Taking a passion and building a niche in a highly competitive market
The food and beverage market is a tricky one to navigate, especially in a world-class food and restaurant scene like Melbourne. It requires a unique approach to business – the ability to think outside the box and offer something new.
This has certainly been true for Salvatore Malatesta, the entrepreneur and CEO behind St ALi Family, one of Melbourne’s best-known names in the food and beverage sector – specifically in speciality coffee. Having started his business career at Melbourne University as the owner of a campus coffee shop, Salvatore has become a pioneer in speciality coffee.
The Challenge: Finding room in a crowded food and beverage sector
‘Cafes are difficult to scale, they are very labour intensive,’
For Salvatore, one of the biggest challenges has come from taking a passion for food and beverages, speciality coffee, and creating an impact in this highly competitive market. Addressing this has required a unique business model to overcome these limitations. In Salvatore’s case, this meant moving into the wholesale side of the industry.
‘Melbourne is saturated in food and beverage and therefore, what better way to augment our business than to also supply coffee to the 1,000s of cafes that are opening.’
However, expanding into the wholesale business hasn’t been without its challenges either, many of which are a departure from the skills needed in the food and beverage sector.
‘There are many aspects to running a wholesale company that isn’t even in the sphere of food and beverage, i.e logistics, manufacturing, hedging – both currency and coffee as a commodity. However, it isn’t very labour intensive – there’s a lot of thinking involved but fewer moving parts that can go wrong.’
The second major challenge has been the importance of steady cash flow – a lesson Salvatore learnt early in his days running a student cafe.
‘I keep telling my guys that ‘profit is theoretical, cash is real’ – unless you can demonstrate a link between a conversion and cash in the bank you don’t really have anything. I spend a lot of time bringing down our cash conversion cycle.’
The Solution: Building a hybrid business with strong vertical integration
‘I feel being a hybrid business, we have enough vertical integration that the customer facing side informs the wholesale business and keeps us on the pulse of what’s going on at a grass-roots level.’
While pursuing a wholesale strategy alongside running a cafe has been a valuable business venture, Salvatore has maintained the focus on developing a hybrid organisation that straddles these two focuses. Financially, the two sides complement one another as well.
[The retail cycle] also provides excellent cash flow, while the wholesale business’s cash conversion cycle is not as good as the retail business.’
This has also allowed Salvatore to guide the company into a specific niche that stands apart from competitors.
‘We’re in a unique position, both because we have idiosyncratic brands that are considered best in their category, but we also have scale and the ability to hire a ‘coffee brain trust’ and get access to the best people.’
To ensure steady cash flow, the business is also investing time into pursuing automatic payment terms that can reduce these turnaround cycles.
‘One in five now of our wholesale customers have agreed to direct debits weekly, so that coffee is automatically debited upon dispatch and we aren’t fighting the cash flow crisis of many wholesale businesses.’
The Results: Building a job that feels like a hobby
‘When you are the sole owner of an SME, you’ve really got no one else to talk to about your issues. TEC’s a good emotional check-in – the discussions that go in that room are incredibly handy and a lot of my ideas are generated out of discussions within that room,’
For both Salvatore and St ALi Family, this unique business approach has led to a number of business awards and industry recognition. The retail arm of the business has been widely recognised for its unique take on the food and beverage sector, while Salvatore has been acknowledged personally, including judging the London Coffee Festival Master Barrista competition.
‘We’ve taken out first, second and third a number of times across Good Coffee and Good Spirits awards and the World Barrista Championships. We’ve also won World Brewers Championship – most coffee accolades we’ve won or placed every year,’ said Salvatore.
‘That competition is strategic because it builds brand awareness, it also focuses the guys working for me on perfecting coffee practices, which filters down to the store level.’
Salvatore acknowledges though that the real result has been his opportunity to build a career out of his hobby.
‘I went to London to judge the London Coffee Festival Master Barrista awards – that does not work, it’s fun. If you can convert your work into a hobby or passion, then you are set for life.’
Membership in TEC has also been a big part of Salvatore’s personal journey, giving him an outlet to get feedback from other business owners who are facing the same challenges.
Those discussions have also given Salvatore new perspectives on his own company. Talking to fellow business leaders about trends like declining manufacturing in Australia led him to invest in local equipment and services that reflect the quality of the company’s coffee supplies. The routine that comes with TEC meetings have also helped Salvatore’s own growth.
‘TEC’s one of those things that I do because it takes discipline to rock up to meetings and do the courses. But with discipline comes reward.’