Nestlé is dropping up to $US500 million to take a majority stake in the hip coffee brand Blue Bottle Coffee.
At first glance, the two companies have little in common: one is a hip coffee chain with roughly 50 locations, and the other is a $US259 billion mega-company that owns brands including Nescafe, Nespresso, and Coffee-mate.
According to Blue Bottle’s CEO, the acquisition — which reportedly cost
Nestlé up to $US500 million — wasn’t a deal the trendy coffee company was seeking out.
“We weren’t looking for it, but I sort of blame [Nestlé CEO] Mark Schneider,” Blue Bottle CEO Bryan Meehan told Business Insider.
After he took on the role of CEO in January, two of Schneider’s goals were to build Nestlé’s North American and coffee businesses. In February, he reached out to Meehan and the pair soon met in Bushwick, a neighbourhood in Brooklyn, New York where Blue Bottle has a cafe and roastery.
While it was a somewhat unlikely match, both companies had attributes the other needed.
In addition to building its coffee portfolio, Nestlé was seeking a reputation boost.
“Nestlé is trying to become a company more focused on healthier food products,” Matthew Barry, beverage analyst at market research firm Euromonitor, said in an email on Thursday. “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.”
Meanwhile, Nestlé can offer Blue Bottle extensive funding and support. Instead of appealing to dozens of investors (Blue Bottle has raised $US120 million, including from celebrities like Bono and Tony Hawk), Meehan says he is looking foward to only dealing with a single investor who is focused on the brand’s long-term plans.
Nestlé also has the experience and global presence necessary to help Blue Bottle grow its ready-to-drink coffee business. Starbucks, Dunkin’ Doughnuts, and McDonald’s are all investing in their own bottled coffee beverages, and Euromonitor predicts the category is set to grow from a $US2.9 billion business in the US to $US4.4 billion in retail sales by 2021.
“No one is dominating this segment yet,” Barry said of the quickly growing premium ready-to-drink market. “But, with Nestlé behind it, Blue Bottle could be the one to break out from the pack.”
There is one very visible potential downside to the deal for Blue Bottle. While acquiring Blue Bottle will likely boost Nestlé’s reputation, association with the enormous company could damage the hip coffee brand’s own rep. Nestlé is currently known for instant coffee, not high-end, specialty beverages. And, for many customers, acquisition is equivalent to “selling out.”
However, Meehan is convinced that customers will see in the coming months and years that Blue Bottle’s quality will remain unchanged.
“You can’t run your business by worrying what people will think,” he said. “You have to run your business by believing in what you do. And, I know how things will be in the future — our customers don’t.”
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