Another coffee company is falling into the loving embrace of a massive European conglomerate: Nestlé said Thursday that it was acquiring a 68% stake in Blue Bottle Coffee for a reported $500 million, a deal that would value the company at about $735 million.
Blue Bottle, the 15-year-old roaster-and-cafe chain based in Oakland, Calif., has acquired a cult following for its Japanese-inspired design, expensive beans, high-tech brewing equipment and showy presentation of the act of pouring hot water over coffee in a filter.
Blue Bottle has 40 cafes, a number that Nestlé said would increase to 55 by yearend. Blue Bottle's founder, James Freeman, will stay on, as will its CEO, Bryan Meehan. Nearly all of Blue Bottle's locations are in the Bay Area, Los Angeles or New York City, though the chain also has six cafes in Tokyo.
Whether Blue Bottle's devotees will continue to flock to the brand after it falls under a big corporate umbrella remains to be seen, but historically the odds are good: many brands that started out small and seemingly "exclusive" were rolled up into major conglomerates with a minimum of consumer outcry.
For instance, two of Blue Bottle's biggest "third wave" rivals, Intelligenstia and Stumptown, are part of the German food and beverage conglomerate JAB; the spinning chain SoulCycle is nearly entirely owned by Equinox; and even Smartwater is owned by Coca-Cola.
"The commitment I have from [Nestlé's chief executive Mark Schneider] is that it will remain a standalone organization within Nestlé," Meehan told BuzzFeed News. "We are not going to be integrated. We will choose our products, we choose our locations"
He said that there will be "no changes other than that we’ve been doing over the past five years except to make the coffee more delicious," adding: "There are no plans for a Nesquik mocha."
Nestlé's courting of Blue Bottle started earlier this year with a phone call from Schneider, Meehan told BuzzFeed News. The two met in at the coffee company's massive cafe and roastery in the Bushwick neighborhood of Brooklyn in February. Schneider ordered an espresso, while Meehan had a cappuccino. They then went to west to the Williamsburg location, where Schneider ordered another espresso ("The Europeans are espresso drinkers," Meehan explained.)
He also took Schneider to the Williamsburg restaurant Marlow & Sons. "It’s pretty noisy, and there's a lot of hipsters, he loved it, looking around and seeing the customer base." Seven months later, they were able to close the deal.
Blue Bottle also sells beans, ground coffee, and coffee-making and serving equipment online and in its stores. Its New Orleans iced coffee cartons and cold brew cans are also sold in grocery stores. While the stores are only in a few US regions, its packaged coffee drinks could be distributed over a wider footprint in the US and globally by Nestlé.
While there are no immediate plans to use Nestle's massive distribution and logistics networks to sell more cold brew and iced coffee in more stores, Meehan told BuzzFeed News that it was "an area where Nestle could help," especially with expansion to international markets. "We’re not experts in that channel, we have two people dedicated to that channel, we don’t have a salesforce."
Meehan wouldn't comment on the terms of the deal, but The Financial Times reported that it values Blue Bottle at more than $700 million. The newspaper said Nestlé is paying "up to" $500 million for just over a two third stake in the company, with an option to acquire the rest of the company.
"Nestlé is entering the fast-growing, super premium coffee shop segment with an iconic brand for discerning coffee drinkers," the company said in a statement. The Swiss company also said that Blue Bottle will get "full access to Nestlé’s well-recognized capabilities in coffee and its strong global consumer reach."
Nestlé has some of the most well known and massively distributed food and beverage brands on earth, like Kit Kat, Lean Cuisine, Gerber as well as coffee brands like Toll House, Nescafe, and Nespresso, making it the world's largest coffee producer. The conglomerate also owns the Purina brand, which it purchased for $10 billion in 2001.
Before Nestlé, Blue Bottle attracted millions of dollars from another unlikely source: technology investors. Well known venture capital firms like Index Ventures and GV, the former Google Ventures, invested in the chain, as well as Twitter co-founder Ev Williams, Jared Leto, early Twitter and Uber investor Chris Sacca, and Wordpress co-founder Matt Mullenweg. Blue Bottle has raised just over $120 million in venture capital, according to Crunchbase. The company now will be overseen by a board of Nestlé executives, plus Meehan and Freeman. "We going to do a lot less traveling to see investors," Meehan said.
Blue Bottle is just the latest of the so-called "third wave" of coffee companies -- which roast their own beans and sell them and pricey drinks in their shops and directly to consumers -- to be bought up by a massive food and beverage company.
The German investment firm JAB bought Peet's Coffee & Tea for almost $1 billion in 2012 and then bought up Stumptown and Intelligentsia in 2015. JAB owns other major food and drink brands like Caribou Coffee, Krispy Kreme, Panera, as well as Keurig Green Mountain. Starbucks founder Howard Schultz stepped down as chief executive in order to oversee the mega-chain's premium business, known as Reserve.
"I have Mark's word," Meehan said, referring to Nestlé CEO Mark Schneider. "We are going to be responsible for Blue Bottle."