Blue Bottle Coffee’s History
Blue Bottle Coffee is a pioneer in specialty coffee. The company’s story is a great entrepreneur success story. James Freeman, a coffee fanatic, home roaster, and freelance musician founded the company in the early 2000s. He started the company in a tiny potting shed in Oakland, California. And before long James and his company started redefining the American coffee industry.
Blue Bottle Coffee’s approach to source excellent coffee and only sell it at peak freshness, within 48 hours of roasting, was a stark contrast to the stale or over-roasted mainstream coffees of the era. The company has focused on the customer experience in it’s coffee shops. Walking into a Blue Bottle coffee shop is similar to the experience of an Apple store. This approach has been remarkably successful, allowing Blue Bottle Coffee to drive the specialty coffee industry forward and open numerous coffee cafes in the Bay Area, New York, Los Angeles, Washington DC, and Tokyo.
The Blue Bottle and Nestle Deal
However, Blue Bottle’s days as an independent coffee company have come to an end. The company recently announced that Nestle, the Swiss food giant, is acquiring a 68% ownership stake. Nestle will reportedly pay $500 million for it’s 68% stake in a deal that values Blue Bottle Coffee at $700 million. Mr. Freeman and the folks behind Blue Bottle have repeatedly reassured that this deal will not change the company. Yet, to me this seems a bit naive. When you give up nearly 70% of your company something is going to change!
Some of Blue Bottle’s loyal customers have responded to this news with anger and threatened to boycott the brand. I believe this type of response is inventible when a beloved and innovative company agrees to a buyout. However, it doesn’t help that many people already despise Nestle because of their aggressive and questionable water bottling practices. Only time will tell if this is only a reactionary response from upset customers or if this backlash causes long term damage to the Blue Bottle brand.
Impact on the Specialty Coffee Industry
What does this deal mean for the specialty coffee movement as a whole?
I believe this acquisition provides a glimpse into the future of specialty coffee. Nestle is making a big bet, $500 million to be exact, that quality, specialty coffee is here to stay and will be a part of their business that they can grow and make money on in the future. You can bet that Nestle did their research before paying this kind of money. I see this as a huge vote of confidence for the future of the specialty coffee industry.
This is not the first acquisition in the craft coffee world. JAB Holding Company, a private company based out of Luxembourg, has quietly built a coffee empire. They have acquired mainstream coffee and breakfast companies like Peet’s Coffee, Caribou Coffee, Keurig Green Mountain, and Panera Bread as well as specialty coffee companies Intelligentsia Coffee and Tea from Chicago and Stumptown Coffee Roasters out of Portland, Oregon. And we can be sure that this is not the last deal that will happen in this space.
Consolidation in Specialty Coffee and Craft Beer
In many respects the specialty coffee industry in American mirrors the craft beer industry. Specialty or craft small breweries innovate, pushing the industry forward and gain a regional, cult-like customer base. Their success draws the attention of the large corporate beer producers with lots of money, who expand their product line buy purchasing several of these craft breweries. This has recently happened with Anheuser-Busch (makers of Budweiser) purchasing Wicked Weed Brewing from North Carolina and Constellation Brands (producers of Corona) acquiring cult-favorite Funky Buddha Brewery from Florida. Like the recent Blue Bottle Coffee deal, these craft beer acquisitions caused similar backlash and boycott threats.
My prediction is that we will continue to see consolidation in both the beer and coffee industries. Look for companies like JAB Holdings and Nestle to continue their buying spree. I would not be surprised to see other coffee behemoths like Starbucks and Dunkin’ Donuts make similar acquisitions. And if you think anything is safe from being bought by Amazon I have two words for you: Whole Foods.
A Bright Future Even With Buyouts
All is not lost if you hate all of this talk of big companies buying out the little guys though. For every action there is always a reaction. Some of Blue Bottle’s upset customers will never go back. Likewise, some customers in Portland, Oregon will choose from a variety of independent coffee roasters before setting foot in a Stumptown Coffee location. There will likely be many more corporate buyouts in the specialty coffee space in the future. But this will create an opening and opportunity for new independent specialty coffee roasters and shops to rise from the ashes, provide a new and unique experience to customers, and to continue to push the industry forward.
I believe specialty coffee has a very bright future. Stumptown Coffee didn’t stop producing amazing quality coffee in 2015 when it was bought out. Similarly, Blue Bottle Coffee with continue doing what it does best, providing customers an amazing experience with quality coffee. Nestle’s distribution and financial muscles will help the company expand to serve new customers and cities. The customers who now feel betrayed by Blue Bottle Coffee will find another independent coffee company to provide them with their caffeine fix. And new coffee startup companies will arise, innovate, and continue to push the industry forward just like Blue Bottle Coffee once did.
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