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.
This is a great piece, Ashley. Thank you for writing it.
It's always funny when previously hip companies get bought out and say "We're not changing! We're still cool!" and then start doing Keurig pods and selling in Walmart and whatnot. Big Steve-Buscemi-with-a-skateboard vibes.
Hey Ashley! I really enjoyed this article. I feel that you presented the information fairly, clearly, and with some great reflection questions. I'm really glad to hear CHI Intelli won their vote!
would Stumptown, if they were still run like a small private company, open almost directly across the street, less than a block, from a locally owned specialty coffee small business?
That's precisely what they're doing right now in Pasadena/Altadena, CA.
I see them now as nothing more than a profit hungry, no care for the community, typical corporate entity...but also unique that they also built their empire on Nazi roots/money.
Fascinating read, thank you. I think this growth to corporate acquisition pipeline is super interesting in contrast with the corporate investment from the onset approach you mentioned in your tweet about Blank Street.
Mostly both situations make me feel sad, as it feels like everything good and pure about speciality coffee being traded for money but, as they say, cash rules everything around me 🥲
Ashley, let's chat. The biggest, and perhaps only impact, of the consolidation (so far) were the terms of contracts... JAB wrote themselves a massive interest free loan by forcing their suppliers to front them the coffee. But it wasn't the producers who were impacted (at least not directly), it was the middlemen, those folks everyone likes to hate, but who are often the unsung heroes in the value chain. The new terms did cause a forced consolidation among traders, because only the biggest could afford to pay JAB this big interest free loan. And the coffee brands... Stumptown, for instance, has not changed how they source. If anything, it's improved under Shauna's leadership. Intelligentsia operates now as it always has, better than it ever has in many respects. They make great investments in sustainability and absolutely are focused on helping producers thrive, at least as much as they ever were. And to say that because an organization has to deliver shareholder value therefor cannot have the producer's best interest at heart, doesn't hold up. There is no correlation between their sustainability records and whether they are publicly or privately owned. None. Some of the largest roasters in the world are family owned. (Lavazza; Melitta; Tchibo...) All business have to make a profit, and there is only a small handful that are operating as a "social enterprise," where the coffee is means to economic development and poverty reduction. (This Side Up and Qima Coffees are two examples of this type of "good middlemen.") JAB isn't dictating how Peet's sources or what they pay producers, or how they treat producers. The three principles at JAB know the value and power of a brand. They don't want to kill the goose laying the golden eggs by getting in there and mucking up the brands. Absolutely, all coffee brands could be investing far more than they do in sustainability. Far more. But the act of buying brands and consolidating them onto a singled balance sheet has not proven to make things worse for producers. At least, I've not seen any evidence of such harm, including in your article. You ask: "Will the values these brands were founded on change?" You assert they have, but present no evidence, not even an anecdote, about how they have. You claim they have changed because they now have to make money in a "different way." JAB certainly is making money in a different way with that big ongoing interest free loan. But the brands are make their money, and sustaining their values just as they've always have. Often better than they ever have. But certainly not worse. Jeffery Sachs is a well known economist in the coffee space, and he is 100% in the producers corner, a very vocal critic of the industry, but I haven't heard him connect the consolidation with any negative impacts on producers, either.
Greg, the premise of your response seems to be that Ashley is making accusations about these companies, which is not how I read it. There is good reason to be skeptical about the effects of investment and fast growth of companies given what we’ve seen from tech giants who have less-than-obvious ways of monetizing their products, and that is what Ashley is acknowledging here, particularly in light of shifting power with union movements in coffee companies. If these are just normal coffee brands, besides national expansion, what is the value proposition here? JAB says “long term growth”. I think it’s fair to be curious about what exactly that means.
I disagree with a few of your comments and will try to briefly summarize a few important points: firstly, Producers *are* impacted by a change in contract terms no matter where in the supply chain, because the terms (to the extent they create additional financing costs for the importer/trader), reduce what gets paid further down the chain to exporters, mills / processors and farmers. The way these arrangements often work are: the exporter will take out a loan (from Root Capital or a local bank or other financial institution) for the purchase price of the coffee they need. They make the purchase from farmers or local aggregators in cash on delivery (which might be cherry, parchment etc.) and then they are out ~$100,000/container plus interest until they put the container on a ship and the documents are sent to the buyer and they get paid. This interest, that is normally building for 2-4 months, is often a big part of the margin on the container, and affects their ability to be profitable, as well as their ability to pay significantly above market to their suppliers and provide other investments or support.
Closely held and family owned companies have very different fiduciary obligations to their owners than public companies. Now, JAB is not public, so it doesn’t “have to” maximize shareholder value, but they were planning to take JDE Peets public (and Peets owns Intelli and Stumptown so this would directly affect them in the ways Ashley sets out in describing pre-IPO transformations). Also, we don’t know the terms of any inter-group company financial arrangements– JAB or Peets may have given shareholder loans or guaranteed bank loans or given other financial support that requires repayment on a given schedule and may be forcing the companies’ hands with respect to the way they use their profits. Lots of possibilities, lots of questions remain, that was my takeaway from the article as well.
You talk a lot about the “interest free loans” through JAB’s financing terms, and I’m not sure I fully understand what you mean. With their existing corporate structure I think that consolidating procurement would be harder to carry out than most people realize (arms length transactions and all of that). But JAB is profiting in at least one other way– as a shareholder/owner. It is using its relationships with Target (for example) to get all of their brands onto the shelves (and block out other roasters), and probably has made cost savings through streamlining some back office corporate functions (HR, compliance, finance, and IT come to mind as likely). It’s clear that part of JAB’s strategy is monopolizing breakfast / coffee brands while preserving the illusion of choice in the US market, so maintaining the brand identities and extending them into other market segments like RTD is key to this strategy.
I think the lack of transparency and hesitancy to tackle complex issues and scratch below the surface are huge weaknesses in the specialty coffee industry, and I think Ashley does a great job of researching, presenting issues clearly, and letting people make up their own minds about hard topics that come up. Thanks @Ashley!
Awesome. Thank you for such a thoughtful response. I too, have plenty of skepticism about big coffee brands and the movement towards consolidation. I agree fully there is good reason to be skeptical. I don't disagree that there are indirect impacts to producers when the middle gets's squeezed. I've seen it first hand. But I also know that the number of indirect impacts to producers are numerous and spread throughout the supply chain, and laying blame at the big bad roasters is an over simplification that keeps us from seeing the multifaceted, interconnected issues that result in negative impact for producers. No bigger threat to producers exists, in my opinion, than with consumers, who vote with their dollars, and they overwhelmingly vote for the lower priced coffee. Grocery that competes on price means producers of all crops are squeezed, and that the investments necessary for environmental sustainability are secondary to surviving another year. Because this customer dominates the market, no one should be surprised that business responds to meet the demand by competing on price. I was talking to Suyog a couple weeks ago, the owner of Drift Away roasters, he mentioned that the number one reason he looses customers is price. He is 100% transparent, making all the right sourcing decisions, supporting efforts like World Coffee Research on top of it, but he looses customers because someone else will sell coffee for a few bucks less. But customers are also just trying to make ends meet. They are just trying to feed their kids, and if buying cheap coffee helps them to do that, it's hard to lay blame...
What I mean by "interest free loan" is that individual JAB roasters get coffee for 280+ days without having to pay for it. They are not consolidating or coordinating purchases. That's a loan they pay no interest on. The only way JAB can dictate such outrageous terms is because no one can afford to loose the JAB roasters as customers. If Peet's attempted to do this alone, the market would tell them to go take a hike. But when all the JAB roasters do it, the middld has no choice but to capitulate. And though theoretically this can mean there is less money for investments in producer sustainability, I have yet to see any research or evidence that shows sustainability investments are decreasing because of it. I've seen several JAB roasters increase their support for sustainability. Sustainability investments where inadequate before JAB, and they remain inadequate today.
I appreciate Ashley's point of view. The questions she asks are spot on. Skepticism should be the foundation for investigation. I am super impressed with her desire to learn more. She knows she doesn't have the whole picture. For sure, neither do I. But I'm on guard not to over simplify the issues impacting coffee sustainability, not to scape goat or demonize "Big" roasters. If one's starting point is big=bad, then one is susceptible to "motivated reasoning" and the bias that results.
You make claims above that sound plausible, but there is nothing to substantiate them. JAB doesn't have sales team pushing the JAB brands. Each brand has their own sales teams, and compete with one another, as well as none JAB brands for shelf space. I've worked closely with several of the JAB brands, and I can tell you HR, compliance, finance, and IT are also all handled independently by each roaster. Sustainability, also. Peet's approach to sustainability has no resemblance to Stumptown's, Caribou Coffee no resemblance to Stumptown's.
But, please, don't misconstrue this to be a defense for consolidation. I am skeptical. I just haven't seen the cause and effect harm to producers or the environment yet. In addition, I'm aware that nothing is black and white, and even if there are negative impacts that can be attributed to consolidation, one must look just as hard for positive impacts. Big roasters have the power to demand higher levels of sustainability from their supply chain. When Peet's, JDE and Nespresso claim idealistic brand values of sustainability, the ECOMs, LDCs, SUCAFINA's and all the rest of those companies with home offices in Lausanne Switzerland, taking advantage of tax breaks, do take their sustainability game up. This I have witnessed. They do it to compete, not necessarily because it's the right the thing to do, but philanthropic motivation often has little to do with philanthropic behavior. But these positive impacts must also be considered when looking at Big = Problem.
I'm currently working on the systemic issue of gender bias found within coffee sustainability programing and investments. I can tell you that we are not going to move the needle on that issue, unless big brands embrace gender equitable sustainability throughout their sustainability investments, not just a women's program here or there, not just marketing a "women's coffee." We need big. We need medium. We need small. Each org type plays an important role in the economic landscape. There are good, neutral, and bad actors in each category. Let's keep our guard up, keep looking into the black box, as Ashly is, keep looking behind the curtain of the Big. But let's also be on guard against unsubstantiated speculation and simple analysis.
Greg, perhaps we should take this discussion elsewhere so that we can dig into your standards for evidence and personal experience and not distract from the point that Ashley is trying to make here about specialty coffee being a product that acknowledges the specific people that produce it, and give it particular qualities that customers are willing to pay a premium for. I think the point is, if/when does sourcing at scale stop being specialty? What gets lost or compromised along the way?
You can contact me, Ashley on or off the record. I have been on the scene since 2003 and don't think our nostalgia for all that has been lost (and so much has been lost) should make us lose sight of what has been gained, especially in the spread of vastly improved local roasters and coffee shops.
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
Thank you Jackson!!
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.
Me too! I want to know how this money is moving around and who benefits/loses in these transactions!
This is a great piece, Ashley. Thank you for writing it.
It's always funny when previously hip companies get bought out and say "We're not changing! We're still cool!" and then start doing Keurig pods and selling in Walmart and whatnot. Big Steve-Buscemi-with-a-skateboard vibes.
Thanks Fionn! And it's not to say that companies can't grow it's just like, at what cost and what will go to the wayside for you to do so?
Hey Ashley! I really enjoyed this article. I feel that you presented the information fairly, clearly, and with some great reflection questions. I'm really glad to hear CHI Intelli won their vote!
Agreed! Glad to hear they won!!!
If original values are still being adhered to it would be amazing, but I would be surprised if they were. Great piece, Ash.
Agreed — I wish there was more transparency about how investment money has been used and if any of it has improved prices for farmers.
Excellent article. Thank you.
Thank you Spencer!
Really well written and informative article.
Thank you Warren! I really appreciate you saying so!
would Stumptown, if they were still run like a small private company, open almost directly across the street, less than a block, from a locally owned specialty coffee small business?
That's precisely what they're doing right now in Pasadena/Altadena, CA.
I see them now as nothing more than a profit hungry, no care for the community, typical corporate entity...but also unique that they also built their empire on Nazi roots/money.
Fascinating read, thank you. I think this growth to corporate acquisition pipeline is super interesting in contrast with the corporate investment from the onset approach you mentioned in your tweet about Blank Street.
Mostly both situations make me feel sad, as it feels like everything good and pure about speciality coffee being traded for money but, as they say, cash rules everything around me 🥲
Ashley, let's chat. The biggest, and perhaps only impact, of the consolidation (so far) were the terms of contracts... JAB wrote themselves a massive interest free loan by forcing their suppliers to front them the coffee. But it wasn't the producers who were impacted (at least not directly), it was the middlemen, those folks everyone likes to hate, but who are often the unsung heroes in the value chain. The new terms did cause a forced consolidation among traders, because only the biggest could afford to pay JAB this big interest free loan. And the coffee brands... Stumptown, for instance, has not changed how they source. If anything, it's improved under Shauna's leadership. Intelligentsia operates now as it always has, better than it ever has in many respects. They make great investments in sustainability and absolutely are focused on helping producers thrive, at least as much as they ever were. And to say that because an organization has to deliver shareholder value therefor cannot have the producer's best interest at heart, doesn't hold up. There is no correlation between their sustainability records and whether they are publicly or privately owned. None. Some of the largest roasters in the world are family owned. (Lavazza; Melitta; Tchibo...) All business have to make a profit, and there is only a small handful that are operating as a "social enterprise," where the coffee is means to economic development and poverty reduction. (This Side Up and Qima Coffees are two examples of this type of "good middlemen.") JAB isn't dictating how Peet's sources or what they pay producers, or how they treat producers. The three principles at JAB know the value and power of a brand. They don't want to kill the goose laying the golden eggs by getting in there and mucking up the brands. Absolutely, all coffee brands could be investing far more than they do in sustainability. Far more. But the act of buying brands and consolidating them onto a singled balance sheet has not proven to make things worse for producers. At least, I've not seen any evidence of such harm, including in your article. You ask: "Will the values these brands were founded on change?" You assert they have, but present no evidence, not even an anecdote, about how they have. You claim they have changed because they now have to make money in a "different way." JAB certainly is making money in a different way with that big ongoing interest free loan. But the brands are make their money, and sustaining their values just as they've always have. Often better than they ever have. But certainly not worse. Jeffery Sachs is a well known economist in the coffee space, and he is 100% in the producers corner, a very vocal critic of the industry, but I haven't heard him connect the consolidation with any negative impacts on producers, either.
Greg, the premise of your response seems to be that Ashley is making accusations about these companies, which is not how I read it. There is good reason to be skeptical about the effects of investment and fast growth of companies given what we’ve seen from tech giants who have less-than-obvious ways of monetizing their products, and that is what Ashley is acknowledging here, particularly in light of shifting power with union movements in coffee companies. If these are just normal coffee brands, besides national expansion, what is the value proposition here? JAB says “long term growth”. I think it’s fair to be curious about what exactly that means.
I disagree with a few of your comments and will try to briefly summarize a few important points: firstly, Producers *are* impacted by a change in contract terms no matter where in the supply chain, because the terms (to the extent they create additional financing costs for the importer/trader), reduce what gets paid further down the chain to exporters, mills / processors and farmers. The way these arrangements often work are: the exporter will take out a loan (from Root Capital or a local bank or other financial institution) for the purchase price of the coffee they need. They make the purchase from farmers or local aggregators in cash on delivery (which might be cherry, parchment etc.) and then they are out ~$100,000/container plus interest until they put the container on a ship and the documents are sent to the buyer and they get paid. This interest, that is normally building for 2-4 months, is often a big part of the margin on the container, and affects their ability to be profitable, as well as their ability to pay significantly above market to their suppliers and provide other investments or support.
Closely held and family owned companies have very different fiduciary obligations to their owners than public companies. Now, JAB is not public, so it doesn’t “have to” maximize shareholder value, but they were planning to take JDE Peets public (and Peets owns Intelli and Stumptown so this would directly affect them in the ways Ashley sets out in describing pre-IPO transformations). Also, we don’t know the terms of any inter-group company financial arrangements– JAB or Peets may have given shareholder loans or guaranteed bank loans or given other financial support that requires repayment on a given schedule and may be forcing the companies’ hands with respect to the way they use their profits. Lots of possibilities, lots of questions remain, that was my takeaway from the article as well.
You talk a lot about the “interest free loans” through JAB’s financing terms, and I’m not sure I fully understand what you mean. With their existing corporate structure I think that consolidating procurement would be harder to carry out than most people realize (arms length transactions and all of that). But JAB is profiting in at least one other way– as a shareholder/owner. It is using its relationships with Target (for example) to get all of their brands onto the shelves (and block out other roasters), and probably has made cost savings through streamlining some back office corporate functions (HR, compliance, finance, and IT come to mind as likely). It’s clear that part of JAB’s strategy is monopolizing breakfast / coffee brands while preserving the illusion of choice in the US market, so maintaining the brand identities and extending them into other market segments like RTD is key to this strategy.
I think the lack of transparency and hesitancy to tackle complex issues and scratch below the surface are huge weaknesses in the specialty coffee industry, and I think Ashley does a great job of researching, presenting issues clearly, and letting people make up their own minds about hard topics that come up. Thanks @Ashley!
Awesome. Thank you for such a thoughtful response. I too, have plenty of skepticism about big coffee brands and the movement towards consolidation. I agree fully there is good reason to be skeptical. I don't disagree that there are indirect impacts to producers when the middle gets's squeezed. I've seen it first hand. But I also know that the number of indirect impacts to producers are numerous and spread throughout the supply chain, and laying blame at the big bad roasters is an over simplification that keeps us from seeing the multifaceted, interconnected issues that result in negative impact for producers. No bigger threat to producers exists, in my opinion, than with consumers, who vote with their dollars, and they overwhelmingly vote for the lower priced coffee. Grocery that competes on price means producers of all crops are squeezed, and that the investments necessary for environmental sustainability are secondary to surviving another year. Because this customer dominates the market, no one should be surprised that business responds to meet the demand by competing on price. I was talking to Suyog a couple weeks ago, the owner of Drift Away roasters, he mentioned that the number one reason he looses customers is price. He is 100% transparent, making all the right sourcing decisions, supporting efforts like World Coffee Research on top of it, but he looses customers because someone else will sell coffee for a few bucks less. But customers are also just trying to make ends meet. They are just trying to feed their kids, and if buying cheap coffee helps them to do that, it's hard to lay blame...
What I mean by "interest free loan" is that individual JAB roasters get coffee for 280+ days without having to pay for it. They are not consolidating or coordinating purchases. That's a loan they pay no interest on. The only way JAB can dictate such outrageous terms is because no one can afford to loose the JAB roasters as customers. If Peet's attempted to do this alone, the market would tell them to go take a hike. But when all the JAB roasters do it, the middld has no choice but to capitulate. And though theoretically this can mean there is less money for investments in producer sustainability, I have yet to see any research or evidence that shows sustainability investments are decreasing because of it. I've seen several JAB roasters increase their support for sustainability. Sustainability investments where inadequate before JAB, and they remain inadequate today.
I appreciate Ashley's point of view. The questions she asks are spot on. Skepticism should be the foundation for investigation. I am super impressed with her desire to learn more. She knows she doesn't have the whole picture. For sure, neither do I. But I'm on guard not to over simplify the issues impacting coffee sustainability, not to scape goat or demonize "Big" roasters. If one's starting point is big=bad, then one is susceptible to "motivated reasoning" and the bias that results.
You make claims above that sound plausible, but there is nothing to substantiate them. JAB doesn't have sales team pushing the JAB brands. Each brand has their own sales teams, and compete with one another, as well as none JAB brands for shelf space. I've worked closely with several of the JAB brands, and I can tell you HR, compliance, finance, and IT are also all handled independently by each roaster. Sustainability, also. Peet's approach to sustainability has no resemblance to Stumptown's, Caribou Coffee no resemblance to Stumptown's.
But, please, don't misconstrue this to be a defense for consolidation. I am skeptical. I just haven't seen the cause and effect harm to producers or the environment yet. In addition, I'm aware that nothing is black and white, and even if there are negative impacts that can be attributed to consolidation, one must look just as hard for positive impacts. Big roasters have the power to demand higher levels of sustainability from their supply chain. When Peet's, JDE and Nespresso claim idealistic brand values of sustainability, the ECOMs, LDCs, SUCAFINA's and all the rest of those companies with home offices in Lausanne Switzerland, taking advantage of tax breaks, do take their sustainability game up. This I have witnessed. They do it to compete, not necessarily because it's the right the thing to do, but philanthropic motivation often has little to do with philanthropic behavior. But these positive impacts must also be considered when looking at Big = Problem.
I'm currently working on the systemic issue of gender bias found within coffee sustainability programing and investments. I can tell you that we are not going to move the needle on that issue, unless big brands embrace gender equitable sustainability throughout their sustainability investments, not just a women's program here or there, not just marketing a "women's coffee." We need big. We need medium. We need small. Each org type plays an important role in the economic landscape. There are good, neutral, and bad actors in each category. Let's keep our guard up, keep looking into the black box, as Ashly is, keep looking behind the curtain of the Big. But let's also be on guard against unsubstantiated speculation and simple analysis.
Greg, perhaps we should take this discussion elsewhere so that we can dig into your standards for evidence and personal experience and not distract from the point that Ashley is trying to make here about specialty coffee being a product that acknowledges the specific people that produce it, and give it particular qualities that customers are willing to pay a premium for. I think the point is, if/when does sourcing at scale stop being specialty? What gets lost or compromised along the way?
You can contact me, Ashley on or off the record. I have been on the scene since 2003 and don't think our nostalgia for all that has been lost (and so much has been lost) should make us lose sight of what has been gained, especially in the spread of vastly improved local roasters and coffee shops.