Q&A with Phil McKnight

GENERAL MANAGER–BEVERAGE AT BREVILLE GROUP

Can you tell us about the acquisition of Baratza and how it influenced Breville’s business?

PHIL MCKNIGHT: The primary driver behind our decision to acquire Baratza was the recognition of its status as a highly revered US-based coffee grinder business, which had been successfully operating for 25 years. We were fortunate enough to finalize the acquisition in 2020, amidst the challenges posed by the COVID-19 pandemic.

Initially, we kept Baratza's operations unchanged for about four to five months, allowing them to continue their existing transactions and market approaches. However, in February 2021, we began the process of integrating Baratza into the Breville systems. This integration was always part of our vision, where incoming businesses could leverage all the infrastructure and resources of Breville, including access to warehouses, finance, HR, and technology services – things that typically require significant capital investment if built from scratch.

During this integration process, I took on the responsibility of ensuring a smooth transition. Kyra Kennedy, who was mainly in charge of operations and marketing, played a crucial role in overseeing this aspect of the integration.

KERRI GOODMAN: How do you envision the impact of the Baratza and Lelit purchases on the product lines carried by Breville?

PM: That's a great question. When we made the decision to acquire Baratza and Lelit, we saw a fantastic opportunity to share technology and leverage intellectual properties between these companies. Breville possesses an extensive portfolio of intellectual property, with over 200 patents worldwide, many of which are related to coffee technology. The synergy lies in the fact that Breville's intellectual property can be integrated into Baratza and Lelit's products and vice versa. This cross-utilization of technology and intellectual property will create intersections in our product lines. For instance, you'll see instances where Baratza's grinders are used in some of Breville's espresso machines, indicated by "Powered by Baratza European Precision." This cross-branding approach allows us to combine the strengths of each brand, delivering innovative and enhanced products to our customers.

KG: Can you elaborate on how the COVID-19 pandemic affected your company and how you navigated through the challenges it brought?

PM: The impact of the COVID-19 pandemic was significant, and, like many other companies, our primary concern was ensuring the safety of our employees. We had a global approach to managing the situation, with one person in Sydney overseeing the COVID safety initiative across all our offices. We implemented measures to protect our workforce, including guidelines for responding to symptoms and contact tracing in case of positive cases.

As the pandemic progressed, we witnessed an unexpected surge in demand for our products, driven by people spending more time at home and exploring new activities. However, this surge was accompanied by severe disruptions in the supply chain. Electronics and semiconductors faced enormous demand, and shipping was severely affected by container shortages and space constraints on ships.

Shipping delays became a major hurdle, with container ships queuing up for weeks at the Port of Los Angeles, Long Beach. This resulted in significant delays, stretching from offloading at the port to reaching our warehouses. The situation led to an unprecedented increase in shipping costs, making it challenging for us to import certain products without the risk of a substantial price hike.

Fortunately, over time, the shipping situation has improved, but the stress on the supply chain continues. Shipping costs have remained high, impacting businesses that rely on volume products, as the freight component became prohibitively expensive.

Overall, the pandemic brought about a unique set of challenges, and while some aspects have improved, we continue to adapt to ensure the smooth operation of our business and meet the needs of our customers in these uncertain times.

KG: What was the percentage of remote workers in your workforce before the COVID-19 pandemic, and how do you see it evolving post-pandemic?

PM: Before COVID-19, our remote workforce was quite minimal, accounting for only about one percent. Almost everyone was based in the office, working five days a week. Working from home was a rare occurrence, typically only happening when an employee had a specific reason, like illness or a medical appointment.

However, the pandemic brought about a significant shift in our work culture. We quickly adapted to remote work arrangements, and now we have flexible working options across all our offices and locations. Most of our staff have the freedom to work remotely, and we can observe this change in our office capacity, with fewer employees present on certain days to maintain social distancing.

The benefits of remote work have become apparent to both our employees and the company. People appreciate the extra time gained by eliminating commuting, which could sometimes be 45 minutes to an hour each way. However, we do acknowledge that certain functions, such as product service, require physical presence and access to tools and equipment. These teams continue to work on-site.

Overall, the pandemic has allowed us to embrace a more flexible approach, and many employees now work from home at least part of the week. As we move forward, we expect remote work to remain a common practice in our company, facilitating work-life balance and increased productivity for our teams.

KG: How do you ensure that your products align with the core values of your business?

PM: Our products are driven by several key principles that we hold dear: they must be better, faster, simpler, and offer increased engagement. These attributes are crucial for any product to be considered a true Breville product. We strive to provide a richer experience with every offering we bring to the market. To achieve this, we have a concept call "SMOB," which stands for a single moment of brilliance. Each of our products, whether it's an espresso machine, coffee grinder, drip filter coffee maker, countertop compact oven, or electric stand mixer, contains a unique feature that is exclusive to Breville. These SMOBs embody the essence of our brand and differentiate our products from others in the market.

By delivering on our promise of being better, faster, simpler, and more engaging, we ensure that our products align with the expectations of our consumer base and fit seamlessly within the Breville product family. These core values guide our product development process, enabling us to consistently deliver exceptional experiences to our customers.

KG: So what was that Single Moment of Brilliance for your new award-winning Barista Touch Impress?

PM: The moment of brilliance in the Barista Touch Impress was centered around the Tamper, which helped address issues related to tamping and its impact on extraction rates. Additionally, it provided control over the coffee dose in the filter basket. The machine incorporated self-learning capabilities to optimize the process.

Here's how it worked: The tamper would descend and tamp the coffee to a specific depth, which was a reliable indicator of the coffee dose in the basket. If the dose was insufficient, the machine would prompt the user to grind a bit more coffee. Then, it would precisely measure the height of the tamper and calculate the grams per second needed to reach the desired height. Consequently, it would determine the exact grinding time required to achieve the correct height and dose.

Through this innovative process, the machine ensured precise grinding and tamping to deliver the right amount of coffee every time. It learned from previous grind settings, remembering the time it took to achieve the desired height, such as 19.2 seconds. This information remained intact unless there was a change in grind size or coffee beans, which would necessitate a recalculation. The result was consistent and high-quality coffee extraction, providing users with a seamless and efficient brewing experience.

KG: With everything changing so quickly in the marketplace, how do you stay on top of the trends and how do you keep coming out with innovative new products?

PM: In a rapidly changing marketplace, staying ahead of trends and continuously innovating is crucial for our business. We have dedicated insight managers, product teams, and designers whose primary focus is to gather and harvest new trends. Within the company, we have various communication channels that facilitate discussions about emerging trends, particularly in the coffee industry, and potential future developments.

Research plays a central role in our approach to innovation. Unlike in the past when we relied solely on intuition, we now conduct thorough research before proceeding with any project. This approach brings a higher level of certainty to our initiatives, especially when substantial investments are involved. For instance, if we identify an opportunity within the coffee segment, we engage our research department to design a comprehensive program. This program helps us understand consumer behavior in that specific area, pinpointing pain points and friction in the coffee preparation process.

Based on the insights gained from the research, we strategize to create products that address these pain points. Our ultimate goal is to deliver products that embody our core values: being better, faster, simpler, and more engaging. We achieve this through the application of innovative technologies or novel methods, ensuring that each product carries our unique "single moment of brilliance" (SMOB) that sets it apart from the competition. By embracing insights, research, and innovation, we can confidently navigate the evolving market and continue to offer cutting-edge solutions to our customers.