The giant food company, which has bought a majority stake in the California company, enters a high-end coffee niche that has attracted such players as Starbucks, with its upscale Reserve brand.
In 2002, James Freeman gave up on being a professional clarinetist and began pursuing his other passion, roasting coffee. He started out in a 183-square-foot potting shed in Oakland, California, and named his newborn business Blue Bottle Coffee, after a storied Viennese coffee house.
Fifteen years later, Blue Bottle is now one of the best-known purveyors of artisanal coffee that, in Freeman’s words, doesn’t taste like “flea shampoo.”
And it now has a huge new owner: Nestlé, the Swiss food giant.
Blue Bottle announced Thursday it had sold a majority stake in itself to Nestlé, one of the surest signs yet of how third-wave specialty coffee — the kind that inspires almost monastic devotion to pour-over brews and perfectly steeped drinks — has become a hot business.
Most Read Business Stories
- Seattle-area small businesses applying for federal coronavirus loans see potential and problems
- REI keeps stores shut and furloughs many of its workers for 90 days; CEO gives up pay for six months
- Seattle area's March home prices jumped, before coronavirus pandemic took hold
- Boeing urged by Washington's congressional delegation to take bailout money, pay workers
- Grocery workers are dying of coronavirus
The niche accounts for less than 10 percent of the overall coffee industry. But it is growing rapidly and, perhaps more important, it commands higher prices and bigger profit margins.
That has drawn the interest of big business. Starbucks has introduced its upscale Reserve brand of coffee bars to fight off upstarts, and JAB Holdings, a family-owned European conglomerate, has been busy assembling a coffee empire that now includes the mainstream Jacob Douwe Egberts and Peet’s brands to Stumptown Coffee Roasters, a high-end mainstay.
Taking a majority stake in Blue Bottle will help Nestlé expand a foothold in the coffee sector built around the Nescafé and Nespresso line of products to a flourishing new industry with a highly dedicated consumer base (read: millennials).
The investment is also meant to shore up the Swiss conglomerate’s presence in North America, a region where it has struggled.
For Blue Bottle, the deal will help its expansion plans, which run from opening new outlets across North America and Asia to selling roasted beans and New Orleans-style cold brew drinks in stores.
Under the terms of the deal, Nestlé is acquiring 68 percent of Blue Bottle. The coffee company’s management and employees will own the rest. Neither side would disclose financial terms. Bloomberg News reported Nestlé will pay up to $500 million for its stake, citing a person familiar with the matter who asked not to be identified because the details haven’t been made public.
Although Blue Bottle is one of the most important players in the third-wave coffee sector, it has spurned many of the hallmarks of high-end shops — barista competitions, lengthy travelogues about journeys to find the perfect small coffee farm — while emphasizing the aesthetics and experience of a well-prepared cup.
Perhaps that is a reflection of its founder, a soft-spoken, classically trained musician. Freeman’s approach has less of the rebellious rock ’n’ roll attitude displayed by competitors like Stumptown, and more of the quiet calm one might associate with a slowly but well-brewed cup of coffee.
“It sounds very basic,” Freeman said, “but people really like delicious coffee.”
Blue Bottle has also helped drive trends within the industry, particularly in the case of cold-brew iced coffee.
The company’s approach has helped fuel enormous growth. Blue Bottle expects to nearly double its store count this year, to 55 outlets from 29. And it has continued to develop ready-to-drink products, as well as an online subscription business for its roasted beans.
Its ground coffees include blends that cost $17 for 12 ounces, to “single-origin” coffees that retail for $40 for the same quantity. By comparison, Dunkin’ Donuts’ “Original Blend” costs $8.99 a pound. It expects a 70 percent increase in sales this year.
Although most of the company’s stores are in the United States, Blue Bottle has managed to crack one of the fussiest markets for high-end coffee: Japan, where it runs six stores.
Blue Bottle’s fan base extends beyond the customers in its shops. In recent years, the company has raised more than $100 million from investors that have included big funds like Fidelity and Google’s venture arm.
For Nestlé, which has been under pressure from investors like the hedge-fund manager Daniel S. Loeb, Blue Bottle is the latest effort to refresh the conglomerate’s product line. In the past few months, it has acquired startups like Sweet Earth, a maker of frozen vegetarian foods, and Freshly, a service that delivers healthful meals.