Who knew? Farmer Bros. may know beans about farming, but just ask the company about coffee beans. Farmer Bros. roasts and packages coffee, and sells it mainly to institutional foodservice operators, such as restaurants, fast-food outlets, hotels, and hospitals. It also distributes related coffee products, such as filters, sugar and creamers, as well as assorted teas and culinary products (spices, soup, and gelatins). Part of its business includes providing private brand coffee programs to retail customers, such as convenience and grocery stores, nationwide. All told, Farmer Bros. distributes more than 2,800 stock keeping units (SKUs) from 114 branch warehouses located in or near major US cities in five states.
Despite an accelerated rise in sales, the company's losses have mounted. From 2008 to 2011 Farmer Bros.' deficit widened to a record low of more than $54 million driven largely by a decline in gross profits.
Sales in 2011 reached $463.9 million, registering a slight uptick over the prior year. The increase, however, was due to higher prices set in place to offset inflated costs of coffee, cappuccino, cocoa, and some spice commodities. Two strategic acquisitions have also fueled the company's top line. In 2009, Farmer Bros. purchased certain assets from Sara Lee for $45.6 million to launch its nationwide Direct-Store-Delivery (DSD) network. The deal, comprising 500 delivery routes along with hundreds of branch locations, and a handful of distribution centers, added 2,000 new SKU's and 60-plus trademarks. Integration of DSD Coffee Business, completed in 2010, helped boost sales by nearly 75% in 2011 over 2008. Earlier, Farmer Bros. scooped up Coffee Bean International, a specialty coffee maker and wholesaler, via a $23.6 million acquisition of its parent, Coffee Bean Holding Co., Inc.
Going forward, Farmer Bros.' struggle to reverse its losses is frustrated by higher interest expense related to borrowings coupled with a declining customer base and a down economy that has hurt consumer spending. The company pursues a turnaround through several initiatives. Among them, it streamlined operations in 2011, including cutting expenses, inventory, and headcount, beefing up collection of past due accounts, and freezing its defined-benefit pension plan. It also wrote off $7.8 million, pegged as an impairment of intangible assets.
Farmer Bros.' future is guided by its founding Farmer family. Started in 1912, the business is now approximately 40% owned by the family. Company employees own around 17% through a stock-ownership plan. – less