- On 9 January, Matthew Algie announced its merger with Capitol Foods and Tchibo across the UK and Ireland
- Despite Tchibo’s size, it will retain Matthew Algie’s branding for all UK and Ireland locations
- Brand equity clearly had a lot to do with this decision – with the “Matthew Algie” name carrying a lot of weight in its local market
AFTER ACQUIRING Matthew Algie in 2016 and Capitol Foods in 2018, Tchibo is finally officially merging its UK & Ireland operations with the two existing local brands – but will be keeping the Matthew Algie name.
Tchibo had attempted to expand into the UK market ahead of its initial acquisition of Matthew Algie in 2016. The company operated retail stores and supermarket concessions, and had an online presence. However, after restructuring in 2007, Tchibo announced that it would be reducing its supermarket footprint, and the company eventually exited the UK market entirely in 2009. Its UK web store followed suit in 2010.
However, its acquisition of the two brands in 2016 and 2018 shows that it wasn’t happy with exiting the market entirely – and this decision to unify everything under the Matthew Algie brand shows that it has learned some important lessons.
But what’s so unusual about this?
Typically, when a larger company acquires a smaller brand, they either operate it independently (see Nestlé and Blue Bottle) or absorb it entirely (for example, Starbucks’ acquisition of Seattle’s Best Coffee in 2003).
The latter option has been far more prevalent in recent years because larger coffee companies typically want to leverage a smaller, “cooler” coffee company’s brand equity and awareness. But this recent merger pushes it one step further – with Tchibo willing to drop all associations with its brand across the UK and Ireland in place of the Matthew Algie name. Why?
Two key factors
Even down to the resonance of the name, Matthew Algie is a name of Scottish origin – and it sounds like it, too. Given its history in the late 2000s, we could point to the fact that Tchibo initially struggled to resonate with a British audience. Matthew Algie’s authentic Scottish name and recognisable branding are likely to help it more effectively appeal to the market share and localise Tchibo’s operations.
This could be particularly important for some consumer demographics who may view supporting a local, 150-year old business as easier than switching to buying from an overseas brand they know nothing about.
But this move isn’t just about leveraging Matthew Algie’s heritage to appeal to an older demographic. The Scottish brand’s sustainability programmes are also a key part of its messaging: it was the first roaster to introduce Fairtrade espresso to the UK, as well as the first roaster globally to achieve the Carbon Neutral International Standard.
Multi-million dollar investments have been made into the company’s production facilities to achieve its goal of becoming net zero by 2035, with its entire business, including the supply chain, reaching this target by 2040.
The Scottish brand will also provide coffee at the COP26 summit – just one of many marketing initiatives Matthew Algie has initiated in recent years that position it as a sustainability leader.
It’s no secret how much younger consumers value ethical sourcing and other sustainability initiatives. This merger allows Tchibo to capture both older and younger coffee consumers where they previously may have been unable to.
Brand equity is everything
But while Tchibo will continue to be the largest and most powerful company of the two, this merger demonstrates just how much value it perceives the Matthew Algie brand has in its local market.
In most other cases, it would be typical to see the smaller brand absorbed or operated independently. But this reflects a wider awareness for multinationals consolidating their operations in the coffee sector: they are increasingly becoming aware of the value each individual brand has.
This also indicates a growing recognition that consumers are generally more likely to trust smaller specialty coffee brands that have an existing identity and resonance with specialty coffee consumers.
Therefore, as we see more brands becoming acquired, it’s likely we’ll see more strategies that give brand equity a special importance.
It’s early on in the year and we are already seeing more consolidation in the coffee sector. This is indeed a sign of things to come in 2024 – but what will be interesting to see is if this merger sets any sort of precedent for how larger global brands operate in local markets.
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