Minneapolis-based Peace Coffee brews a strategy to navigate difficult times

Minneapolis-based Peace Coffee did something in March that few companies can match in pandemic times.

It posted record sales.

"March was our best month because our company was focused on growth in e-commerce and selling bags of coffee to grocery stores," Lee Wallace, the company's chief executive, said. "That's where we had focused our planning and growth."

However, Peace was prepared for gradual growth for the next few years, not months.

"We tripled our capacity to produce roasted coffee through a new Diedrich roaster we acquired in February for about $375,000," Wallace added. "And we added 14,000 square feet to our space in the Greenway Building, to 22,000 square feet."

Consumers rushed to stores to buy coffee and food after the coronavirus forced most of them to work and study from home. That benefited the likes of huge companies like General Mills as well as little ones like Peace Coffee, a 24-year-old enterprise with about $10 million in annual sales.

Peace Coffee, largely a coffee roaster and wholesaler, has expanded to four Minneapolis coffee shops in recent years.

Its retail shops and business that supply coffee to restaurants, universities and coffee shops, around 25% of gross sales, tanked this spring. There were layoffs among the 70-employee workforce, only partly mitigated by the demand on the wholesale side that absorbed some retail employees.

For example, Tegan Mirovsky, who was managing two still-shuttered downtown shops, moved to a job in finance. She also is completing a degree in business with a concentration in finance.

"We also have our coffee truck driver packing e-commerce orders," Wallace said. "We had to lay off some people. But four or five [retail workers] wanted to work in the roastery. And we will recall others as we can."

Late last week, Wallace said no decision had been made about reopening the shops, despite Gov. Tim Walz's decision Wednesday to relax the restrictions that forced many small businesses to close in late March and early April.

Peace Coffee's bagged business to retailers and through e-commerce has remained a growth engine this spring. In March and April, sales more than doubled through its revamped website and retailers like Target, Kowalski's and Lunds & Byerlys. Up to 75% of Peace Coffee revenue is from grocery and online sales.

Peace Coffee is benefiting from the 2018 unspecified investment by Kent Pilakowski, a consumer-food marketer and veteran of General Mills who became a consultant to small specialty-food producers. He was joined in the buyout from Peace's founder, the Institute for Agriculture and Trade Policy, by Wallace. She has run Peace for about 15 years.

After the record sales month in March, grocery sales dropped somewhat in April. Some consumers likely overstocked during the first weeks of stay-home life.

"We've shifted our mind-set some as we continue to respond to coffee drinkers," Wallace said. "We're launching 20-ounce bags and 5-pound bags. We're just thinking about how we continue to be a good company. We needed to store more coffee and get more people in the warehouse but also socially distance.

"All of a sudden the facility we thought would take seven years to fill is full and humming. We've tripled the amount of coffee we're roasting every day. Retailers are still making gigantic orders."

Peace Coffee 20 years ago was among the first couple of dozen "fair trade" U.S. coffee roasters that formed Cooperative Coffees, an importing cooperative doing business in 25 countries from Guatemala to Rwanda. It was established to meet fair trade international certification and bypass coffee brokers. The fair traders paid growers more for the coffee and also inspired a North American movement among many other mainstream and specialty coffee companies to treat growers better.

Peace also still employs strong-legged bicycle cart riders who deliver coffee to stores.

Peace was hedged enough to weather the temporary closing of its shops.

"We're solidly OK," Wallace said. "We had [capital] and have been positioning the company for growth. I have to admit I feel a great degree of sadness for so many [closed] small businesses, including restaurants and coffee shops."

Not all small businesses have had the foresight and luck that Peace Coffee did.

Some coffee shops and small retailers will remain shuttered. Some small brewers and distillers are going to survive the next several months partly because they have diversified into disinfectants and sanitizer. Some textile shops have survived making medical garb and masks.

It's going to take that creativity and innovation to rekindle the small-business economy.