Changing Coffee Tastes Brew Trouble for Farmer Bros.

Staff Reporter

Since its opening 22 years ago, the West L.A. breakfast eatery John O'Groats had contentedly served Farmer Bros. Co. coffee, along with its biscuits and blueberry pancakes.

Until earlier this year, that is, when co-owner Paul Tyler decided he wanted an upgrade. He dumped his longtime coffee vendor for San Francisco-based Peerless Coffee & Tea Co., which developed a special brew for the joint.

"People's taste buds are more discriminating. They want coffee that's more high-end," said Tyler. "When I think of Farmer Bros., I think of the old coffee machine we had that they wouldn't replace for us. A relic."

It's a turn of events that's become familiar at Farmers, as it contends with Starbucks Corp. and competition from the legions of gourmet coffee vendors that it spawned.

The inability, or unwillingness, to respond to the changing market is a major factor in the battle royale over control of the Torrance-based company. Chairman Roy F. Farmer was once considered an innovator in the coffee industry, but disgruntled shareholders and relatives charge that he has sacrificed its well being to maintain control over the company.

"Twenty years ago, Farmer Bros. was considered the best restaurant coffee out there," said restaurant consultant Janet Lowder. "But no one would say that now."

Spokesman Jim Lucas said Farmers offers "a broad range of coffees to meet the market." However, it remains in a three-year slump while the gourmet coffees eat away at its market share.

Last month, Farmers reported that sales for the first quarter that ended Sept. 30 fell 9 percent, to $45.6 million, marking a fourth straight quarter of sales declines.

The company blames "recession-related reductions in business and consumer spending," for much of its troubles. But it also admits having difficulty attracting new restaurants that are trying to cater to more sophisticated coffee drinkers.

"The company is competing in a coffee market that has changed over the last couple of decades," Lucas said.

Farmer Bros., along with the competing Superior division of food giant Sara Lee Corp. and Long Beach-based Lingle Bros., still dominates the local market for traditional restaurant coffee.

Now playing in the field are small specialty shops that provide exotic beans and even develop exclusive blends for restaurants to call their own. Also encroaching are large coffee chains such as Starbucks, which expanded its restaurant distribution operations this year when it acquired Seattle's Best.

"Farmer Bros. coffee is what you'd find in a diner. Make it hot and make it brown," said Richard Karno, president of Venice-based coffee firm Groundwork Coffee.

It wasn't always this way.

For years, restaurant owners held a diffident attitude about their brews, placing them in the same category as table salt and ketchup. The standard blend which has a count of 450 unripe and sour beans to every pound of coffee was the selection of choice because the price was so low.

"Eight out of 10 times, the restaurateur thought coffee was coffee," said Ted Lingle, executive director of the Specialty Coffee Association of America (his family still runs Lingle Brothers). "So they went for the cheapest instead of the best."

But the emergence of Starbucks and other high-end cafes has elevated the standards of quality coffee.

When Selwyn Yoslowitz, co-owner of the Marmalade Cafe restaurant chain, went shopping for a new coffee supplier two years ago, he spent months talking to distributors and tested those blends with customers. Even employees served as guinea pigs for the selection process.

Farmer Bros. wasn't even in the running. "They don't have a reputation for selling the gourmet blends that we want," said Yoslowitz, whose chain ultimately went with a San Francisco boutique.

Early innovation

Roy F. Farmer's father, Roy E. Farmer, was an innovator in coffee distribution when he opened branch offices in San Francisco and Las Vegas to reach new customers. After his sudden death in 1951, Roy F. helped upgrade the quality of coffee by mixing its low-grade Cuban beans with higher-grade stock and spending hours in the company's Torrance headquarters tasting each new blend.

But now Farmer's nephew, Steve Crowe, is attempting to remove Roy F. Farmer as trustee of four trusts holding a 9.8 percent stake in Farmer Bros. for the benefit of Crowe and his sister. The next hearing in that court battle will be held on Christmas Eve.

As for Farmer Bros., it's playing catch-up.

The company introduced plans for a new line of coffees, including an Italian roast that's promoted as having an "intense full-bodied flavor." "We have a broad range of coffee to meet the market," said Lucas. "But are we penetrating those markets? That I cannot answer."

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