Starbucks Business Secrets Revealed

  • The Opportunity: Export gourmet coffee from Rwanda.
  • Investment Level: <$100K
  • Risk Level: High

When Starbucks chairman Howard Schultz wanted to celebrate the success of his company's first offering of Rwandan coffee this spring, he invited a group to Seattle to raise a cup. President Paul Kagame of Rwanda came, as did entrepreneur Arthur Karuletwa. Schultz wanted to learn more about Rwandan coffees, and Karuletwa, a refugee who two and a half years ago ditched his job as a coffee distributor for Procter & Gamble to help his homeland, was now a key link between the Western world and Rwanda's thousands of coffee farmers. "He was very enthusiastic," Karuletwa recalls of Schultz.

It was a proud moment for Rwanda, a nation devastated by the genocide of 800,000 people in 1994. The African country of 8 million is undergoing a dramatic rebirth. Its government has battled corruption and has lured back skilled people. And Rwanda has suddenly become an inviting destination for foreign entrepreneurs, especially those interested in coffee.

Rwanda had long produced commodity-grade coffee beans but never developed a gourmet coffee industry. Its farmers barely made enough to survive. Karuletwa, who had left for the United States in 1995, felt driven to help. He and his wife, Amy, stored their belongings and set off; she, too, was an industry pro who had worked for Starbucks. Karuletwa won the backing of the Rwandan Ministry of Agriculture and began to modernize the market. He set up programs to teach coffee beans fertilizing methods and created co-ops of farmers. Eventually, he sliced the number of middlemen from four or five to one or two, raising the pay farmers get for a pound of coffee beans from about 60 cents to $1.50.

Today, Rwanda's coffee industry can't keep up with demand - and the doors have swung open to outsiders wanting to set up businesses that will stoke supply. There's a need for coffee bean exporters, but Karuletwa argues that a far more lucrative strategy involves controlling most of the coffee production chain, from crop to cup. The chain works like this: Farmers pick the cherrylike fruit to get the beans. The coffee beans are brought or sold to washing stations that clean, peel, and bag them. They're then trucked to the government-run coffee board in Kigali, the capital, where they're approved for export - tax-free. In the United States, beans go to a roaster, which processes, packages, and ships the coffee to a retailer. Smaller players can make money by owning as many parts of that process as they desire. The Rwandan government will even guide aspiring entrepreneurs through the process and help them obtain land.

Rwanda wants to triple its number of washing stations to 140 by 2008, and as a result, "you can almost get land for free," Karuletwa says. Coffee is known as a "relationship business," and whom you partner with both in Rwanda and in America is crucial. You can set up a coffee co-op, paying small farmers to bring you their beans. Shipping a container of coffee, 40,000 pounds' worth, costs $6,000. You then pay a warehouse to store the beans in the States, or you have them sent directly to a roaster. Toss in the design and production of labels, and your total outlay is $4 to $5 for a pound of coffee that will sell on the shelf for $15. Paying back your initial investment should take less than a year. "If you start this fall," Karuletwa says, "you can be processing coffee next year."

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