Bean Around The World

December 8, 2005
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SPRING LAKE — Right now, there are probably thousands of people around the world who have no idea that they’re enjoying a fine cup of coffee from Magnum Coffee Roastery Inc. in Spring Lake. That’s fine with Kevin Kihnke. Over the past 15 years, he has developed an idea he brewed up as a graduate student at Western Michigan University into a multi-million-dollar coffee production and packaging business. And he hasn’t done it on the strength of the name Magnum. He’s done it on the strength of the coffee.

In 1989, Kihnke wrote his MBA thesis on what he saw as an emerging market: specialty coffee. That was just two years after the incorporation of Starbucks Corp. in Seattle. He saw an opportunity not only in the production of unique coffees, but also in their packaging and distribution.

After he finished school, Kihnke decided to try out his plan, starting with nothing more than an ad hoc coffee roaster (a popcorn popper), his father’s expertise in the packaging business, and a very discerning nose.

“I used to drive my mom crazy, because I had to smell everything before I’d eat it. And it’s not that she’s a bad cook. That’s just how I’m wired,” he said. “So now I’m the guy who says, ‘Out of these 25 coffees, which is the best Sumatra?’”

His ability to identify the right beans has served him well, but so has his ability to identify a trend. At the beginning of the specialty coffee boom, Americans loved to drink coffee, but it was a utilitarian beverage. With its taste and its invigorating properties, it served a physical purpose. But Kihnke knew that people also have an emotional connection to coffee.

“Coffee’s about culture. It’s about a feeling. It’s about an environment,” he said. “You know, when you’re buying something at the store — particularly from our programs — you’re not just getting something warm and dark and in the cup for the morning, and getting your caffeine hit. It’s really about escapism. It’s like you’re associating when you were in Hawaii or in Jamaica last year with buying this product.”

When shoppers at Costco wholesale stores pick up a two-pound bag of Jamaican Blue Mountain coffee, they have to look closely and read the fine print if they want to know who roasted the beans. That’s because the bag — like many of Magnum’s products — is decorated with a vibrant artistic rendering of a tropical mountain scene, emblazoned not with the company’s name but with the style of beans. This is what Kihnke classifies as a “control brand.”

“You’re not necessarily out branding ‘Magnum Coffee,’ but you’re out branding what the product is. So, you’re in Costco and there’s a package there that says ‘Jamaican’ on it. It doesn’t say ‘Magnum Coffee’ on it. It doesn’t say Costco on the bag. … We’re selling the uniqueness of the coffee. We’re not selling ‘Magnum,’ because we’re not going to be a Starbucks.”

Not that Kihnke holds any ill will for the world leader in the specialty coffee business.

“They are by far the dominant player and they’ve created the industry. And as long as we can ride along on their coattails, I’m happy to do so, because they’ve set a standard for price point in the market. Is their quality everything it used to be? I would say it’s got to be a little bit difficult with the volume they’re doing now. But do they have the highest price point in the category? Absolutely. So that gives a lot of room for other players to come in to the premium market.”

Magnum Coffee Roastery may be a tiny fraction of Starbucks’ size, but that doesn’t mean its reach is limited to West Michigan. Kihnke said that 85 percent of the company’s business is done outside of Michigan. The company’s control brands are on the shelves of Sam’s Club and Costco stores across the country. Magnum beans can be found in cafés as far away as Mexico and Korea. Kihnke doesn’t like to discuss the volume of his business in financial terms, but he said that millions and millions of pounds of coffee flow through the 40,000-square-foot roasting and packaging facility each year.

Most of the company’s business — about 90 percent — comes from its packaging and private label business. Companies from around the world ship their beans to Magnum to be fitted into unique packages. A display rack in Magnum’s conference room is lined with packages of every size and shape, bearing all of the top names in the coffee business. Confidentiality agreements don’t allow those names to be shared.

The private label portion of the business utilizes Magnum’s team of graphic artists to design packaging and display materials for house brands at stores and coffee shops.

“We’re on the gourmet side of the business. We’re on the premium, the specialty, the unique, the exotic. And those types of products, I think, warrant and dictate special types of presentations to consumers. People expect to pay a little more; they expect to be razzle-dazzled a little bit.”

About 7 percent of the company’s business comes from designing coffee programs for retailers. Kihnke and his crew of 40 employees work with stores such as D&W Foods to design custom-tailored coffee brands. That means that each retailer’s brand is unique. The same coffees aren’t sold with different labels at stores across the country. Kihnke works to fit the coffee program to the retailer’s individual tastes.

“We don’t say, ‘You want a Columbian? Well, here’s our Columbian. You like it? Great. You don’t? Hit the road.’ No. We’re like, ‘You don’t like that one? How about these 20? You don’t like that roast? How about these 15 roasts?’” Kihnke said. “I say, ‘We do private label. And if you want the best program in the country, that’s what we do.’”

Magnum perfects its products in a unique research and development facility: its in-house coffee shop. To many commuters who take M-104 in and out of Grand Haven, Java Boulevard may look like another strip-mall drive-through coffee shop. They may not realize it is the public face of a much larger organization.

“It’s kind of like a test kitchen for us. It’s kind of like an open lab for us. So we can put products out there, see what works, see what doesn’t work, see what people like, what the comments are and so forth. So we get really quick results. So instead of going out and doing a focus group and spending 50 grand, we kind of cook it in our own kitchen and see what’s going on.”

Kihnke is meticulous about choosing the right beans for Magnum’s many clients — and for good reason.

“Every time we make a purchase of green coffee, every time we make a determination on a container of coffee, we’re making a determination for over a million cups of coffee. We’re making a determination for over a million people who are going to use this product,” he said. “It’s an important decision. So when we make that decision, we have to make the right one. Sometimes we take it kind of lightly, but to me, it’s a big decision.”    

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