Coffee consolidation mirroring beer’s M&A activity, says Rabobank

By Mary Ellen Shoup

- Last updated on GMT

A further wave of consolidation to the coffee industry is oncoming, Rabobank analyst says. ©iStock/iprogressman
A further wave of consolidation to the coffee industry is oncoming, Rabobank analyst says. ©iStock/iprogressman
The global coffee industry has more room for consolidation and shares a similar M&A pattern to the international beer market, according to a recent Rabobank report.

The report by Rabobank’s senior beverage analyst, Jim Watson, predicts that Nestlé’s coffee business, Nescafé, will maintain a leading position in terms of value for the foreseeable future. However, JAB Holding Company’s rapid acquisition activity will continue to play an important role in shaping the evolving coffee landscape.

Nescafé was valued at $16.8bn as of May 2017 and over the past five years privately-held JAB has spent more than $30bn on acquisitions of coffee brands including Peet’s Coffee, Stumptown Coffee Roasters, Keurig Green Mountain, and Caribou Coffee.

“What drew my eye to this was the emergence of JAB,”​ Watson told BeverageDaily.

“As soon as they got done with one acquisition they already had detailed plans on the next.”

Parallels with beer industry

This path of “aggressive M&A”​ will likely continue, Watson said. He likens the coffee market’s acquisition activity to the consolidation that happened in the beer industry making AB InBev the world’s largest brewer.

“The similarities between the development of coffee and beer are striking: an upstart using an aggressive acquisition playbook to challenge established global players, coupled with the emergence of a smaller premium ‘craft’ segment,”​ Watson wrote in the report.

JAB also has a “close relationship”​ with AB InBev as the firm’s partners include the current and former chairman of the mega brewer drawing a further parallel between the coffee and beer industries, according to Watson.

While JAB has played a large role in the consolidation of the coffee industry, Nestlé has maintained a conservative approach to acquisition.

Emergence of clear global No. 3 player

Outside of Nestlé and JAB’s dominance in the coffee industry, there are still key coffee brands with strong infrastructure and distribution capabilities that have further growth potential, according the report.

“We should see the creation of a clear global number-three player,”​ Watson said, identifying Lavazza, Starbucks, and Coca-Cola as companies most likely to assume this position.

“Lavazza is our choice from the traditional roast and ground space, and it has a stated appetite for further growth, especially in the more premium space and in North America,” ​Watson added.

“Their CEO has made it clear that he sees the wave of consolidation coming.” 

Georgia Coffee is sold in Japan where it holds top market share.

Coca-Cola is Rabobank’s “dark horse”​ prediction, as it owns Georgia Coffee, a RTD coffee brand valued at more than $1bn.

“Coca-Cola has a long history of playing in coffee,”​ he said. “I don’t think they 100% have a clear coffee strategy that they’re executing, but they have the most powerful distribution system in the entire world.”

Starbucks, another possibility to become the third largest coffee company, has the advantage of leveraging its premium position and plans for continued global expansion, Watson.

Lavazza has already made moves to gain more of a global presence by acquiring Canadian coffee brand Kicking Horse in May.

Speaking on the acquisition Lavazza CEO, Antonio Baravelle, said: “If we want to be independent in this big consolidation process, there is only one possibility – to grow. Either you sell or you grow, there is no alternative.”

“The whole landscape can really transform quickly because the pressure to acquire is contagious,”​ Watson added. 

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