There was a time in the last decade when global behemoths like Nestlé, Unilever, Proctor & Gamble and their ilk could count the number of “billion dollar brands” in their portfolio on one hand. But venture-backed “lifestyle” and CPG brands are now commanding frothy valuations from VCs, and in acquisitions as evidenced by Nestle’s majority purchase of Blue Bottle Coffee. These once staid mega holding companies used to have the formula for global dominance down pat, via a mix of supply chain and operations efficiency, marketing expertise, and ruthless go-to-market plans. But now they are losing traction to both:
- Regional brands who are increasingly sophisticated and gobbling up market share around the world, and
- High-end brands in developed markets, who deliver hyper-refined and cutting edge products and experiences that consumers require for their premium-priced products.
The recent historical dominance of these mega global brands (whether it’s Dove, Tide, or Colgate) is crumbling fast, and the big players are scrambling to acquire the new, niche brands that consumers love, whether it’s AB InBev’s devouring of craft beer brands or Unilever spending $1 billion on Dollar Shave Club. The California-based Blue Bottle Coffee has charmed VCs for years now, fueling valuations that left some in the media and coffee worlds scratching their heads, but Nestle’s majority stake values Blue Bottle at a whopping $700 million. For reference, Starbucks has a market cap of $80 billion, with almost 24,000 locations worldwide. Blue Bottle Coffee projects to open 55 cafes in total by the end of the year (and presumably a lot more after that).
Way back in the innocent times of the summer of 2015, Blue Bottle Coffee had already persuaded VC’s to fund its business with over $120 million in venture capital. For comparison, its California compatriot and Bay Area cult favorite Philz Coffee was also logging miles around Sand Hill Road, with VCs handing them $75 million by early 2015. (If anyone has studied the effect of bringing stimulants to VC pitches that the audience is obligated to sample, do let us know. Seems like a winning strategy.) There are also some notable names getting rich(er) off of the Blue Bottle acquisition, including investors like Instagram CEO & Founder Kevin Systrom, U2’s Bono, actor Jared Leto, and even ageless skater dad Tony Hawk (who will personally teach you how to ollie if asked nicely).
So what does it all mean for the coffee aficionado or Blue Bottle fan? Certainly you can expect a methodical increase of Blue Bottle’s retail footprint, more branded coffee accessories, and expanded e-commerce and coffee bean subscription marketing and growth. But as consumers’ tastes become more and more stratified, one has to wonder: What the ceiling is for this kind of “premium” coffee experience? Does anyone want Blue Bottle “Three Africans” K-cups? Blue Bottle may be boxed in by the far larger, “good enough” solution in the form of Starbucks, while those who value “the new cool thing” and cutting edge retail experiences may come to see an increasingly ubiquitous Blue Bottle as losing its special “badge brand” status. There’s a reason that, for years now, coffee fans have been enamored (to the point of cliché) with the rarefied-yet-casual experiences of cafes and coffee roasters across Japan, which are a far cry from the standardized, banal retail experience one has at a Blue Bottle (which is already far from novel or unique). More specialized competition can outflank them from the high-end, so how much scale and growth is truly available the “high middle”-end before consumer tastes and trends shift (or worse, deem it not special enough to warrant a premium)?
There will always be a newer, smaller, more specialized, and higher quality product being offered, which inevitably grows into a new trend. Unlike with say, Shake Shack burgers, operational “scale” won’t get you very far in the true high-end of the coffee world. Prices for the world’s best beans are skyrocketing already and a lot of smart folks see a potential coffee supply crisis not too far away, as climate change imposes radical changes on the delicate microclimates necessary for premium beans.
People might also wake up one day and decide they don’t want to wait 15 minutes in a cafe for one cup of pour-over and pay $7 for it (or decide they’d rather buy better beans, and do it at home for 1/10th the price and less time). Or maybe Gen Z will surprise us all, and younger consumers will lead the marketplace back to “cheap-and-convenient” being the most important factors in coffee consumption outside the home, fueling the mass rediscovery of truly democratic and ubiquitous coffee. And maybe in 20 years, we’ll be marveling at some Blue Bottle version of Folger’s crystals while taking a Hyperloop to work and Space X vacations. Dare to dream.