Nestlé Considers Selling Blue Bottle Coffee Stake
Dubai – Qahwa World
Sources indicate that the Swiss food and beverage conglomerate, Nestlé, is exploring the sale of its interest in Blue Bottle Coffee. The company is reportedly working with investment bank Morgan Stanley to manage the potential transaction.
Background on the Investment
2017 Acquisition: Nestlé secured a majority 68% share in Blue Bottle Coffee in 2017 for an estimated $\$425$ million. At the time, this deal valued the specialized US coffee group at $\$700$ million.
Initial Strategy: Announcing the acquisition, Nestlé positioned Blue Bottle as a gateway into the fast-growing, ‘super-premium’ US coffee shop segment, intended to complement their existing portfolio of brands like Nescafé and Nespresso.
Current Operations: California-based Blue Bottle, founded by James Freeman in 2002, currently runs over 100 high-end cafés in markets including the US, Japan, South Korea, China, Hong Kong, and Singapore. The company continued to operate as a stand-alone entity after the majority acquisition.
Rationale for Potential Divestment
The reported move to divest Blue Bottle comes amidst several strategic shifts at Nestlé:
Efficiency Drive: The potential divestiture aligns with a broader efficiency drive by new CEO Philipp Navratil to streamline the company’s portfolio and deliver $\$3.8$ billion (CHF $3$ billion) in savings by 2028, amidst slowing sales and rising cost pressures. The focus is reportedly shifting toward more scalable, global brands rather than niche physical retail operations.
Potential Discount: Three sources cited by Reuters suggest that the boutique coffee operator might be sold at a lower valuation than its 2017 purchase price, indicating the investment has not generated sufficient gains.
Operational Challenges: While Blue Bottle has nearly doubled its store count since the acquisition, the move to sell highlights the complexities of operating a high-cost, high-service café business that prioritizes the specialized experience (like hand-drip extraction) over the high-volume efficiency that large corporations typically seek.
Strategic Options and Future Focus
Partial Sale: One source mentioned Nestlé might pursue a partial sale, specifically offloading the physical café business while retaining Blue Bottle’s intellectual property (IP).
Leveraging the Brand: This strategy would allow the company to continue selling packaged Blue Bottle-branded products—such as wholebean coffee, ground coffee, and ready-to-drink (RTD) lines—mirroring the model of its lucrative Global Coffee Alliance with Starbucks. The $\$7.1$ billion Starbucks deal, finalized a year after the Blue Bottle acquisition, grants Nestlé exclusive rights to market and distribute Starbucks-branded retail packaged coffee products outside of Starbucks’ own stores.
The re-evaluation of its coffee investments by Nestlé is part of a wider industry trend. Other major conglomerates, such as Coca-Cola (which is also reportedly reviewing its Costa Coffee chain) and JAB Holding Company (reducing its stake in JDE Peet’s), have also been adjusting their large-scale coffee strategies to focus on packaged products and core businesses.
