Nestlé SA is buying a majority stake in the premium coffee chain Blue Bottle Coffee as the Swiss giant invests in a fast-growing part of the coffee business and continues to extend its reach through buying niche brands.
The deal represents a move from Nestlé into the ultra-premium side of the coffee business, with consumers paying extra for beans from specific locales brewed in specific ways. Last December, Starbucks Corp. Chief Executive Howard Schultz stepped down from that position to lead the company's efforts to build high-end coffee shops.
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Oakland, Calif.-based Blue Bottle, founded in 2002, had 29 locations at the end of last year. It expects to have 55 by the end of this year, typically in trendy urban neighborhoods. It sells coffee beans in retail stores and online.
"Their path to scale is clearly defined and benefits from increasing consumer appreciation for delicious and sustainable coffee," Nestlé CEO Mark Schneider said.
Nestlé is the world's largest coffee producer and has brands such as Nescafé and Nespresso.
Terms of the deal weren't disclosed.
Blue Bottle will continue to operate as a stand-alone entity with current management and employees retaining a minority stake of 32%.
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ZURICH -- Nestlé SA on Thursday added to its fast-growing coffee business by acquiring a majority share in specialty coffee roaster and retailer Blue Bottle Coffee, in a deal that a person familiar with the matter said would give the Swiss consumer giant a 68% stake for about $425 million.
The deal, though tiny relative to Nestlé's 89.5 billion Swiss francs ($92.7 billion) in 2016 sales, underscores the Swiss packaged-food company's emphasis on coffee as one of the priority parts of its business, while it pares back some of its confectionery business.
Blue Bottle has 29 shops in U.S. cities including Washington, D.C., New York, Los Angeles and the San Francisco Bay Area as well as Tokyo at the end of last year. It is expected to have 55 shops by the end of this year.
"This move underlines Nestlé's focus on investing in high-growth categories and acting on consumer trends," said Nestlé Chief Executive Mark Schneider, in a statement
In June, Nestlé cited coffee as one of the high-growth parts of its business where it plans to focus its investments in addition to infant nutrition, bottled water, pet care and consumer health. It also launched a 20 billion Swiss francs share buyback, and put its U.S. confectionery business that includes Butterfinger and Crunch candy bars up for sale.
The moves came amid investor pressure to boost profits and raise Nestlé's share price, which has languished over the past two years. That pressure culminated in late June with the founder of activist investor Third Point LLC, Daniel Loeb, publishing a letter on how Nestlé should change its business. His recommendations included a formal margin target, more share buybacks and a sale of Nestlé's stake in French cosmetics giant L'Oréal SA.
Thursday's announcement continues an acquisition spree by Nestlé in the U.S. as it scrambles to adjust to changing consumer tastes. Last week, Nestlé said it is buying California plant-based foods manufacturer Sweet Earth, which makes vegan and vegetarian products with names like "harmless ham" and "benevolent bacon."
In June, it acquired a minority stake in startup Freshly, which sells prepared meals directly to consumers in 28 U.S. states.
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(END) Dow Jones Newswires
September 14, 2017 14:06 ET (18:06 GMT)