You moved on Aussie pretty early. Was that wise?
We began trading in late 2011, and soon after we learnt there was a massive coffee trade show taking place in Melbourne in 2012. It was just too good an opportunity to miss. Exhibiting there probably cost $20,000-$30,000, but it gave us customers to start exporting.
Are there cunning tricks about selling in Australia?
It’s about getting costs down. Take freight forwarding. Initially, we just focussed on getting the product to the destination on time. But there are loads of different services available based on frequency, size, weight and different transport options. You need to spend time looking at the options and working out which is most cost-effective. Next, we made sure our packaging kept volume as low as possible.
Tariffs – isn’t that pretty cut and dry?
No, and it’s hard to get the correct information. We assumed our original freight forwarder would get us the best deal, but after receiving some hefty bills we made our own enquiries and we discovered that because our cups are made in New Zealand they are exempt from some import duties. We saved 5%-10% that way, which can be significant. But if you don’t make the right declaration on your invoice, you get charged. You also want to get smart with GST. We were incurring Australian GST, and we couldn’t claim it back. That’s one of the reasons for setting up an Australian company. Sounds a bit complicated. My wife is a tax solicitor and my business partner is an accountant, so that helped a lot. I’d advise getting some help, but of course outside advice isn’t cheap and that’s more money you can’t be spending on your growth activities. Oh, and remember to factor in public liability insurance in Australia.
An Australian office – isn’t that a drastic step?
We came away from the Melbourne trade fair with maybe 80 good leads, but being in New Zealand was a barrier to converting them to sales. They’d say: “Come and see us”, but we couldn’t, or they’d think our product wouldn’t be competitive because of the shipping costs. Or they’d worry about the exchange rate. We set up an Australian bank account, but there was still the perception dealing with us would be more difficult than with our Australian competition.
Isn’t getting a distributor an easier option?
We thought about the distributor route, but found there’s a massive margin loss – 40%-50%, or even a bit more. As a lowish margin business (our coffee cups retail $15-$16.50), that wasn’t going to work financially.
Surely an office is expensive?
We’ll start with a couple of sales staff in Sydney, including Andrew [Currran], my business partner and investor. But logistics and distribution will still be outsourced, so we don’t have the expense of shelving racks, forklifts etc. We can supplement that with people coming over from New Zealand.
What about expanding beyond Australia?
That’s more difficult. With Australia we feel we have enough contacts and knowledge. In another country, I’m not sure we’d enter ourselves; maybe through another company on an agency basis. ×