- Nestle is buying a 68% stake in Oakland, California-based Blue Bottle Coffee for a reported $425 million, according to Bloomberg.
- The move could put Nestle in a position to compete with U.S. coffee giants Starbucks and Keurig Green Mountain.
- "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," Blue Bottle CEO Bryan Meehan said in a statement. "I'm excited to work with Nestle to take a long-term approach to becoming a global leader in specialty coffee."
The Blue Bottle acquisition is a different direction for Nestle, but it isn't as odd as it might first appear. After all, Nestle is the world's largest coffee producer, with well-known brands including Nescafe and Nespresso.
Blue Bottle is known for its high-quality artisan coffees, which it brews on site. It also sells beans, and it operates stripped-down coffee bars in the Bay Area, Los Angeles, New York and now Tokyo. It has been on an expansion spree lately and, by the end of this year, plans to have almost doubled its locations from 29 last year to 55 this year.
Blue Bottle founder James Freeman reportedly raised about $120 million from some deep pockets connected with Google, Instagram and Twitter. He also attracted an investment from actor Jared Leto, musician Bono and pro skater Tony Hawk. They are all presumably scheduled for a big payday, courtesy of Nestle.
Other corporate investors are snapping up so-called "third wave" coffee companies that started small and grew. They include JAB Holdings, which purchased Keurig Green Mountain, Peet's Coffee and Stumptown Coffee Roasters.
The reason: there's a lot of potential profit. The growth rate in U.S. coffee consumption was nearly 8% during 2015-2016, and the retail value of the U.S. coffee market was estimated at $48 billion in 2015, with specialty coffee shops making up more than half the value share.
This is the fourth deal made so far this year by Nestle CEO Ulf Mark Schneider, a former health-care executive who is trying to shore up lagging sales targets, sell the company's U.S. confectionery business, and fend off pressure from activist investor Third Point. Just last week, Nestle USA acquired Sweet Earth, a plant-based foods manufacturer based in California with nearly 50 products, including Harmless Ham and Benevolent Bacon.
The U.S. hedge fund bought a $3.5-billion stake in Nestle earlier this year and wants to push the traditionally staid Swiss company in some new directions and institute some balance sheet improvements. Having Blue Bottle integrated into the company and in a position to go head-to-head with Starbucks and/or Keurig Green Mountain might be one way Schneider can make that happen.