- The Washington Times - Monday, July 10, 2000

Bleary-eyed working stiffs have relied on their morning cup of coffee to jolt them into action for decades. And, for centuries, people have earned their livelihood by growing, picking, trading and roasting the humble coffee bean.

Still others, including a Washington area start-up, are trying to make money operating on-line exchanges for coffee. But their companies, the newest entrants into the frenzied Internet business-to-business sector, are largely untested, and not even a year old.

Sterling, Va.-based eGreenCoffee.com will jump into the fray later this month with a Web site that will allow clients around the world to trade the green coffee beans, which are later roasted and ground for consumer use.

CEO and President Hanif Moledina knows that the centuries-old green coffee trade, a $50 billion-per-year business, defies radical change. But he believes that technology can still lend traders a hand.

"We're not trying to change the system," Mr. Moledina said. "But we are trying to make it more efficient."

Mr. Moledina comes from a family that has run coffee export and distribution companies, and much of eGreenCoffee.com's senior staff comes from these firms. A native of Uganda who is now a Canadian citizen, Mr. Moledina, 37, landed in Sterling because he attended William and Mary College in Williamsburg, Va.

"The heavy presence of the technology industry [in the Washington area] was a coincidence," he said.

Lavazza, the Italian espresso giant, is both a member of eGreenCoffee.com's exchange, and its only company equity partner. Individual investors backing the firm include Lawrence T. Babbio Jr., president and chief operating officer at Bell Atlantic and Sudhakar V. Shenoy, founder and head of McLean-based Information Management Consultants, which helped develop the Internet site.

Heavy Competition

But eGreenCoffee.com, which began work on its site last June, will face stiff competition from other virtual exchanges from the very beginning. Comdaq.net opened Web-based coffee trading from its London headquarters in October, and InterCommercial.com will do the same from New York later this year.

"We are on the cusp of efforts to trade coffee on line," said Gary Goldstein, a spokesman for the New York-based National Coffee Association. "It's just beginning."

Trading of green coffee currently takes place via a balky system of personal communications between growers, importers and roasters, according to Mark Furniss, director of Comdaq.net's coffee trading system. The market is highly fragmented, and there is no central physical exchange, let alone an Internet-based one.

"It's a traditional industry," Mr. Furniss said. "Coffee traders are not typically 'Net savvy."

Coffee futures, a separate business, are traded on physical exchanges in London and New York.

The system developed by eGreenCoffee.com, which Mr. Moledina said will cost about $5 million to start up, allows clients to bid for coffee shipments, or offer them for sale. The proprietary software also lets clients choose specific business partners and preserves anonymity until a transaction is finalized.

Mr. Moledina's firm hopes to generate revenue by taking a slice of each transaction that its site brokers. The larger the order, the smaller the percentage eGreenCoffee.com will take.

The other Web-based coffee trading companies have business models that are very similar to eGreenCoffee.com, though each highlights individual bells and whistles that distinguish them from the competition.

The Middlemen

Many coffee roasters and dealers are based in the industrialized nations of Europe and North America, while growers are spread over the world in the tropical belt north and south of the equator. So, the coffee business seems tailor-made for the Internet, which can eliminate differences of time and distance.

But the middlemen who bridge the current geographical divide represent the toughest challenges to any on-line system for trading green coffee, industry officials said. Cutting them out of the equation might save money, but it could also rob suppliers and their customers of important services.

Importers, for example, typically sample coffee after delivery a process known as "cupping" and deal with any disputes that might arise with suppliers through a standardized arbitration process.

"The importer performs the job of quality control," Mr. Goldstein noted.

Major purchasers of green coffee, such as Folgers or Maxwell House, can often deal directly with growers. But they still rely on the human element by employing purchasing agents to monitor the quality of beans, Mr. Goldstein said.

Mr. Moledina does not deny that much of the coffee business has an essential human touch that Internet can never replace. Still, he believes that there is room for technology to introduce important efficiencies and save consumers up to $5 billion per year worldwide.

For starters, he pointed out, 80 percent of the coffee trade involves standard varieties that need not be sampled and tested before a transaction is finalized. That sector of the market is ripe for going on line, he said.

The other 20 percent, composed of specialty coffee beans that require the nose of an expert, is likely to remain a human-intensive area of business, Mr. Moledina added.

The company hopes that arranging large numbers of trades on the Internet rather than over the telephone will be more efficient for major purchasers, and that suppliers from Indonesia to Kenya to Brazil will be able to expand their horizon of contacts.

Additionally, eGreenCoffee.com plans to provide ancillary services that coffee traders have had to obtain from a disparate group of freight, insurance and warehousing companies.

"You save all the time booking freight and all the other logistical tasks," Mr. Moledina said.

The company will also route to its clients information crucial to the green coffee business, such as weather reports from the world's coffee-producing regions, he added.

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