STiR coffee and tea magazine

6 STiR coffee and tea / Issue 3, 2018 (June / July) Representation for STIR Asia I Middle East I Africa Southern & Eastern Europe Glenn Anthony John October Inter Co. Ltd. Interchange 21 Bldg., Room 3225, 399 Sukhumvit Road 32nd Fl. Bangkok, 10110, Thailand Tel +662 660 3789, Fax +662 660 3881 Mobile +1 917 843 0000 or +66 818 299 409 gaj@octobermultimedia.com The Americas I Northern Europe Emerson Leonard Cardinal Media LLC 2 Glenfield, Barrington RI 02806 United States Tel +1 917 680 1050 edl@octobermultimedia.com Printing/Distribution overseen by: October Inter Co. Ltd. Distribution by: DHL Express International (Thailand) Ltd. Published by: October Multimedia Co., Ltd. Printed in Thailand By Dan Bolton Up Front ON THE COVER 1 IMA SpA C27-E tea bagging machine [www.ima.it/beverage/portfolio] 2 The Spinning Cone Column for instant coffee that tastes like fresh brewed [flavourtech.com] 3 Colombia adopts national policy for sustainable farming [www.federaciondecafeteros.org/ particulares/en] 1 2 Nestlé's decision to purchase the perpetual rights to market Starbucks consumer and foodservice brands globally, outside the company's coffee shops, was a bold move on the chessboard of global coffee. Nestlé entered the year with only a 5% share of the U.S. coffee market but is now positioned to offer Starbucks and Seattle's Best ground and whole bean coffee, cold brew coffee, coffee in capsules, and top-end boutique specialty roasts from its Blue Bottle brand (purchased for $700 million). The alliance also assigns Nestlé stewardship of Teavana's packaged (but not bottled) tea, resulting in a bigger share of the U.S. tea market, which is valued at $12 billion. Industry leaders have been watching with interest the past five years as JAB Holding, a privately-owned Luxembourg- based investment firm, muscled into food and beverage with more than 10 acquisi- tions totaling $30 billion―spent mainly in the U.S. and Western Europe. JAB, controlled by the Reimann family, decided to divest its considerable resources in luxury lines (Jimmy Choo, Bally), in favor of fast-moving consumer goods (FMCG). The target of choice was coffee, a popular and growing segment undergoing a profitable transition from commodity to specialty. Last year JAB paid $18.7 billion to acquire Dr Pepper which will operate as a division of Keurig, itself acquired by JAB for $14 billion in 2016. Dr Pepper is the world's fifth largest soft drink company with a distribution network dating to 1885 that includes grocery, convenience stores and restaurants. JAB was clearly girding for a high-stakes match, challenging market leader Nestlé globally by exploiting the $90 billion per year firm's relatively weak position in the $48 billion U.S. coffee market. Nestlé was rightly concerned. It remains the global leader with an estimated 28 percent share, earning $17 billion annually, according to Euromonitor International but Nestlé has no chain of retail coffee shops and only a few Nespresso showrooms and an online buying club. It has a sophisticated distribution network to reach grocers, but no ground and whole bean brands or ready-to- drink coffee to stock its warehouses filled with Cheerios, Aero and Kit Kat chocolate, Stouffer's dinners, and Poland Springs water. Relying entirely on its Nespresso, Azera, and Nescafé Dolce Gusto coffee, and Nestea lines left the company vulnerable to a multi-brand, multi-channel competitor. JAB currently accounts for about 20% of global coffee sales. Coffee roasters and tea companies, soft drink maker Dr Pepper, Snapple, donut, bakery, and bagel chains are its core acquisitions. Mainstream firms such as Keurig, Panera Bread, Krispy Kreme, and Einstein Bros. Bagels are in the mix along with Caribou Coffee and boutique roasters Intelligentsia and Stumptown Coffee. Major tea acquisitions include Mighty Leaf (U.S.), which supplies Peet's Coffee & Tea and Pickwick Tea (Europe). Kenco, Douwe Egberts, and Espresso House in Europe make JAB the second-largest player in the segment globally following a five-year shopping spree that looks like it will continue. The Nestlé deal will dampen JAB's rate of expansion while tapping the coffee expertise of the world's most successful coffee retailer. It immediately brings Nestlé considerable revenue from domestic sales of Starbucks' brands, boosting its global coffee share. Starbucks currently offers consumer packaged goods in 28 countries. Nestlé operates in 190 countries where its products are viewed as middle-class markers of affluence. There appears to be a great opportunity to make Starbucks the coffee of choice worldwide. Starbucks has been searching for a distribution partner since 2011 when it dissolved its partnership with Kraft Heinz. The company earns $2.4 billion annually from sales of packaged goods, about 10 percent of the company's $22 billion annual revenue. Starbucks will lead in sourcing, roasting, and Starbucks global brand management for the alliance, while the two companies will work closely together on innovation and go-to-market strategies. JAB, your move. A Bold Alliance 3

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