Issue link: https://read.dmtmag.com/i/1034837
8 STiR coffee and tea / Issue 5, 2018 (October / November) Founding Editor Glenn Anthony John gaj@octobermultimedia.com Managing Editor Dan Bolton dwb@octobermultimedia.com Art Director Somjet Thitasomboon snt@octobermultimedia.com Global Tea Report Peter GW Keen Global Coffee Report Dan Shryock Special Correspondent Sherri Johns Contributing Writers Josh Doyle (Canada) Bethany Haye (Colombia) Alf Kramer (Europe) Sunalini Menon (India) Shem Omanga Oirere (Africa) Kelly Stein (Brazil) Translations (Chinese) Si Chen | Nan Cui Administrative Assistant Sommai Jekaram Subscriptions Malisa Kongkatitum Sales Director Emerson Leonard edl@octobermultimedia.com Director, October Inter Co., Ltd. Boonthin Tubsongkroh brt@octobermultimedia.com STiR c/o October Inter Co. Ltd. Interchange 21 Bldg., 32nd Fl., Room 3225, 399 Sukhumvit Road, North Klong Toey, Wattana, Bangkok, 10110, Thailand Tel +66 2 660 3789 Fax +66 2 660 3881 www.stir-tea-coffee.com Published by: A Member of: M From the Managing Editor © 2018 October Multimedia Co. Ltd., STiR coffee and tea is published bi-monthly in February, April, June, August, October, and December by October Multimedia Co. Ltd. Printing and distribution overseen by October Inter Co., Ltd., Interchange 21 Bldg. Fl 32, Rm 3225, 399 Sukhumvit Road, North Klong Toey, Wattana, Bangkok, 10110 THAILAND. Tel +66 2 660 3789. E-mail: info@octo- bermultimedia.com www.octobermultimedia.com. All rights reserved. By-lined or initialed articles represent the opinion of the author. All articles published in STiR coffee and tea or www.stir-tea- coffee.com are copyrighted. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without written permission. Unconcerned about Retail Consolidation ergers & acquisitions (m&a) have transformed the decades-stable $85 billion retail coffee market in the past six years. Coca-Cola's $5.1 billion purchase of Costa Coffee, the sec- ond largest coffee retailer, is the most recent food and beverage transaction in a string of deals that numbered 299 in 2017. The acquisition inserts the world's largest beverage company into the hot beverage segment, facing Nestlé, Starbucks, and JAB Holdings. On one hand, it is reassuring that coffee has demonstrated its profitability so convincingly that Luxembourg-based JAB Holdings, the investment arm of Germany's ultra-rich Reimann fam- ily, is divesting its luxury brands in fashion, perfume, and cosmetics to sell $4 lattes. Since 2012 JAB has executed a $53 billion, 14-deal spending spree for coffee-friendly businesses concen- trated in the US and Western Europe. The result is a bundle of seven specialty roasters (one with a top selling brand of bottled cold brew); two bagel chains, a chain of iconic American donut shops, two premium bakery chains, a sandwich chain; a tea company, a kombucha brand, the Keurig single-serve empire, and the third largest carbonated bottler (with brands that include Dr Pepper, 7UP, Snapple, and Sunkist). Many in the industry thought $1 billion was a lot to spend for Peet's Coffee & Tea. Since then JAB has acquired approximately 20% market share of the global coffee industry while spending $7.5 billion for Panera Bread and acquiring Keurig Green Mountain for $13.9 billion before financing the Keurig acquisition of Dr Pepper-Snapple for $18.8 billion—Dunkin' Group is rumored to be next on JAB's shopping list. A bottle of perfume may sell for $165 every six months but the economics of switching to fast-moving consumer expendables are easy to grasp when acquisition targets sell hundreds of millions of lattes, bagels, sandwiches, and donuts a day. Since its move into coffee, investors have placed $80 billion under management by JAB which is valued at $54 billion. Starbucks, the world's largest coffee chain, sells 8 million coffees a day, earning $22.4 billion in 2017—not enough to face down JAB alone. Fortunately Nestlé, the world's largest food com- pany, is valued at $247 billion. Nestlé was concerned enough at the scale of its new rivals that in August it closed a $7.2 billion partnership to sell Starbucks branded coffee alongside Nescafé, still the best-selling coffee in the world. Last year the company acquired Blue Bottle Coffee and Chameleon, further staking its claim in the coffee segment. So, what to make of all this? The role of acquisitions and mergers is to create value, often by achieving scale that reduces costs. JAB is not taking part in frothy auctions that inflate prices. Neither is Nestlé. These compa- nies are paying fair rates for established businesses with solid reputations. The Starbucks deal is a sign that Nestlé is broadening its base while sharpening its focus on coffee. To remain competitive, Coca-Cola needed a global hot beverage brand. Costa is sold in 30 countries. Meanwhile, JAB is accelerating a strategy that makes coffee part of a fast-casual, donut, and sandwich portfolio. Globally m&a is on the rise but it is cyclic. What will follow the turbulence of these transac- tions is integration of two dozen big brands reshuffled in more than 20 major deals. The cash infusion following these sales enabled some of the pioneers of specialty coffee to cash in hand- somely (which encourages others to innovate) but most are remaining with the acquiring firms. Active m&a is an indication of financial health, and while the supply side at origin is in shambles right now the evidence above bodes well for retail.