The Consolidation of Coffee
On conglomerates buying up coffee brands, private equity, and specialty coffee's broken promise.
In October 2015, news broke that Stumptown Coffee was being acquired by Peet’s Coffee & Tea, a company owned by German conglomerate JAB Holding Company.
When I was a baby barista learning about coffee in early 2010s New York, Stumptown was it. My very first coffee job was at a mini-chain—think Starbucks, but with bowties—and while I loved that job, whenever I walked into places that served coffees from roasters like Intelligentsia; Counter Culture Coffee; and, of course, Stumptown, I felt like a little kid admiring adults doing real, serious coffee work.
By the time Stumptown’s sale was announced, I had been a barista for five years. The new felt like a cosmic shift—like something huge was happening, but I didn’t yet know what it was. It’s taken me seven more years to finally understand it: This acquisition—and the acquisitions of other brands that changed the coffee industry—is breaking the founding promise of specialty coffee.
The Beginning of What Could Have Been
Stumptown Coffee was established in 1999 in Portland, Oregon, by Duane Sorenson. The brand is often considered one of the first to look at coffee in a new way, to focus on quality and sourcing the best possible beans. Trish Rothgeb would later, memorably, coin a term to describe Stumptown, and others like it: They were part of coffee’s “third wave.”
The LA Times describes that evolution:
The first and second waves of coffee were characterized by home consumption. Whereas the former was marked by pre-ground, vacuum-packed, mass-market cans from brands like Folgers and Maxwell House, the latter offered consumers a different experience. Rather than coffee coming from the grocery store, it came fresh-roasted and bagged, and was purchased from a destination, a coffee shop like Starbucks or Peet’s. The third wave brought the focus in closer, out of the coffee shop and into the cup. For Rothgeb, the third wave was specifically meant to reflect what was happening in consumers’ cups in Oslo.
Around this time, Stumptown began distinguishing itself by participating in Direct Trade, the practice of buying coffees directly from farmers instead of importers. The history is a little fuzzy—and if you ask 100 people who work in coffee what Direct Trade means now, you’ll get 100 different answers—but Stumptown defines the term on its website through three principles: “[P]ay higher prices tied to quality, not the commodity market; work with producers we know, so we have transparency into their side of the supply chain and they have transparency into ours; and maintain those relationships over many years, striving to build truly collaborative partnerships.”
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Stumptown probably didn’t invent Direct Trade—it was more likely a collaborative effort between the green buyers at Stumptown, Intelligentsia, and Counter Culture, who would have been buying coffee together and sharing ideas. There is unfortunately little record of this, nor information about who first coined the term. But Stumptown certainly made the practice popular by giving it a name, and by putting “Direct Trade” stickers on its bags of coffee. It was meaningful because it represented a departure from the way coffee was typically bought and sold by U.S. roasters, and signaled the start of a sea change in the industry.
It wasn’t alone. In 2003, leaders at Counter Culture Coffee scribbled their “vision statement” for the company on a yellow legal pad, writing: “Counter Culture Coffee is a dedication to real environmental, social & fiscal responsibility.” And Intelligentsia’s website claims it’s been engaging in Direct Trade sourcing practices for the last 20 years, explaining that this model means farmers receive higher prices, and even listing producers from whom it’s bought coffee year after year, ensuring predictability in an industry that is often very volatile. “There is a popular misconception that Direct Trade is all about buying microlots, the best coffees around. At Intelligentsia, Direct Trade is how we buy coffee, period.”
Like Intelligentsia, the Specialty Coffee Association (SCA) defines speciality coffee not as a static thing, but as a living practice: “Specialty coffee can consistently exist through the dedication of the people who have made it their life’s work to continually make quality their highest priority.”
Stumptown, Intelligentsia, and Counter Culture Coffee were the “Big Three”—the three biggest coffee roasters in town during the early 2000s. (I’d argue, especially after spending time in the Bay Area, that Blue Bottle Coffee should also be included in that list.) Together, they did the foundational work that would inspire many other roasting brands and companies to come.
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Roughly a decade later, the purchase of Stumptown was a major moment—but it wasn’t the first big coffee buyout, or even the first time a piece of Stumptown was put up for sale. In 2011, Stumptown sold a majority stake in the business to TSG Consumer Partners LLC, a private equity firm. And in October 2012, JAB purchased Peet’s Coffee & Tea for a reported $1 billion price tag.
Like the Big Three, Peet’s was also an innovator in the coffee industry, though a much earlier one. It was founded in 1966 by Alfred Peet, the person many would go on to credit for how we roast coffee in the United States today. In his obituary published in the New York Times, acclaimed chef Alice Waters said of Peet: “Everybody was drinking coffee that came out of a can. But Alfred was a purist rooted in the European tradition. He taught us a new way to look at food, wine and coffee — paying attention to the preparation, the ritual, and understanding how the beans and ingredients were grown.” Peet is often credited with teaching the founders of Starbucks how to roast, and there’s no way we’d have the Big Three without his influence.
Before purchasing Stumptown—and with Peet’s already in its pocket—JAB acquired other coffee and coffee-adjacent brands like Caribou Coffee, Keurig Green Mountain, and Einstein Bros. Bagels. And for its part, after the Stumptown purchase, Peet’s went on to purchase a majority stake in Intelligentsia Coffee later in 2015. (Just one month prior, Intelligentsia had made a public plea to be bought out by a private equity firm for $100 million.) Nestlé acquired a majority stake in Blue Bottle Coffee in 2017; at the time of purchase, Blue Bottle was rumored to be worth $700 million.
While roasters like Counter Culture remain (to my knowledge) untethered to the world of private equity and acquisitions, others have also jumped in, including La Colombe, which is majority-owned by Hamdi Ulukaya, the CEO of the yogurt brand Chobani. Ulukaya bought out another private equity firm to become the company’s sole investor.
All these huge coffee brands—once independent companies lauded as innovators in their field—were now owned by much, much bigger interests. For many, that begged the question: Will the values these brands were founded on change?
Perhaps unsurprisingly, every press release I read about these acquisitions assured readers that no, nothing would change. Peet’s director of marketing, Hayden Perry, said of the acquisition of Intelligentsia in Eater: “We don’t anticipate it changing, we’re going to continue to operate as it is, as independent businesses.”
But things have changed, because someone else owns a majority stake in these brands—and they’re now responsible for making money in a very, very different way. Instead of making money in order to pay farmers better, these coffee companies need to be profitable, to be valuable assets. In the press release about the Intelligentsia purchase (which is no longer available in full online, but snippets were published on multiple websites), Peet’s Coffee & Tea CEO Dave Burwick proclaims:
We’re excited to welcome Intelligentsia to the Peet’s family as the growth of the super-premium coffee market continues to explode in the U.S. It’s driven by 18-34 year-olds who are more affluent, purchase premium brands from other categories like craft beer and pressed juice, and seek variety and new experiences.
It sure doesn’t seem like his intention is to buy a company because of its sourcing practices.
I am not a financial expert, and I don’t know exactly what an entity the likes of JAB Holdings looks for from the companies it acquires. (I do know that, per an article in the Financial Times, JAB Holdings is described as a “European group, which manages money for Germany’s billionaire Reimann family and outside investors.”) I also don’t know if investing in Direct Trade and meeting certain thresholds of profitability are mutually exclusive—maybe they aren’t for some coffee companies. But I’m skeptical.
Several years ago, the New York Times broke down JAB’s acquisition strategy by category (and also mentioned the company’s shrouded and frankly horrific ties to Nazism—if you can stomach it, you can learn more here), and it seems like JAB is very willing to let go of holdings it no longer deems profitable. “JAB made its biggest misstep as part of a yearslong effort to extend its reach into the luxury fashion sector,” the Times writes. “Over the years, the company acquired brands like Jimmy Choo, Bally and Belstaff, only to sell them off as it sharpened its focus on the more profitable food and coffee sectors.”
What Does This Mean for Coffee?
I’ve been thinking about this a lot since I interviewed the folks from Intelligentsia’s Chicago workers union (they won their vote!). As we discussed their reasons for wanting a union, I made a throwaway comment:
But I think Intelligentsia is a really interesting situation because you were talking about accountability to workers and because Intelligentsia is owned by JAB.
They have this accountability to these stakeholders that are just like … not you. They’re not you, they’re not the people who are actually working every day.
Of course, this is not quite accurate (Intelligentsia is owned by Peet’s, which is owned by JAB). Nor can I profess to know who exactly Intelligentsia, Stumptown, and Peet’s are accountable to, or who the privately owned JAB itself is accountable to. (Do you know anything about its stakeholders, beyond the owners? If you do, please share with me!)
This brings me back to that original definition of specialty coffee: It “exist[s] through the dedication of the people who have made it their life’s work to continually make quality their highest priority.” The SCA, on its website, is clear to define quality broadly: It’s not just about sourcing the best beans, but about improving the quality of life of all actors across the supply stream, from farmers to baristas.
I wonder where these large companies come into play. It’s hard to know much about a private company like JAB, but Nestlé’s list of atrocities is well documented, and a piece in Bloomberg on JAB notes that, “one secret to its success concerns its coffee suppliers, who agree to be paid as many as 300 days after selling the beans.” The article doesn’t specifically mention if farmers have to wait that long to get paid—they seem to only focus on traders—but I would be shocked if, knowing that a supplier isn’t getting paid on time, a farmer miraculously is. It seems like neither of these practices falls in line with the vision and goals of specialty coffee.
That brings me to my final question: What is this all for?
To What End?
Right now, all of the coffee companies in the JAB Holdings portfolio are privately owned. One of of JAB’s acquisitions, Krispy Kreme, was on track to pursue an initial public offering, or an IPO, which would take the brand public and allow people to buy shares in the company. CNBC reports that JAB Holdings bought the company for $1.35 billion in 2016, and that “Krispy Kreme is looking to sell its stock for $21 to $24 a share. At that price range, its post-IPO float will give it an implied valuation of $3.46 billion to $3.96 billion.”
The same article states: “The company said in the filing that it intends to use the net proceeds to repay debts, repurchase shares of stock from some of its executives and make payments on tax withholdings related to some restricted stock units. The rest of the funds will be used for general corporate purposes.”
For some added context, this article in Investopedia details some of the things a company might do before announcing an IPO. “The pre-IPO transformation stage is a restructuring phase when a private company sets the groundwork for becoming publicly-traded. Since the main focus of public companies is to maximize shareholder value, the company should acquire management that has experience doing that.” (bold mine)
I’ll say that again: The main focus of public companies is to maximize shareholder value. It is not to enrich or better the lives of the people who work for and make these companies possible. It stands to reason that a publicly traded company is not prioritizing the needs of workers along the supply chain. And that breaks the baseline promise of specialty coffee.
Who, then, are we accountable to? And what does the future look like for these companies, who made their ethical platforms part of their founding DNA?
I should clarify that I don’t think all growth is bad (although I tend to think growth often happens at the expense of employee wellbeing and as a result of compromised values, but that’s not a rule—rather, it’s an observation). I also don’t think coffee has to be small or twee or precious to be good. But I don’t like the way that critics of these kinds of deals are often painted.
This 2015 article in Slate, for instance, implies that many people believe that quality is only assured when their favorite brands stay small. The author challenges all the coffee “snobs” who felt jilted by the acquisition of Stumptown, writing that the influx of cash will help the brand scale up and get more Stumptown coffee into outlets and grocery stores across the nation.
In another article, the same author writes: “To decry the growth of companies that make good coffee is to support a status quo in which Starbucks continues to dominate the industry indefinitely.” In his view, coffee geeks are almost like hardcore music fans: the kind who uplift their favorite, independent bands, but then jump ship the moment they sign to a major label and “sell out.”
But in coffee, the stakes are higher. A band consists of a few members who ultimately need to get paid—fan fervor won’t negate their electricity bills. In coffee, an entire supply chain is on the line—a supply chain these brands staked their identities on. At times of acquisition, we should consider how farmers, who often make less selling their coffee than what it costs to grow it, will be affected by the business practices inherent to companies controlled by private equity and shareholder interests.
Since those majority stakes purchases in 2015, I haven’t heard of anything revolutionary in terms of barista welfare, farmer wellbeing, or higher prices. (One of the points the Slate author makes is that an influx of cash from private equity will improve sourcing practices, which I’ve seen zero evidence of.) Right now, both Intelligentsia and Stumptown are investing heavily in RTD drinks (both brands are also suffering from massive recalls due to a contamination issue at a manufacturing plant). For Blue Bottle, growth is happening in retail. In May of 2015, the brand had 17 stores. In May of this year, there were 103.
I’ve heard so much about pushes into new market, but I haven’t heard anything about the remnants of the values that once drove these businesses.
At this point, I wonder if they should still be considered specialty at all. And if they are, it’s time to rethink what that word means.
I want to keep pushing this topic further, so I need your help. If you have any experience in finance, or this specific topic, please reach out—leave me a comment and I’ll contact you directly.
On that note, this is the last original piece I’ll be publishing for the next four weeks. Instead, I will be sharing favorite podcast interviews, and some of my other published work, including old articles from the Boss Barista archives that I wrote during a very different phase of this newsletter, when I had under 500 subscribers. I doubt many of you have read them, so I can’t wait to revisit some of my favorite pieces with you.
Take care, and I’ll see you folks soon!
1: excellent article. Really well thought out and some excellent questions asked that I, too, would love to see answered.
2: a helpful resource (that maybe you already know about or maybe not) about the rise of Direct Trade coffee as a sourcing practice is the 2008 book "God In A Cup" by Michaele Weissman
Really great article, Ashley. The rise of private equity firms in company ownership—like you said, it's not like the extra cash is going towards sustainable investments. (Although I wish it would!) I hope that people with experience in that industry do reach out, as I'm curious to hear the on-the-ground perspective about what acquisitions actually entail: the scouting for where to invest / acquire; the contract negotiations; the amount of control retained (or lost) in the resulting deal.