Sun, May 31, 2020 page16

• The pandemic reinforced people’s coffee addiction

  • By Andrea Felsted / Bloomberg Opinion
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  The initial public offering (IPO) market just got a shot of caffeine from JDE Peet’s BV. Do not expect other consumer listings to get such a rush.

  The owner of Peet’s Coffee, Douwe Egberts, Kenco and Tassimo on Friday priced shares in its IPO at 31.50 euros, in the upper half of the offering range, valuing the company at 15.6 billion euros (US$17.3 billion), and rose to about 35.50 euros in mid-morning trading.

  The biggest European IPO this year, pulled off in a swift 10 days, is a remarkable feat for a consumer business in the midst of a pandemic and a looming global recession.

  

  A customer adds sugar to a drink outside a Peet’s Coffee & Tea store in San Francisco on Wednesday last week.

  Photo: Bloomberg

  However, JDE Peet’s has been uncannily well-placed to capitalize on changing consumer habits during lockdown, the prospects for reopening and a resurgence in equity markets.

  The Dutch company was floated by JAB Holding Co, the investment fund backed by Germany’s billionaire Reimann family. Cornerstone investors, including funds run by George Soros’ firm, had agreed to take up one-third of the offering, setting the tone.

  In a world crowded with coffee chains, JDE Peet’s gets 80 percent of its sales from coffee that is drunk at home. That meant it benefited as corner cafes shuttered and people working from home were forced to become their own baristas.

  Now that they can start going out again, it is ready to serve them their favorite hot beverage too at the Peet’s Coffee chain. Just as Nestle SA benefited from people looking to stock up on the Starbucks-branded coffee it sells in supermarkets, so JDE Peet’s might gain new customers at its cafes if they discovered its products in the grocery store during lockdown.

  As consumers navigate post-lockdown life, JDE Peet’s looks well-insulated. That might explain why the valuation, as of mid-morning trading, approached that of Starbucks Corp on a calendar 2019 enterprise-value-to-EBITDA basis.

  With consumers likely pulling in their purse strings, homemade coffee might be more popular than pricey takeaway lattes. Yet the valuation might also reflect optimism about reopening, and expectations that people will be eager to get out and about.

  Early indications from US retailers, such as discount chain owner TJX Cos Inc and even department store Macy’s Inc, are that sales have been stronger than expected since Americans were able to shop in person once again.

  Let us not forget about the IPO timing with stock markets gaining from their lows in March. That might be one reason why Peet’s was so keen on an accelerated book build: to avoid any sudden market turbulence.

  The fortunate confluence of factors might not come together for other consumer-facing groups looking to float or spin off a division.

  L Brands Inc’s desire to eventually separate its Victoria’s Secret lingerie chain comes to mind. It was grappling with a tired image and too many stores even before the COVID-19 pandemic.

  As for Peet’s, the successful float leaves it with firepower for further acquisitions. It plans to use the proceeds to cut debt — it aims to reduce the leverage ratio from 3.6 times to below three times by the end of the first half of next year — but it gets an acquisition currency in the form of equity.

  Competition for coffee assets has been intense. There was a flurry of deals two years ago with JAB’s US$2 billion purchase of Pret A Manger, which sells coffee as well as food to go; Coca-Cola Co’s US$5.1 billion swoop on Costa Coffee; and Nestle’s US$7 billion deal for the rights to sell Starbucks coffee in supermarkets.

  However, JDE Peet’s could get lucky here, too, particularly in the market for drinking coffee outside the home. With the lockdown-induced distress in malls and on main streets, it might be able to grab something to go for a better price.

  Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked for the Financial Times.

  This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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