Blue Bottle Coffee Gets Caffeinated With $25.75 Million in Funding

http://recode.net/2014/01/29/blue-bottle-coffee-gets-caffeinated-with-25-75-million-in-funding-from-internet-stars-and-morgan-stanley/

by rajbala • 12 years ago

39 48 12 years ago

recode.net

state• 12 years ago

Blue Bottle does seem to be a great company. I have (and have had) may friends who have worked there over the years. It isn't quite clear to me how they're going to bring in VC-needed returns on this kind of investment.

Anyone else care to comment? It just doesn't intuitively make sense to me.

arfrank2• 12 years ago

My gut reaction is that if you could get in early enough on the next Starbucks it could return a large enough payoff to be worth the risk.

bnejad• 12 years ago

With a bunch of big investors they certainly have enough hype to give it a shot.

rubiquity3• 12 years ago

They already have real revenue. It could be a lot worse.

SDGT• 12 years ago

I don't see how they would even be able to break out of SF in general.

I'm on the other side of the country, and our small town has 3 independent coffee shops, multiple local roasters, and a Starbucks. This is your average college town, and there isn't an icebergs chance in hell you'd be able to get market penetration here.

IceyEC• 12 years ago

The article says they have locations in New York as well.

chevas• 12 years ago

I can see the company growing slowly into something large. Starbucks has left behind the craft and replaced it with automation and burnt coffee that can be tasted through 20 ounces of milk. Yet, the people still want craft coffee.

This gave rise to lots of independents, but you never know what you're getting from one independent to the next. Just because you're an independent does not automatically make your coffee any good.

Blue Bottle has worked really hard to develop a reputation of really really caring about coffee, from farm to cup (and good ingredients in all food products). There are very few large independents who have a similar reputation (Stumptown comes to mind and Intelligentsia come to mind).

The last time I saw explosive growth in Coffee, which was cut way too short by a buyout from Starbucks for millions, was the Coffee Equipment company who manufactured the Clover machine. The Clover essentially elevated drip coffee to espresso status. The machine made drip coffee that tasted good, one cup at a time, and within 60 seconds. Blue Bottle isn't manufacturing anything, so my opinion is that it's going to be a long road to get to big growth.

k-mcgrady2• 12 years ago

> "Blue Bottle has worked really hard to develop a reputation of really really caring about coffee, from farm to cup"

That's great but how many people (apart from people trying to seem hip) really care? To the vast majority of people (those who get coffee at home/Starbucks/local cafés) it's a cup of coffee. Nothing more. They couldn't tell the difference between a $1.50 cup and a $6 cup and even if they could they'd still go with the $1.50 cup.

yanowitz• 12 years ago

I'm very interested in seeing how they can scale their training when opening new cafes. It's some of the best coffee I've had in SF/NYC.

antr2• 12 years ago

I'm trying to figure out why a VC, who has a very high cost of equity, invests in this type of business rather than the more "traditional" PE growth fund... or if revenue/cash flow growth is so high... why not go the debt financing route.

Anybody has any insight?

bhousel2• 12 years ago

from TFA:

(For more, here is a blog post on the whole shebang by True Venture’s Tony Conrad — who is, IMHO, the coffee hipster poster boy — in which he notes loftily: “What we saw and why we got involved is that James and his team are part of a handful of people who are founding a movement around coffee … We believe Blue Bottle Coffee is at the forefront of a ‘consumer movement’ or mega-trend in which consumers are moving to higher quality, artisanal micro-roasters of coffee, where quality, attention to detail, beauty and a distinctive experience are being sought over more mainstream alternatives.” Viva la siphon, apparently!)

dakrisht2• 12 years ago

"We believe Blue Bottle Coffee is at the forefront of a ‘consumer movement’ or mega-trend in which consumers are moving to higher quality, artisanal micro-roasters of coffee, where quality, attention to detail, beauty and a distinctive experience are being sought over more mainstream alternatives.”

Yeah, maybe on Market Street, Tony. The majority of the country (and the world) isn't going to pay $6 for a cup of coffee. That's reality.

Seems like a purely hype driven VC play to invest in BB. They make a great product, yes, but the SF micro-niche coffee clientele will have a very tough time scaling to profit in a country where Dunkin Donuts is considered great coffee - and Starbucks.

Also, not sure why BB would raise this cash from VC vs. debt financing. Whole thing is hilarious.

adamio2• 12 years ago

"... part of a handful of people who are founding a movement around coffee … We believe Blue Bottle Coffee is at the forefront of a ‘consumer movement’ or mega-trend in which consumers are moving to higher quality, artisanal micro-roasters of coffee"

Mega-Trend? I'm assuming their exit is via Starbucks

antr2• 12 years ago

I think an offline retail business like this one is a perfect LBO candidate.

ratscabies• 12 years ago

It'll never play in the UK. http://en.wikipedia.org/wiki/Calliphoridae

k-mcgrady2• 12 years ago

It won't play anywhere but small pockets of a few cities where people have a lot of money and want to pay crazy amounts of money for a cup of coffee. I really don't understand why people are investing so much money in this and why it needs that much investment. I see very nice coffee shops open all the time, sell perfectly fine coffee for a quarter the price and they don't need millions in investment.

scrumper• 12 years ago

I don't agree with that. Bluebottles, while hardly cute, aren't reviled in the UK at all, and they are the only commonly-seen fly that one might regard as even slightly attractive.

For many they are simply a memory of childhood, watching insects buzzing against a window on a hot summer's day.

dasil0032• 12 years ago

Well it's more appetizing than ratscabies on either side of the pond, gotta give 'em that.

jowiar• 12 years ago

I remember reading something a while ago that there aren't actually enough coffee beans produced of a high enough quality to produce Starbucks-level quantity at current Blue Bottle-level quality. I'm curious whether this is the problem Blue Bottle intends to solve, or if they plan to be "Yet Another Starbucks".

dasil0032• 12 years ago

I don't know too much about raw coffee quality, but what I do know is that roasted coffee goes stale very quickly. If you freeze it you can preserve some flavor for a time, but generally the best thing is to grind directly before brewing and finish the beans within a week or two of roasting.

The reason starbucks is bad is because they let their coffee sit around for months in the supply chain, and they over-roast in order to compensate for the lost flavor as well as the tremendous amount of cream and sugar they put in every drink.

Again, I don't know how much good quality beans there are out there or even how you grade raw beans, but I suspect that average quality beans if roasted locally and brewed quickly (which was sort of the hallmark of Blue Bottle if I recall) will be an order of magnitude better than Starbucks right off the bat. If they organize their logistics around that I think they can scale a much better quality coffee than Starbucks.

redwood• 12 years ago

I can't stand this kind of thing. Why? Because artisanal at scale is no longer artisanal.

Not in food and beverages, anyway. Sure fancy electronics are made at scale and we consider some of them to be best of breed.

But in food and beverages, best of breed is never, can never, should never be at scale.

Thus this just means another chain of coffee. Great. Even if it's an improvement on existing chains: it's bad for independent artisanals (just like Blue Bottle was) everywhere it goes. Which is bad for all of us.

I guess I just don't like "selling" the uniquely artisanal concept when it's no longer uniquely artisanal. It feels hollow and deceptive.

rubiquity3• 12 years ago

Well said. I'd also like to add that anyone that hasn't already noticed the quality of both their coffee beans and baristas declining in the last 3 years probably doesn't own taste buds, or maybe Starbucks is just that awful.

Kudos to Blue Bottle though. They're probably going to make a ton of money by being marginally (but still noticably) better than Starbucks.

astrange• 12 years ago

Do you have some of their coffee from 3 years ago to compare?

Maybe you burned your tongue too much over the last few years, and that's why it tastes different.

adamio2• 12 years ago

I agree, its a coffee chain. It has to be hype and marketing. Does this coffee company have patents on a new roasting method that scales, or some breakthrough technique to save on logistics? It seems like it's only a play on perception and hype.

From 2012 http://www.trueventures.com/2012/10/10/welcoming-blue-bottle...

"We’re also pleased to announce that Bryan Meehan, a good friend and an accomplished entrepreneur, has joined Blue Bottle full-time as Executive Chairman, contributing his significant expertise to all areas of strategy, marketing and operations. Bryan previously founded, grew and sold two premium specialty retail chains that share key similarities with Blue Bottle: 1) Fresh & Wild, an organic supermarket chain acquired by Whole Foods in 2004; and 2) Nude Skincare, a luxury natural skincare company acquired by LVMH in 2011."

bpodgursky• 12 years ago

I guess I just don't understand this mindset. I prefer food that tastes good, and don't really care whether 10 or 1,000,000 other people are able to enjoy it as well. Doesn't hurt me if they can reproduce it on a mass scale.

w1ntermute• 12 years ago

Yeah, this "not wanting to share" mindset of hipsters is probably the most repulsive thing about them to me.

BrainInAJar• 12 years ago

Doesn't hurt me if they can reproduce it on a mass scale.

But they can't, because we're talking about production lots that are on the order of a few hundred pounds of coffee, That doesn't scale far (a busy cafe will burn through 15lbs a day easily, plus wastage, retail bags, etc)

001sky2• 12 years ago

I guess I just don't understand this mindset.

Like "off the rack, bespoke", it's self-contradictory. There is no such thing as "factory scale, artisinal" food. The abuse of marketing buzzwords to mask inferior production is as old as fake-yellow-cheese.

angersock2• 12 years ago

But in food and beverages, best of breed is never, can never, should never be at scale.

But at scale it is far, far easier to guarantee quality and consistency of product, and to gain the experience needed to achieve best-of-breed products.

Unless you are implying that the imperfections in the production process are part of the artisanality?

001sky2• 12 years ago

"The adjective "artisanal" is sometimes used in describing hand-processing in what is usually viewed as an industrial process"

By definition, artisinal production is distinguished by type. That doesn't mean all mass produced things are bad. It just means the marketing is hypocritical, in a bait-and-switch kind of way. Which, admittedly, is more of a problem for those who are over-invested emotionally in a brand or product.

Using 'artisanal' as a "busienss strategy" was originally adopted to encourage such emotional investment. The fetishization of 'handmade', in part, related to its implied.natural scarcity. The latter makes it also hipster-fodder.

eps• 12 years ago

You got the whole coffee thing ass-backwards.

It doesn't matter if it's "artisanal". What only matters is if it tastes good. But if it tastes good because it's artisanal, then it's certainly a problem. Though not with Blue Bottle, but you and your snobbery. How the f#ck getting great coffee in more places is "bad for all of us". Do you actually read what you type?

But in food and beverages, best of breed is never, can never, should never be at scale.

Of course, it can! Just look at wines, look at cheeses, look a damn puy lentils. Look at caviar. You are just making shit up.

mwfunk• 12 years ago

I don't understand- wine is a perfect example of something that doesn't scale. The process of making wine is fundamentally very different for the typical mass-market grocery store wine than it is for a smaller winemaker. They have to put in all kinds of additives to make the output of high-volume wine production palatable, and the end result is something that may be perfectly drinkable but no one would consider best-of-breed wine. In extreme cases (like white zin), it's closer to artificially flavored and sweetened alcoholic grape juice than what a lot of people would even consider wine. That's not snobbery, that's just how it is.

The process of producing really good wine is very inefficient by comparison, and part of the reason it can be so good is because it requires (for example) very specific grapes that don't even exist in large enough numbers to mass-produce that wine.

I'm not even saying that mass market wine is bad. I've gladly drunk more than my share of dirt cheap wine over the years (and enjoyed it!) but I harbor no illusions that it's the best wine there is.

I could totally see coffee as being a similar thing- you could scale it up and get a pretty decent mass-market approximation of the original, and it might even be pretty darned good, but it's not going to be the same as the original. It can be high-volume, best-of-breed, or reasonably priced- pick any two. I think that's all the original poster was saying. It's not snobbery, it's just the realities of that industry.

debt• 12 years ago

I can't stand this thing because it's coffee. It's like artisanal heroin. Coffee, in my mind, is meant to wake me up and get me going. It's purely a functional thing. A good cup of coffee is just a not bad cup of coffee. How did this complication about coffee happen? I see the same thing happening with headphones. People listening to Diplo on $1500 Sennheiser headphones; for why? What tones and notes are you trying to get out of that? The same question could almost be asked of coffee. The human tongue, I'm sure, can only process so many taste combinations. What are we trying to get out of coffee?

calbear812• 12 years ago

That's like saying I can't stand people who make good cocktails because in my mind, alcohol is supposed to get me drunk.

Some people just like coffee and the coffee we've had for such a long time in America has been either burnt, tasteless, or mixed with a bunch of flavors such that we've forgotten that a well brewed coffee doesn't need to taste bitter.

We've also discovered that coffee acquires flavor not just from roasting but also from it's provenance (just like wine, the terroir matters) so now you can taste for coffees that have caramel notes, coffees that have bright cherry notes, etc.

Another reason that I think it matters is that the difference between shitty coffee and good coffee is so clear. We're not talking about trying to discern a slight difference. I've been drinking lattes in the Midwest while traveling and they are the worst thing ever. It's like the heated water, milk, and a touch of coffee. A great latte (like at Ritual Coffee Roasters) retains the taste of coffee (espresso) with a creamy blend of frothed milk.

3minus1• 12 years ago

Some people just like the experience of drinking coffee: the hot liquid that slowly cools, the bitter taste, and of course the caffeine. I started trying to cut out caffeine and I actually still drink de-caf, and enjoy it.

calbear812• 12 years ago

I think it is still uniquely artisanal if they continue to adhere to some principles around how fresh the beans need to be, roasting locally, sourcing ethically, and continuing to make coffee in a way that respects the craft.

If they start shipping out bags of coffee nationwide from a central roasting plant and keep coffee in warming pots, then I would say they've gone from craft coffee brewer to just another coffee chain.

... and they make a mean New Orleans iced coffee.

mmagin• 12 years ago

Well, good for them, but I hope it doesn't ruin the product the same way Hershey's ruined Scharffen Berger chocolate.

spikels• 12 years ago

Blue Bottle's secret to success is great PR and a lighter roast than most of their competitors which results in a milder, sweeter cup of coffee. Otherwise they buy their green coffee from the same sources and use the same equipment and techniques (however they were an early cold brew adopter). And I think their service is subpar - slow and not particularly friendly - but people put up with it.

$26 million seems like a lot but perhaps this is enough to build a brand/business around. Both Starbucks and Peets had similar origins and are now worth $55 billion and $1 billion, respectively. And it always helps when your product is addictive.

Blue Bottle Coffee Gets Caffeinated With $25.75 Million in Funding

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