When Ernest Igual, director of St Dreux Coffee Roasters, saw the business’s revenue tumble by 70% at the height of the COVID-19 lockdown in April, he wondered if the roaster would survive.
“Nobody saw this coming. It happened so quickly. Inevitably you look at the situation and wonder what it all means, and will we make it through?” Ernest says.
Sydney-based St. Dreux sources green coffee from all over the world including Brazil, Guatemala, Ethiopia, India, New Guinea, and Indonesia, roasts and blends it, and sells it to cafes, mostly in Sydney but also in regional New South Wales and interstate. A relatively young business, it has been in operation for just 1.5 years and was still in what Ernest describes as the “business-building” phase when the pandemic hit.
When COVID hit, most of our plans had to be readjusted
“It’s always a challenging phase, when you are just starting out and you are investing for growth, but the business was going well. We’d received a positive response from the market, and we were achieving good growth in sales. When COVID hit, most of our plans had to be readjusted,” he says.
The uncertainty Ernest and his colleagues were feeling was not unique. Businesses across the coffee industry, and many other industries, were watching their revenue shrink or completely evaporate.
“At that time, no one, as far as I could observe, was really sure what was going to happen. People tried to remain optimistic but no one knew how long the restrictions would last and what that would mean for us,” says Ernest.
Fortunately for St. Dreux, its supplies were already in Australia. Other roasters were facing logistics issues such as delayed shipments that forced them to substitute ingredients until their coffee finally arrived from wherever it was stranded–whether at the mill or the port.
Still, around a quarter of St. Dreux’s customers closed their doors and while the majority tried to remain open in some way, they had to radically change the way they operated, many switching to takeaway. The impact on St. Dreux’s cashflow was dramatic.
“Most businesses have terms with suppliers, so you are paying for yesterday’s goods with this week’s revenue and you’ve already incurred a lot of those costs. To have your revenue stream effectively cut down by a huge amount, cashflow takes a huge hit,” he says.
“But you have to be optimistic and try to manage your way out of it, and not focus on the downside.”
Rather than sitting back and waiting for things to return to normal, St. Dreux decided to grow its way out of the slump by actively seeking new customers and boosting revenue.
“The main goal was to try and maintain our capability to produce and operate because if we lost that, then that would seriously compromise our business over the long run. We wanted to maintain all our staff and there’s only about 10 people in the whole organisation, so even losing one person means you’re down 10%,” Ernest says.
JobKeeper allowed St. Dreux to retain its employees in the short term however the firm wanted to have a long-term plan in place to ensure it could still pay its employees when JobKeeper was inevitably withdrawn. An aggressive customer acquisition strategy had the potential to revive revenue but required a capital injection.
How Finstro helped
To provide the necessary equipment for its new customers, St. Dreux would need to invest significantly. St. Dreux turned to Finstro, which provided the firm with fast access to an unsecured line of credit it could use to manage its cash flow more easily.
“It just gave us some breathing room,” Ernest says.
So far, the growth strategy and investment seem to be paying off for St. Dreux. The roaster has managed to almost double its customer accounts from pre-COVID levels, and this has brought volumes in line with where they were prior to the pandemic.
“Of course we’ve had to pay the cost associated with attracting new business, but it’s been worth it. We have adapted – we didn’t want to be in a position where we were relying on the COVID situation to reverse, because it may not,” Ernest says.