• Thu. Nov 24th, 2022

Are acquisitions becoming more common in the coffee industry?

ByStephanie M. Akbar

Oct 24, 2022

Acquisitions are commonplace in all kinds of industries around the world, and the coffee sector is no exception. In recent years, we have seen a growing trend of multinational coffee brands acquiring specialty coffee chains and roasters.

Many wonder if this market consolidation isn’t the start of a broader shift for the industry, and whether specialty coffee may soon be dominated by a few holding companies, rather than being spread across an array of much larger marks.

However, it is clear that Covid-19 has changed the way coffee businesses operate, which ultimately influences the motivations for acquisitions. With more companies in the coffee industry now looking for guaranteed growth opportunities, acquiring specialty brands could be a way forward.

To understand why coffee company acquisitions are becoming increasingly important and what this change could mean for the global coffee sector, I spoke to several industry experts. Read on to find out what they had to say.

You might also like our article on opening and effectively managing multiple cafes.

What are mergers and acquisitions?

Mergers and acquisitions are usually grouped together when it comes to transferring business ownership or consolidating within the market. But what are the differences?

At its simplest level, a merger is an agreement between two companies to join together and form a single company. This is done for a number of reasons including establishing a wider market reach or gaining more market share.

Acquisitions, on the other hand, occur when a company buys some (or even all) of the shares of another company. In this case, the companies can keep their own names and branding, or the original operation can be absorbed and rebranded accordingly.

There are many reasons why companies choose to buy shares of other companies or allow other companies to acquire stakes in their company. As with mergers, the primary reason is to expand or diversify their reach or customer base, or enter new markets using another brand’s pre-existing expertise.

Alternatively, companies may acquire other brands to gain access to new technologies or intellectual properties. Not only can this help a business keep up with competitors, but it can also help them quickly hire staff and access the resources needed to launch new products and services.

Containers of Stumptown Coffee Roasters' Cold Brewed Coffee in a supermarket in New York on Wednesday, October 7, 2015.

Recent major acquisitions in the coffee sector

Over the past decade there have been a series of significant acquisitions in the coffee industry – including both large chains and smaller specialty coffee brands.

One of the most significant examples was in 2019 when Coca-Cola acquired British coffee chain Costa Coffee for around US$5 billion. The acquisition was motivated by a number of factors, but perhaps because US soft drink consumption hit 30-year low in 2017.

In 2021, Coca-Cola HBC (the world’s third-largest bottler of Coca-Cola products) has acquired a 30% stake in Caffè Vergnano – one of the oldest coffee roasters in Italy.

Another example is Nestlé, which acquired a majority stake in Blue Bottle Coffee in 2017 – a specialty coffee roaster in the United States and Japan.

Corporate interest in specialty coffee brands has apparently increased over the past decade.

In 2012, the German conglomerate JAB Holding Company acquired Peet’s Coffee in San Francisco – a pioneer in the specialty coffee industry. Subsequently, three years later, Peet’s purchased Stumptown Coffee Roasters – another leading specialty roaster in Portland, Oregon. JAB Holding has also acquired coffee and takeaway chain Pret A Manger in 2018.

Generally speaking, these coffee brand acquisitions are a way to expand into new markets (such as specialty coffee) by building on existing expertise and established brands. For example, Starbucks and Blue Bottle offer different products to two very different consumer bases, giving them reach into two important (and profitable) market segments.

Acquisitions can also help existing brands enter new international markets. For example, an international food and ingredient company ofi has completed the acquisition of Club Coffee, a 116-year-old Canadian coffee roasting and packaging company earlier this year. Ultimately, this gives the company the opportunity to expand into North America (one of the world’s largest coffee markets) while maintaining Club Coffee’s expertise and established brand image.

Charles Zhengyao Lu, non-executive chairman of Luckin Coffee, poses during the company's initial public offering on the Nasdaq market site in New York, U.S., May 17, 2019. REUTERS/Brendan McDermid

Has Covid-19 changed the game?

Although there has clearly been an interest in acquiring coffee brands for over a decade, Covid-19 has certainly influenced the growth strategies of many companies.

Towards the start of the pandemic, 95% of out-of-home coffee businesses were forced to close for several months. Naturally, this led a huge increase in coffee consumption at homeas consumers began to brew more coffee-quality beverages at home.

Undoubtedly, big companies wanted to capitalize on this change in coffee consumer behavior, but it was by no means easy.

Umberto Doglioni Majer is President and CEO of Vea Venturesa holding company that owns several brands of coffee machines, including Carimali, Elektra and Bellezza.

He explains that it can be difficult to quickly expand the reach of a specialty coffee brand due to the inherent challenges that come with it, such as source high-quality, traceable coffee.

“[Specialty coffee companies] can be considered growth companies,” he says. “This term describes small brands that big companies can acquire as platforms to build on.

“However, returns on an investment like this usually don’t come quickly,” he adds. “It can take years [to turn a profit].”

Umberto says many large companies are now looking for growth opportunities with a better chance of success. In his experience, he says that means acquiring shares in more established brands with proven profitability and loyal customers.

“Factors such as the pandemic, rising inflation and stock market crashes have led to increased interest in acquiring more established businesses,” he tells me. “That’s because these brands will already have better profit margins and broader consumer bases.”

Customers at a Blue Bottle cafe

Can specialty coffee brands remain competitive if the market consolidates?

The current economic climate for small coffee businesses is challenging to say the least. The The price of C recently hit a 10-year high, shipping is incredibly expensiveand roaster profit margins have tightened in recent months.

This has made it harder for small roasters and cafes to stay profitable, and less purchasing power means they can struggle to compete with more established brands that have been acquired by a multinational.

So what can they do to be competitive?

In some cases, small coffee businesses may merge. For instance, Fairwave is a collective of specialty coffee brands that decided to merge following the pandemic. These companies include The Roasterie, Messenger Coffee Company, and Spyhouse Coffee Roasters.

However, brand consolidation doesn’t just happen through acquisitions and mergers – it can also happen through strategic partnerships and shared services initiatives.

One example is The Curate Coffee Collective, which is a shared roasting facility in Portland, Oregon. Since 2020, the establishment has been open to roasters of all sizes, and offers them access to equipment and office space, as well as educational resources.

However, this model is not so common in the coffee industry, especially in the specialty sector.

Spencer Turer is the Vice President of Coffee Consulting Coffee companies.

He points out that despite the difficulty for small coffee brands to remain profitable, mergers and acquisitions are not always the best solution, especially with large companies such as multinationals.

“The backbone of the specialty coffee industry is still largely made up of small, regional businesses,” he explains. “If these roasters and cafes have the skills, knowledge and expertise – and are successful in what they do – then why should there be a reason for them to merge or be acquired by a bigger company? “

While mergers and acquisitions with bigger brands can certainly help smaller coffee brands grow and reach new consumer bases, there are also understandable concerns about how quality control can be extended. and maintained.

Boxes of cold brew coffee at a busy Blue Bottle cafe in New York on Friday, September 15, 2017

In the months and years following the Covid-19 pandemic, we will see how widespread mergers and acquisitions will be in specialty coffee – especially if the world is heading into a period defined by a global economic downturn.

It is clear that consolidation through acquisitions and mergers will nevertheless continue to be part of the conversation about how the industry evolves and evolves in the future. This then raises questions about how small regional businesses can remain profitable.

Ultimately, for small cafes and roasters, the most important thing is to understand how you can continue to attract your customers. In some cases, that might mean innovating in line with third-wave coffee trends, but in others, it might just mean listening to what consumers want from you — and responding accordingly.

Did you like it? then read our article on changing your company’s coffee strategy after Covid-19.

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