The Business of Coffee: Not the regular grind

Jacob Chestnut came of age in the 1990s, the era of “Nirvana and coffee shops and all that grunge stuff.” As a teen, he said, “I’d hang out at the coffee shop with all my weird friends and listen to poetry. Coffee is part of the fabric of who I am.”

Now an assistant professor of services operations management in the School of Hotel Administration, Chestnut is sharing coffee’s secrets and sublime possibilities with Cornell students—all the while imparting critical business skills and insights.

After joining the SHA faculty in July 2018, and needing a third course to teach in addition to Hospitality Quantitative Analysis and Business Statistics, Chestnut created The Business of Coffee: From Farm to Cup—Cornell’s first-ever course about coffee.

His relationship with the subject is not just academic, or nostalgic. Chestnut’s father grows “extremely high-quality” coffee in Hawaii, where he “bought a jungle” abutting Volcano National Park after retiring from his career as a firefighter in California. Son Jacob had his doubts about the feasibility of planting coffee in a jungle, but it wasn’t long before Second Alarm Farm was entering statewide cupping competitions—and winning third place, then second, then first. “For Christmas, my dad sent me some of his coffee, and it was so much better than any coffee I’d ever tasted. It was eye-opening,” he said. “I thought, ‘Wow, what is the difference?’” His interest piqued, he started learning about coffee’s sourcing and production.

“I proposed this class because it seemed like a missed opportunity for the university,” said Chestnut, who hopes to leverage his background “to carve out a totally new competency for the school.” He wanted to teach a course that a broad range of students could be enthusiastic about, and he wanted to do research into coffee, “an area that’s ripe for producing the sort of researchable questions I’m interested in.”

Early stirrings

Chestnut had an unconventional upbringing. Growing up in a small California farm town, he left school, bored, after the seventh grade “to think about the world and what I wanted out of life.” He read philosophy books, dyed his hair black, and joined a punk rock band. As soon as he was old enough—16—he took and passed the high school equivalency exam.

One day some time later, he said, “I decided I wanted to be a mathematician.” He enrolled at the University of California, Berkeley, and graduated summa cum laude, the valedictorian of his class.

His Berkeley studies led him to Cornell for an undergraduate research experience that he “absolutely loved.” Much of his time that summer was spent swimming in gorges. (“They were easier to get into then than they are now,” he explained.) But as the pressure to produce set in, “I buckled down and worked probably 18 hours a day for three weeks. Within a week, I had proved the statement they had postulated for me to prove. By the end of the third week, I had generalized it to prove a conjecture that had stood for 200 years.”

That feat helped him gain admission to Berkeley’s doctoral program in mathematics, which was then ranked number one in the world. But he ultimately decided that his future did not lie in mathematics. He left with a master of arts, again graduating summa cum laude.

After working for two years as a data scientist and industrial researcher in San Francisco, Chestnut entered a second PhD program—this time in business—at the University of Michigan. But he had left his heart at Cornell.

“I’m happy to be back,” he said.

Coffee by the case

The inaugural offering of The Business of Coffee attracted some 30 students from across the Cornell SC Johnson College of Business and Cornell. This first cohort, who brought differing backgrounds and a variety of professional interests to the class, helped Chestnut shape the course’s development.

“This is an opportunity for all of us to create something new and unique,” he told them at the beginning of the semester. “My expectation is that I will learn as much from you as you learn from me.”

The course, which aims to improve students’ foundational understanding of operations, has three areas of focus: coffee tastings (a total of 26 last fall); coffee growing, processing, and brewing; and operational issues related to coffee production.

In using coffee to meld experiential learning with elements of traditional MBA training, the course may be the only one of its kind, anywhere. “I haven’t seen these two worlds come together before,” Chestnut said.

During the first class meeting each week, Chestnut debriefed the students on a case. “I gave them the case, and they did a short response to it. That quick discussion method for quantitative material is really useful,” he said. “It’s probably the main outcome of MBA training—being able to digest quantitative information quickly to make relevant managerial recommendations.”

“Students really embraced this part of the course,” he said, and were soon seeing its real-world applications. “I received an email from a student who was recruiting, and she said she had a case-based interview where they asked supply-chain management questions that she never in a million years would have been able to answer had we not done a deep dive into one of these cases. That’s a big value-add for undergraduates at the school.”

Wendy Yu ’19 appreciated how Chestnut “incorporated the practical component of case-based teaching with the fun aspect of coffee tasting. The case-based teaching method helped strengthen my critical thinking skills, especially when it comes to open-ended issues. And, as an avid coffee drinker, the knowledge I gained from the coffee tastings deepens my appreciation for my daily cup of joe.”

“The most valuable thing I learned from this class is a different way of thinking,” said Taylor Hardy ’20, who graduated in December. “By reading Harvard Business School cases, I learned to pull insights from unrelated industries and apply them to the coffee value chain.”

Coffee consumption and economic sustainability

The second class of each week featured two student-led presentations on some aspect of the coffee value chain, followed by a double coffee tasting. “Students did a really good job with the presentations,” Chestnut said. “They taught each other and took ownership of the material in a way that was gratifying to see.”

During the tastings, students explored the impact of various aspects of coffee growing, processing, and brewing on flavor. They also kept journals with their reflections on each tasting. “In one, a blind tasting, we looked at peaberry coffee, which, due to a genetic variation, has one nut per fruit versus two or three,” Chestnut said. Because of its scarcity and the extra care required in processing, peaberry coffee costs twice as much as regular coffee. “We looked at whether there was a noticeable difference in taste between peaberry Kona and regular Kona grown on the same set of trees, and whether peaberry was worth the premium. After letting students ruminate on it awhile, I asked, ‘Can you identify the peaberry?’” Chestnut, who didn’t know beforehand which sample was which, was one of the few people to get it right. “Really high-quality coffee is consistent over a wider range of temperatures,” he explained. “When both were hot, it didn’t make much of a difference. As the coffees cooled, the peaberry was better.”

The course uses operations management and marketing tools to analyze various features of coffee value chains. “We talked about issues related to coordination, middlemen in the supply chain, product adulteration, workers’ rights—all these things that someone in a decision-making role in a hospitality firm should be exposed to, but maybe the context in which you discuss them isn’t the same as in an MBA program. So I figured, let’s take coffee, which is unique and novel, which everyone can get into and enjoy, and let’s use it as a lens to view these situations that young people will need to wrestle with as they work their way up the corporate ladder.”

The course also considers such emerging topics in hospitality as social sustainability, triple bottom line, and consumption as a driver of economic development. “The idea that you can increase global standards of living via consumption is extremely appealing to me,” said Chestnut, who wrote his doctoral thesis in technology and operations on doing well by doing good. “When you ask people, ‘What can we do to improve the world?’ they say, ‘Consume less,’ right? But consumption isn’t necessarily bad. Maybe if we consume differently, or consume more of something, it will actually produce tangible benefits for other people.” Through the class, he hopes students gain a more nuanced understanding of the implications of their consumption choices.

When he offers the course again this fall, Chestnut plans to expand the class to 40, involve a Q grader (a professional arbiter of coffee quality) as a guest lecturer, and invite further participation by Matt Marks ’02 (ILR), co-owner of Forty Weight Coffee Roasters in Ithaca.

Doing well by doing good

Chestnut’s research, on social sustainability, “is informed by the observation that firms viewing sustainability as an opportunity to innovate can sometimes do well by doing good. A system that appeals to people to do the right thing is not sustainable—it depends on goodwill, and goodwill doesn’t last forever,” he said. “My research deals with monetizing these kinds of issues, so that a firm that’s indifferent to treating people well or protecting the environment, for instance, will have monetary incentives to do so. I search for these win-win situations, where firms can make a bunch of money but also do something good for someone else.”

One such situation that Chestnut has been studying is the hybrid business model of the Aravind Eye Hospital in India, where patients have the option to pay or not pay for treatment. The quality of surgical care is the same for those who pay and those who don’t, but all other aspects of the non-paying experience are bare-bones, while patients who pay are comfortably accommodated. “It’s the idea that, if you’re sophisticated enough as a provider, instead of extracting low revenue from essentially poor people, you can forego their revenue and more than make up for it with people who have a lot of money and the willingness to pay for quality,” he said. A paper resulting from his research, “Giving It Away to Increase Profits: Price Discrimination and the Effect of Free Goods,” was named a 2017 Best Paper finalist by the College of Healthcare Operations Management of the Production and Operations Management Society. It is currently under review at Management Science.

Other projects underway involve collaborations with faculty members in the Johnson School. With Sachin Gupta, the Henrietta Johnson Louis Professor of Management, he is working on a second paper relating to Aravind. With William Schmidt, assistant professor of operations, technology, and information management, he is studying the impact of gender and ethnicity on training effectiveness in emerging economies. A proposal to study gender inequality in the Rwandan hospitality sector is pending.

Last semester, an experiment in his statistics class provided proof of concept for nascent research that Chestnut is conducting with Aaron Adalja and Marie Ozanne, two SHA assistant professors of food and beverage management. The project, supported by an Applied Economics and Policy Faculty Grant from the college, looks at interactions among operational transparency, fairness within the value chain, and consumer willingness to pay. Using a cell phone app they developed, the researchers found that people highly weight the efforts of farmers in coffee production and, given the opportunity to pay each party in the value chain individually, would pay farmers vastly more than they currently receive. “If I’m a socially focused firm, the question in my mind then becomes, ‘How do I use customers’ innate sense of fairness to benefit people in my value chain?’ We’re looking at different mechanisms to do that.”

Chestnut’s work has been supported by the National Science Foundation and the Bill and Melinda Gates Foundation.

Cream and sugar

After visiting Cornell to interview for his present position, Chestnut returned home to find an offer from another institution—and just three days to say yes or no. He called Christopher Anderson, the SHA professor who chaired his search committee, to say that he was about to take the other offer—but that he’d really rather come to Cornell. Two days later, Anderson had gotten him his offer.

Chestnut has found a welcoming home in SHA and Cornell SC Johnson College. “It’s a sweet job,” he said. “It’s independent, self-directed, and varied, and I get to work around tons of smart, interesting people. I don’t know of another job that would allow me to do that.”

The coffee class is an added perk.

–Photos by Jon Reis and Jacob Mroczek