The future of coffee technology with Scott Martin, Unity Coffee – Recorded live at COHO

[Music] Welcome back to the 5th Wave podcast. I'm Geoffrey Young, editor-in-chief of 5th Wave. We continue our European coffee symposium and co-host series with a keynote from Scott Martin, founder of Unity Coffee and the mastermind behind Coffeination and Costa Express. In this fascinating conversation, Scott explores the impact of technology and automation on our industry, arguing that robust infrastructure will outlast flashy innovation. He also shares why the future of coffee will not be defined by a human versus machine, but a seamless combination of both. It's a real honour to be here again. I think I spoke well, I was talking to Geoffrey earlier. I think I spoke one of the Allegra events probably in about 2008-2009. Like, 15 years ago, I don't know any of you were in the room at that time. I do hope, no, because I'm recycling large at the same presentation. I don't remember what I was talking about then. I know I was probably running about the demise of handcrafted coffee and the future of automation. I was probably running about that. I don't know where any of those predictions have come true, but it's a real pleasure to be back here again after such a long period of time. The theme of this for the 15-20 minutes is, they ask me to give you some of the lessons I've learned over that period of time and some thinking for the future. Here you go. Let's see how we get on. I've spent 25 years at the intersection of coffee and vending and digital infrastructure, and I stress those things as being the three. It's not surprising along the way that I've come across a few naysayers. I'm probably a gazillion of naysayers. They're almost going to pay a premium for a coffee out of a machine and you're not.com. There was no credibility. I even actually had to do a bit of coercing of our host here because I remember when the cafe Allegra report first started getting published and we were building coffeination. We were, you know, we were reasonably size, probably about five years in. We're about an eight or nine million pound business. So we were probably number four in the UK in Takeaway Coffee, but we could never get in the report. We never just get ignoring us and I kept writing to Jeffery go, look, you know, actually, look, I think we're big enough now to be included in the report. I do actually remember them including it. So all of the all of the hard work was there, you know, but over that period of time, I've had enormous fun, you know, creating, innovating, disrupting and scaling a business globally to over 16,000 locations, which was where we got to on the last count. You know, and I've funny enough here we sit as an industry where we are potentially at this sort of real inflection point where, you know, automation is becoming a catalyst for growth rather than just a function of it. And I don't think the winners are going to be the flashiest robots. Actually, I think it's going to be the businesses that quietly build boring technology infrastructure. So let me give you a bit more flavor of some as to my background. You know, I co-founded Coffination back in 1999 and we sold specialty coffee in four courts in the UK when four courts were four courts. They sold petrol and then they sold coffee. And, you know, and actually the biggest challenge as we face back in those early days was more about influence the customer to get them to see the coffee, the plot, the right quality than it was about actually fighting competitors. And we really work very hard to keep the business model brutally simple. Let's work on a revenue share. Let's try and share that revenue as evenly as we can. So let's work on a revenue share that keeps both parties motivated and incentivized. And let's try and charge prices that are below the coffee bar levels. If only that people had stunned by that principle, but let's keep the prices fair. And we found a formula that worked. We scaled the business from zero to a thousand locations, 30 million pounds turnover, four million poundy bit, in eight years and we sold the business to Whipbred and Costa Express was born. You know, and honestly, we built that business using really simple vending technology. No apps, no AI, just well applied technology, spectacularly focused people focusing on reliability and finding the right locations. Today on the founder of a chemical unity coffee building a digital first infrastructure for the new coffee drinkers of the future. And the contrast between sort of coffeination then which was pre smartphone pre digital and now for unity which is only exists because of digital because of the smartphone. I think is a really sort of nice bridge between the past learnings and the future present and the future of ideas. So let me start giving you some, these are, let me just start giving you some of some of my sort of key learnings. The first one is infrastructure outlast innovation. Boring technology wins. Yeah, my early businesses were built on 1990s vending technology, simple machines, a discipline rolled out, a yet we built a business that was worth 60 million and a platform that actually still underpins Costa Express today. And then we've we bought that business to 16,000 locations globally generating 70 million pounds worth of profit essentially using boring infrastructure. Sure, the technology layers improved the increased over time, but the advance been technology in technology was only really a byproduct of our conceptual impatience thinking developed the platform, not just technology. Contrast that with the current thinking around AI, 70 to 85% of of AI projects failed to meet any form of ROI expectations. 95% of Gen AI projects never deliver the step change in revenue that they were projected and nearly half of AI proof of concepts failed to get to market. So is the real competitors advantage just reliability and scale? Infrastructure that works very quietly in the background will always outpace spectacular technology. So number two, win where humans can't. Automation thrives in high velocity, load of locations, four courts, convenience stores, hospitals, over 78% of automated coffee growth is coming from non-traditional venues, not high street shops. So the solution that coffee nation provided was most polarized in four courts and that DNA continues in Costa Express today. Let me just pause then talk about a non-coffee example. I'm an investor and an advisor to a business called BoxBAR, a highly innovative, fully automated bar concept, growing like a rocket in the UK and the US. And it automatically pours a drink 3.6 times quicker than a manned bar operator. Transactions are 16% higher and overheads are 54% lower. So automation is in this context is driving the business in festivals and in Stadia. So I think we can sort of conclude that really where automation works is the gaps where humans can't scale or be present. The autonomous cafe is dead. Automation amplifies humans. It doesn't replace them. Over the last decade I've worked with many robot concepts. Cafe X, Ella, True Bird, I even acquired one of them in Austin, Texas. And before we bought that business, it had raised and burned over 30 million dollars in getting its proof of concept out there. And over the next 10 years, it probably built a similar amount to then be mothballed in 2025. Cafe X raised 40 million dollars to open standalone robotic stores in San Francisco, only to close them all down and to retrench into just airport locations. Just to expose that to the hybrid model. And by that I sort of mean where automation handles volume and humans manage expectations. Blank Street Coffee is a really great example of armour, enormous fan of that business. So don't use automation just to replace good service. Use it to deliver service where good service is impossible to deliver. Operational excellence outlasts height. We grew our early businesses by 12% CAGR every year for the first 12 years. Zero PR budget, no TikTok, no social media, just discipline roll out and solid unit economics. And over the same period, there's been lots of coffee and food technology businesses that have raised a huge amount of money through VCs and other means that have either collapsed or retrenched. AMT espresso, Byron Berger, but it proved coffee, we all know them. Funding into these businesses has almost fallen dramatically, as investors realise that the hype doesn't pay the bills. It's not the brand with the loudest story that works. It's the operator with the tightest execution and economics. Execution beats evangelism. Fine one, fast one, personalisation creates stickiness. Looking coffee became a 10 billion dollar brand by being powered by intelligent digital loyalty. 30% more repeat visits, 38% higher attention through curated, tailored offers. I even read that the Starbucks CEO has said that looking has made them rethink the principle of rewards. The third wave of specialty coffee has built this expectation of customisation, brewing methods, being origin, milk types, grind size. So the consumers have a much higher level of expectation of curation. Customisation and personalisation is the holy grail in automation. So the opportunity in automation isn't just to sell the drink, it's to remember the drink, it's to remember the person that you sold it to and the context in which you sold it and then build a relationship with that customer over time. Loyalty is built on data and not discounts. So there's just a selection of some of the lessons that I've learned. You know what I'm still learning? I think this is just an amazing industry. It's that sort of industry that just keeps on giving. There's new players coming into this space all of the time that are bringing better quality, better environments, better experience. And you know what, the winner in all of this is the customer because they're getting a better choice and the bar has continually been raised higher. And it's most certainly survival of the fittest out there. And we all know the brands that are doing super well and we all have a view of those that aren't. Now I'm now starting my third decade in coffee with my third concept. So I just want to share a few more things that polarise my thinking for the future and the sort of ignite my passion for starting my new business. The first one is that this is going to be the infrastructure decade. This example here of Domino's Pieces, this is not new to any of you but I still find it fascinating. Domino's quietly re-branded itself as a tech company. It introduced the pizza tracker introduced mobile ordering and most importantly built deep operational learning. And over a 10 year period it grew its share price by 13,000%. Coffee automation can follow the same path. IoT enabled, enabled machines, transparent ordering, status, self-cannabration, predictive maintenance, driving uptown and ROI and the list goes on. Integrating digital infrastructure can cut a payback on automation by half. So the big winners in coffee will be those who build customer relationships through technology, not just who just automate the process. The hybrid will become the global standard. Data is already showing the autonomous installations that declining whilst hybrid models are growing. We know that labour remains a huge part of the cost of running hospitality but humans provide levels of experience and trust. We're learning and we're seeing that the hybrid model lets us automate and handle repressive tasks. While humans can focus on curation, quality and brand building moments. The fully autonomous robotic cafe fantasy is largely behind us. The hybrid cafe is scalable. My prediction by 2030 is that the default installation will be hybrid, not barista only but not robot only. I have a family of Gen Z. I talk about this idea of the discovery layer has changed. In the early category creation of my businesses, people came across my brand by driving past our locations. They drove by our four courts twice a day. For Gen Z, discovery is digital first. Tiktok in surround YouTube, 73% of Gen Z spend three hours daily on social media. 62% use Tiktok to find a business. And that's why concepts like blank street of investors so heavily in Instagrammable cafes but the capex is very high. In my new business, we're flipping that thesis with this idea of a phone first discovery. 12 to 15,000 pounds worth of capex per installation means that we can build a digital infrastructure that is 10 times more points of distribution than a single cafe. Gen Z doesn't discover brands by driving past them. They scroll past them. So the coffee business is mobile first now. We have to build for scrollers and not for drivers. Data becomes the new brand. You know, we're moving away from a walk up and choose to you'll recognize before you arrived a environment. Recognition based ordering can increase market's basket size by about 23%. But Donalds is using data to forecast cravings. I even read that Chipotle is trying to use data to predict hunger. Automated coffee machines generate thousands of data points from drink type to temperatures to error rates that fundamentally improve operations and consumer experience. And our business model is now built on the assumption that the phone is the new point of sale. Preferences, payment, carbon footprint, offers all in one place. The most valuable coffee brands in the future will know their customers better than anybody else, not just roast the better beans. I'm no technologist, but I have applied technology effectively over the last two decades. As I said earlier, 85% of AI projects fail to deliver value. 42% of companies are already terminated most AI initiatives. The coffee we don't need, sentinant baristas, we don't really need AGI. We need good sensors, we need extraction, we need predictive maintenance, we need inventory optimization. All of this is achievable with a very narrow focus of AI and robust technology. In our, I have a view in the businesses that I work with is that we spend between 80 and 90% of our innovation budgets on proven technology and the balance we can experiment with on AI. But still have to come back to, is it going to deliver the ROI? So I've been talking for too long, the audience is gradually starting to defer to this person. I want to leave you with three things that actually drive my thinking in my new business. And so let's see how they resonate with you and please have any questions. The first one I've said before, infrastructure scales hype doesn't. Coffination and cost-rexpress were built on boring technology and a great business model and they are money machines for decades. Many others have tried to prove with robotic businesses but the economics do not survive the funding cycle. I learned not to automate to impress investors but to automate to improve unit economics. If it looks too futuristic to be boring, it probably is too complex to be scaled. The winning model is hybrid. The autonomous cafe has as failed as a business model and the hybrid business model is rightly winning. Let automation handle functionality, grinding, dosing, brewing, cleaning, let humans preserve emotional storytelling, community. Gen Z want both speed and customization machines offer speeds, humans, curate, quality. I've said before, automation amplifies humans. And finally, match automation to discovery. We have built a 700 million pound category by being present where people already drove in four courts, motelway service areas and in the future we need to be where they're scrolling. The phone is the new four-core. Your automation strategy has to follow your discovery strategy. If they find you digitally, then your infrastructure has to be digital. We're not just building vending, we're building an infrastructure and an ecosystem for how the new coffee drinkers are going to engage with us in the future. So I look back on that decade or so with enormous fondness, the projects, the people, the customers, the countries. And it's funny when I think back to the coffee industry, back then, really kept saying to me, you're trying to solve a problem that doesn't exist. And here we stand today where we are acknowledging that there are dozens of problems that automation will solve for us. In the first wave of coffee, the second wave of coffee was built on handcrafted and curation. Now what's the fifth and the sixth and the seventh wave is going to look like? I absolutely love coffee. love this industry and I really look forward to seeing how that can evolve and how the future innovators and the future entrepreneurs are going to really propel this business going forward. Thank you. And that's all for this week's fifth wave podcast. If you've enjoyed the show, please subscribe and share the link with a friend or colleague. Also, if you're an Apple or Spotify, we'd really love a five-star review to help us increase our reach across the industry. To stay informed, visit worldcoffeeportal.com to get access to all the latest global coffee news, including the weekly coffee dose, collecting all the big coffee news stories. Links are in the show notes. This episode was produced in the one and only serenity studios in glorious Camden North London. It was produced by myself Jeffrey Young, Hannah Heath and Sound Engineering by Chris Prister. Until next time, stay safe, stay caffeinated, stay curious. [Music]