In 2010, Chris Campbell decided to quit his intense, globetrotting consulting job, with the hope that he'd find the next great startup idea--or that it would find him.

Months later, it happened. While Campbell was hanging out in an Austin coffee shop owned by his friend Steve Williams, an acquaintance walked in with a bottle of ready-to-drink coffee. "He said, 'Steve, you sell a ton of great cold brew by the glass here in the shop. I thought you guys would be interested,' " Campbell recalls. "I said, 'What the heck is cold brew?' "

Campbell was informed that cold brew is just what it sounds like: coffee that's brewed at a low temperature. The process takes many hours, and the result is a beverage that's less bitter, tannic, and acidic than traditional joe. It's also the key to brewing up bottles of ready-to-drink coffee. Campbell and Williams's company, Chameleon Cold-Brew, now sells glass bottles that can be grabbed from a supermarket or convenience store refrigerator and consumed without the need for milk or sugar.

The product is a part of a market that's currently exploding. According to the Specialty Food Association, a trade group, the ready-to-drink coffee and tea industry saw a 262 percent increase in revenue from 2013 to 2015--the largest increase of any specialty food or beverage segment. Market analyst Grand View Research estimates that ready-to-drink coffee and tea, which did $143 million in sales in the U.S. in 2015, will be a $116 billion worldwide market by 2024.

Chameleon is one of those companies enjoying the industry's rise. The startup pulled in $9 million in sales in 2015 and says it more than doubled that last year. (It declined to say whether it is profitable.) Its products, which also include concentrates, are available nationwide in stores like Whole Foods, Target, and Safeway.

"I really came into this from a place of: I want to build a big business that is going to succeed," Campbell says. "This wasn't grandma's recipe that we were going to sell at a farmer's market. That was never the idea. We saw an opportunity, and we went for it."

A taste of success

Once Campbell and Williams decided to tackle the idea, the next step was coming up with a killer recipe. The pair mixed varieties of Central and South American arabica beans, continually altering the brewing temperature and time. They rented space in the walk-in refrigerator of a commercial kitchen, letting their concoctions steep in buckets for 16 to 24 hours at a time, sampling them, and starting again.

"Every choice was driven by taste," Campbell says. "We didn't have lab equipment. We weren't doing a bunch of analysis. It was my palate, and Steve's palate, and the palates of whoever else was in the room at the time." To study people's preferences, they went to local coffee shops to ask customers what they ordered and how much sugar they added.

Eventually, the duo created a black coffee recipe that tasted just right, with hints of cocoa and toffee. They bottled the first batches themselves, renting out a machine at a plant used to fill jars of chicken wing sauce. (Later they developed flavored concentrates, and in 2013 rolled out ready-to-drink coffees in mocha, vanilla, espresso, and Mexican-spice varieties.)

But before the pair could start selling, the company needed a name. A friend suggested Chameleon, thinking the creature would be a good representative for the region where the company sources its beans--and make for a pretty cool logo to boot. Campbell and Williams liked it. There was just one issue: Chameleons don't live in Central and South America. Nevertheless, the name stuck, and Chameleon Cold-Brew was born.

To start, the pair brewed their coffee for 16 hours, creating a concentrate that could be sold in 32-ounce bottles and serve eight people when mixed with water or milk and poured over ice or heated up. Fewer bottles meant higher profit margins. Campbell and his wife used their own money to get things started. "We gave ourselves six months to see if we could get it to catch on," Campbell says.

The founders persuaded a few stores in the Austin area to sell their products. Their real goal was Whole Foods, where shoppers would likely be attracted to the company's organic, ethically sourced ingredients. But their efforts to get shelf space went nowhere, Campbell says, until they served their coffee at a local event the chain was sponsoring in April 2011. When a guest asked him why the company's coffee wasn't in Whole Foods, he went off. "We've been trying for months," Campbell recalls telling her. "They preach about being local, taking care of the little guy--it's BS."

"OK, calm down," the woman said. "I think it would be a good fit."

"Great," Campbell replied. "And who are you?"

The woman introduced herself. She was the new lead for Whole Foods' Austin flagship store.

Two weeks later, the co-founders got a call. A few weeks after that, and just less than six months after the company was founded, Chameleon's coffee was on the supermarket's shelves.

Trending up

Fast-growth stories like Chameleon's haven't been uncommon in the ready-to-drink coffee and tea market in recent years. Chameleon was No. 140 on Inc.'s 2016 list of the fastest-growing private companies in the U.S., and was joined by companies including Kohana Coffee (225), Runa (598), and Hiball Energy (844).

"Away-from-home coffee sales are on the rise," says Darren Seifer, food and beverages industry analyst at NPD Group, "especially in the afternoon. Whereas in the morning, coffee often has more of a utilitarian role as a pick-me-up, in the afternoon it's usually more about wanting a treat for yourself." To that end, consumers often look for flavorful choices.

Seifert says RTD coffees and teas are especially appealing to Millennials, who tend to look for organic ingredients and avoid additives and preservatives. Because it's naturally sweeter and less bitter, cold brew coffee doesn't require sugar or dairy to achieve good taste. Millennial consumers also "seem to gravitate toward those niche products that aren't part of a big conglomerate," Seifert says.

Still, Starbucks remains the big player in the coffee industry, with the potential to crush any competition that comes along. The company's ready-to-drink Frappucinos have been grocery store mainstays for more than two decades--which Seifert suggests is one of the reasons startups were hesitant to enter the market for so long.

Going forward, new ready-to-drink brands will face an increasingly crowded space. Also making entry difficult is the need to find bottlers and distributors--and, of course, to make a delicious product in the first place.

For now, Chameleon continues to scale up. For the rollout of its ready-to-drink products, it moved into more advanced facilities and refined its brewing process. In addition to its growing sales, the startup, which now has 35 employees, has raised $9.25 million in outside funding, including $8 million from VC firm Boulder Food Group.

Williams retains his share of the company, but has stepped away from day-to-day operations and returned to running his coffee shop. Campbell, meanwhile, says he's happy he gave up the frenzied travel schedule he had in his consulting days, though leading a fast-growing company presents its own set of personal challenges.

"It would be nice to reach a point where I can just enjoy life," he says. "I have great young daughter and beautiful wife, and they've invested a lot in allowing me to take this journey. Eventually, I want to repay that a little bit."

Why You Should Stop Drinking Your Coffee Black
Published on: Mar 1, 2017