My how the mighty have fallen...

Ok, so that's a bit over-dramatic but here in the coffee world we are watching the maturation of 3rd wave coffee. The news hit today that Blue Bottle Coffee was purchased by Nestle. Or, at least they now own 68% of the company. They paid a cool $500 million for this privilege. Quite impressive for a niche brand that currently has 50 stores. Founder James Freeman is still at the helm and the company claims that nothing will change in their focus or quality. Don't expect to see Blue Bottle branded Nespresso capsules anytime soon. The new capital just gives them a chance to grow more aggressively and invest in coffee technology. Time will tell.

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They are not the only ones, 2015 the parent company of Peet's Coffee and Tea purchased Stumptown outright, and got a majority stake in Intelligentsia. What we are witnessing is big companies realizing the awesome growth potential in the third-wave coffee market. They are buying up the biggest and most established players in the market and planning aggressive growth strategies. Starbucks is pulling its weight too with their Reserve Roastery cafes.

Before I talk about the challenges, I want to point out the positives in this. First, this is the ultimate proof of concept for the 3rd wave coffee industry. This style of coffee is here to stay and it is poised for pretty dramatic growth. I envision a time in the near future when Starbucks (while it still may remain the most ubiquitous) will not be the only national chain available for coffee in most markets. Second, Blue Bottle, Stumptown, and Intelligentsia are all (currently) producing amazing coffee. As they expand, they will teach more people what great coffee is, which will make the education process easier for us little guys. My customers who are transplants from major coffee cities like Seattle and Portland are often great to work with. A roaster or coffeeshop has already done the work of introducing them to third-wave coffee, teaching them about the product, and helping them find what they like. They can usually find something similar to what they enjoyed at home from our lineup without much help from us. Third, these large third-wave companies have been pioneers in helping farmers and cooperatives get better prices for their coffee (at a time when it was really hard to do!). I don't see their general vision for coffee quality changing, so this will mean even more demand for high quality coffees that give livable wages to coffee farmers.

On the other hand, this does mean more competition for the thousands of small coffee roasters and independent coffee shops across the nation. When we are competing against grocery store coffee or Starbucks, we can win on quality pretty easily. But these large third-wave shops have access to some of the very best coffees in the world and have the buying power to ensure that no one else can get a hold of them. Our coffee will be a of equal quality and flavor (though it might be fresher depending on how well they maintain their supply chain). We will have to find other ways to set ourselves apart, such as local pride, customer service, and individual attention that a larger company cannot offer. I personally, am happy to be focused on the suburbs of Houston. While I can definitely see Blue Bottle or Stumptown opening a cafe in Houston in the next 5 years, I don't think they are setting their sites on Richmond or Fulshear yet.

It is fun to be a part of an industry that, on one hand is 600+ years old, but on the other hand is on the cusp of a massive expansion of the new style of coffee.

Bryan HibbardComment