Family ties: Steve and Martin Diedrich from Diedrich Roasters and Kean Coffee

Story by Scott Duke Harris Once upon some political turmoil in Guatemala,  Carl and Inga Diedrich, a married couple, lost their coffee farm without a dime of compensation. That is how Martin Diedrich says his parents were denied the comfortable retirement they had earned. Martin Diedrich has his own story of loss – a cautionary tale at the intersection of Main Street and Wall Street. Diedrich Coffee – the company Martin founded and nurtured into a rival of Starbucks and Peet’s – is now largely a memory, following the aftermath of a decision to put it in the hands of investors.
Yet today, Diedrich remains a familiar brand within the coffee industry. Not in the form of Diedrich Coffee, but in the 4200 Diedrich Roasters in operation “on every continent except Antarctica,” says Martin. “Everybody in the coffee industry knows the Diedrich name.” If he sounds boastful, understand that he is bragging about his younger brother, Steve Diedrich. Steve inherited their father’s mechanical aptitude and created the company Diedrich Manufacturing, now one of the world’s leading supplier of roasters. The Diedrich brothers trace their parents’ families involvement in the coffee business to Germany in the mid-1800s. Carl’s mother inherited a coffee plantation in Guatemala in 1916, which decades later led to Carl’s and Inga’s move to Central America. After losing their coffee farm, the Diedrichs immigrated to Orange County, California, where Carl became something of a local legend. In the 1970s, he would load his 1963 VW van with clothes, toys and whatnot for a drive to Central America and return with bags of coffee beans for his little roastery business. He usually made five roundtrips each year.
And so it came to be that the Diedrichs had coffee roasters in their living room. Martin, the middle brother, says they learned the business, “through osmosis”. Steve fondly recalls how as young boys he and his younger brother would help their father tinker on his original roaster designs. Steve, an avid pilot, was working as an aviation mechanic in 1980 when a Seattle coffeehouse asked his father to manufacture a new cooling tray for a roaster in 1980. Carl declined and recommend his youngest sons. The job led to another commission, and so on. There was a fair amount of fiery, smokey trial-and-error, Steve recalls, as he developed designs for his own roaster before he struck success with infra-red heating. His brother Carl, described as more interested in rock climbing than the business world, still works with Steve at Diedrich Manufacturing, as does Steve’s wife Becky. The family atmosphere, Steve says, now extends to a workforce that exceeds 40 employees. Today, Steve’s tinkerings contribute to the steady sales of a half dozen in-store models of Diedrich Roasters, with prices of 2.5-kilo and 5-kilo drum-style roasters starting just under US$20,000. He and his team also produce  1-kilo laboratory roasters and fill custom orders for industrial models that range from 25 kilos to 480 kilos. A signature feature of Diedrich Roasters is its system of infra-red heating, which Steve says assures the user of better control in the roasting process, a cleaner roast and 50 to 60 per cent greater energy efficiency than other burners on the market. The company can also proudly boast that its Diedrich Catalytic Oxidize is 50 per cent more fuel efficient than conventional thermal afterburners, and does a better job of reducing noxious gasses and volatile  organic compounds. Now Diedrich Manufacturing is also designing turnkey factory systems that cost upwards of US$5 million. He contemplated such a design after receiving a request for bids from a company in India. In large overseas jobs, Steve says, he often creates the designs but contracts the actual manufacturing to qualified companies closer to the ultimate destination, to limit shipping costs. Steve also keeps a busy travel schedule to train customers how to better use his roasters. He recently travelled  through Central and South America to provide roasting seminars, and has South Korea on his itinerary. Martin’s story is more of an odyssey. In 1983, one year after he left a budding career in Mayan archaeology to help his father’s business, Martin opened his first coffeehouse in Orange County. Before long he had a successful little regional chain. When Starbucks started popping up, he recalls, “I started feeling territorial and competitive.” To fight the giant, Martin engaged a private equity investor who offered capital and a grand vision. “I knew I had a tiger by the tail,” Martin says. Diedrich quickly expanded. Like Starbucks and Peet’s before it, Diedrich Coffee would debut on Nasdaq in 1996, but have a rockier ride. Martin, who had the title “chief coffee officer”, now admits he placed too much trust in his principal investor and accepted several equity dilutions without compensation “for the good of the company”. Eventually, after losing influence within the company he founded, Martin was shown the door. “It was like a chess game that I didn’t know we were playing. And then it was checkmate.”
Martin, however,  took solace in the respect of coffee industry peers, who inducted him into the Hall of Fame of the Specialty Coffee Association of America. Over the next few years, Diedrich Coffee would grow to more than 400 retail locations and had become the focus of a bidding war between Green Mountain Coffee Roasters (GMCR)and Peet’s. GMCR prevailed with an offer of US$290 million cash – $35 a share for a company whose stock had once traded close to $1. Some people made millions in the deal, but Martin  had long since divested. “I barely broke even after putting my heart and soul into my business for 21 years,” he says. He now likens the experience to “an odyssey” that taught him a lot about himself, including a preference for community to the corporate world. One thing he learned is that he prefers to keep his business small and personal. His wife, Karen, is vital to the business that they named after their son Kean. From the start, he says, Kean has done “fabulously well,” pulling in more revenues than the best Diedrich stores. “The idea is to keep it small and special, and to keep it local,” he says. “We’re back to the beautiful place of being a family business. And keeping it that way.”