The coffee wars of San Francisco are back on!
Were now hearing from sources that Blue Bottle is raising a big round of financing a little more thana year after it raised a whopping $75 million. We dont know the exact amount, but given the immense (and at times odd) interest in coffee from investors in Silicon Valley, it wouldnt be surprising if it would be approaching or matching that previous value.Silicon Valleys and San Franciscos adoration of coffee knows no bounds, and that extends even to the investor community, with tens of millions of dollars being poured into companies like Blue Bottle Coffee and Philz.
So, lets get this out of the way before anything else: Coffee!COFFEE!COFFEE!
Silicon Valley is known for plenty unusual investments, anywhere from alternative food products to space exploration, and the coffee industry is certainly no exception. But theres logic to it: theres a huge coffee market and a near-perfect comparable in the market, with Starbucks hanging out at an $80 billion valuation. For any coffee company, capturing even a fracture of that market already means the company has hit unicorn status. And, of course, it also means theres a natural acquirer for these companies.
So, lets review a few previous large financing rounds for coffee:
- $25.7 million for Blue Bottle in January 2014
- $75 million for Blue Bottle in June 2015
- $20 million for Blue Bottle in October 2012
- $15 million for Philz in February 2015
- $15 million for Philz in May 2013
- $45 million for Philz just a few weeks ago
Thats also not including the money Sightglass Coffee has raised over time, from what we understand. (Square CEO Jack Dorsey is an investor in it, which hasbeen sort of openly-known in the Bay Area.)
Blue Bottle has been aggressively opening stores around the country, from a roastery-slash-coffee shop in the (previously) hipster Williamsburg neighborhood in Brooklyn to Apple Store-esque franchises in downtown San Francisco (the waffles are pretty good). For any spot where there exists a Starbucks, theres naturally a slot for another competing coffee shop especially if they can offer better coffee or at least a better retail experience.
Starbucksis also in a unique position from an optics standpoint, as the company has grown so large and now that it faces the scrutiny of public investors has to find ways to deliver results to Wall Street. That could mean putting pressure on bean sourcing, and Blue Bottle with its higher prices may in the end be able to source better beans or cultivate a perception of having a more favorable supply chain (if not already having one).
Blue Bottle, too, is finding itself with new potential revenue streams in the form of distributing its New Orleans style ice coffee packaged in a cute little milk carton that you might have had during elementary school and cold brew coffee, as well as selling beans. Sightglass, too, sells beans, as do other emerging coffee shops like Ritual. All this is turning the coffee market (at least in the San Francisco Bay Area) into an incredibly competitive space, with only a small number of hipsters to really tap until the companies find a way to break into the mainstream.
(Okay, maybe you like it and youre not a hipster point taken.)
In Blue Bottles case, as it expands its retail footprint, its going to have to eventually look at international markets. While Blue Bottle has certainly built up a strong brand around the coffee elite, it needs to convince the world outside of caffeine-crazed metropolitan areas that its a better option that Starbucks. Thatll be doubly difficult internationally, especially in areas where coffee is more of a product of necessity than something that fits in the same artisanal vein of good wine or food.
At the end of the day, it doesnt seem like coffee is a bad market to go after. In fact, with Starbucks alone, it seems like a plenty large market that could even support multiple artisanal coffee shops and roasters that distribute beans and other coffee-related products around the world. The challenge is going to be expanding retail footprints and figuring out the distribution, which of course is going to require a lot of capital.
In the end, of course, we all win, because coffee is great and better coffee is more great.
Representatives from Blue Bottle and Sightglass did not immediately respond to a request for comment.