Bloomberg News

JAB’s Coffee Plan May Stretch to Nestle and Starbucks

December 18, 2012

Joh. A. Benckiser Group’s $340 million takeover of Caribou Coffee Co. (CBOU:US) may be a small step in a larger plan to take on the likes of Nestle SA and Starbucks Corp. (SBUX:US) for leadership in the $45 billion global coffee market.

The acquisition, announced yesterday after the purchases this year of Peet’s Coffee & Tea Inc. and a stake in the maker of Douwe Egberts coffee, shows that the German investment firm may have much grander ambitions, according to Jon Cox, an analyst at Kepler Capital Markets in Zurich.

“This is bound to renew speculation that ultimately it’s interested in creating a global powerhouse in coffee -- something of a Starbucks/Nespresso hybrid,” Cox said.

The investment company, which has interests in Jimmy Choo shoes and Chloe perfumes, may be aspiring to become the world’s No. 2 coffee maker, behind Nestle, (NESN) according to Pablo Zuanic, an analyst at Liberum Capital. JAB may seek to buy all of Amsterdam-based D.E Master Blenders 1753 NV, (DE) in which it owns a 15 percent stake, or even consider bidding for the former Kraft Foods Inc.’s global coffee business, he said.

“The bottom line is that JAB apparently really likes coffee and sees opportunities for consolidation,” Zuanic said. “It is hard to think these are isolated transactions, but are more likely part of a larger visionary master plan.”

Into Coffee

Closely held Benckiser, run by former Reckitt Benckiser Group Plc (RB/) Chief Executive Officer Bart Becht, yesterday offered $16 in cash per Caribou share, 30 percent above the last closing share price of $12.32. Like Peet’s, Caribou will continue to operate under its own brand and management, the purchaser said.

The coffee market “is an attractive industry with favorable long-term fundamentals, which is why we are in it,” Tom Johnson, a U.S.-based spokesman for JAB, said by e-mail yesterday. The stake in Master Blenders is a “pure financial investment and we do not control or input into their strategy.”

“JAB is very serious about consolidating the coffee industry,” said Marco Gulpers, an analyst at ING in Amsterdam.

The investment company sold a 4.9 percent stake in Reckitt Benckiser, the maker of Dettol handwash, in May for 1.2 billion pounds ($1.9 billion) to diversify its portfolio.

The focus on coffee at JAB follows forays into personal care and luxury brands. Its Coty Inc. unsuccessfully attempted a takeover this year of door-to-door cosmetics seller Avon Products Inc. (AVP:US) for more than $10 billion.

Kraft Speculation

To build a larger coffee presence in the U.S., where Master Blenders has only a limited business, JAB will need to do more than own Emeryville, California-based Peet’s and Minneapolis- based Caribou, Liberum’s Zuanic said. One option might be to buy Kraft’s coffee business in the U.S., he said.

A more ambitious plan would be to bid for the global coffee businesses of the former Kraft Foods, including the Tassimo single-serve platform and the Maxwell House brand, and merge it with Master Blenders, according to the analyst.

Kenneth Shea, a Bloomberg Industries analyst in Skillman, New Jersey, questions whether coffee is a “strategic focus” for the two companies created this year when Kraft split itself in two -- Kraft Foods Group Inc. (KRFT:US), which focuses on the U.S., and Mondelez International Inc. (MDLZ:US), which sells food elsewhere.

“Will Mondelez and the existing Kraft really commit towards coffee?” Shea said “The new Mondelez is much more a snack company. That seems to be its mission.”

Mike Mitchell, a spokesman for Mondelez, declined to comment on whether the Deerfield, Illinois-based company would consider selling any of its coffee brands, the biggest of which is Jacobs, with more than $1 billion in annual sales.

‘Well-Positioned’

“We believe the opportunity in coffee is huge, in particular, as we see the market transforming with coffee shop- style beverages increasingly available in home,” Mitchell said. “We believe we’re well-positioned to stay ahead of the game.”

Kraft never comments on the possibility of asset disposals, Chris McClement, senior marketing director for mainstream coffee, said by e-mail.

“Kraft has a specific focus on building on the strength of our iconic brands,” McClement said. That includes Maxwell House, which has annual sales of more than $1 billion, he said.

Mondelez and Kraft had a combined 13 percent share of the global coffee market before they were separated, according to Euromonitor International, more than Master Blenders’s 5.9 percent and trailing Nestle’s 23 percent.

The market “has been hot for a while,” according to Sharon Zackfia, a Chicago-based analyst at William Blair & Co.

Growing Industry

The total industry is growing 7 percent annually, Euromonitor estimates, led by gains of about 30 percent in the single-serve segment, where Nestle’s Nespresso is the market leader, and 11 percent in the full-bean market.

Benckiser has “made the bet that coffee is a good spot,” Bloomberg’s Shea said. “It’s basically a recession-proof business -- coffee consumption continues to rise globally.”

Benckiser may pose a challenge to Starbucks in the U.S. coffee-shop market, according to Shea.

With the Caribou and Peet’s takeovers, Benckiser “is going more of a Starbucks approach” with both grocery channel and coffee-shop businesses, he said. Jim Olson, a Starbucks spokesman, declined to comment on Benckiser’s acquisitions.

“It seems JAB wants to be a coffee consolidator,” Zuanic said.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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