Over the past decade or so, we have seen a string of acquisitions in the coffee industry – from Nestlé and Blue Bottle to Coca-Cola and Costa Coffee. This market consolidation seems to be sparking a wider change in the specialty coffee sector, and it doesn’t appear to be slowing down any time soon.
On 20 July 2023, Keurig Dr Pepper announced a strategic partnership with roaster and retailer La Colombe. As part of a long-term sales and distribution agreement for La Colombe’s ready-to-drink coffee products and branded K-Cup pods, KDP will also acquire a minority stake in the US company.
Given the growing number of multinationals and conglomerates acquiring larger specialty coffee brands in recent years, we have to ask: is market consolidation becoming an inevitable part of the specialty coffee industry? And if so, what could this mean for its future? Read on to find out more.
Why did Keurig Dr Pepper acquire a minority stake in La Colombe?
First and foremost, it’s important to explain what acquisitions are. In simple terms, acquisitions are when one company buys some (or even all) of another company’s shares. The latter company may retain its own name and branding, or the original operation might become absorbed and rebranded accordingly.
In the case of Keurig Dr Pepper, the company will invest US $300 million in La Colombe – and will thereby acquire a 33% ownership stake. This will make KDP the second-largest investor in La Colombe after its majority owner and Chairman Hamdi Ulukaya.
As part of this investment and acquisition, KDP will sell and distribute La Colombe’s RTD coffee beverages. The company will also manufacture, sell, and distribute La Colombe-branded K-Cup coffee pods under a licence agreement in North America.
Spencer Turer is the Vice President of Coffee Enterprises – a US coffee consultancy and laboratory testing company. He explains that KDP’s investment in La Colombe comes as no surprise.
“Keurig Dr Pepper’s investment in La Colombe follows a pattern of other coffee business partnerships that are becoming more common in the industry,” Spencer says. “This partnership appears as a win-win for both companies.
“KDP will have a new, recognisable, and very popular coffee brand in its portfolio,” he adds. “While La Colombe will have a very sophisticated national distribution and sales network for its products.”
Other major acquisitions in the coffee industry
Keurig Dr Pepper’s investment in La Colombe is big news. But it’s not the first time we’ve seen a multinational or conglomerate acquire a stake in a larger specialty coffee brand.
“The coffee industry has a long history of establishing brand partnerships for logistics and distribution purposes,” Spencer explains. “Unfortunately, many of these agreements end early as new opportunities with more effective and efficient distribution networks become available.”
Some prominent examples include:
- Nestlé acquired a majority stake in Blue Bottle Coffee in 2017. Blue Bottle is a US and Japanese specialty coffee roaster best known for its canned cold brew products
- Peet’s Coffee (which is owned by German conglomerate JAB Holding Company) bought pioneering specialty coffee roaster Stumptown Coffee in 2015. The company is also known for its RTD milk-based coffee and cold brew drinks
- In the same year, Peet’s Coffee also bought Chicago specialty coffee roaster Intelligentsia
However, beyond specialty coffee, acquisitions have played a huge role in the wider industry:
- Coca-Cola acquired UK chain Costa Coffee for a reported US $5 billion in 2019
- Coca-Cola HBC (the world’s third-largest bottler of Coca-Cola products) also purchased a 30% equity share in Caffè Vergnano. The company is one of Italy’s oldest coffee roasters
- JAB Holding acquired coffee and food-to-go chain Pret A Manger in 2018
- International food and ingredients company ofi completed the acquisition of Club Coffee (Canada’s largest roasting and packaging company) in 2022
- Lavazza bought Carte Noire and Merrild in 2015, and purchased Kicking Horse Coffee two years later. The company then acquired France’s MaxiCoffee in 2022
So, are acquisitions the future for larger specialty coffee brands?
Ultimately, it’s clear that multinational companies and conglomerates are realising the value of specialty coffee companies – and are taking action accordingly. In turn, market consolidation is becoming a defining characteristic of the global coffee industry.
According to the International Trade Centre, ten of the world’s largest roasters control more than 35% of all global coffee sales. Alongside this, these companies are also acquiring specialty coffee brands to expand their presence in higher-quality coffee markets.
But perhaps more notably is the growing interest in RTD coffee. Many multinational and conglomerate companies are acquiring specialty coffee brands which specialise in manufacturing or selling these products. And it’s understandable why this is happening – the value of the global RTD coffee market is expected to reach US $42.36 billion by 2030.
I also spoke to a green coffee buyer based in Germany who wishes to remain anonymous.
“These acquisitions can be considered as part of a larger premiumsation movement of coffee convenience products, such as RTD and pods, which goes hand in hand with the ongoing commodisation of the specialty coffee industry,” they say. “These products become available to the masses, but in a more watered down manner.”
It’s important that we question whether these acquisitions are necessarily good for specialty coffee.
On one hand, acquisitions allow specialty coffee brands to grow and reach new consumer bases. It’s unlikely they could do this without significant upfront investment. And given current challenging economic conditions related to the pandemic, conflict in Ukraine, and rising inflation, it’s been difficult for many to remain profitable.
KDP certainly benefits from its minority stake in La Colombe, as the US roaster’s canned draft lattes have something of a cult following. In fact, in 2017, the beverages even captured a 1% share of RTD coffee sales in the US grocery category a year after being launched.
“I don’t see this partnership as diluting either brand or having a negative impact on either business,” Spencer explains. “The US $300 million dollar investment in La Colombe, represents Keurig Dr Pepper’s confidence in its business growth as a result of increased distribution.”
At the same time, La Colombe will reap the rewards, too. The partnership will see KDP manufacture, distribute, and sell La Colombe-branded K-Cup pods – helping the company successfully expand into another lucrative market.
Or for worse?
On the other hand, there is an argument that market consolidation is somewhat at odds with the values of specialty coffee. The industry prides itself on showcasing the craft of roasting and brewing high-quality coffee. In turn, scaling and maintaining quality control can become increasingly difficult when specialty coffee brands choose to expand.
“There is always a level of risk when a coffee brand outsources its manufacturing,” Spencer says. “Quality control can be a big concern, and requires effort and consideration from both businesses.”
Investment from larger companies can allow specialty coffee brands to scale their sustainable business practices, however, this still needs to be done carefully and purposefully. If not, companies can run the risk of disengaging their customers and losing trust in their brands.
“Consumers are looking for more premium and unique products,” the green coffee buyer says. “Nevertheless, in many cases, they don’t want to invest the time and money in learning about specialty coffee, but rather a quick fix to satisfy their needs.
“By investing in specialty brands, larger companies can quickly acquire a logo that ‘ticks a box’ for consumers,” they add. “While this can help pioneering brands to grow, many will claim that because it commodifies the coffee experience, it’s no longer ‘specialty’ by default.
“The scale of these larger companies’ operations isn’t fully compatible with the traceability threshold of a specialty coffee brand,” they continue. “If companies can still adhere to their high standards on a larger scale then that’s great, but if it leads to companies dropping their standards in favour of growth then only they benefit.”
Whether you agree with them or not, acquisitions and market consolidation are becoming a big part of the global specialty coffee industry. Keurig Dr Pepper will start to distribute La Colombe’s RTD products later this year, and will launch the new K-Cup pods in 2024.
During this time, it will be interesting to see if other multinationals and specialty coffee brands follow suit. Moving forward, however, the most important factor these companies need to keep in mind is maintaining quality, while also understanding their customers’ needs – and catering to them accordingly.
Enjoyed this? Then read our article on opening & managing multiple coffee shops effectively.
Photo credits: La Colombe Coffee Roasters
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