As coffee demand grows, Cameron's morphs from regional distributor to national brand

The air in the suburban warehouse is thick with late summer mugginess and a smell, spun lazily by giant fans, that is so familiar but not at all from around here.

Inside are stacks of coffee beans, tons of them, in bags shipped from Brazil, Honduras and elsewhere that Cameron's Coffee will roast, pack and ship to stores and coffeehouses around the country.

Bill Kirkpatrick, the company's chairman, travels to farms around the world as lead buyer for the fast-growing company, which has risen from a regional distributor to a national power in less than a decade.

From its large facility in Shakopee, Cameron's Coffee distributes products to 48 states. It is on track for $44 million in sales this fiscal year and its whole-bean coffee is now the seventh most popular by U.S. retail sales, just behind Seattle's Best and Caribou Coffee, according to the prior year's sales data collected by IRI, a Chicago research firm.

Cameron's aims to democratize specialty coffee by sourcing from the best 10 percent of the world's coffee supply and roasting and selling at a lower price than competitors. "My question was, 'How can we get good coffee to people who can't afford specialty coffee?' " Kirkpatrick said.

To grow even further, he and the company's leaders are trying to get that message out and understood by consumers.

Coffee is a big market and remains the No. 1 thing Americans consume at breakfast, said Joe Derochowski, executive director and home industry analyst for the NPD Group. There's plenty of competition and trends to monitor, he said, adding, "The good news for coffee is that not only is it a big market, but it is growing."

Cameron's origin is a two-pronged story, beginning in 1978 when Janie and Jim Cameron started a small coffee shop and bean-processing company in Hayward, Wis. Distribution was modest, with no focus on national growth.

Kirkpatrick was working for Campbell's Soup in the Twin Cities until 1994 when he lost his job during downsizing. His fiancé, now his wife, implored him to pursue something he loved. For Kirkpatrick, a native of Seattle, that was coffee, so he opened some coffee shops in Maplewood. They did not fit his passion. "Coffee shops are just fast-food shops, and I hated it from day one," he said.

He moved higher up the supply chain to coffee distribution and, in 1998, bought Cameron's Coffee.

In 2008, the company sold the distribution business and invested the money from that sale into a new, state-of-the-art facility. This new space offered the company control over roasting, processing and packaging of its coffee beans, which improved the product. In 2014, it bought a 68,000-square-foot building across the street from its headquarters in anticipation of more growth.

Cameron's name recognition is strongest in the Midwest where it has a larger share of the market than in other regions. New partnerships with major retail partners like Costco and Target have allowed it to gain a legitimate place in the national rankings.

Cameron's executives believe the taste of their products can stand up to the best, but they have to persuade people to try it first. Retail promotions have become a key selling tool. Two bags may be priced for $10, for example, as opposed to the regular price of $6.99 for a single bag.

"What incentive do customers have to pick us if there's a Starbucks or Caribou next to it for a similar price?" Kirkpatrick said.

Coffee buyers shop sales, making repeat users hard to come by. "Coffee is one of the highest switching category because consumers buy based on what's on sale," said Allison Yang, vice president of marketing.

So Cameron's strategy is also to undercut competitors' pricing even when not on promotion. The average unit price for Cameron's whole-bean coffee is more than $2 below both Starbucks and Caribou, according to IRI data for the last year.

The company's goal is to convince consumers that while its coffee may cost less than many of its specialty-coffee competitors, that doesn't mean Cameron's is skimping on quality. That means operating on lower profit margins, running a lean and efficient operation and trying to express quality to consumers without a large advertising budget. Cameron's employs 125 people.

Sourcing of the green bean, which is coffee's color before it is roasted, is the most important thing a coffee manufacturer can do, said Chris Castillon, vice president of operations, as it is the second most traded commodity in the world.

Castillon came to Cameron's after operating a Starbucks plant that produced 150 million pounds of coffee a year. The Shakopee plant where he now works makes between 8 million and 10 million pounds per year.

Cameron's uses 100 percent arabica beans, Castillon said, "which is the top 10 percent of all coffee beans in the world."

And when it comes to flavored coffee, which accounts for about half the company's coffee sales, Cameron's uses liquid flavors rather than powder for better coating consistency on each bean.

In 2012, the company made its foray into an already booming part of the industry — the single-serve, or K-cup, segment that exploded when Keurig released its machine.

For years, Cameron's rejected single servings because executives perceived them to deliver poorer tasting coffee. Single-serve coffee is usually packed in small plastic pods, which Kirkpatrick and Yang say smell and taste like burnt plastic after the pod is punctured to make a drop hole for the water.

That was until it was presented with the compostable pod, a single-serve pouch of coffee in what resembles a mini-coffee filter. Yang and Kirkpatrick say such pods allow more grounds to be saturated with water, resulting in a fuller cup of coffee.

Sales of single-serve for Cameron's have skyrocketed, just like they have for the larger coffee market. By next year, Cameron's forecasts its coffee pods to comprise half its grocery store sales. In the U.S., single-serve coffee accounted for more than 40 percent of all U.S. retail coffee sales in the past 12 months, up from just over 12 percent in 2011.

Single-serve is not going to go away, said Derochowski, the home industry analyst. "That convenience lever is always present."

The in-home coffee market is only growing, said Derochowski, so if Cameron's is well-positioned, its chances for success are high.

"It's more opportunity than it is challenges," he said. "This is a great time to be in the business, if they play their cards right."

Kristen Leigh Painter • 612-673-4767