Last week, news broke that Nestlé had purchased a 68 percent majority stake in the boutique and beloved coffee company Blue Bottle, for a reported $500 million. Despite the fact that Blue Bottle had already raised over $100 million from investors (including Instagram founder Kevin Systrom and Twitter’s Ev Williams), the involvement of Nestlé — the largest food company in the world, and one with questionable environmental practices — elicited serious backlash. We called up Blue Bottle founder James Freeman to discuss the ramifications of the investment, how it’ll impact cafés, and if the so-called “third wave” of coffee is officially over.
So how long has this deal been in the works?
Well, there’s been a lot of months of negotiation over the finer points. Anytime you get lawyers involved, they’re getting paid by the hour, so it can stretch out. But, it really started with Bryan Meehan, our CEO. One of his friends is on the Nestlé board, and he was at Bryan’s house, and he made this person a delicious affogato, a great drink and a dessert, and apparently that sparked a conversation. Here we are two years later, and it’s happened. A lot of things can happen over a delicious coffee, right?
You’ve never been shy about your desire to expand, and how you want to execute that, but this move has taken people by surprise. The reactions haven’t been enthusiastic. How does that make you feel?
I am not shy, yes. And people have been feeling that way for at least the last five years, when I went from majority owner to minority owner. I’ve been hearing those sounds for a number of years, and fortunately, we’ve got our three words, right? Deliciousness, hospitality, and sustainability. I think we’re better at all three of those than we were five years ago. I think a lot of our guests would agree.
Nestlé is, in fact, one of the largest companies in the world. But of their 2,000 brands, they have, as far as I know, exactly one that’s a stand-alone entity with a separate board — a separate governance that’s not part of their HR system, that’s not part of their financial system. That’s us. We have a very interesting and unusual arrangement with Nestlé, and that’s why we made the deal, because we could work in this stand-alone capacity.
People take it personally, like their favorite rock band has “sold out.”
I can understand the impulse, because the world is not filled with examples of small companies improving after transactions like this, and if people are upset, what does that mean? That means they care very deeply for what we’re making and that’s flattering, so that’s good. But it’s also that the internet is like the id of our collective consciousness. Nobody grabs their telephone and opens up Twitter and types in all caps, “I’M GOING TO GIVE THIS THE BENEFIT OF THE DOUBT.” People just don’t do that. So it’s a lot of id, it’s a lot of strong feelings, and if we continue to execute and improve on our execution, then people will … It’s better to show people than tell people anyway, right?
The backlash also stems from Nestlé’s environmental practices. Did you consider this when making your decision?
I’m in L.A. now, and this is something we are talking about. First of all, we can’t speak for Nestlé. But for us, our sustainability is one the things that Nestlé invested in — sustainability is very important for us. And so, by their actions, the new CEO is coming in, and he’s investing a lot of money in sustainability practices, and improving their practices.
What do you think about the concern, specifically, about Nestlé’s water sourcing in California?
For us, we’re thinking about our sustainability. In terms of commenting about Nestlé’s sustainability, that’s something that nobody on our team is really wanting to … comment about that. Those are things that are out of our control. My thinking is, We’re the vector and Nestlé’s the host, and we already have a good record on sustainability, and we’re going to be building it, brick by brick, to make it something even better.
Taking a step back, why did this feel right at this moment in your company’s evolution?
There are a few paths a company of our growth rate can take when we’re pursuing capital. We can IPO, and we can borrow money from bankers to debt, we can do more rounds of financing, or we can find a strategic alliance with a bigger company. The first three are kind of unpalatable. I don’t know the founders of Snapchat, but if you talk to them, or the Blue Apron people, they would likely agree with me. IPO is kind of dreary in a number of ways, and borrowing money from bankers, you have to pay it back, and they get a lot of say. We’ve been very, very fortunate with our investors and doing subsequent rounds of investment, but we’re at the point where we had 252 investors.
Now, it’s just Nestlé. That clarity — that sustainability, the ability to stop talking about deals and start talking about coffee again — feels really great.
What will be your role moving forward? Does it change?
It doesn’t. Bryan is CEO, and he has a lot to do with real estate and business and building teams. I’m chief product officer; I cup coffee and I’m in charge of menus and designing cafés with the team and working on communications, so it’s pretty much the same.
Nestlé is obviously known for Nespresso, and you’ve made canned lattes for years. Are there new product developments on the horizon?
Yeah. We’ve got a few products that I really think are delicious, and I want to get on store shelves. Nestlé is very, very good at getting products on store shelves, so I’m hoping we can get some help from them in that capacity.
How omnipresent do you want Blue Bottle to be?
I want it to feel special, but if it feels special that doesn’t mean it correlates to how many there are of it. It means how well-executed the space, the people, and the coffee are. We can only build cafés as fast as we can promote managers and meet baristas, and find some people to run them, and find interesting people to build them. That’s our main constraint in terms of opening a number of shops.
Any new markets you’re pursuing? I know Tokyo’s been a major place for expansion.
We’ve got a new shop opening in October in Tokyo that’ll be a really nice one. And we are looking at other cities in Japan. Japan’s been very good to us. We don’t have anything signed yet, but I’m excited about looking into other cities. Considering our success in Japan, I think it’s natural that in 2018 we might … we get a lot of inquiries from Korea, Taiwan, China, and I think it seems likely that in one of those places, we might decide to open next year.
Will there be any noticeable changes within the cafés, or will there just be more of them?
No. I mean the reason we are a stand-alone entity is because they want us to work the way we work, and to continue to do as good a work as we can. Unless something horrible happens, you’re just not going to see anything that doesn’t feel right in our shops.
Like, say, Chobani yogurt in La Colombe cafés.
There are many yogurts in La Colombe.
Will we see any Nestlé products in the shops?
We have autonomy over the products that we source and serve and sell. There’s been zero pressure for us to sell a certain Nestlé product or use a certain Nestlé ingredient.
It’s an interesting moment for the third-wave coffee: Pete’s bought Stumptown and Intelligentsia; Chobani’s founder invested in La Colombe. I’m curious what you think about the evolution of this movement. Is the third wave over?
Or maybe the third wave never started?
Tell me more.
I think the third wave is an interesting but kind of misguided way to talk about coffee. You know that Willy Ukers book published in 1933 called, All About Coffee? It’s a seminal book about coffee. In it, he talks about Cairo. I think in 1533, Cairo was a city of a little under a million people at that time, approximately the size of San Francisco. There were 3,000 cafés in Cairo at that time, presumably all serving single-origin coffee from Yemen, roasted on the premises, ground and prepared to order on a bed of coals or sand. And that sounds so good. What wave was that, because that sounds like a great wave, and that was what? 500 years ago, or 490 years ago? I think the concept of waves is a little bit misleading. There are people who have been doing good work in coffee for many, many decades, not just starting in Portland 15 years ago. You know?
How do you want to see coffee evolve, especially as new companies see your success and want to tap into that?
I mean, when I think about the Nestlé deal, it’s a validation of working hard to make delicious coffee. It’s the biggest food company in the world saying, “Wow, working hard to make delicious coffee is really interesting and valuable, and we should be a part of it.” It’s very flattering and humbling, but it’s also a validation of this industry.
It’s also saying, in a time where we value speed and fast-casual concepts, that it’s okay that the Blue Bottle coffee-making process is slow — notably slower than other coffee shops. Do you feel pressure to change that?
I’ve had internal pressure before Nestlé even happened, from various people at Blue Bottle. It’s like, Can’t we brew coffee in Fetco urns? Please, a lot of other specialty places are doing it? And then we’ll take that coffee and blind-taste it, and I can always tell, and other people on my team can tell. It’s not as delicious. Very few coffee companies have actually said, “Oh, this urn thing is more delicious.” People say, “Oh, it’s almost as good,” or “You can get through it.” It’s great if something makes your life easier, but it’s the human capacity for self-deception that works to say that it’s actually better.
Do you think the fetishization of coffee has gone too far?
Delicious coffee is an incredible thing and it’s pure. It makes you smarter. It has zero calories. It makes you more charming. You know, it’s like a magic thing. Delicious coffee that’s well- sourced and well-roasted can be an extraordinary treat. It’s like, you live in New York and a $12 glass of wine is practically nothing. How often have you had a $12 glass of wine that’s just such a shrug? Right?
You could pay half that, like $6 for a coffee, and people would be like, “Wow, that’s expensive coffee.” But it’s extraordinary. It could be one of the best coffees you’ve had in your life. Even sort of a quote “expensive” cup of coffee can be an incredible bargain in terms of a sensory level.
Will this investment impact your prices at all?
I don’t see why. I mean, we’re investing in better and better green coffee, and sometimes we have to raise our prices, but we’ll raise our prices if a raw ingredient’s cost changes, if our labor costs change. But we’re not going to raise our prices because all of a sudden we have the world’s largest food company invested.
I was thinking you’d be able to lower prices, like what’s happening with the Amazon–Whole Foods deal.
Yeah, I think that’s great. Amazon has a crazy track record of not caring if they make money. I’ve had bills to pay. But because we’re operating separately from Nestlé, we won’t be able to share in that efficiency, I suspect. But if something becomes cheaper to buy without changing the quality of what we’re buying, then of course we would pass those savings along.
Personally, is there anything you’re looking forward to doing with the capital?
I’ve got kids at home, so security feels great. I’m looking forward to talking about coffee instead of deals. This has been very obviously worth it, but it was a time-consuming process, in terms of getting all the nuts and bolts finalized with this arrangement. I’m looking forward to really focusing on coffee again.
This interview has been edited and condensed from two conversations.