Editor’s note: This is part two of a two-part series based on an interview with Scott Ford at Talk Business & Politics’ “Power Lunch” series. You can listen to the full conversation at the end of this story.
During a decompression year following the final sale of Alltel to Verizon in 2009, former CEO Scott Ford got the notion to enter the coffee business on a trip to Rwanda.
Ford realized the financial return an international coffee business might present, but more importantly, he was moved by the opportunity to lift a generation of Rwandans out of abject poverty.
“I thought we could put a plant up in Rwanda that would be able to basically ask the question, ‘How much can I pay the farmer and still make a return that attracts capital every year?’ For me to have the working capital to go to the country, to buy the coffee, to bring it in, process it and sell it. I said, ‘Well, maybe that’s a 10% return on equity, so how much can I pay them and still make a 10% return on equity?’ That answer was twice what they were being paid. I was floored by that. Then I realized, well, if I actually pay what these other two guys [competitors] are paying, I’d make 50% cash-on-cash profit margin,” Ford said.
“Then I thought, these are some of the poorest people in the world. I realized these are mothers that are trying to keep their children alive,” he said. “It just hit me that I could not walk past it. I did not necessarily want to get in the coffee commodity processing business. I didn’t know anything about it, but when I saw it and I saw what was happening, I couldn’t just turn and walk away either, because once I’d seen it, I’d seen it.”
The coffee business has three functional parts, according to Ford. They include farming, exporting and finished goods. Ford had been around some of the farmers whom he’d buy from, so the next step was to understand the trading business.
“There’s a trading company we bought in the United Kingdom that was fairly small, but had this really unique angle of working with companies like ours at origin, and selling that coffee with some kind of form or idea of traceability, or fairness, or equity, or sustainability, that concept,” he said.
One of its major shareholders was ready to sell out, so Ford bought his position and subsequently has grown it into one of the world’s leading traceable certified coffee traders in the world serving 500 roasting clients in 21 countries.
The final step of roasting, grinding and packaging is done at Westrock’s North Little Rock facility.
He says sustainability and traceability have been the key to Westrock’s growing success.
“It’s a five to seven year sales cycle to sell people on a new product. Here’s better coffee, better product, here’s better price, better service, all right. Then people want traceability. They want to be connected to sustainability,” Ford said.
“What we finally figured out into this process was if we give people a better product, like 15% to 30% better product, we give them a better price, lower than what they were getting the other stuff for. We give them service like they’ve never seen before, and then we give them, free, we give them digital traceability all the way back to the farmer. We will show you, our retail partners, what it cost at each step. We will show you the traceable chain, the asset ownership. We’ll show you the economics of it and we’ll show you how that matters, and what a difference it makes on the ground. The culmination of 10 years effort was just fortunate timing,” he said.
Less than a month ago, retail giant Walmart announced that it had achieved a goal of fully traceable, sustainable sourced coffee for their private label brands ahead of a goal by the year 2020. Ford predicts that Walmart will make the technology model Westrock deploys to trace its coffee from the bean to the store shelves a requirement for its suppliers.
The effort to lift up Rwandan farmers – the front line growers who moved Ford to build a better coffee company model – is still the focus of his business plan. He’s doing things in conjunction with local officials to emulate American farming practices.
“There are no land grant colleges in that part of the world. There are no county extension agents. There is no Farm Bureau, there is nobody to call for help. The private sector has to be the educator,” he said.
Westrock put together a multi-million dollar program to work with individual farmers through a cooperative model. The training teaches fertilization and pruning methods, record-keeping, and community building.
“We put in a three-year training program. We’ve trained 35,000-plus already. When they go through that agronomy training program, which has three steps, how do you be a good farmer… Now that you know how to be a good farmer, do you know how to keep records? You are your own business. Now that you’re a good farmer and a good business person, how do you reinvest in your community to build the community, so that the next generation’s kids live with a level of prosperity that our grandparents didn’t have, and that you as a local farmer in 2020, didn’t have?” Ford said in describing the program.
“That’s what the capitalistic society is best at. You show them the numbers and you let them decide what they want to do about it. Then you give them the tools that if they choose to work and choose to apply this new education that they’ve gotten, they can, and then they reap the benefits from it. Then you let them decide what they want to do in the community,” he added.
For more of Ford’s comments on his activities with Westrock Coffee, The Stephens Group, horse racing, his asset management firm, and Alltel, listen to the full podcast below.