September 15, 2017

Nestlé continues to diversify its business portfolio having agreed to acquire a 68 percent stake in specialty California-based coffee roaster and retail giant, Blue Bottle Coffee for approximately $425 million.

Over the past 15 years Blue Bottle has grown internationally to operate a total of 55 coffee shops across the U.S. and Japan by the end of this year. The company also has an online presence, selling ready-to-drink and roast and ground coffee products on the online retail market.

“This move underlines Nestlé’s focus on investing in high-growth categories and acting on consumer trends. Blue Bottle Coffee’s passion for quality coffee and mission-based outlook make for a highly successful brand. Their path to scale is clearly defined and benefits from increasing consumer appreciation for delicious and sustainable coffee.”

This is the second acquisition for Nestlé this month that answers to shifting consumer trends. In the first week of September, Nestlé secured a significant presence in the plant-based food sector through the acquisition of California-based plant-based food leader, Sweet Earth.

The acquisition gives Nestlé an immediate channel through which to tap into a consumption shift toward plant-based proteins and a globalization of flavors and ingredients, including seitan, legumes, tofu, lentils, chickpeas, and beans.

“In the United States, we’re experiencing a consumer shift toward plant-based proteins. In fact, as many as 50 percent of consumers now are seeking more plant-based foods in their diet and 40 percent are open to reducing their traditional meat consumption,”  said Paul Grimwood, Nestle USA chairman and CEO.

Similar consumption trends are being seen for coffee. Demand for coffee in the U.S., the biggest coffee market in the world, is on pace to reach a new record, driven by increased consumption by younger drinkers. Millennials aged between 19 and 34 account for 44 percent of U.S. coffee consumption, according to Datassentials. And despite consumption dropping from 76 percent to 64 percent for people 60 years and older, and consumption falling for those between the ages of 40 and 59, the jump in demand by younger coffee drinkers has more than made up for the shift.

Between 2008 and 2016 daily consumption of coffee by people between the ages of 18 and 24 jumped from 34 percent to 48 percent, while for people between the ages of 35 and 39, daily consumption climbed from 51 percent to 60 percent, reports Bloomberg. Additionally, young people are drinking coffee at younger ages – as early as 14.7 years old.

Nestlé is already the world’s top name in the packaged coffee segment, controlling brands such as Nescafé and Nespresso, but the addition of Blue Bottle will launch the company more in line to compete with the likes of Starbucks as it expands its presence in cafes.

A Popular Pick

Others have also made moves to establish or expand their foothold along the coffee supply chain.

In July of last year, Coca-Cola announced it was entering the coffee sector in Brazil in response to softening demand for soft drinks.

The deal was made by Coca-Cola with plans to sell high-end, packaged Arabica beans through its own domestic Brazilian brand, and to establish an agreement with Tristao Companhia de Comercio Exterior, a coffee exporter that will acquire and roast the beans.

Although Brazil is the world’s top producer and exporter of Arabica beans, it is also the second largest coffee consuming market by volume according to the Brazilian Coffee Industry Association reported Just-Drinks, indicating a sizeable potential domestic market for high-end, export-grade coffee.

Soon after, in December 2016, London-based asset manager Ashmore International announced an overall total acquisition of 12,000 acres across six South American countries for US$50 million. Of this total, 8,000 acres were coffee farmland that were acquired for US$35 million.

More recently, in May of this year, Austin-based High Brew Coffee – a maker of natural, low-calorie, ready-to-drink, cold brew coffee beverages – announced it had successfully closed on a $17 million Series B led by Boulder Investment Group Reprise (BIGR Ventures).

The Hand Behind Nestlé

Behind these rapid-fire deals by Nestlé is billionaire activist Daniel Loeb and his hedge fund Third Point, which acquired 1.25 percent of the company for $3.5 billion this June – the largest initial investment ever made by the fund in a public company, according to Food Dive.

Third Point noted how Nestlé had not been doing as well as its rivals in responding to a changing consumer landscape. And suggested the company improve margins, reinvent its core business, (something that both the Blue Bottle and Sweet Earth deals reflect), and divest non-core assets.

Blue Bottle will continue to run as a stand-alone business, with existing management and employees staying in place.

Prior to the Nestle acquisition, Blue Bottle raised $121 million on its own, from big name investors including GV (Google Ventures), and Twitter co-founder Ev Williams, according to Reuters.

“My goal as CEO has been to secure a sustainable future for Blue Bottle Coffee that would enable it to flourish for many years to come,” said Bryan Meehan, CEO, Blue Bottle Coffee. “I’m excited to work with Nestlé to take a long-term approach to becoming a global leader in specialty coffee. We felt a real kinship with the team and knew it was the right move for us.”

-Lynda Kiernan