THERE’S A BIG MARKUP ON COFFEE SHOP COFFEES.

its deal with Blue Bottle late on Thursday. Its few dozen coffee bars are part of the so-called third wave coffee movement in the United States, which emphasizes quality beans and expertly made drinks.

Analysts see the deal as evidence that an energized Nestle, under its new chief executive, is taking steps to reconnect with consumers, particularly young ones.

“It emphasizes the wish to actively work on the portfolio and build on attractive growth areas,” said Patrik Schwendimann, analyst at Zuercher Kantonalbank.

Nespresso already has a network of shops but Liberum analyst Robert Waldschmidt sees the Blue Bottle deal as being less about retail and more about Nestle getting a premium brand it may sell in packaged form.

“I don’t think they’re trying to reinvent themselves as a retailer,” Waldschmidt said. “They could be looking at going a bit more multi-brand given that JAB is the epitome of multi-brand.”

It remains to be seen if there is enough demand for such exotic drinks outside major urban markets, or whether expanding too much will hurt the Blue Bottle brand’s cachet. For now, Nestle said Blue Bottle would continue as a standalone entity.

“At a national level, there is no evidence of a shift toward independent coffee,” Bernstein analyst Sara Senatore said in a recent report on third wave coffee. “Independents are largely limited to the largest urban markets, which, while important to both chains (Starbucks and Costa), contribute a fairly small share of revenues or profits.”

She estimated that the top third wave players — which include JAB’s Stumptown and Intelligentsia, Philz, Counter Culture, Blue Bottle and La Colombe Coffee Roasters — together generate just US$126 million in revenue across 123 stores.

By contrast, Starbucks alone generated US$21.3 billion in revenue last year from 25,085 stores globally.

Nestle is the leader in a global packaged food and beverage market that has seen growth slow due to cooling emerging markets, increased competition from upstart brands and changing consumer tastes away from processed food.

The company, which is under pressure to improve returns from activist investor Third Point, has identified coffee as one of its key priorities for investment.

“There’s a big markup on coffee shop coffees,” Liberum’s Waldschmidt said. “Put it all together and you’ve got growth and margin, and in some areas, barriers to entry. Its fragmented so you can consolidate, which usually leads to margins going up.”