Coffee fruit fuels entrepreneur

From where Shaun Roberts lives, he can see expansive orchards of Kauai Coffee Co., and he also sees a potentially expansive beverage business from what is one of Hawaii’s best-known and largest crops.

But that business is not coffee.

It’s juice.

Specifically, it’s juice made from the skin and flesh of the coffee cherry — the thin, pulpy fruit protecting the highly valued bean harvested for that other drink.

Roberts co-founded Sandwich Isles Trading Co. in 2008 to produce such a juice, and two years ago began selling the product under the KonaRed brand. Now he is trying to take his small Kauai-based company into the beverage big leagues.

Recently, Roberts converted Sandwich Isles Trading into a new firm called KonaRed Corp. with publicly traded stock. The move is intended to help KonaRed finance growth amid strong yet fledgling competition in the emerging category of beverages made from coffee fruit.

Coffee fruit drinks, according to an article last year in the industry publication Beverage World, are part of the "superfruit" food trend that sprang up in about 2005.

Coffee cherries joined an increasingly crowded field of other fruits discovered or promoted to have antioxidant health benefits and incorporated into beverages.

Such superfruits, the Beverage World article said, include acai, acerola, baobab, cupuacu, gogi, maqui, noni, salak, sea buckthorn, yumberry and yuzu.

A company called One Natural Experience, or O.N.E., known for its coconut water, claimed in 2008 to have introduced the world’s first coffee berry juice, which it touted as providing nutritional and health benefits.

Time Magazine took note of the launch, naming O.N.E.’s coffee fruit juice one of a dozen most notable product innovations at the 2008 Fancy Food Show in New York.

Around the same time, Roberts, who describes himself as a serial entrepreneur, was looking for "more opportunities."

Roberts said he got interested in coffee fruit from living on Kauai with a view of the largest coffee plantation in the state, knowing some friends in the Kona coffee industry on Hawaii island and seeing the attention the fruit was getting as an antioxidant.

Sandwich Isles Trading was established by Roberts, his wife, Dana, and another partner, Steven Schorr, an inventor and scientist who heads a Maui company that produces health sprays and tonics from herbs and plants.

To secure a fruit supply, Roberts approached Tom Greenwell of major Kona coffee producer Greenwell Farms about using his empty bean casings.

The farm in Kealakekua processes 3 million to 4 million pounds of coffee cherries in a good year harvesting beans. Greenwell, however, turned Roberts down initially.

Greenwell Farms was composting its casings, and even though that takes a lot of work to dispose of a nuisance waste product, Greenwell said processing the wet, gooey mess for Roberts wasn’t appealing, even for a price.

Roberts, however, didn’t give up, and an arrangement was reached that provides some revenue for the farm. "They were very persistent," Greenwell recalled.

‘PARADISE IN A BOTTLE’

A lot more effort was spent figuring out how to process the coffee cherry and formulate products, including extracts, powders and drinks. The first KonaRed consumer products were launched in mid-2011, and got into stores including Whole Foods Market and Foodland.

KonaRed’s main product, a drink made primarily with coffee cherry extract mixed with other fruit juices such as apple and pineapple, is called Hawaiian Superfruit Antioxidant Juice and is marketed with the tag line "Paradise in a bottle."

The product, which naturally has about one-fourth the amount of caffeine as coffee, is promoted as a health drink that helps prevent disease, delay aging and suppress appetite, among other things.

Roberts said he hasn’t been sick even once in the past four years. "We call it happy juice," he said. "It’s wellness you can feel."

Greenwell, who sells KonaRed on his farm, said gout attacks he used to have about once a month were reduced to one in the past four years since he began drinking the product. "I became a big believer," he said.

KonaRed said it has established that its coffee cherries have an exceedingly high level of quinic acid along with chlorogenic acid and ferulic acid antioxidants that can be absorbed by cells.

"KonaRed’s coffee fruit increases (cellular metabolic efficiency) thus increasing energy and reducing metabolic oxidative stress at the cellular level," the company said in a filing with the Securities and Exchange Commission that regulates public companies. "We believe this will also have the effect of reducing inflammation, increasing health and well-being and slowing down cell apoptosis, thus slowing down the process of aging."

Last year, KonaRed had its product clinically tested at Cayetano University in Peru, and says that the drink improved antiviral defense, cell viability and T-cell proliferation.

The company says that such health benefits are not guaranteed, and that any negative studies and publicity surrounding the coffee fruit could hurt business.

KonaRed is in what it terms a "front-runner position" in the nascent coffee fruit drink business, though capitalizing on that position has been difficult due to limited financial resources.

"Because we are small and do not have much capital, we must limit our product development, marketing and sales activities," the company said in the filing.

Sales revenue doubled to $1.9 million last year from $953,556 in 2011, the filing said. But this year through September, sales reached only $913,233 due to aggressive cost-cutting made in part to become a public company better positioned to raise investment money.

CUTTING COSTS

Before going public, the company raised about $7.1 million from private investors and accrued a net loss of $8 million.

As part of cost-cutting, KonaRed announced on Dec. 16 that Schorr, its co-founder and chief scientific officer, had left the company with a $120,000 buyout representing a year’s salary. The company said the move was made to make money available for other operations and because Schorr’s duties were substantially complete.

Besides its two remaining co-founders, KonaRed has six employees. The company operates out of a 1,000-square-foot office in the resort retail center Shops at Kukuiula in Koloa, and shares a distribution center in California with a beauty products company, Malie Inc., established by Roberts and his wife.

Roberts said his goal is to increase KonaRed’s annual revenue to $25 million within the next three to five years, and he figures he will need to raise $5 million to $8 million to finance such growth.

In October, KonaRed became a public company with shares traded on the stock market, allowing the firm to issue new shares of stock to raise investment capital. One such issue was made last month, raising $450,000 by selling 1 million shares to a foreign investor at 45 cents per share.

Shares of KonaRed stock have traded for 71 cents on average since going public.

KonaRed said it expects continued operating losses as it tries to increase product development, production, marketing and sales.

"There’s a lot of work to be done," Roberts said.

KonaRed’s core juice drink sells for about $2.85 for a 10.5-ounce bottle and $4 for a 16-ounce bottle.

The company’s products are in retail stores mainly in Hawaii, California and Canada. Expanding sales outlets is an ongoing effort that Roberts said has resulted in a distribution deal to 625 Vitamin Shop stores in January. The company also is working to package its drinks in aluminum cans and launch a line of nutritional supplements.

Competition so far has been limited but tough.

One rival coffee fruit drink maker, Bai Brands LLC, established in New Jersey in 2009, announced a distribution partnership with Dr Pepper Snapple Group in November.

Another major competitor is SoZo Coffeeberry, a drink sold via direct-marketing channels under a partnership with Illinois-based VDF FutureCeuticals Inc.

VDF sued KonaRed in 2011, alleging that the Hawaii company infringed on three patents and violated a trademark for "Coffeeberry" by using the term "coffee cherry." KonaRed tried to invalidate VDF’s patents through the U.S. Trademark and Patent Office, but that effort wasn’t successful and the suit is pending.

O.N.E., the giant coconut water producer, became majority owned by PepsiCo. in 2010. However, O.N.E. said it discontinued its coffee berry juice after it didn’t sell as well as hoped in several markets.