Nestlé Acquires Majority Stake in Blue Bottle Coffee

Nestlé today announced it has acquired a majority stake in California-based premium coffee roaster and retailer Blue Bottle Coffee. The deal comes as the Swiss food and beverage conglomerate looks to make a significant push further into the high-end coffee market.

As reported in The Financial Times, Nestlé, the world’s largest coffee company, has paid up to $500 million, at a valuation of over $700 million, for a 68 percent stake in Blue Bottle. The company will continue to operate as an independent entity and current management and employees will retain a minority stake in the business.

“This move underlines Nestlé’s focus on investing in high-growth categories and acting on consumer trends,” said Nestlé CEO Mark Schneider in a press release. “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.”

“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 Blue Bottle Coffee CEO Bryan Meehan in the press release. “I’m excited to work with Nestlé to take a long-term approach to becoming a global leader in speciality coffee.”

Founded in 2002 by James Freeman, Blue Bottle has become one of the leading brands of the third wave coffee movement, raising over $100 million from the likes of Google Ventures, Fidelity Management and independent investors such as Instagram founder Kevin Systrom, U2 frontman Bono and Academy Award-winning actor Jared Leto.

In addition to selling roasted whole bean and ground coffee, the company also markets ready-to-drink cold brew coffee in an 8 oz. can and a New Orleans style iced coffee in a 10.6 oz. carton. The company has also branched into retail; by the end of this year, Blue Bottle is expected to have 55 cafes in operation in major cities in the U.S. and Japan.

According to a report in the New York Times, Nestlé’s investment in Blue Bottle is aimed at boosting the Swiss company’s presence in North America, which has been a challenging region for growth. In turn, Nestlé will assist Blue Bottle’s expansion plans for new cafes in North America and Asia.

More broadly, Nestlé’s acquisition confirms premium coffee as a segment in which investors have identified massive potential. In recent years, via its majority ownership of Peet’s Coffee & Tea, Luxembourg-based JAB Holding Company has acquired majority stakes in premium brands Stumptown Coffee and Intelligentsia Coffee. Meanwhile, Hamdi Ulukaya, founder of Greek yogurt producer Chobani, invested in another high end producer, Philadelphia-based La Colombe, in 2015.

Matthew Barry, a beverages analyst at market research firm Euromonitor, noted that Nestlé has not been as aggressive as some of its rivals, such as JAB Holdings and Lavazza, in acquiring new coffee brands, preferring to grow its existing portfolio. However, the attraction of the premium coffee category and Nestlé’s desire to pivot towards selling healthier products may have influenced its decision to acquire a stake in Blue Bottle.

“The fact that they would spend so much money buying Blue Bottle at a time they are thought to be trying to shed some of their unhealthier brands, such as their confectionary products, shows that they think coffee is an important part of that shift,” Barry wrote in an email. He also noted strong year-over-year growth for high-end cold brew coffee products, a signal that the RTD coffee category, projected to reach $4.4 billion by 2021, will continue to grow. “No one is dominating this segment yet,” Barry wrote, “but with Nestlé behind it, Blue Bottle could be the one to break out from the pack.”

Michael Schafer, global lead for food and beverage at Euromonitor, said the deal underscores the importance of high-end cafes to customer acquisition and branding.

“Much like the company’s Nespresso boutiques, Blue Bottle offers Nestlé access to a growing cohort of quality obsessed coffee drinkers, one which the company has struggled to gain traction within the U.S.,” wrote Schafer.