With Blue Bottle, Nestlé eyes high-end challenge to Starbucks

September 21, 2017 10:50
Blue Bottle has built its reputation on hand-drip coffee, which costs more than US$10 a cup. Photo: Facebook

Established in 2002, Blue Bottle has built its reputation on hand-drip coffee, which costs more than US$10 a cup. It’s a favorite of Silicon Valley techies, who have dubbed it "the iPhone of the coffee industry".

With less than 40 outlets, the boutique coffee chain has reportedly sold a controlling stake to Swiss food and beverage giant Nestlé for around US$500 million.

James Freeman founded Blue Bottle Coffee in Oakland, California. The company name was inspired by Europe’s first coffee shop, the Blue Bottle Coffee House, which was established in Vienna in 1686.

He started the company on a trailer driving around the city, selling coffee within 24 hours of roasting. His coffee became an instant hit.

In 2003, Freeman saved enough money to rent a place at a farmers’ market inside a ferry station in San Francisco. Many of the farmers there were foodies themselves and quickly developed a liking for Blue Bottle’s coffee.

The company moved to the Hayes Valley neighborhood of San Francisco in 2005 and started a coffee kiosk. In 2008, Blue Bottle opened its first proper coffee shop at the Mint Plaza with 10 seats.

The company has expanded very slowly over the years, quite different from the frenetic pace that Silicon Valley stands for. In fact, its uncompromising attention to taste, freshness and sustainability became the hallmarks of the company.

Regarded as a  leading brand in the evolving coffee culture, which places a lot of emphasis on the origin of coffee beans as well as the brewing and dripping process, Blue Coffee has attracted big-name investors such as Google Ventures, Morgan Stanley, and the founders of Twitter, Instagram and Uber.

Though much smaller than Starbucks, Blue Bottle Coffee can be a nice fit with Nestlé, as the food giant can use the company to launch high-end coffee products and coffee machines to challenge Starbucks in those important market segments.

Nestlé sales stood at US$93 billion last year, of which US$15 billion was generated by its coffee business, including instant coffee and Nespresso coffee machines. Both products have dominated the entry-level coffee market.

It's been reported that Freeman will be stay as the Blue Bottle's chief product officer after the deal, and he promised to preserve the core spirit and culture of the company.

Freeman is considered an extreme coffee lover, but is not particularly well-regarded in operating a business. As such, he may not play a key role in the management of the company after the takeover.

This article appeared in the Hong Kong Economic Journal on Sept. 20

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist