Coffee consolidation percolates as millennials flock to premium java

Richer margins fuelling deals

LONDON/LOS ANGELES • Nestle’s high-priced purchase of a majority stake in California-based coffee bar chain Blue Bottle this week, highlights how big companies are seeking exposure to fastgrowing premium brands driven by millennials.

Industry experts expect more deals in the highly fragmented coffee market, which provides richer profit margins than mainstream packaged food and drink.

Since 2015 there have been nine coffee deals by JAB Holding Co, owned by Europe’s billionaire Reimann family. With brands like Douwe Egberts and Tassimo sitting alongside Blue Bottle rival Intelligentsia, JAB now owns the second-biggest packaged coffee business behind Nestle, owner of Nescafe and Nespresso.

“There are certainly going to be further purchases at all levels of the price tier,” said Matthew Barry, beverage analyst at Euromonitor International, adding that any company that is not doing acquisitions risks falling behind.

Earlier this month, Italy’s Massimo Zanetti bought a majority stake in Indonesian roaster Caswell’s and in August, Italy’s Lavazza bought a stake in France’s Espresso Service Proximite, its third acquisition in less than two years.

In May, Lavazza’s chief executive said the company could put together more than 1.5 billion euros (US$1.8 billion) for acquisitions.

Switzerland’s Nestle announced

The deal gives Nestle entrance to high-end bars that are part refreshment and part theatre, with space-age “siphon” or “vacuum” brewers. While niche, these outlets are seen as testing labs for new trends that may eventually go mainstream, such as cold brew, single-origin beans and nitro coffee.

High street chains such as Starbucks and Costa are already moving in that direction and a front-row seat could help Nestle innovate more quickly.