After splitting with his partner, Koester founded Delmar Records in Delmar Street, St. Louis. He recorded the Windy City Six, a traditional jazz group, as his first side for Delmar in 1953. Koester then searched out and recorded blues musicians of the 1920s and '30s who were living in St. Louis. In 1958, he moved the label to a storefront in Chicago. He purchased Seymour's Jazz Mart in the Roosevelt University Building from Seymour Schwartz in 1959. The name of the label was changed from Delmar to Delmark, partly because of copyright issues. In 1963 he relocated Delmark and the store to Grand Avenue. In 1971 he purchased premises at 4243 N. Lincoln Avenue and moved Delmark there. However he kept the store in Grand Avenue, naming it the Jazz Record Mart. At this time Koester's wife Susan also worked in the business and their only employee was Bruce Iglauer, who later founded Alligator Records.
Koester is widely considered to be the finest blues archivist in the United States. The label continually introduces the recordings of cutting-edge Chicago blues and modern jazz artists, from Roscoe Mitchell and Junior Wells in the 1960s to Ron Dewar and the Memphis Nighthawks in the 1970s to Jeff Parker, Josh Abrams and Big Time Sarah today.