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Peet’s Coffee & Tea announced earlier this week that it had reached an agreement to purchase Stumptown Coffee Roasters, a unique example of a US coffee shop chain from the “second wave” generation buying one of the best-known members of the “third wave” movement. It also represents a further statement of intent from Peet’s parent company, JAB Holding Co. In addition to constructing the world’s largest pure-play coffee company in Jacobs Douwe Egberts, the company now controls three distinct coffee shop concepts, adding Stumptown to its existing stakes in Peet’s and Caribou Coffee Company. The most recent move signals continued consolidation in the global coffee market, as well as another step in the evolution of the coffee shop. Long a fast-growing, profitable niche category, specialist coffee shops are becoming much more than that—luxury brands, new product development laboratories, powerful tools for consumer education—a process likely to drive further acquisitions in the year to come.
While much of the early commentary on the Peet’s/Stumptown deal has focused on the idea of a small, artisanal chain being sold to a much larger conglomerate, this misses the point—after all, Stumptown was sold to private equity firm TSG Consumer Partners in 2011, and an eventual sale was inevitable. Far more interesting is the purchase of what remains a tiny chain—Stumptown operates a handful of coffee shops in its home city of Portland, along with stores in New York, Los Angeles, and Seattle—by one of the world’s largest coffee companies. While Stumptown also has a significant business selling roasted coffee and ready-to-drink beverages through a variety of channels, it is, at the end of the day, a small company.
What is going on here? The power of Stumptown—and what Peet’s and JAB Holdings hope to harness—comes in its brand. Along with rivals Intelligentsia Coffee and Blue Bottle Coffee, Stumptown is one the most-respected coffee shop brands in the US, credited with changing the way (a relatively small, affluent subset) of Americans drink coffee. It has helped to create what is now booming demand for cold-brew iced coffee, while pressing forward with innovative retail products such as a canned version of its much loved Nitro Cold Brew, which uses nitrogen gas to create an iced coffee with a creamy mouthfeel and foamy head, not unlike a stout. And in the near-term, for Peet’s this is likely where much of the opportunity lies—Stumptown coffee shops across the US serving as discovery points for premium coffee and premium soft drinks, which in turn drive highly profitable packaged retail sales in convenience stores, supermarkets, and beyond.
Yet the brand’s long-term potential goes beyond that. Stumptown stands at the leading edge of a global trend—the emergence of coffee shops as global luxury brands. While specialist coffee shops have long traded on the concept of affordable luxury, Stumptown takes this a step further—not just a place to enjoy a good cup of coffee, the chain’s brand is built on the idea of offering the best coffee possible, whether hot or iced, packaged or unpackaged. This is a proposition which more than ever has global appeal, and the potential for global expansion. It is why global luxury conglomerates like Prada Group and LVMH have made investments in the coffee shop channel, and it is why Peet’s has chosen this time to act. The very high end of the global coffee industry is taking on characteristics of the fashion industry, and the luxury industry more broadly—purchases made not for scale, but for brands, and concepts, and experiences which can come from anywhere yet scale globally, among affluent consumers willing to pay for the best experiences available.