There is a strong parallel between the evolution of Melbourne Coffee and the concurrent evolution of financial products that we have seen in the last few years.
Melbourne coffee is now in its third wave, I would say: the first wave was making proper coffee, this now taken for granted service developed rapidly about eight or ten years ago, when cafe paid attention to using the right machine, making the right froth, making the beautiful pattern with the froth etc.
The second wave was sourcing. There was only so much one could achieve with the techniques of making a mocha. However, one good way to distinguish a cafe is to advertise exotic sources and blends, Ethiopia, for instance. About four to five years ago. Free trade beans was just a fine touch on that.
The third wave was, and is still happening, equipment based. Auction rooms, Sensory Lab, Seven Seeds all provide coffees in syphons, drippers, etc. This wave accentuates on the sexualisation of the process of making coffee and its cultural implications, as well as a quest for preserving the “original taste”, which is supposedly lost in the high pressure modern coffee maker.
Thanks to all these hard working cafe owners and barristers, the Melbourne coffee scene is one of the most colourful on the planet.
However, there’s a problem.
As someone who drinks a lot of coffee, I don’t understand it. I like a nicely made nicely frothed latte, I like properly sourced beans; but for all its beauty I cannot tell the difference between beans from Congo and Ghana. And to be honest all those glasswares and silverwares to make a coffee is all a bit pretentious and superfluous to me.
They try to make coffee wine. It’s fine, but there’s a fundamental difference between coffee and wine. Wine ages. Coffee needs to be baked.
When a certain merchandise is able to age, it has a value in the secondary market easily. One can store it for a decade or two, and expect to make a decent profit out of a fine Petrus. Coffee doesn’t work like that. It only really has value in the primary market. You can’t really resell a bag of beans on Ebay.
This is the reason that drove the evolution of coffee in this town.
First there was a decent profit to be made out of coffee making skills, then everybody sort of copied and the competition became fierce. Skill alone doesn’t cut it so they introduced secondary qualities that attached to the central service. It was a life changing experience to have a really nice blend of coffee for the first time, so the profit poured in again. Then soon, competition noticed that though difficult, they can also source their own beans, so the rivalry is fierce again. Then people tried to introduced tertiary products …..
This incidentally was the philosophy of the financial derivatives, in my uneducated opinion.
Of course an option was invented to hedge against risks in weather/fluctuations in supply of goods, but that’s not why it became popular. An option provided an extra service from which an investor can distinguish their investment structure from others (which means greater risk and greater potential profit); when option became automatically traded by computers, new things needed to be invented to keep the market alive and fresh.
One can still buy the shares, certainly, but why drink a latte every day, when you can drink a special latte, and when every other cafes in town is selling some kind of special latte. Once the barrier is gone for a certain competition, the game makers need to invent the next level of games to solidify their mark.
It’s always about more and more money for sure, but fundamentally, it’s about the idea of money, just as coffee now is about the idea of coffee rather than a mere cup of black water. More derivatives will be always always created until there’s no money to play with any more.