INTERNATIONAL - Nestle 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.
Nestle will pay about $425
million 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 U.S.
and Japan.
This number is expected to grow to 55 by the end of 2017, up from 29 a year
earlier, Nestle said Thursday.
Nestle’s No. 1 position in
the global packaged coffee market has been challenged by JAB Holding Co., the
investment company of Europe’s billionaire Reimann family, which has spent more
than $30 billion 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 Nestle’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.
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Nestle Chief Executive
Officer 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. Nestle sells Nespresso machines in the US, but still
trails Keurig in that category.
“This move underlines
Nestle’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.
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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.”