just want to get my coffee there as well.”

You’ve achieved phenomenal success over the past three years, expanding from a two-man to a nine-man team today. How tough has it been?

A business is nothing more than a collection of people pushing for the same thing. We’ve done this because we have a passion for it. We still pinch ourselves we’re employing nine people, and growing. We’re working long hours, but you know it’s all there for you and there’s a satisfaction when it all comes together. If you love what do doesn’t feel like work, because you are building something for yourself.

People think starting a business is glamorous — entrepreneurs have become the new rock star, but it’s 1% glamour and 99 % blood, sweat, tears and list ticking…! In the beginning because we didn’t know much, we had a lot of false starts — we took months hunting for a coffee supplier and were really excited with our final choice. The senior board turned around one day and said it was not for us. That sent us back to square one. But from bad things sometimes good things happen and through that process we found our current supplier and they’ve been fantastic. But at the time we thought this was the biggest disaster in the world.

The coffee-pod machine market has almost doubled in the past year (Britons spent £56.1m on them between 2012 and 2013, an increase of 45.1% year on year). What’s behind the boom?

People are drinking better coffee from the high street, so when they get home and they’re drinking instant, they’re not prepared to tolerate that anymore. Capsules deliver consistency and gives a good coffee equivalent to what you get on the high street, at a fraction of the cost.

In Britain we’ve gone from the days when an instant mug of Nescafe was the height of luxury to the explosion of Starbucks and their like on the high street. How does CaféPod fit into that story?

It’s part of a growing education and curiosity for coffee — people want to drink better coffee at home, based on their experiences on the high street. Also, for the last 150 years, convenience has driven innovation. Even a tin of baked beans was considered convenience at some point. It’s the same thing with microwaves and toasters instead of using the oven. The capsule market has really come about because of the ever evolving move towards convenience as well as the demand for good coffee at home without necessarily needing the barista skills to make it.

Thanks for the coffee samples [The South African was generously given a big bag of tasty looking samples]. The descriptions are really interesting (‘dark, intense chocolate and a soft hint of passion fruit’ on one packet). What’s the strategy here?

Coffee is a bit like wine, people might not necessarily have as much knowledge as they’d like, to differentiate say between a Chardonnay and Pinot Grigio. They know there’s a difference, but they look to the brand and packaging to assist them in making an informed decision. Some people say, “I like strong coffee and I need that to start my day.” Others like certain characteristics — chocolatey or nutty notes, so we’ve tried to incorporate that in how we communicate with our customers through our packaging.

Kraft and Sara Lee are big brands that have brought out capsules to compete with Nespresso. Is it surprising that a small, independent company is competing with these big corporations?

Coffee is unique in that there’s a risk to trying something different. You don’t want to mess with people’s coffee! It’s part of their ritual.

Conversion is our biggest challenge — most people don’t know there are other capsules you can use. Most people have been buying them for so long in the same way, it’s habitual — why would you do anything else. It’s our challenge to say there’s this other company that sells great coffee and you can just buy it when you walk into the shop. We’re doing it with the PR, advertising and so on, but you still need people to walk down that aisle.