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Nestle embraces the Third Wave

From the October 2017 issue.

The food and beverage giant made some big moves in September to better bring its coffee business in line with Third Wave sensibilities.

Humberto

These days, it’s not uncommon for a major coffee company or food and beverage producer to make headlines for acquiring an indie label. As small specialty roasters pop up, it’s not long before the successful ones are plucked by a corporate giant looking to stake further claim in the specialty coffee market. Meanwhile, the small roasters get access to resources and distribution networks they may never have achieved alone.

In September, Nestlé followed suit, making headlines for a notable acquisition. However, just days before, it also made headlines in the coffee industry for a strategic move in its Nespresso business. Are these two moves indicative of Nestlé’s effort to better bring its coffee business in line with Third Wave sensibilities?

On 12 September, Nespresso released its newest marketing campaign with a commercial that profiles smallholder coffee farmers in Jardin, Colombia – a stark contrast from its previous focus on Nespresso as an everyday luxury enjoyed by celebrities.

George Clooney has been a brand ambassador for the company’s European business since 2006, and more recently extended that relationship into the North American business. The result of that move was a commercial spot that featured the American actor and producer travelling through cinematic history in search of the perfect cup of coffee.

Although George Clooney narrates the new commercial spots, the campaign is a drastic shift from Nespresso as a status symbol to Nespresso as a company that has values in line with Third Wave consumers.

Two days later came the announcement of Nestlé’s notable acquisition – a move that was both surprising and not, as it simply continued the trend of indie labels joining industry superpowers. On 14 September, Nestlé acquired a majority stake in Blue Bottle Coffee, an Oakland, California-based small roaster that has earned a significant following among coffee connoisseurs and hipsters alike since its launch in 2002.

Blue Bottle will continue to operate as a standalone entity, while gaining access to Nestlé’s resources and capabilities and its global consumer base. On the flip side, Nestlé gains access to a consumer group it might not have otherwise, while strengthening its position in the greater US specialty coffee market.

What the consumers want
Although Nestlé already commands a large share of the global coffee industry, with brands including Nescafé and Nespresso, the Swiss food and beverage behemoth has not had a strong presence among the emerging Third Wave movement.

Nescafé was invented in 1938 as an attempt to both solve Brazil’s coffee surplus that had resulted from the Wall Street Crash and find a way for its customers to create coffee in an instant. Nescafé launched during coffee’s First Wave, which was aimed at pumping out coffee for the masses.

Although the Nespresso line of machines launched at the beginning of the Third Wave in response to the industry’s steady shift from “coffee for everyone” to “high-quality coffee for everyone”, the brand’s new commercial signals a greater effort to bring its messaging more in line with the values of today’s coffee consumer.

In addition to accessible high-quality coffee, today’s coffee drinkers want coffee that is innovative, fair-trade and sustainably sourced, and they want it from a company that shares their values. They also want to know where their coffee comes from, all the way down to the specific farm.

What most Third Wave coffee drinkers don’t know is that Nestlé’s coffee businesses have long focused on some of these values. It’s only more recently that today’s consumers have made it very clear what they want out of their brands.

“Sustainability has always been at the heart of our business strategy, from sourcing our beans and training our farmers to our precision consumption model and recycling commitments,” says Katherine Graham, Corporate Communications Manager for Nespresso. The new ad campaign, in combination with Nespresso’s AAA Sustainable Quality Program, “is just one of the many ways that we embed sustainability at the heart of everything we do”.

It’s that shift in consumer demands that has motivated Nespresso to finally make its sustainability efforts known.

“We’re seeing a trend among consumers, particularly millennials, who want to know where their products have come from and who choose brands with values that are aligned with theirs,” Graham tells Global Coffee Report. “We know that Nespresso fans want to know where their coffee has come from and so we now feel it is important to show them, [whereas] in the past we had not really communicated much about it.”

The AAA Sustainable Quality Program was launched in 2003 between Nespresso and the Rainforest Alliance with the goal of creating a sustainable supply of the highest-quality coffee, while improving the situation for coffee farmers and their communities.

At the time the two organisations launched the sustainability program, “consumers weren’t as sensitive to the issue as they are now”, Nespresso’s Head of UK Marketing Eva Pederzini told Marketing Week the day the new campaign was announced. “We know that they are interested in sustainability, recycling and the positive impact that they can [make by choosing our products].”

The “We Are the Choices We Make” campaign features a 60-second TV commercial, four online short films and an online content platform that even has a social component where Nespresso fans can stay connected with Humberto, the brand’s newest star, and get real-time updates from his farm in Colombia.

“The theme of the campaign came because we believe quality does not come by chance, but by choice,” explains Graham. “Our search for the highest-quality coffee has led to a series of choices, and we want to share the [results] of those choices through this campaign. [On the] online content hub we’ll continue to share with coffee-lovers the stories that illustrate our sustainability efforts. And as long as our consumers want to learn more about the choices we make, we’ll be happy to share with them.”

Blue Bottle

What’s in it for the company
While Blue Bottle consumers didn’t necessarily articulate that they wanted the indie label to join forces with a major brand, the acquisition does mean more people get access to the small roaster’s artisanal coffee and the ethos that comes along with it.

“This move underlines Nestlé’s focus on investing in high-growth categories and acting on consumer trends,” Nestlé CEO Mark Schneider said in the company’s announcement. “Blue Bottle Coffee’s passion for quality coffee and mission-based outlook make for a highly successful brand. Their path to scale is clearly defined and benefits from increasing consumer appreciation for delicious and sustainable coffee.”

The total number of Blue Bottle Coffee shops is expected to reach 55 by the end of 2017, up from 29 at the end of 2016.

Growth and a sustainable future are what Blue Bottle founder James Freeman ultimately wanted for the flourishing small business: Nestlé’s offer was one that “secured our dream of growing Blue Bottle into the future”, he tells GCR. “We’re excited to bring our coffee to more places, and this partnership enables us to do that in a way that assures meaningful growth and stability to our employees.”

While Blue Bottle strives to bring its specialty coffee to more discerning coffee drinkers around the world with the support of Nestlé’s global network, some of its existing customers worry how the acquisition might change the brand they’ve grown to love.

“I think it is really lovely that people are concerned. It means a lot to us that people admire and enjoy what we do,” says Freeman, noting that Blue Bottle has been evolving since day one, while remaining true to its core values. “I think you have to keep changing and growing to improve. We are proud of what we’ve created and we think this partnership, in part, shows an interest in our kind of coffee from the rest of the world. I think that’s something that all baristas, coffee professionals and coffee drinkers can be proud of.”

Blue Bottle Coffee will retain a minority stake and remain a standalone entity, allowing its current management and employees to continue running the business with the same creative freedom and entrepreneurial spirit it always has. Freeman will remain Chief Product Officer and Bryan Meehan will remain CEO.

What value it brings
Although the value of the deal has not been publicly disclosed, estimated valuations beg the question of why Nestlé didn’t just create a small specialty brand of its own.

While Nestlé has the funds for it, the desired results of a move like that aren’t necessarily guaranteed. There’s something to be said about the organic growth a small company sees and the loyal customers it earns along the way that a corporate giant can’t easily replicate.

This struggle has been seen in other product categories, such as when Clorox introduced its Green Works line of cleaning products in 2008. Consumers and industry experts alike questioned how a brand with bleach as its flagship product could genuinely be “green”.

So when coffee consumers see a “craft” or “artisanal” brand being built by a large multinational, there will likely be much more scepticism than if the multinational simply acquires a brand that has already mastered the “artisanal” component.

This is a significant driver behind many of the acquisitions and mergers in the global coffee industry that have made headlines during the past decade.

In 2015, Peet’s Coffee, which started out as an indie label itself in 1966, acquired Portland, Oregon’s Stumptown Coffee Roasters and Chicago’s Intelligentsia. Just three years earlier, Peet’s was acquired by consumer goods investment group JAB Holdings.

The Luxembourg-based group has also been on a buying spree in the coffee industry. After Peet’s, JAB acquired Caribou Coffee in 2013 and Keurig Green Mountain in early 2016. This is in addition to a handful of café brands that sell coffee but don’t necessarily specialise in it, including Einstein Brothers Bagels, Bruegger’s Bagels and Panera Bread.

The inability to create an authentic indie label that has the following of an existing one is also behind the odd transaction that happened between Mars Inc. and Milwaukee-based Alterra Coffee Roasters in 2010.

Rather than acquiring the popular indie roaster, Mars purchased the rights to the Alterra name and logo to use in its office and single-brew coffee verticals. In exchange, Alterra only changed its name to Colectivo Coffee, but continued to operate as it always had.

To Colectivo, the deal was simply a name change with significant monetary backing, but to Mars it meant a spot in the hip specialty coffee market where the legwork had already been done and the loyal following was already established.

For companies like Mars, JAB and Nestlé, it’s exactly what they’re looking for in today’s evolving global coffee industry. Where these multinationals may have the funds to launch new brands, they also have the funds to acquire existing ones with proven successes. GCR

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