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Zurich - Nestlé SA agreed to acquire a majority stake in Blue Bottle Coffee as the Nespresso owner seeks to bolster its US presence amid increasing demand for upscale blends of java.
Nestlé will pay about $425m for a 68% stake in the Oakland, California-based company, according to a person familiar with the matter who asked not to be identified because the details haven’t been made public.
Blue Bottle sells coffee directly to customers online and operates 40 shops in the US and Japan. This number is expected to grow to 55 by the end of 2017, up from 29 a year earlier, Nestlé said on Thursday.
Nestlé’s No. 1 position in the global packaged coffee market has been challenged by JAB, the investment company of Europe’s billionaire Reimann family, which has spent more than $30bn expanding its coffee empire with acquisitions including Keurig Green Mountain and Peet’s.
“Despite the price, we are generally positive on the deal, as a demonstration of Nestlé’s focus on one of its key growth categories,” said Andrew Wood, an analyst at Sanford C. Bernstein.
The shares fell 0.3% in early Zurich trading.
Growth market
Nestlé CEO Mark Schneider has singled out coffee as one of the Swiss company’s biggest growth opportunities, as he steps up investments in niche brands like prepared food maker Freshly and vegetarian burrito maker Sweet Earth. In coffee, he’s focusing on expanding sales in the US, the world’s largest market.
Nestlé sells Nespresso machines in the US, but still trails Keurig in that category.
“This move underlines Nestlé’s focus on investing in high-growth categories and acting on consumer trends,” Schneider said in a statement.
The food and beverage giant is also eager to expand its presence in US retail stores. Blue Bottle produces a ready-to-drink cold brew product that is sold in some Whole Foods stores and is working to get its packaged coffee into the upscale organic grocery chain, which was recently acquired by Amazon.com.
The deal also gives Nestle access to cafes at a time when Starbucks has been facing slowing growth in the US.
The company is working to maintain its freshness standards as it seeks to expand its retail presence and could be available nationwide at Whole Foods stores next year, according to CEO Bryan Meehan.
“They invested because they think we’re onto something,” he said in an interview following the announcement.
Meehan and Schneider started talking about a partnership during a February meeting in Brooklyn, where Blue Bottle had just opened a massive cafe and production facility. The deal is structured to keep the coffee startup as a stand-alone entity, and Meehan said he’s not concerned that selling a majority stake to a global food giant will erode the buzz his brand has created.
“When people see this happening they feel like things are going to get worse,” Meehan said. “I’m not going to allow that to happen.”
In addition, the deal means that Blue Bottle is insulated from the pressure that surrounds prominent venture-backed startups with lofty valuations - not to mention public companies.
“The public markets are a distraction,” he said. “I don’t want to be part of that conversation - companies like Blue Bottle should never go public.”
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