Last week’s news that JAB Holding Company is to acquire Keurig Green Mountain Inc for close to $14 billion was a huge story, but may turn out to be even bigger when considering JAB’s overall intentions.
The Luxembourg-based investment company JAB Holding has spent over $30 billion in the last four years acquiring coffee companies in Europe and the United States, creating a challenge to global coffee leader Nestlé.
The three executives who head JAB — Peter Harf, Bart Becht and Olivier Goudet — have collective decades of experience in the international food and beverage industry and have overseen the purchase of D.E Master Blenders 1753 (Douwe Egberts), Mondelez International’s coffee unit, and upmarket coffee chains including Peet’s Coffee & Tea, and Espresso House.
It appears that the Keurig move is part of a much broader strategy. A Susquehanna Financial Group analyst, Pablo Zuanic, said: “JAB wants to be the Budweiser of the coffee space. Just as you’ve seen Bud consolidate beer, they want to consolidate coffee.”
The Nestlé challenge
JAB’s first challenge to Nestlé came in June 2012, when it took a stake in Douwe Egberts maker D.E Master Blenders 1753. A year later it completed the acquisition of the whole company for $10.4 billion. Soon after JAB acquired Mondelez’s coffee unit for $5 billion.
May 2014 saw Mondelez – the world’s second-largest coffee maker – and world number three Master Blenders, merged, to form Jacobs Douwe Egberts.
In February 2014, The Coca-Cola Company took a 10% stake in Keurig Green Mountain, increasing its stake to 16% three months later. Many analysts questioned the decision which was tied to the then delayed launch of the Keurig Kold machine.
JAB also owns a number of coffee-shop chains in the United States, including: Peet’s, Caribou Coffee Inc, and Einstein Noah Restaurant Group.
In June this year, JAB acquired the Swedish coffee shop chain Espresso House, in a deal thought to worth $280 million, and revealing plans to ‘make Espresso House the H&M of coffee retailing’.
Keurig’s tough times
The timing of JAB’s move on Keurig must have come as a relief to the coffee company’s senior management as the company has certainly been struggling.
There has been a number of problems with the Keurig 2.0 coffee maker being designed to reject third-party K-cup pods. Customers were unhappy and quickly found ways to cheat the technology.
By May 2015, the company admitted that sales of coffee brewers and accessories were down by 23% and while pod sales were up 14%, it was behind target. Revenues fell.
The launch of the Keurig Kold – which had brought in The Coca-Cola Company’s investment – was delayed and when the product launched, it was priced higher than expected and consumers didn’t rush to buy it. Keurig admitted that sales were disappointing.
So one of the biggest winners in the JAB move is Coca-Cola, which will receive around $2.4 billion.
The Keurig move adds single-serve coffee into the mix – and that’s the segment which is witnessing the industry’s fastest growth. According to Euromonitor, the international coffee market is expanding at around 5% a year, while sales of single-serve capsules, delivered by machines including Nestlé’s Nespresso and Keurig’s are rising at more than twice that rate.
So what next? Will JAB make further moves in global coffee? How much of a challenge does this really represent for Nestlé? Follow www.foodbev.com and our social media channels to keep up with developments.
© FoodBev Media Ltd 2021
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