Exploring the world of coffee A professional investor’s perspective Ron Kleist, President Loring Smart Roast, Inc. Santa Rosa, CA, USA LEGAL DISCLAIMER: Ron Kleist is NOT a coffee professional, unless… LEGAL DISCLAIMER: Ron Kleist is NOT a coffee professional, unless loving to drink a great cup qualifies me as such Roasting Professionals • Artists, not scientists – I live in California’s “wine country” and am surrounded by people with exquisite palates and a passion for great taste Roasting Professionals • Artists, not scientists • Creating exciting new products and introducing them to their local community – Dealing with several variables including crops, seasons, consumer tastes Roasting Professionals • Artists, not scientists • Creating exciting new products and introducing them to their local community • Searching for improved tools and raw materials. Personal History • • • • Sealed Air Corporation – $2.73 Billion USD Genzyme - $20.1 Billion USD Sprint - $8.47 Billion USD JDSUniphase - $2.41 Billion USD Personal History • • • • • Sealed Air Corporation – $2.73 Billion USD Genzyme - $20.1 Billion USD Sprint - $8.47 Billion USD JDSUniphase - $2.41 Billion USD Loring Smart Roast, Inc. - Private Life Cycle Curve Life Cycle Curve Double-Humped 6 4 2 0 Start Early Adopters Slump Acceptance What I See in Coffee • Huge Market - $50++ Billion USD Beverages What I See in Coffee • Huge Market - $50++ Billion USD Beverages • Growth – influx of new addicts (China, India) What I See in Coffee • Huge Market - $50++ Billion USD Beverages • Growth – influx of new addicts (China, India) • Proven Profit Potential What I See in Coffee • • • • Huge Market - $50++ Billion USD Beverages Growth – influx of new addicts (China, India) Proven Profit Potential Ripe for Change – Starbucks 20 years ago What Investors Want • Growth – Big potential $50 Billion of Coffee Beverages Consumed Each Year $50 Billion of Coffee Beverages Consumed Each Year 6,000,000 Tons of Green Beans Converted Each Year $50 Billion of Coffee Beverages Consumed Each Year Nexus = Roasting 6,000,000 Tons of Green Beans Converted Each Year What Investors Want • Growth – Big potential – Big margins; >50% gross margins so you can afford to invest into developing a brand What Investors Want • Growth • Unique Answers – Intellectual property – Trade secrets What Investors Want • Growth • Unique Answers • Brand Opportunity – "The exceptional results that we reported today for our fiscal third quarter are a testament to the strength of the Starbucks brand, to the depth of the company's organizational capabilities, and to the dedication of our partners around the world," commented Troy Alstead, cfo What Investors Want • • • • Growth Unique Answers Brand Opportunity Positive cash flow > profits – Difficult when bean prices jump fast – Your business ends when you cannot pay your bills Hot Buttons • From Bean to Cup Hot Buttons • Fresh-roasted – COSTCO – Whole Foods Hot Buttons • Fresh-roasted • Precision brewing – Equipment – Education Hot Buttons • Fresh-roasted • Precision brewing • Consumer education – Evangelists – What percentage of market needs to demand a good cup of coffee for Specialty Coffee to prosper? Threats • Beans!! – Hunt Brothers (Silver) – Ethiopia’s Bean Soup – Global warming & reduced production Threats • Beans!! • Credit – Buying/Leasing becoming more difficult Threats • Beans!! • Credit • California’s Cancer Concern – What happens if a warning is posted everywhere that coffee is consumed? Threats • • • • Beans!! Credit California’s Cancer Concern Worker healthcare – Ergonomics, cervical cancer, poorly educated Promising Signs • Be, Act & Learn… Together – What you are doing here, now, will have profound benefit to you and your customers for years to come. – Politics aside, there is enormous benefit when working together Promising Signs • Be, Act & Learn… Together • Big players educating the market – Starbucks marketing >$2 billion annually – $100 million spent by McDonalds in 2009 just for the coffee portion of their marketing Promising Signs • Be, Act & Learn… Together • Big players educating the market • Professional organizations creating standards – SCAA/SCAE raising standards for excellence – Quality and consistency go up Promising Signs • • • • Be, Act & Learn… Together Big players educating the market Professional organizations creating standards Supply chain changes to meet new demands – Bean growers – Roaster equipment manufacturers – Brewing equipment manufacturers Words of Wisdom • Coffee has been counter-cyclical • Great coffee is only in its infancy • Specialization is being seen in one industry after another – Comment from Costco manager Loring’s Role • Get closer to the market to understand its needs; be a resource to “movers & shakers” Loring’s Role • Get closer to the market to understand its needs; be a resource to “movers & shakers” • Continually improve our technology • As beans change and consumer tastes change, can we provide you with tools that enable you to do what you want with your beans Loring’s Role • Get closer to the market to understand its needs; be a resource to “movers & shakers” • Continually improve our technology • Help reduce threats • Reduce dependence on fossil fuels and therefore reduce global warming • Improve yield of precious resource: coffee bean • Healthcare for coffee farmers & pickers Flavor-Lock Roast Process™ • No tipping/scorching Flavor-Lock Roast Process™ • No tipping/scorching • Even heating during roasting (typical air roaster) – Air flow remains unimpeded; virtually no “cookie” – Stack or drum fire virtually impossible Flavor-Lock Roast Process™ • No tipping/scorching • Even heating during roasting (typical air roaster) • Closed-Loop Atmosphere – Near-zero oxygen – Higher humidity – Reduced seasonal affect Flavor-Lock Roast Process™ • • • • No tipping/scorching Even heating during roasting (typical air roaster) Closed-Loop Atmosphere Rapid cooling – Cool in less than 4 minutes Free Coffee Roaster! • Smoke-free Free Coffee Roaster! • Smoke-free • Odor-free Free Coffee Roaster! • Smoke-free • Odor-free • Scorch-free Free Coffee Roaster! • • • • Smoke-free Odor-free Scorch-free Risk-free (risk of fire) Free Coffee Roaster! • • • • • Smoke-free Odor-free Scorch-free Risk-free (risk of fire) Hassle-free (consistent results, easy to control) Free Coffee Roaster! • • • • • • Smoke-free Odor-free Scorch-free Risk-free (risk of fire) Hassle-free (consistent results, easy to control) Cost-free (almost) – Panda Tak! Tack! Takk! Dank U! Danke! Kiitos! Pakka Per! I will do my best to answer any questions you have