- The number of acquisitions in the coffee sector has skyrocketed in the last five years, with the world’s ten largest roasters responsible for more than 35% of all global coffee sales
- Acquisitions can provide a specialty coffee brand with significant new resources
- At the same time, it can threaten all the makes a brand “specialty”
OVER THE last decade, large coffee companies have started to acquire established specialty coffee brands, capitalising on their reputation within a fast-growing market segment. So, with acquisitions seemingly occurring every week, it’s important to ask: what does acquisition actually mean for a specialty coffee brand?
In 2017, Nestlé famously acquired a 68% stake in Blue Bottle Coffee for a reported $700 million. More recently, Keurig Dr Pepper Inc. invested $300 million to acquire a 33% stake in the La Colombe Coffee Roasters in July this year.
Acquisitions haven’t just been limited to roasters, either. Earlier this year, Neumann Kaffee Gruppe (NKG) announced its majority ownership of coffee trader Nordic Approach and Tropiq this year, for example.
Larger companies acquire smaller brands for a variety of reasons. Acquiring a specialty coffee company in particular gives brands access to a previously inaccessible market, diversifies their portfolio, and allows them to leverage their scale and infrastructure to capitalise on the rapid growth of the market. But what does this actually look like on the ground?
“Long-term returns and synergies in operations, distribution, or branding are typically considered alongside immediate profitability,” says Emil Parthenides, managing director of EP Advisors.
Generally this means the parent company will focus on two things above all else: reducing costs and increasing sales. This could mean reducing some supply costs – such as green coffee, for instance – to make products more profitable.
The costs of acquisition
There are no hard and fast rules for what happens when a company gets acquired – each case will be different. But at the centre of these changes, there will always be one important question to ask – how much does being acquired affect the ethos and identity of a specialty coffee brand?
Where previously specialty coffee companies may have been focused on quality or sustainability, a larger parent company will understandably have different priorities.
When we consider this in view of the fact that flagship specialty coffee roasters are being acquired by multinational conglomerates the world over, there is clearly a long-term impact for the sector at large.
“When a parent company leverages a brand’s standing and relationships, there is a risk of being exploitative or unsustainable,” Emil says. “Maintaining ethical and sustainable practices should be a priority to avoid damaging the brand’s reputation. Open communication, clear guidelines, and responsible management can help mitigate these risks.”
There are likely to be changes to acquired roasters’ sourcing models, too. If acquired by a larger roaster, their sourcing may be absorbed into another, larger supply chain – or eliminated entirely. This is likely to be disruptive for the producers the brand previously purchased from.
“It’s essential to ensure that such practices don’t compromise the fair compensation of raw material producers,” Emil says. “Pros include financial efficiency, while cons may involve ethical concerns and potential negative impacts on producers.”
In this context, specialty coffee brands and the values they represent could be entirely consumed by a larger parent company – changed irrevocably.
However, for all the potential disruption, there can also be clear upsides. To start with, an injection of capital can allow a brand to achieve more than might have previously been possible – the benefits that derive from integrating with a parent company’s operations can be unparalleled.
“Besides raw material cost reduction, companies might streamline operations, optimise supply chains, or consolidate redundant functions to make the acquired business more economical,” Emil says.
In other words, a parent company can offer an acquired specialty coffee brand economies of scale – which essentially means the brand can become part of a bigger, more powerful supply chain.
Alternatively, parent companies can choose to respect the specialty coffee brand’s original model and allow them to function independently. While this may be self-serving – in an effort to protect the reputation and the image of the specialty coffee brand – it also means they can preserve the audience.
No matter which approach they take, the parent company can also offer greater reach, improved distribution channels, and overall economies of scale of its parent company – which can be used to magnify its sustainable impact.
“Achieving this without compromising their ‘specialty’ status requires careful planning,” Emil says. “Maintaining product quality, ethical sourcing, and transparent communication with consumers are key strategies to balance growth with authenticity.”
An example of where this has been successful is Nestlé’s acquisition of Blue Bottle Coffee. At the time, critics said the acquisition would be damaging to Blue Bottle’s “independent, hipster ethos”. However, Blue Bottle has retained many of the components which were historically key to the brand’s identity.
“To minimise the negative impact, maintaining a level of autonomy can be beneficial,” Emil says. “It’s crucial to uphold the brand’s values and communicate them internally and externally. Success in preserving identity can contribute positively to the long-term benefits of the acquisition.”
Ultimately, for the parent company, the benefits of acquiring a cool, successful specialty coffee brand are clear: “Acquisitions can provide opportunities for market expansion, access to new customer segments, innovative technologies, or talent,” Emil says.
However, for the brand in question, things are rarely this simple. Although they can benefit tremendously from greater economies of scale and potential investment, this can come at the cost of their values and identity – the very things which made them popular in the first place. Ultimately, as is the case for many things across the coffee industry – it’s the people at the top who decide.
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