With Chairman John Martin vacationing in the warm Hawaiian sun, newly installed Diedrich Coffee Inc. Chief Executive Mike Jenkins took the heat for the company’s recent performance at last week’s annual meeting.
A day after Diedrich Coffee announced it expects to be delisted from Nasdaq with its stock trading at roughly 50 cents, disgruntled shareholders fired dozens of questions at Jenkins, who in turn pleaded ignorance because he is new to the company, having started in September.
But shareholders demanded to know why Martin, who had led the company into battle against Seattle-based giant Starbucks Corp., had stood them up with the company down on its knees.
“I want to know where John Martin is,” shareholder Jock Begg said. “I was here for his dog-and-pony show last spring, but now I’m surprised that John’s not here to face the music. This is a farce and I’m not happy with it. John and (former CEO) Tim (Ryan) were open with us about what they were going to do, but now you are hiding behind the suits and saying you can’t answer questions. He’s chairman, why can’t he be here?”
Jenkins, who took over the CEO title in September, said he has only met Martin on three occasions and “if I knew where he was I would tell you.” He said the company’s other directors and executives did not know Martin’s whereabouts, either. Jenkins suggested Martin may have been with his ailing father, and added that the chairman no longer is drawing a salary from Diedrich.
Martin’s office, contacted after the meeting, said he was on vacation in Hawaii and would return this week.
Martin is one of the top individual shareholders in the company with a 9.3% stake worth roughly $630,000 at last week’s 50-cent price. On Oct. 20, Martin requested a transition from executive chairman to non-executive chairman and forfeited his annual salary of $100,000 After gulping down the much larger Coffee People chain in July 1999, Diedrich moved quickly to sign up new franchisees in a quest to become a 1,200- to 1,500-unit chain. Coffee People’s 67 retail stores and 253 franchised stores gave Diedrich a presence in 36 more states and seven countries. The company borrowed $15 million to fund the $24 million purchase. But Diedrich encountered problems at some units, subsequently closing 39 Gloria Jean’s locations and going into default under its credit agreement.
Over the past three months, Diedrich has terminated four franchise development agreements that totaled 300 potential stores. The company’s stock price has fallen from its 52-week high of around 5 to as low as 25 cents recently.
The company has agreements remaining for 214 new stores, including three stores that already have opened.
At the shareholders’ meeting, Jenkins was accused of not being forthcoming about his plans for the company and was asked to loosen his blue coffee-cup-print tie.
Jenkins conceded, tugging on his tie and going on to say that nobody cares more about Diedrich than its management.
“My objective is to make sure that every S.O.B. who drinks coffee, drinks our coffee,” said Jenkins, excusing his language.
Jenkins replaced retiring CEO Ryan. A 30-year veteran of the restaurant industry, Jenkins has headed S & A; Restaurant Corp. in Dallas, the T.G.I. Friday’s chain and Metromedia Steakhouses’ El Chico Restaurants. He also was executive vice president of Marriott Corp.’s Bob’s Big Boy chain. Most recently, he headed up Boston Chicken, where he led its reorganization and sale to McDonald’s Corp.
“I don’t consider myself a turnaround guy, I am a restaurant guy,” Jenkins said. “But the only thing I have ever done is go into difficult situations.”
He insisted that Diedrich’s future remains bright.
“People pay us $1.50 for a cup of coffee,” Jenkins explained. “If they don’t put cream in it, it’s almost free. The damn cup costs more than the coffee. We are doing great. There’s a lot of opportunity in front of us.”
Another shareholder asked why Diedrich has not advertised.
“We don’t have any money,” Jenkins said. “We have $10 million in bank debt and we are scrambling to make sure the company is generating cash so you are not going to see a lot of advertising. We are trying to make enough money to survive.”
Diedrich’s debt must be paid by September 2002, Jenkins said
“We will have to get a loan or get equity infusion or sell assets,” he said. “We need to get our principal down.”
Another shareholder asked whether the company had considered selling the business.
“I did not come here to sell the company, and that’s a board decision anyway,” he said. “But if this company is sold to someone else, this company will die a quiet death.”
Jenkins went on to say the company’s immediate plans are to improve cash flow and pay off debt.
“We are working in several areas to find ways to improve our cash position,” Jenkins said.
Chief Coffee Officer Martin Diedrich, whose family founded the company, told one shareholder after the meeting that he personally is depressed by the hardship the company’s performance has caused shareholders.
“There have been times when ambition has overtaken reality,” said Diedrich, who went on to talk about his humble beginnings growing up in the family coffee bean business. n
