Salada credits cheaper beans for improved coffee profit
Published:Wednesday | May 26, 2021 | 12:06 AM
Coffee processor Salada Foods Jamaica Limited says it benefited from cheaper local coffee, having capitalised on the dip in demand and built-up inventory in the primary green bean market to grow profits fivefold year to date.
The level of savings on beans was not disclosed.
The company’s production costs overall were flat at $411 million and its margins up by two points to 29 per cent at half-year, during the period October 2020 to March 2021, despite a big spike in direct expenses for the second quarter and flat gross margins for that three-month period.
Salada has had to triple the local bean content in its instant coffee formulations, from 10 per cent to 30 per cent, based on directives from its regulator last September. The directive will make it more expensive for the coffee company to produce its brands, Jamaica Mountain Peak and Mountain Bliss, as Jamaican beans are more expensive than imports.
The coffee market had softened under the pandemic, and the 30 per cent mandate, for which Salada had got waivers in the past, was one way of creating a market for the unsold inventory.
“The build-up in inventory presented an opportunity for Salada to buy at prices similar to the average total imported green beans cost – that is, coffee beans and import cess – in the manufacturing of instant coffee blends, and, therefore, enabled the company to comply with regulatory stipulations without significant impact to operating costs,” said General Manager Dianna Blake-Bennett.
The company’s turnover for the six-month period ending March grew to $579 million, of which $353 million was derived from sales in the second quarter. Revenue was up three per cent over six months, and 29 per cent in the second quarter.
“In the quarter ending March 31, we were able to ramp up production to now align with the increased consumer demand for products,” Blake-Bennett said.
The company also launched a new product, Jamaica Mountain Peak Ginger Turmeric instant teas, which is being distributed locally and in export markets.
Salada grew profit eightfold in the second quarter, relative to the March 2020 period, from $6.3 million to $51.4 million; and fivefold at half-year, from $11.7 million to $64.47 million.