Honolulu Coffee Co. owner Ed Schultz talks about the challenges of doing business in Hawaii — and how it makes everything more expensive for the consumer.
Since he bought the company in early 2008, the 34-year-old has supplemented his six stores in Hawaii with a location in Guam (and a second opening in July), and is in the process of completing construction on a new 6,000-square-foot warehouse, training center, roasting facility and bakery on Sand Island. He employs 83 people.
Civil Beat: What is the nature of your business?
Ed Schultz: We serve fresh, seasonal coffees, and want our Kona blends to taste the same in March and in October two years from now. For each coffee we put in our blends, we pay a premium and know what the farmers are doing with the money, how they treat their workers and how they take care of their land. Last year we bought 90,000 pounds of coffee — 45,000 from Hawaii. We have higher quality coffee, and are not interested in offering the 24-ounce Big Gulp. The idea is less is more.
Will you describe your company’s growth in the past two and a half years?
In 2008, we saw revenues decrease about 7 percent. So at the end of the year, we decided to scrap our business plan and look at what we could do to increase revenues without spending capital. So we did our first wholesale deals at St. Regis Princeville, Trump, Whole Foods and DFS. We also had a bakery, so I thought, what can I do with this? We hired two pastry chefs, and got into the wedding cake business. Total revenues went up 23 percent, putting us 16 percent ahead of where we bought [both businesses].
What’s the most popular item in your expanding bakery business
Our macaroons have hit the street and are becoming all the rage. It’s the new cupcake in Hawaii. It’s a smaller, less guilty indulgence that’s harder to make.
What are some of the specific challenges related to growing a business in Hawaii?
One is the shipping of goods to Hawaii. For me to go door-to-door from our roasting company in Honolulu to our coffee bar in Maui, the price per pound in shipping is the same as if it were coming from the east coast of the United States. Shipping a case of cups from California went up 11 percent from last year because of freight, port surcharges and fuel surcharges. Then there are delays that stop construction until the appropriate part comes in — sometimes three weeks late.
There are no global financial or insurance institutions in Hawaii. Coming from the mainland, the hardest part was that you couldn’t use any organization that you’d used before. On the mainland, you have banks doing cash flow loans, and here you’re constantly trying to operate a new business with limited physical assets because they don’t want make the loan. In the end, we found a bank, but it was a nine-month process.
Hawaii also has always had a unique healthcare system. If someone works 20 hours a week, you’re obligated to provide health insurance. There isn’t an independent restaurant on the mainland that does that. Only 1.5 percent of an employee’s earnings are allowed to be taken out of a paycheck to offset healthcare costs. On the mainland, 25 to 50 percent is reimbursed by the employee. Obviously, it makes the cost of doing business more expensive.
What do these issues mean for consumers?
Higher prices. Look at milk. If milk is two and a half times higher than in California, and shipping prices continue to rise, a latte is going to be that much more expensive.
Where do you see Honolulu Coffee Co. going?
The plan was always to grow from international licensing deals to a market in Asia that’s still developing. You have tea drinking countries that are converting to coffee, so you have a demographic shift. Obviously, China is a huge opportunity. But first, we’re progressing pretty actively with Japan. Then we’ll look at Korea, Singapore and the Philippines. We would use the growth from Asia to fund more company-owned stores here in Hawaii.
What kinds of policy changes would you suggest for Hawaii?
Instigate a district General Excise Tax — in Waikiki, for instance. I think taxing local business and taxing local residents is not the way to make Hawaii more sustainable. I think you need to tax the people who consume the most, and that’s the visitors to the islands. You’d be amazed at how fast you could fix the budget problem. You can’t keep taking away and make it special. At some point, you have to grow responsibly.
Does Hawaii have any unique attributes that translate into business advantages?
From a business manager’s perspective, I’ve become more accepting of a work/life balance. I think Hawaii opens your eyes to that. You want to spend time outside. You want to spend time with your family. I think that’s a great thing when you’re trying to get people to move here.
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