Artisans, Hipsters, and Suits

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Earlier this month, consumer packaged-goods giant Nestle SA (NASDAQOTH: NSRGY) announced a deal to snap up a controlling stake in upscale coffee-purveyor Blue Bottle Coffee Company for a sum reported to be near $500 million. The deal follows Constellation Brand's (NYSE: STZ) acquisition of rapidly growing Florida craft-beer brewer Funky Buddha Brewery in August, also for an undisclosed amount. If Constellation's $1 billion acquisition of west coast craft-beer pioneer Ballast Point Brewery in late 2015 is any indication, Funky Buddha's owners were well compensated for their shares.

The owners of Blue Bottle plan to stay on board and help guide the introduction of their products to a much wider audience. While one can hardly blame entrepreneurs for cashing in equity at a handsome valuation, news outlets have reported that some patrons of both Blue Bottle, like the customers of Funky Buddha before them, are nonetheless crying foul.

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The hipsters and the suits

This type of backlash seems to be a recurring pattern when craft upstarts get bought out by multibillion-dollar multinationals. As the craft coffee and beer industries blossom, the fortunes of one product over another are often cemented by hipsters, who can exercise a proprietary sort of love over the foodstuffs they consume.

Now, not everyone who enjoys micro-lot coffee brewed via a siphon method qualifies as a hipster -- not by a long shot. Yet it's apparent that a generation of consumers has arisen that prizes uniqueness, high-quality ingredients, and expertise in the making of products that count for experiences in and of themselves. Hipsters are core customers in the world of craft.

On the other end of the economic equation stand the executives of global consumer-oriented corporations, the "suits." Hipsters fear that suits will, in time, diminish the care currently lavished on their favorite products in the name of profit, even as suits seek to reassure that they'll grant autonomy to acquired craft companies. And hipster backlash seems to arise viscerally, as if the corporate takeover severs a personal connection and quashes the magic of the narrative created around popular craft items.

The artisan entrepreneur

Both stand at the door of the entrepreneur, whose establishment offers premium merchandise at unrepentantly steep prices. At Blue Bottle Coffee, a single origin pour-over coffee runs nearly $4 and is priced about three times higher than a mass-market coffee.

Some of this differential is obvious: The bean is sourced from a small farm and has probably been roasted on-site in the last 48 hours. There's more manual labor involved in making your individual cup than in brewing large commercial tankfuls of coffee.

One also has to count the overhead required to train baristas, pay competitive wages, achieve a certain aesthetic in product packaging, etc., not to mention the real estate expense of locating in a hip part of town. All of these play into the $4 ante.

Yet beyond these factors, an intangible exists in the pricing: the extra bit of profit the artisan makes by putting a final price tag on his or her product that both reflects and justifies its label as "craft."

I like to think of this as "incremental craft margin." Repeated over thousands of cups a day, it's one of the primary reasons Blue Bottle was able to attract prior investments from the likes of Morgan Stanley and expand to both coasts of the U.S. and into Japan, with a projected 55 total stores by year-end 2017.

To be frank, Blue Bottle hasn't lived as the scrappy, independent entity that some of its patrons envisioned for a while now. Prior to the Nestle sale, the company had already raised nearly $116 million from venture-capital suits in various funding rounds between 2012 and 2015.

Incremental craft margin is the choice morsel in this food chain of savvy stakeholders. The hipster understands the personal well-being and satisfaction that comes from consuming a higher-end coffee product -- and is willing to pay for it. The artisan shrewdly recognizes that he or she can pursue craft and become rich in the same endeavor. The suits see that they can partake in a consumer trend with high margins and an open road to growth by investing outside of their core businesses.

Hipsters who love artisans but distrust suits often don't recognize how interrelated all three parties are. It's that nearly arbitrary premium between the legitimately higher costs of artisan coffee and the $4 price tag that fuels the bottom lines of both the craft maker and the conglomerate. The artisan entrepreneur and the suits may sip Kenya Embu Gikirima all the way to the bank, but no deal occurs without the blessing of the hipster.

Depressed that we discerning consumers play such a big role in this very capitalist scheme? My advice is to relax and savor the coffee. But you always have the choice to switch coffee houses: There are still a few small establishments that haven't yet signed with suits to take their painstakingly roasted beans to the masses.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.