Exploring the world of coffee

A professional investor’s perspective

Ron Kleist, PresidentLoring 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

StartEarly Adopters

SlumpAcceptance

0

1

2

3

4

5

6

Double-Humped

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

6,000,000 Tons of Green Beans Converted Each Year

Nexus = Roasting

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