Every business has a life cycle, and now we know ours.
Catalyst Trade is closing.
Catalyst Trade’s downtown Portland office, which is now closed.
When we created Catalyst Trade in 2018, it was a new container for a three-person partnership which began back in the 2013 Ethiopian harvest cycle—Zelalem, Emily, and Michael, taking the risks to make a statement that coffee should be traded with respect and kindness.
2013-2018: Catalyst Coffee Consulting
The original business was called Catalyst Coffee Consulting; many of you remember Michael and me lugging around our 1-barrel electric Probat, roasting samples from the bed of our 1999 Chevy Silverado truck, and visiting your roasteries with our tiny daughter in tow.
At Catalyst Coffee Consulting, we had the privilege of forming meaningful relationships with coffee producers, the specialized importers and exporters that supported them, and the roasters who valued their work. We supported groups and individuals in a number of countries including Ethiopia, Peru, Kenya, Colombia, Cameroon, and more. And in 2016, when Michael and I moved (again with our starry-eyed toddler) to Ethiopia, we decided to focus 100% on our work with Zele. This led, inevitably as destiny, to forming Catalyst Trade a couple years later.
Michael & Emily’s daughter, Eire, on a coffee site in 2016
2018-2023: Catalyst Trade
With Catalyst Trade, Michael, Zele, and I set out to seek the impossible (impossible to define, for one thing!) quest of “changing how coffee is traded.” And, with the support of you—our roaster partners, industry colleagues, and coffee lovers—we did really make some waves.
We created the first two-way transparency project in Sidama, Ethiopia, gathering intimate business and personal details from fourteen roasters in North America and sharing them with the producers who grew their coffee, correlated to the typical traceability info of FOB, farm gate, and personal pay. (Thanks Noah @coolroastcurves for reminding us we did that!). The impetus for this was simple, and still true: if you ask for information from a partner, be prepared to share the same info. That’s just basic human ethics.
We “got through” COVID-19! (So did you. Well done.) Although the pandemic led to supply chain issues, massive inflation, and endless obstacles which ultimately have forced us to acknowledge our reality and close the business, we grew through the insanity and learned a ton about operating a business in times of upheaval, lessons we will never unlearn.
We scaled the company with intention over five years, knowing our vulnerabilities as a small, independent, country-specific importer, and created a company culture brighter and better than most in the world.
We recruited, trained, and nurtured a team of remarkable coffee professionals in three countries, creating a culture of psychological safety, generosity, and creativity which I hope will survive us as these people go forth into their new roles where they will surely lead by example.
We increased from a handful of containers of 86+ specialty Ethiopian coffee to around twenty-five, never once bobbling on quality, a remarkable feat on the parts of Michael and Zele and their teams.
We never had a legitimate quality claim.
We created proprietary systems for actual bag-to-bag traceability in a country where most everyone else, regardless of what they say, has either given up on the concept or didn’t care much in the first place.
We were lucky enough to hold the trust of more than three hundred roasters in North America and the greater world. Our Account Management system wasn’t perfect, but it was human and above all valued the individual relationships that make up a sourcing/buying continuum.
In everything we did, we were able to support and give loyalty to our producing partners, sharing profits and giving back quietly in practical ways ranging from helping women in coffee producing communities start micro-enterprises to offering education and premiums to female day laborers working with our coffees.
We pioneered a form of leadership with these basic assumptions: Empathy is a superpower. “Need to know” is bullshit. Profit AND benefit for all stakeholders. And while the business itself has reached its zenith, I’m more determined than ever that this style of leadership is the only way that business actually works, long-term, for all parties involved.
But Why Is Catalyst Trade Closing?
Whew. That’s a whole conversation over beer, or a deep-dive SCA lecture (hm…) I’d love to talk more about this in great detail, because to be honest with you, owning and operating a small, independent, and country-specific coffee importing company is a really tough, maybe impossible, job (especially if you lack personal resources and hope to grow the business. That’s a lethal combination right there!) And our industry is way too closemouthed about the challenges of business, as well as the solutions.
But as this is already getting long, I’ll simply name some of the key factors for you here. Please let me know if you’re interested in learning more about our challenges and obstacles, as I know this is useful information to other coffee business owners and would-be entrepreneurs. Once the dust has settled, I’ll be working to share analysis and observations.
Lack of finance access coupled with interest rate hikes.
Although all three of us founders come from various shades of blue-collar or low-income families, by 2023 we needed more than $4M a year just to keep Catalyst Trade afloat. Obviously the business was profitable enough to cover its overhead, but like every other importer, we leaned on finance to purchase coffee.
This challenge provided me with plenty of chances to grow, make big asks, and ultimately work miracles as over the years we forged partnerships, learned the ins and outs of many kinds of finance, and somehow got where we needed to go.
However, without enough finance backing us, we were vulnerable to external factors.
When the banks began to fail, market contagion spread. Financial firms which I had spent years building relationships with began to change their tune, and existing partners suddenly were forced to examine their own risk portfolio and change the resources they offered Catalyst.
Let’s be honest, any business working almost exclusively in Ethiopia is vulnerable and higher risk than most finance companies like to see.
With all of this, our access to finance dried up in a thousand bad-news emails during our most critical buying period this year. There was nothing to be done at a certain point.
Additionally, as interest rates climbed, our regular cost of debt climbed too, just as we found ourselves struggling to service it. This was a lethal combination for us.
Steeply-increased coffee prices in Ethiopia, and heavy reliance on only one origin.
Go back to 2021, 2022, and of course to earlier 2023. In 18 months our COGS more than doubled. Of course our customers were experiencing this rise across the board, but when an Ethiopian coffee that cost $3.30 in 2019 sells for $5.25 in 2023, there is no way demand can remain steady.
I’m proud that so many of our customers put their money where their mouth is and they supported the producers when their Gr. 1 sparkling Keramo, isolated and undiluted, scoring 89+ points, rose from $5.15 to $9.50… but how could they possibly continue to feature it heavily in their menus?
We took a gamble in 2022 that even though the coffees were expensive, their quality would result in steady or increased demand. We lost our bet and entered 2023 with our first long inventory position… which of course made obtaining finance for the new crop more difficult.
As well, although we added Peru in 2022 (and had a Kenya experiment) being an Ethiopia-focused importer meant that when prices rose so much in Ethiopia, we had no recourse. We couldn’t drop down our purchases and focus elsewhere for a bit. Of course, we were also not constitutionally willing to entertain the idea that if we put our faith in Ethiopian coffee, we would not be ultimately held and successful.
This over-optimism in our 2022 buying season weakened us, as we lacked the experience to calculate how such increased prices would lessen demand and create a cascading effect.
As we enter the 2024 Ethiopian coffee harvest, it seems painfully ironic that in the exact market pendulum swing we projected, the coffee cherry prices have snapped back to pre-pandemic levels, with birr per kg amounts of 25-30 in Bensa Sidama, which was over 100 last year! If Catalyst Trade could have held on one more year, we’d have been able to recover… but again, we accept that the business life cycle is over and it’s time to go make new things.
Operations Manager Leslie Wyatt at a processing site in Ethiopia
The inherent weaknesses of the coffee importation business model.
Most people don’t want to hear this, but I think that the coffee import business is a near-impossible business model to perfect, especially at the boutique level.
For one thing, there is often an 18-month delay between when you purchase coffee and receive payment for it!
A common perception of importing companies is that they are primarily sourcing companies and they focus on the romantic, altruistic side of the business (building relationships with producers, origin trips, give-back programs, etc.). They certainly do this! But in reality, importing companies must focus on everything but sourcing companies if the whole construct is going to work—they are finance companies, logistics companies, risk management companies… If, like us, you attempt to focus primarily on sourcing coffee while also acting as importer of record, you find that the cost of doing business far exceeds the profit potential unless you’re at a certain scale where you can optimize for efficiency.
Importers are caught between upward pricing pressure at origin and downward pressure from customers, and end up serving as both bank and warehouse. This is why every few years in the coffee industry you see what is happening now—a whole rash of small and independent importers either folding up or selling to the larger houses. Like it or not, moving coffee around the globe is done best by the multinationals.
Emily McIntyre in Catalyst’s Addis Ababa lab during a team training, 2022
The Catch-22 of rapid growth, a snake eating its own tail.
As a coffee importer, a certain scale is mandatory for success, as well as both significant financial resources AND the skillsets to manage risk. We calculated that until we could import approximately 50 containers of Ethiopian coffee a year, we would be vulnerable and inefficient, costing our customers too much in logistics and overhead and always on the brink of failure.
Thus, especially given the impetus we had from a significant leveraged partner buyout in 2021, we set our sights on getting through the “Valley of Death” as quickly as possible… without compromising our core values or mistreating people.
This rapid growth focus was non-negotiable for us given our givens, but it was not ideal and in the end, we were unable to make it to smoother terrain.
What About the Producers?
My co-founders Michael and Zelalem and I have done a fair amount of soul-searching the past few months as we began to grapple with what was happening to the beautiful company we had built. Ultimately, our resolution has not wavered. End of the day, to the extent of our ability, we will always show up to bring market access, open information, and increased payments to our producer partners.
I’ll share more in upcoming emails about how you can get involved in the next chapter to continue supporting those producers, because we are more dedicated than ever to doing this right even though the container or the business may change.
One of the most close-to-home articles I’ve read in the last year was by the famous founder of J. Peterman’s, writing in Forbes about the rise and fall of his firm. (You can read it here) This paragraph says everything I’d like to say about Catalyst’s demise and more, though I urge you to read the whole article and then google what happened next.
“Ultimately, the death of the J. Peterman Company was caused by a combination of things. We made mistakes, but we could have survived them. We were bombarded by external, out-of-our-control kinds of things, but we could have survived them. What we couldn’t survive was our own mistakes coupled with the external, out-of-our-control kinds of things. We faced too many hurdles at once, and it all tumbled in on us.” — John Peterman
So thank you, from the very quivering bottom of my heart, for your support—for opening and reading our emails, for following on social media, for buying our coffee and telling your friends about us. What we have built is so much bigger than we are and although Catalyst Trade’s time in the sun is over, the partnership between you and me and everyone else in our world is just getting started.
—Emily McIntyre, CEO