Caffeine + Cash

I have a fascination with coffee. Not just drinking it, but also the creativity of making it, the creativity it inspires, the business of it, the experience of searching for it all around the world, the stories of its literal growth. Friends give me a hard time for the plethora of visually captured caffeinated experiences on instagram, although even they lament the loss of latte imagery that is now dominated by my son #lilmadmax. I've babbled about creating coffee businesses, designed coffee experiences for events, done barista training (haven't mastered milk art yet), dreamed up bean bag labels, and experimented with small batch roast runs for friends. Most of all, I've been an advocate for the potential growth of the true (read here "Aussie", although now my view must be questioned) coffee/cafe experience in the US. After moving to California 15 years ago, much of the first decade was spent combing many cities of America in search of something that compared to my caffeinated loves from Sydney and Melbourne.

One of the first great bean discoveries was when a friend took me down to the Embarcadero wharf (before it was spiffed up) one foggy weekend morning to line up and buy from a little coffee cart there. That was Blue Bottle - just one guy, his cart and a mobile espresso machine. I lined up again, and again, and again. When the cart expanded to a shiny location at Mint Plaza, with actual seats, and resplendent with complex siphoning equipment that would look at home in a Frankenstein movie, I made sure I stayed at the closest hotel, the Clift, just so I could get my fix. Since then I've gleefully watched Bluebottle grow to many other places I would travel to for business and pleasure - NYC, Washington, Tokyo and L.A. All the while, maintaining its consistent flavor profile, "wanker-free" service, and simple brand icon. As a brand lover, I appreciated its color scheme (to me the blue always represented the support that a good coffee gives to a blue sky mind), its simplicity of logo and consistent use as an identifier, and its friendly, educative tone of voice.

Yesterday it was announced that Nestle' would acquire 68% of Bluebottle, on a value of around 700 million (USD). That's a lot of lattes! It's likely going to inflame a frenzy of buying into burgeoning third and fourth wave coffee brands (although Silicon Valley has for some time shown interest in the browned bean business, as evidenced by Blue Bottle's investor history).

A warning to anyone looking for a quick and easy investment return - this was no overnight sensation. It was 15 years of commitment and creativity by its founder, burning eyes from roasting and no doubt late nights from the stresses of creating and running your own business (and probably coffee jitters). Blue Bottle was founded in 2002 in Oakland by Former professional musician James Freeman, who used a tiny 6-pound batch roaster to serve his vision of a coffee experience to a rapidly growing base of fans at Bay Area farmers markets (he even dabbled in home delivery, by himself, for a short while).

Along the journey Freeman brought on investors to the tune of $120M, who I'd argue were "authentic" investors who clearly believed in the product, the experience and the people delivering what is a very personal, daily experience. Tony Hawk was an early investor (who doesn't love to drink and skate?), as was Bono and Jared Leto. Sometimes described as "the Apple of coffee", Silicon Valley players were also fans, not just to ensure skipping the line for those 8am local coffee hits, but inspired by the vision and execution by Freeman. In 2012 a superstar consortium invested just under $20M, including Index Ventures, Google Ventures, True Ventures, Obvious (Evan Williams and Biz Stone), Evan Williams (Twitter), Matt Mullenweg (Wordpress), Kevin Systrom (Instagram), Caterina Fake (Flickr), Garrett Camp (Uber), Hass Hassan (Whole Foods), James Higa (Apple), Chris Sacca, and Tim Ferriss. In 2014 Blue Bottle raised 25.75M. In 2015 it raised another $70M, with a number of the investors upping their ante.

Freeman, and those around him, did some smart things along the way. In 2012 a deal was struck with Tartinery Bakery, increasing its footprint and visibility by influencers. In 2014 Bluebottle acquired L.A based Handsome Coffee Roasters and Tonx. While I was personally bummed to see Handsome shortly thereafter disappear (damn fine beans!), it gave Blue Bottle an L.A roasting facility, talent, and removed a potentially strong competitor. Similarly with Tonx which was pioneering direct to consumer online. Physical cafes were opened in desirable and influential locations like Abbott Kinney in Venice, the arts district in L.A, Meatpacking district in NYC, and Shinjuku in Tokyo.

While we coffee snobs are very protective of our small, personal, independent coffee establishments (big love to @kitcoffee and @commonroomroasters in the OC, @Doomsdaycoffeetogo in Fitzroy, Melbourne and @barefootcoffeetraders in Manly, Sydney), this deal could well be good for the spread of an excellent coffee brand. Of course there will be critics of the deal, and one danger is that brand values may become mixed over the long run. However, for Blue Bottle, having a well-heeled, global parent company will open up opportunities and speed to market near impossible to create by itself.

For Nestle', it appears a smart response to a growing market, which could complement its home business (how long before Blue Bottle pods will be available for its Nespresso product?). Peter Bryant, Managing Parter at Clareo and a Senior Fellow of the Kellogg Innovation Network observed: "The investment shows the predicament of the traditional players and erosion of core, traditional business. With a valuation of over $18M a store the question to be answered long term will be whether they overpaid for a brand or if they can develop a strategy to scale and innovate while still preserving what made the brand special."

Nestle' looks to be playing it smart, recognizing what has made Blue Bottle successful, and have indicated they will keep existing management in place. It is the little things that make huge differences to businesses and brands, and Freeman has maintained the focus on these things that matter - attention to detail, passion, quality and building a community of passionate fans. Freeman gave a quote to the New York Times back in January 2014 after its round of fundraising that year, and if he holds true to what he said back then, his vision is likely going to become and exceed itself - “Could we be the first 20-store chain, or 50- or 100-store chain that doesn’t suck? What’s important to me is that the coffee gets better every year.”

Well played Mr Freeman. I'm probably going to have to revise my opinion about US coffee experiences.