Auf Wiedersehen Diedrich Coffee

[Mike Ferguson]

http://freshgroundconsulting.com/blog1/

Today, Peet’s Coffee & Tea announced it would acquire Diedrich Coffee for something in the neighborhood of $212 million in cash and paper. So ends the long and, in recent years, sometimes sad specialty coffee saga that was Diedrich’s Coffee, as Peet’s begins yet another chapter in its own epic tale. The Diedrich brand, and those that it obtained/retained over the years—Coffee People and portions of Gloria Jeans—may survive, but the company, Diedrich Coffee, will be no more.

Both companies were specialty coffee pioneers. Alfred Peet began roasting coffee at a retail location in Berkeley, California in 1966, Carl Diedrich out of a storefront in Costa Mesa, California, in 1972, on a roaster he built himself . Like the original Starbucks in Seattle’s Public Market, the first Peet’s and Diedrich stores had little or no seating and the only reason they brewed coffee at all was so you could sample their product. These were “bean stores,” now a nearly extinct coffee retail concept.

Don Holly, now Director of Quality for Green Mountain Coffee, walked into Carl Diedrich’s coffee store in 1979 and tasted his first cup of coffee, launching his own 30 year love affair with great coffee, from bloom to brew. When Diedrich died in August 2001, Holly wrote:

"His roasting style was also very personal. He believed that each coffee needed and deserved its own development method. His manner of roasting the Yemen even involved a technique where he would just crack the door open slightly after first crack so that the range of development was broadened within the roast, as the first coffee to spill out would be light, with the last part of the batch well into second crack.

He had five or six estate coffees that he offered, and a couple of blends. His signature blend was the Wiener Melange, a blend of several roasts that is still memorable for me as a symphony of flavors that was complex and harmonized. It was the first coffee I ever drank. It inspired me to inquire if Carl needed any help with his business, which led to my 13 year association with he and his family, and the company that we grew, Diedrich Coffee and Diedrich Coffee Roasters."

By the early 80’s, Carl had also developed a business building coffee roasters. Eventually, his son Stephen took over the manufacturing business and his son Martin, along with Holly, began growing the retail business, opening stores in Orange County.

Don Holly once told me that they should have stopped at three stores. Years later I mentioned this to Martin Diedrich and, after a pensive pause, he said that Don probably had it about right.

When the company took on outside investors and entered an aggressive growth phase in the mid-1990’s, Holly left to help run the Specialty Coffee Association of America. Martin remained with the company that bore his family name until 2004, when he left to “return to his roots as an independent coffeehouse operator.” Within view of the storefront where his father began roasting coffee 30 years earlier, Martin and his wife Karen started Kean Coffee, a roaster retailer. They now have two coffeehouses and a great reputation in the local community as well as within the coffee industry.

For Diedrich, the 10 years from 1994, when Don Holly left, to 2004, when Martin departed, were characterized by a steep rise and fall, and a slow but steady recovery. There was a time of great ambition as the company went public and publically stated they were gunning for Starbucks. When Carl Diedrich dies in 2001, the company stock was trading for pennies.

Despite near constant changes in management, Diedrich has managed to rebuild a business by focusing on wholesale, diversified distribution, and, perhaps ironically and definitely poetically, the manufacturing of K-Cup coffee packets for use with brewers marketed by Keurig a wholly-owned subsidiary of Green Mountain Coffee Roasters, Inc, where Don Holly is quality czar.

As the specialty coffee industry matures we have experienced several years now of consolidation. Following Farmer Bros. acquisition of Coffee Bean International in 2007, not much surprises me anymore. Green Mountain has Tully’s and formed a close partnership with Caribou, and everyone seems to be the better for it. And now, assuming they keep it, Peet’s will operate a K-Cup manufacturing business, perhaps making them associated, if not closely associated, with Green Mountain Coffee Roasters.

What conclusions to draw? I see two things.

First, in terms of the very focused, high-quality driven coffee roasters, this creates new opportunities for differentiation and niche exploitation. Both Green Mountain and Peet’s still roast some amazing coffees that any specialty roaster would be proud to label. They are not about to lay down and surrender their high-end business, but they are giants, at least in specialty industry terms, and there is plenty of room to run around their feet.

Second, what damage they do inflict will be primarily in the traditional coffee and convenience sectors. Who is going to do a better job of maintaining relative quality while working in the value-driven market niches than Green Mountain and Peets?

So, for all my friends who lie awake at night reparsing flavor distinctions from that day’s production cupping, this is merely interesting news from a historical perspective. But if your business card has green on it, or maybe even a little pink and orange, it’s not your imagination. Those are footsteps you hear behind you.

[sweetmarias]

All I hear is a giant sucking sound.




...Oh, I guess I should stop cupping with a straw.

Anyway, I thought someone had already bought Diedrich, but now I know I was wrong. It's like reading an obit and realizing the person who you thought was already dead wasn't, but now they are, so you were right. Sorry if I am not sentimental enough. Brands don't really get me all teary.

[Mike Ferguson]

Personally, Diedrich's became a non-issue for me when they hired their first fast food executive (from Taco Bell, I think) to run the company over 10 years ago, though I was always interested in what Martin was doing in the company. Still, I'm a sucker for industry history and nostalgia. It wasn't my intention to write an obit, but it seems that is mostly what it is.

[Chris Kornman]

Looks like Peets just got outbid...

http://www.thestreet.com/story/10636701/1/why-is-the-coffee-war-so-hot.html

[jpscoffee]

It's all based on the K cup market. We've used a K cup brewer for convenience coffee at our home office for years. It has proven to be the best technology for the public market for that type of coffee product. I was in Chicago's Union Station yesterday and the banner above an 8-door-wide entrance was a very hip K cup ad.

Hmm, anyone looking for a good stock investment might want to watch the share price of the winner of this battle.