A Coffee War: Creativity, Financial Savvy, and Adaptation Saved Newhall Coffee

In 2009 Mitch McMullen’s decade-long entrepreneurial journey to further establish Newhall Coffee as a strong local brand, quickly turned into a battle for survival against large corporations such as Starbucks. Losing key accounts that amounted to more than $1.5 million in sales, and with banks unwilling to finance, the Newhall Coffee Roasting Company was on the verge of shutting down. Nonetheless, creative thinking combined with a solid marketing strategy based on product differentiation have recently strengthened Newhall Coffee and now McMullen is charging ahead, taking a stand on behalf of all mom & pop shops in the country, he says. “In 2009 we found out who we were, we found out how bad we wanted it and we attached our bayonets and we’re on a charge right now, we’re on an offensive,” he said. McMullen, whose two coffee houses called Mitch’s Java ‘n Jazz were unable to compete against large coffee house chains and closed a few years ago, has now strongly positioned his coffee brand at large grocery chains such as Costco and Sam’s Club. The recession also drove a lot people into groceries like Costco and Sam’s so the company adapted, changed paths and seized the opportunity. “Our sales are so good at Costco they just doubled our amount of warehouses last month, so we doubled our market share in Costco. And then Sam’s Club two months ago just put us in every Sam’s Club in Southern California,” he said. Without counting the new business from Sam’s Club, Newhall Coffee has experienced 25 percent growth in the last quarter within its existing market. Additionally, their new California Blend- an organic Papua New Guinea, Sumatra and Peruvian blend- has been so popular the company has several projects in the works including exporting it to China, taking advantage of the weakness of the dollar. Packaged in a bag that depicts a snowboard on one side and a surfer on the other, The California Blend hopes to be the official coffee of the California lifestyle, according to McMullen, while also fueling the “shop local revolution” by which McMullen hopes consumers will shift their behavior in favor of local products. “This is really an incredible turnaround I think predicated on faith in a brand,” said Alan Lewis who was brought on board in March as Newhall Coffee’s Chief Growth Officer. But the turnaround hasn’t been easy. The company began 2009 strapped in debt and the recession hit it right between the eyes. Newhall Coffee had already lost huge accounts with Walt Disney and Toyota in 2008 and then in early 2009 Subway cancelled their contract with them. Newhall Coffee, which supplied 700 Subway Stores, was replaced with Starbuck’s owned Seattle’s Best. Determined to stay afloat, McMullen believed if he was able to sell large orders of coffee, he would get financing to buy the beans. However, even with an order for half a million dollars worth of coffee from Sam’s Club, bank after bank refused to finance him. “I had no green to buy the greens,” he said. So the company had to get creative and adapt quickly. “What we did is we worked out a strategic relationship with the vendor, where he is operating essentially like a factor to us,” said Lewis. The coffee supplier essentially finances Newhall Coffee based on the invoices for coffee orders. “The vendors and the suppliers have such a strong belief in the brand and the niche that all we had to do was get creative and figure out ways to solve our problems and work with our vendors and be open and very proactive,” Lewis said. “And we proved the banks wrong. All those banks said ‘No’ to financing that half a million dollar order from Sam’s Club, and we’ve now turned that ‘No’ into an everyday item in 30 Sam’s Clubs. How wrong could they be?” On a steady growth path, Lewis’ goal is now to get the company to a position where it can fulfill demand, and find additional capital to back it. The company’s strengths are quality, price and its support of philanthropy and local causes, he said. “When our coffee hits the shelves sometimes its still warm in the bag -it’s that fresh, and then you’re getting it at a dollar to two dollars cheaper; thirdly, when you buy our coffee you’re supporting all the causes we support, you’re supporting troops, supporting the fight against leukemia, supporting local charities in Santa Clarita, and the shop local revolution,” Lewis said. After leukemia took the life of McMullen’s older brother Corey, McMullen devoted a portion of every dollar earned through the sale of Newhall Coffee to the Leukemia and Lymphoma Society of America. After September 11, the company launched the Patriot Blend to support troops fighting overseas and for every pound of Patriot Blend purchased, the company donates one pot of coffee to the troops overseas.