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Your next cup of coffee at a hipster cafe could be made by Nestle

Blue Bottle represents little more than 0.1% of Nestle's annual sales, according to Bernstein's Wood

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A Blue Bottle Coffee store in Los Angeles, California. Its founder recently sold the majority stake to Nestle. Photo: Reuters
A Blue Bottle Coffee store in Los Angeles, California. Its founder recently sold the majority stake to Nestle. Photo: Reuters

Blue Bottle Coffee’s founder describes himself as “a slightly disaffected freelance musician and coffee lunatic, weary of the commercial coffee enterprise.” And yet he’s just sold a majority stake to the ultimate commercial coffee enterprise — Nestle, owner of Nespresso and Nescafe.

Such pairings are becoming increasingly common as consumer-product giants like Nestle, Unilever, and seek growth beyond the stagnating megabrands that underpinned their strategies for decades. Now tiny labels with organic, hipster or ethical credentials are all the rage, and the global behemoths are paying ever more for them.

A recent flurry of deals for niche makers of everything from vegetarian burritos to vegan mayonnaise to celebrity-backed tequila underline the trend. As acquisitions accelerate, buyers have to look harder for targets and pay more for them. Then they have to try to maintain the indie cred that attracted consumers to the new brands in the first place.

“The challenge is whether the multinational consumer can grow the scale of their new acquisitions through integration, thus realising their value, while maintaining the core values of the brand they are acquiring,” said Matthew Appleton, partner at in

Doubters can point to The Body Shop, the self-styled maker of ethical cosmetics that acquired in 2006 and sold this year to Natura Cosmeticos of Brazil after it languished under the French company’s ownership. Some craft-beer brands have also not lived up to their frothy expectations. did better with its purchase of Ben & Jerry’s, which built its image around social consciousness. The company with its roots in rural Vermont is now one of the largest global ice cream brands.

Consumer-goods giants moving into retail have had a mixed track record, analyst Andrew Wood said in a note, with The Body Shop serving as the “poster-child of disappointment.” has done better with more recent purchases of brands like Nyx, IT Cosmetics or Kiehl’s, which was a niche cosmetics company with roots in New York’s East Village and has turned into a global brand.

has also had its setbacks. The company formed an alliance with Pierre Marcolini, a Belgian maker of luxury chocolates made from limited-edition cocoa beans from Venezuela and Cuba in 2007. The Swiss company pledged to help Marcolini expand a store network around the world, and the Belgian business helped advise Nespresso on its chocolates. The alliance foundered a few years later.

The challenge for the new owners of niche brands is to strike the right balance between milking the acquisitions for growth and keeping them separate to avoid alienating customers who balk at corporate control. Nestle, which is paying $425 million for a 68 per cent stake in California-based Blue Bottle, according to a person familiar with the situation, said in a statement that the coffee brand will remain a stand-alone entity. Founder James Freeman and other managers and employees will retain a minority stake and “continue to run the business with the same entrepreneurial spirit.”

“The price paid looks high,” Andreas von Arx, an analyst at Baader Helvea, said of the Blue Bottle deal. “The judgment will depend on how successfully the concept can be scaled up in the medium term.”

Another problem is that it can take a lot of small deals to make a financial difference. Blue Bottle represents little more than 0.1 per cent of Nestle’s annual sales, according to Bernstein’s Wood.

First Published: Sat, September 16 2017. 23:59 IST
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