October 24, 2022

Are acquisitions becoming more common in the coffee industry?


Acquisitions are commonplace in all kinds of industries around the world, and the coffee sector is no exception. In recent years, we’ve seen a growing trend of multinational coffee brands acquiring specialty coffee shop chains and roasters.

Many are wondering if this market consolidation is the beginning of a wider change for the industry, and if specialty coffee may soon become dominated by a few holding companies, rather than being spread between a much broader range of brands.

However, it’s clear that Covid-19 shifted how coffee businesses operate, which ultimately influences the motives behind acquisitions. With more and more companies in the coffee industry now seeking guaranteed opportunities for growth, acquiring specialty brands could be a way forward.

To understand why coffee company acquisitions are becoming more prominent, and what this shift could mean for the global coffee sector, I spoke to several industry experts. Read on to find out what they had to say.

You may also like our article on opening & managing multiple coffee shops effectively.

Boxes containing Starbucks labeled single-serve coffee capsules for Nespresso coffee makers are displayed after a news conference to announce that Nestle will sell Starbucks-branded coffee at grocery stores in Europe, Asia and Latin America at the company

What are mergers and acquisitions?

Mergers and acquisitions are commonly grouped together when talking about the transfer of business ownership or consolidation within the market. But what are the differences?

At its simplest level, a merger is an agreement between two companies to join together and form one company. This is done for a number of reasons, including establishing a broader market reach or gaining more market share.

Acquisitions, meanwhile, are when one company buys some (or even all) of another company’s shares. In this case, companies might retain their own names and branding, or the original operation might become absorbed and rebranded accordingly.

There are many reasons why companies choose to purchase shares in other businesses, or allow other companies to acquire stakes in their business. Similarly to mergers, the biggest reason is to expand or diversify their reach or customer base, or to enter new markets using another brand’s pre-existing expertise.

Alternatively, companies may acquire other brands to gain access to new technologies or intellectual properties. Not only can this help a business to keep up with competitors, it can also help them to quickly hire staff and access resources needed to launch new products and services.

Containers of Stumptown Coffee Roasters' Cold Brewed Coffee in a supermarket in New York on Wednesday, October 7, 2015.

Recent major acquisitions in the coffee sector

Over the past decade, there has been a run of significant acquisitions in the coffee industry – including both larger chains and smaller specialty coffee brands.

One of the most significant examples was in 2019 when Coca-Cola acquired UK coffee chain Costa Coffee for around US $5 billion. The acquisition was driven by a number of factors, but possibly because US consumption of carbonated soft drinks hit a 30-year low in 2017.

In 2021, Coca-Cola HBC (the world’s third-largest bottler of Coca-Cola products) purchased a 30% equity share in Caffè Vergnano – one of Italy’s oldest coffee roasters.

Another example is Nestlé, which purchased a majority stake in Blue Bottle Coffee in 2017 – a specialty coffee roaster in the US and Japan.

Corporate interest in specialty coffee brands has seemingly been increasing over the past decade.

In 2012, German conglomerate JAB Holding Company acquired San Francisco’s Peet’s Coffee – a pioneer of the specialty coffee industry. Subsequently, three years later, Peet’s purchased Stumptown Coffee Roasters – another prominent specialty roaster in Portland, Oregon. JAB Holding also acquired the coffee and food-to-go chain Pret A Manger in 2018.

Broadly speaking, these acquisitions of coffee brands are a means of expanding into new markets (such as specialty coffee) by leveraging existing expertise and established brands. For instance, Starbucks and Blue Bottle offer different products to two very different consumer bases, providing them with reach within two important (and profitable) market segments.

Acquisitions can also help existing brands move into new international markets, too. For example, international food and ingredients company ofi completed the acquisition of 116-year old Canadian coffee roasting and packaging company Club Coffee earlier this year. Ultimately, this gives the company the chance to expand in North America (one of the biggest global coffee markets) while retaining Club Coffee’s expertise and established brand image.

Charles Zhengyao Lu, non-executive chairman of Luckin Coffee, poses during the company's IPO at the Nasdaq Market site in New York, U.S., May 17, 2019. REUTERS/Brendan McDermid

Has Covid-19 changed things?

While there has clearly been interest in acquiring coffee brands for well over a decade, Covid-19 has certainly influenced growth strategies for many companies.

Towards the beginning of the pandemic, a staggering 95% of out-of-home coffee businesses were forced to close operations for several months. Naturally, this resulted in a huge spike in home coffee consumption, as consumers started to prepare more café-quality beverages at home.

Undoubtedly, larger companies wanted to capitalise on this shift in coffee consumer behaviour, but doing so was by no means easy.

Umberto Doglioni Majer is President and Chief Executive Officer at Vea Ventures, a holding company  which owns several coffee machine brands, including Carimali, Elektra, and Bellezza. 

He explains that it can be difficult to scale a specialty coffee brand’s reach quickly because of the inherent challenges that come with it, such as sourcing high-quality and traceable coffee.

“[Specialty coffee companies] can be considered growth companies,” he says. “This term describes smaller brands which bigger companies can acquire as platforms to build on.

“However, returns on an investment like this don’t usually happen quickly,” he adds. “It can take years [to turn a profit].”

Umberto says that many larger companies are now seeking growth opportunities with a better chance of success. In his experience, he says this means acquiring shares in brands that are more established, with a proven record of profitability and a loyal customer base.

“Factors such as the pandemic, rising inflation, and crashes in the stock market have led to an increased interest in acquiring more established companies,” he tells me. “This is because these brands will already have better profit margins and larger consumer bases.”

Customers at a Blue Bottle coffee shop

Can specialty coffee brands remain competitive if the market consolidates?

The current economic climate for smaller coffee businesses is challenging to say the least. The C price recently reached a 10-year high, shipping is incredibly expensive, and profit margins for roasters have tightened in the past few months.

This has made it more difficult for smaller roasters and coffee shops to remain profitable, and less buying power means they may struggle to compete with more established brands which have been acquired by a multinational.

So what can they do to compete?

In some cases, smaller coffee companies can merge themselves. For example, Fairwave is a collective of specialty coffee brands who decided to merge following on from the pandemic. These companies include The Roasterie, Messenger Coffee Company, and Spyhouse Coffee Roasters.

However, the consolidation of brands doesn’t only happen through acquisitions and mergers – it can also take place through strategic partnerships and shared services initiatives. 

One example is The Curate Coffee Collective, which is a shared roasting facility in Portland, Oregon. Since 2020, the facility has been open to roasters of all sizes, and offers them access to equipment and office space, as well as educational resources. 

However, this model isn’t that common within the coffee industry – particularly in the specialty sector.

Spencer Turer is the Vice President of coffee consultancy Coffee Enterprises.

He points out that despite how difficult it can be for smaller coffee brands to remain profitable, mergers and acquisitions may not always be the best solution – especially with larger companies such as multinationals.

“The backbone of the specialty coffee industry is still largely formed of small regional companies,” he explains. “If these roasters and coffee shops have the skills, knowledge, and expertise – and are successful at what they do – then why should there be a reason for them to merge or be acquired by a bigger company?”

While mergers and acquisitions with larger brands can certainly help smaller coffee brands to grow and reach new consumer bases, there are also understandably concerns over how quality control can be scaled and maintained.

Cans of cold brew coffee in a busy Blue Bottle Coffee shop in New York on Friday, September 15, 2017

In the months and years that follow the Covid-19 pandemic, we will see just how prevalent mergers and acquisitions will be in specialty coffee – especially if the world moves towards a period defined by a global economic downturn. 

It’s clear that consolidation through acquisitions and mergers will nonetheless continue to be part of the conversation about how the industry evolves and scales into the future. This then raises questions about how smaller regional businesses can remain profitable.

Ultimately, for smaller coffee shops and roasters, the most important thing is understanding how you can continue to appeal to your customer base. In some cases, this might mean innovating in line with third wave coffee trends, but in others, it may mean just listening to what consumers want from you – and catering to that accordingly.

Enjoyed this? Then read our article on changing your business’ coffee strategy after Covid-19.

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