Nestlé moves into upscale coffee with Blue Bottle deal

The giant food company, which has bought a majority stake in the California company, enters a high-end coffee niche that has attracted such players as Starbucks, with its upscale Reserve brand.

In 2002, James Freeman gave up on being a professional clarinetist and began pursuing his other passion, roasting coffee. He started out in a 183-square-foot potting shed in Oakland, California, and named his newborn business Blue Bottle Coffee, after a storied Viennese coffee house.

Fifteen years later, Blue Bottle is now one of the best-known purveyors of artisanal coffee that, in Freeman’s words, doesn’t taste like “flea shampoo.”

And it now has a huge new owner: Nestlé, the Swiss food giant.

Blue Bottle announced Thursday it had sold a majority stake in itself to Nestlé, one of the surest signs yet of how third-wave specialty coffee — the kind that inspires almost monastic devotion to pour-over brews and perfectly steeped drinks — has become a hot business.

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The niche accounts for less than 10 percent of the overall coffee industry. But it is growing rapidly and, perhaps more important, it commands higher prices and bigger profit margins.

That has drawn the interest of big business. Starbucks has introduced its upscale Reserve brand of coffee bars to fight off upstarts, and JAB Holdings, a family-owned European conglomerate, has been busy assembling a coffee empire that now includes the mainstream Jacob Douwe Egberts and Peet’s brands to Stumptown Coffee Roasters, a high-end mainstay.

Taking a majority stake in Blue Bottle will help Nestlé expand a foothold in the coffee sector built around the Nescafé and Nespresso line of products to a flourishing new industry with a highly dedicated consumer base (read: millennials).

The investment is also meant to shore up the Swiss conglomerate’s presence in North America, a region where it has struggled.

For Blue Bottle, the deal will help its expansion plans, which run from opening new outlets across North America and Asia to selling roasted beans and New Orleans-style cold brew drinks in stores.

Under the terms of the deal, Nestlé is acquiring 68 percent of Blue Bottle. The coffee company’s management and employees will own the rest. Neither side would disclose financial terms. Bloomberg News reported Nestlé will pay up to $500 million for its stake, citing a person familiar with the matter who…

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