Thirty years after Howard Schultz upended the US coffee market by expanding Starbucks’ pricey espresso drinks beyond Seattle, a new generation of coffee makers has started to carve out their own even more expensive niche.
San Francisco’s Blue Bottle Coffee aims to be Shake Shack to Starbucks’ McDonald’s, catering to a choosier audience with a higher-quality, higher-priced product. Their efforts have been so enthusiastically received that they caught the eye of Nestlé, the world’s largest food and beverage company.
The Swiss group is already the world’s biggest coffee business with a 22.4 per cent market share. Now it is hoping Blue Bottle’s upmarket cafés will reinvigorate its position in a fast-growing industry that is being upended by the habits of millennial consumers and a consolidation drive by hard-charging, privately held investment group JAB Holdings.
By purchasing a majority stake in Blue Bottle in a deal that values the business at more than $700m earlier this month, Nestlé departed from its traditional reliance on home-based coffee drinking powered by its Nespresso coffee capsules and Nescafé brands. It also showed just how far it is willing to go to capture younger customers who have different drinking habits.
According to a National Coffee Association survey, 15 per cent of millennials aged 18 to 34 had their last cup of coffee in a café and 32 per cent had an espresso based drink the day before the survey, the highest share for any age group.
Nestlé is betting that its global reach and financial firepower will turbocharge the pace of Blue Bottle’s expansion, which has already spread across San Francisco and into New York, Los Angeles, Washington and Tokyo. Blue Bottle is set to have 50 stores by the end of 2017.
In doing so, Nestlé is attempting to scale up swiftly Blue…