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Specialty coffee brands that started as anti-establishment have become big business investments.
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Independent coffee shops focus on building a community for their customers and suppliers. They create unique spaces full of character and personality.
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Specialty coffee companies, like Blue Bottle, emphasize higher quality products, slowing things down and establishing mutually beneficial relationships with suppliers.
Perspective by Fionn Pooler
The coffee industry has come a long way since the days of Folgers and Maxwell House. Specialty coffee is now big business, and the industry is awash with cash.
Large companies have bought up many seminal third wave brands over the past decade, from Blue Bottle and La Colombe to Stumptown and Intelligentsia. Despite claims that they would keep their independence, the reality is that the lines are already beginning to blur.
Blue Bottle and fellow Nestlé subsidiary Nespresso have teamed up for a line of coffee pods, La Colombe followed suit with a Keurig collaboration, and Alaska Airlines is now serving Stumptown. What started out as a few plucky entrepreneurs fighting back against corporate dominance and mediocre coffee has become everything it once opposed.
And it’s not just the glamorous, high-profile companies—venture capital and private equity money has poured into small roasters and mini-chains around the United States, the UK, and Europe. Meanwhile, big companies have begun snapping up regional players like in the case of JDE Peet’s purchasing Brazil’s Maratá’s Coffee & Tea and taking over roasting operations for Caribou Coffee in the US. It all adds up to a general theme of consolidation and homogeneity, of big money pouring into a relatively small industry.
This is not to say investment is bad. Businesses need money to start and grow—it’s the type of investment and what it wants in return that can cause problems. It’s hard to shake the feeling that all the venture capital and private equity money flowing into specialty coffee over the past decade or so is warping the industry in ways that we haven’t yet begun to grasp.
People have been investing in companies since the dawn of capitalism, paying for a sliver of what they hope will grow to give them a bigger slice. Private equity (PE) and its offshoot, venture capital (VC), takes that idea and supercharges it to the point of abstraction. Venture capital usually comes first and involves investments in startups with scope (or at least ambition) to grow quickly. When you read about a coffee company raising Series A, B, or C funding, that’s venture capital.
“The primary motivation for getting into VC, it’s an extraction thing,” notes Peter Roberts, professor of organization and management at Emory University. “Nobody should look at VC and think of it as a benign force. It’s indicative of a series of structural issues, but they’re also protagonists. At the end of the day it starts with this idea of, what are the return aspirations of the individuals who invested in your fund?”
Specialty coffee prides itself on doing things differently. The whole point of the third wave was to distinguish Stumptown, Intelligentsia, Blue Bottle, and others from the companies that came before. Certain brands—Stumptown is a good example—even gained a reputation as anti-establishment. “Punk is in the bones of Portland’s Stumptown Coffee,” wrote Sprudge in 2019.
But it’s not all bad. To generalize somewhat, specialty coffee is an industry of small businesses paying minimal staff minimum wage and without much in the way of HR or healthcare. Investment, in theory, could change that.
For Sarah Kluth, who has worked in specialty coffee and finance, the important thing is the makeup of the company that’s investing. “PE firms can be really large, or they can be really small, and so that does determine the approach as well,” she says. “And not all of them are completely Machiavellian, right? There are certain VCs and PEs out there who are savvy enough to understand these boutique brands and understand that there’s a culture there, and the smart ones will want to preserve that.”
So is VC and PE money the future of specialty coffee, or its death knell?
The positive position: with increased investment comes increased scale, allowing companies to buy more coffee from farmers and pay them more. More employment means more money entering the local economy: a rising tide (or trickle-down economics). Opening new cafes lets a company reach new customers, bringing more acolytes into the specialty fold.
On the doomer side: more money equals more strings, more investors to keep happy, and more people asking questions like, “Do we really need to be spending so much on green coffee?” Which eventually results in downward pressure on green prices. Expansion stratifies a business, disconnecting workers from the company’s core ideals and watering down the brand.
One thing is certain—investment and the associated supercharged growth are becoming normalized in specialty coffee. Nobody bats an eye when Origin Coffee receives a multi-million-pound investment or when a private equity firm buys Seattle Coffee Gear. It’s just the cost of doing business if you want to grow to compete with Starbucks, Caffe Nero, or even Stumptown and Intelligentsia.
But is that good? Does growing unsustainably fast benefit anyone aside from the founder and shareholders?
“When was the last time that something ended up at the tail end of an obscene growth process, and [was] better than it’s ever been?” asks Professor Roberts. “I’m not sure that at the end of the day, any singular experience with Blue Bottle will be made better because of the arrival of Nestlé.”
The dream of specialty coffee—of the third wave as a concept—was built on doing things differently to the big brands—higher quality, more care, better ethics. But today, the third-wave trailblazers are mostly owned by big brands themselves, so what now? Was it worth it?
In an era of hypercapitalism, with big brands entering the specialty industry and the market becoming saturated with startup coffee companies, venture capital and private equity investment would be appealing. If everyone else is taking the money, how can you compete without accepting a few cheques—and the strings that come along with them?
What happens to the concept of specialty coffee when everyone is venture-backed, every cafe looks the same, and behemoths own many of the most famous brands? What happens to coffee farmers when shareholders demand perpetually higher profit margins and larger dividends?
There will doubtless always be small coffee companies looking to grow sustainably and approach coffee with nuance, humility, and a focus on quality. But when the latest multi-million-dollar investment round, the smiling startup CEO waxing lyrical about growth, and near-constant mergers and acquisitions dominate the headlines, it seems a long way from the anti-establishment ideals upon which specialty coffee was founded.