Ardmore Coffee: The Cost of Ethical Sourcing
Ardmore Coffee roasts and sells coffee through six cafés in Dublin and online. It uses 12 tonnes of green beans a year, bought at €5.20 per kilo from a conventional importer. A Fairtrade-certified supplier can deliver at €6.10 per kilo, a 17% increase. Coffee drinks account for 22% of revenue and carry a 68% gross margin; beans are the main variable cost. A journalist has alleged poor labour conditions at the current supplier’s farm, and the story has been shared widely. A customer survey found 58% would pay 20 cent more per drink for certified coffee, but 31% said they would switch if prices rose. Ardmore has a €140,000 annual contract with a tech company that requires suppliers to meet ethical sourcing standards. Switching involves €9,000 in training, packaging and certification costs, and a six-week transition. The owner wants to protect the brand but is worried about margins.
1. Calculate the annual cost increase of switching to certified beans and assess how it could be funded through drink prices.
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Current bean cost = 12,000 kg × €5.20 = €62,400. Certified cost = 12,000 kg × €6.10 = €73,200. The annual increase is €10,800, plus a one-off €9,000 transition cost, so first-year extra cost is €19,800. To fund €10,800 a year from a 20 cent price rise, Ardmore would need 54,000 drinks a year, or about 148 drinks a day across six cafés - less than one extra drink per café per hour. That looks achievable, but the 31% switching risk means the net effect could be negative if regular customers leave. A smaller 10 cent rise would require 108,000 drinks, or about 296 a day. The calculation shows the direct cost is manageable per drink, but the judgement depends on volume retention and on whether the tech contract would be lost without certification. The €140,000 contract is much larger than the €10,800 annual cost, which strengthens the case for switching.
2. Conduct a stakeholder analysis and recommend whether Ardmore should switch.
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Customers are split: 58% say they will pay more, but 31% may switch, so communication and product quality must protect regulars. Employees may prefer working for an ethical employer, improving morale and retention. The current supplier and farmers face reputational and income consequences; Ardmore should give notice and explain its reasons. The tech client requires ethical sourcing, so switching protects a €140,000 contract. The journalist and NGOs will scrutinise whether the change is genuine or cosmetic. The owner bears the €19,800 first-year cost and margin risk. Recommendation: switch to certified beans, because the brand damage from staying is potentially existential and the contract is at risk. The direct cost is about 1.7% of the bean cost base and can be covered by a modest price rise. However, Ardmore should verify the certification, visit or audit the new supplier, and avoid claiming that certification solves every labour issue. It should communicate the change transparently, including the cost, rather than presenting it as a marketing slogan.
3. Outline an implementation plan and a contingency if sales fall after the price increase.
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Implementation: give the current supplier six weeks’ notice; complete certification and staff training; update packaging, menus and website; brief café staff on the reasons and the farmer story; launch with a media statement and social media content; monitor sales daily by café and product. Raise prices by 10 cent initially rather than 20 cent, and absorb the rest through cost savings, because the survey suggests price sensitivity. Contingency: if coffee sales fall by more than 5% after eight weeks, avoid reversing the ethical switch. Instead, introduce a lower-priced filter option, promote loyalty cards, negotiate a lower wholesale price from the certified supplier, reduce wastage, and shift marketing spend to existing customers. If the tech contract is secured, use that revenue to protect margins. If sales fall by more than 15%, review the six-café estate and consider closing the weakest outlet rather than abandoning certification. The key is to separate a temporary price reaction from a permanent brand position.