5 insights South African coffee fans can take away from Nestle's recent 68% buyout of Blue Bottle

Friday, 15 September, 2017
5 insights South African coffee fans can take away from Nestle’s recent 68% buyout of Blue Bottle

Words by Iain Evans 

Yesterday my coffee-centric social media bubble went crazy around this merger. What is the Swiss MultiNational doing buying a controlling share in one of the most influential third-wave coffee brands in the World? And what does it mean for us as coffee consumers in SA?

1. What happens globally, is eventually mimicked in SA 

Starbucks, Dunkin' Donuts and Krispy Kreme to name just 3… all arrived in Mzanzi in the last 3 years!
But, before you all rush out and invest your life-savings in your neighbourhood roastery hoping to get rich (but, hey not a bad idea, actually!), realize the context of this merger.

Nestle has spent the last 10 years securing and growing it’s footprint around Nescafe and Nespresso. We know in SA that instant coffee and convenience coffee are still the largest market share. This move shows two things: Firstly that Nestle need to secure the exponentially growing high-end of coffee and, secondly, they need to consolidate their US footprint.

Nestle is well represented in South Africa. Will Nestle SA look to do the same? If the trend stays true a la Starbucks, DD and KK…then, yes, possibly, but it may take time. Be ready!

2. Third wave coffee is still growing, globally and in SA, and there is plenty of opportunity to start. So start!

I’m not an economist or an accountant, but if you merely look at the percentages mentioned in the NY Times article regarding this buyout, you’ll see that in the last 10 years, coffee (all sectors, including instant coffee!) has grown around 6% per anum, yet third-wave (read “good” coffee, and I tentatively want to say Speciality Coffee here) has grown around 15-20%!! That’s huge!
It’s good for everyone in the coffee family. Following point 1 above…this leads me to believe that the equivalent trend will happen in SA and the growth and opportunities are right in front of us, right now! If I think about SA coffee companies - old school like Peacock’s, Masterton’s and Beaver Creek, to the last decades game changers, Truth, Deluxe, Origin, Bean There, to the newest roasteries…the best time to start is right now and there is plenty of opportunity!

I called up Judd Francis from Deluxe Coffeeworks to pick his brain on the merger: “From a small roasteries perspective, If you do a good job and you put in the work and the time, you deserve to get paid well if a large corporate wants to buy you out. But you gotta be ready to sell, because you’ve got to decide if you’re going to work for someone else, and if you’re prepared to see your business culture and your brand change”

Dylan Cumming of Beaver Creek had this to say: "If it was in line with what we wanted to achieve then, Yes. We would never do an outright sale - investment needs to be a partnership. As long as James Freeman is there and has a say, then it’s fine. In SA, I’d say what is the future of SA Coffee Farming? Could these funds better that? New farmers, new methods, better processes…if it’s good for SA coffee then, yes, we’d collaborate, but we’d never sell out." 

3. Business these days is all about money, but increasingly ethical and moral standpoints will shape the bottom line.

Let’s be honest, no multi-national giant like Nestle is going to act in any other way than what suits its bottom line. Nestle are not doing this for the good of the coffee community. It’s all about business, and the reactions from the coffee community in the US have been partisan to say the least. What can we learn from this? If the SA coffee industry leaders and consumers are going to grow and prosper, we need to be conscious of the moral and ethical obligations of our industry. Surely there is a massive opportunity here people?! Surely, we can, right here at the bottom tip of Africa, create, engineer and innovate the solutions that drive these things forward? SA has great inventors and innovators… where is the next coffee version of SA’s Elon Musk, Mark Shuttleworth or Madiba and what is the big idea that is going to be a game changer for us?

Ryler Masterton from Mastertons in PE says: “Looking at the Blue Bottle, Stumptown and Peet's aquisitions, it’s clear that corporates are using these speciality businesses to penetrate markets they couldn't reach. They are able to throw money at it, and it’ll have a trickle down effect eventually in the long term….but the question is always going to be around protecting and preserving the heritage and integrity of the brand. This kind of money in an SA context has the potential to grow the market and convert drinkers, because of the capital investment, but in terms of the SA coffee industry, one fears that corporates are in it for the money, and they wont re-invest into the coffee culture itself. “

4. Share the love!
The interesting thing that I noted is in the forward business structure of the Blue Bottle deal. So Nestle buys out 68%, but the remaining 32% is owned by management and employees. I need to repeat that last bit, employees. South African Coffee business owners… in light of the above and in light of the future growth of third-waves/high-end/(again, I tentatively want to say Speciality here) coffee…are you prepared to offer ownership of your business to your employees? Are you ready? Are they ready? What's holding us back?

5. Be Lekker.
Finally, the thing I most take out of the success of the Blue Bottle merger, is that fact that they are lekker. This is not pie in the sky speculation or opinion like the above four points. This is simple, actionable and measurable - as SA third wave coffee people, communty and consumers… let’s be lekker too. Let us embrace the coffee philistines, the noobs, the sugar-heapers and the previously good-coffee-uninitiated. Let us welcome them in from the instant-coffee cold. The moment we think we know it all and we talk down to any customer, sub-set, age-group, dress-code subculture or whatever else makes us behave differently, realise that we are not growing our coffee family.   As James Freeman say:  “People just want delicious coffee." Let us serve it to them and change their lives!

I called Pieter Blom from Bootleggers and he had this to say, which I really like as a parting shot:

"Mergers don't always bring out the best in brands…it is hard to maintain integrity and quality afterwards. In this stage of life, our SA businesses are too young, and one needs to establish the culture in your brand…the essence of the brand and protecting that brand… I'm not in coffee for the end-game - I'm 100% in it for the love of coffee and to have fun while we do it. For me and the employees. I cant see myself doing anything else. "

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