Nes­tle to brew high-end cof­fee with Blue Bot­tle buy

Daily Mirror (Sri Lanka) - - FOREIGN -

Nes­tle has bought a ma­jor­ity stake in Cal­i­for­nia-based Blue Bot­tle Cof­fee, mark­ing a first step by the pack­aged cof­fee leader into the hip­ster world of spe­cial­ity bars that serve high-end, sin­gle­o­ri­gin and cold brewed cof­fees.

The com­pany be­hind Nescafe in­stant cof­fee and Ne­spresso brew­ers an­nounced the pur­chase of a 68 per­cent stake of Blue Bot­tle on Thurs­day with­out dis­clos­ing fi­nan­cial terms.

The price was around US $ 425 mil­lion, ac­cord­ing to a source fa­mil­iar with the mat­ter.

Like last week’s pur­chase of Sweet Earth meat­less foods, the deal sees the world’s big­gest maker of pack­aged food reach­ing out to the kind of choosy con­sumers who are turn­ing away from its mass mar­ket brands like Nescafe cof­fee and Di­giorno frozen pizza.

It is the fourth deal this year by new chief ex­ec­u­tive Mark Sch­nei­der, an ex­ter­nal hire brought in last year to shake up a con­ser­va­tive Swiss com­pany that had missed its sales tar­gets for four years run­ning. Nes­tle and its multi­na­tional peers are fight­ing slower emerg­ing mar­kets, com­pe­ti­tion from new brands and a shift in con­sumer tastes away from pro­cessed food. The com­pany is also sell­ing its U.S. con­fec­tionery busi­ness, which in­cludes brands like Baby Ruth and But­terfin­ger, as it seeks to trans­form it­self into a “nu­tri­tion, health and well­ness” com­pany.

Nes­tle, Europe’s big­gest com­pany by mar­ket value, is un­der pres­sure too from ac­tivist share­holder Third Point. The U.S. hedge fund an­nounced a US $ 3.5 bil­lion stake in June and pressed Nes­tle for ac­tions such as a mar­gin tar­get and di­vest­ing its 23 per­cent stake in France’s L’oreal.

The U.S. mar­ket for cof­fee drinks has re­tail sales of US $ 2.9 bil­lion, ac­cord­ing to Euromon­i­tor In­ter­na­tional, which fore­casts it to reach US $ 4.4 bil­lion by 2021.

“Star­bucks has for a long time had a vir­tual lock on this cat­e­gory, but that lead is start­ing to slip,” said Euromon­i­tor an­a­lyst said Matthew Barry.

Nes­tle’s pur­chase also comes amid con­sol­i­da­tion in the so-called third-wave cof­fee sec­tor in the United States. This mar­ket caters to mostly young, ur­ban cus­tomers who have grown up on Star­bucks but have pro­gressed to more ex­otic drinks coaxed from hand-op­er­ated espresso ma­chines or non­tra­di­tional brew­ers by ex­pert baris­tas.

Ri­val third-wave chains also in­clude In­tel­li­gentsia and Stump­town, which were swept up in the re­cent cof­fee ac­qui­si­tion spree by pri­vately held JAB Hold­ings.

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