Sun, Jun 09, 2013 - Page 14 News List

Big investments brew robust US craft coffee market

Proponents of ‘slow coffee’ aim to convert express espresso sippers into coffee connoisseurs by providing an upscale experience that one coffeeshop owner termed ‘the democratization of luxury’

By Lisa Baertlein, Marcy Nicholson and Martinne Geller  /  Reuters

With about 12,900 cafes in its US-dominated Americas region, Starbucks holds the biggest share of the country’s coffee market with 18.7 percent of revenue, IBISWorld said. That figure shows how competitive and fragmented the business is in the US, where local cafes, fast-food chains and even gas stations peddle coffee and lattes.

Seattle-based Starbucks is a major buyer of artisan beans, going up against rivals like Chicago-based Intelligentsia, which sells half-pound bags of its Santuario Geisha roast from Colombia for US$80.50 and expects to grow to 12 stores this year from nine.

“The third wave of coffee really is about understanding the craft and the lifestyle of coffee,” said Systrom, a self-described coffee addict and one of a group of investors led by True Ventures and Index Ventures that poured US$20 million into San Francisco-based Blue Bottle late last year.

He and fellow investor Hawk, who said he kicked in US$100,000, also advise Blue Bottle on its growth plans.

Baristas at the new coffee shops often sport handlebar mustaches, bow ties or suspenders. They spend long moments lovingly tamping espresso, coaxing clever designs from frothy cappuccino milk, or coaching customers as they select beans.

It is a time-consuming process that bears little resemblance to the button-operated speed and efficiency of Starbucks’ current generation of espresso machines.

The third wave caters to fanatics like California author Bill Tancer, 47, who said a “coffee concierge” opened his eyes to a new world of coffee during a visit to Philz, which received an “eight figure” investment from Summit Partners, a private equity firm. TechCrunch reported that the infusion was in the US$15 million to US$25 million range.

In 2011, Portland, Oregon-based Stumptown, which has nine coffee bars, took a large investment from TSG Consumer Partners, a private equity firm. The parties declined to quantify it, but two sources familiar with the deal said it was in the area of US$20 million to US$25 million and constituted a controlling stake.

The sources declined to be identified because the information is not public.

Some die-hard fans fretted that the craft coffee trend-setter had sold out, considering that TSG has a strong track record of investing in small brands, helping them grow and selling them to large corporations.

One of its most notable investments was a stake in vitaminwater maker Glaceau, which was ultimately sold to Coca-Cola Co for US$4 billion.

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