“More Niches Mean More Opportunity” – Farmer Brothers on How Different Formats Meet Demand for Coffee

Farmer Brothers, a US-based coffee roaster, wholesaler, and foodservice distributor, has been turning around its performance in the opening half of fiscal 2024 since the sale of its Northlake, Texas, coffee facility and non-direct store-delivery coffee business, Direct Ship, to private-label manufacturer TreeHouse Foods for $100m. The company has seen adjusted EBITDA turn to a positive $2.3m in the second quarter compared to a loss of $2.2m the year before, and six-month sales were $171.3m, up from $168.7m a year earlier.

Matthew Swenson, hired as the vice president of coffee operations at Farmer Brothers, has a relatively large scope, including overseeing the quality of coffee, sourcing of coffee and green coffee procurement, R&D and innovation pipeline, and overseeing the manufacturing site in Portland, Oregon. The company’s unique business model includes 80 distribution centers across the country that service roughly 30,000 customers and 250 routes across the country. By having localized distribution centers, Farmer Brothers can service these customers in a personalized way and streamline operations.

Swenson is looking to streamline the business by right-sizing the business, maintaining inventory levels, and streamlining all brands down to about three to five. This will allow the company to create clear value propositions for its customer base, with traditional tiers being more value-driven, premium tiers like Boyd’s, and specialty tiers like Boyd’s to deliver on the delicate nuances of coffee and highlight direct trade relationships. M&A is still a part of Farmer Brothers’ growth strategy, but the primary focus is on right-sizing the business and rebuilding the direct-store-delivery business.

Consumer trends driving a surge in premium and speciality coffee include the younger generation, particularly Gen Z, who are entering the workforce for the first time and have disposable and discretionary income coming to market. Farmer Brothers is looking to capitalize on these trends by capitalizing on the specialty sides of coffee and liquid coffee, which has been a long-tail trend in the past decade. As Farmer Brothers develops its innovation pipeline, they will likely be looking towards the younger generation with higher-quality coffees.

In summary, Farmer Brothers is looking to streamline its business, focus on consumer trends, and adopt sustainable practices in the supply chain. Swenson, who previously served as the director of coffee at Nestlé, has been working on streamlining its brand strategies and focusing on the younger generation to capitalize on the growing demand for premium and specialty coffee. The company’s focus on sustainability and innovation will help it stay ahead of the competition and maintain a competitive edge in the coffee industry.

Farmer Brothers is focusing on streamlining its coffee offerings to appeal to a wider consumer base. The company has a significant volume in the coffee market, but it is now looking to streamline its brands and create a unique brand offering. This will allow them to capture as many consumers as possible with different offerings like single origins coffee at variable price points.

The main focus behind the three new tiers of quality coffee is the liquid coffee concentrate for Boyd’s, which is their premium tier brand. The company is also focusing on the shot brand, which is an all-natural flavor of syrup that plays into the trends of the younger generation with a more colorful beverage experience, more transparent ingredients, and clean labels. The company plans to align the future product portfolio or innovation pipeline to meet various consumer bases.

The diversification of coffee formats in recent years has changed the market for the better, as it is now broken into thirds. The market is now divided into ground and whole bean, take-out, single-cup serve, RTD, and soluble. Farmer Brothers is looking to meet the consumer where they are today, whether they have a single-cup machine and prefer soluble or specialty coffee.

To be sustainable in its coffee procurement, Farmer Brothers is leveraging its strength in history by building direct relationships in over ten countries worldwide and maintaining a good size of their portfolio. However, they have not fully leveraged their great work in origin. They plan to rebuild some of the basics in their brand portfolio work and leverage their direct-trade relationships to make a positive impact.

As for the broader portfolio, there is a lot of energy and partners around the world that can help streamline monitoring and evaluation. The company is in a good position to have a healthy strategy for the remainder of the portfolio as they look to build in the future.

The biggest challenge facing US coffee at the moment is the segmentation of consumers and finding the right solution for the right consumer at the right time. With different consumers looking at value plays, transparent ingredients, and certified organics, it is always a challenge to find the consumer base and go after it.

Farmer Brothers is confident that their set-up with their different brand pyramid is set up to answer these questions and is on the path to be able to answer the questions of a broad range of consumers in this complex market.

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