Transcript

00:00 This is blue bottle and that's a $5 cup of coffee. So when did this become a thing enter. The third wave coffee movement where coffee is considered an artisanal food like wine or craft beer rather than a commodity and people are willing to pay. The price blue bottle is riding this trend and expanding its reach across North America and Asia but how did blue bottle grow from a single coffee cart into a reported 700 million dollar Java juggernaut. The company's meteoric rise started in the small Oakland California apartment of a struggling musician meet James Freeman. The founder of Blue Bottle coffee I've only wanted to do two things and that's play the clarinet and being Coffee.

00:46 Freeman was trying to make it as a classical musician for eight years playing with regional orchestras throughout Northern California before he shifted his focus to a peculiar hobby roasting coffee beans in his oven then my career as a clarinetist there were moments of satisfaction but they tended to be few and far between I was very unhappy. Very miserable. I could not be in music. Another moment so that kind of misery I think can be a very motivating influence. Freeman began wondering if there were other people like him who were just as dedicated to drinking extremely fresh coffee. At the time there literally was not a place in San Francisco. One could go to get a bag of coffee with a roast date stamped on the back so that seemed very compelling to me this idea of coffee being fresh. Food. Freeman was convinced that coffee companies like Starbucks over roasted their beans. There had to be a better way. The quality of the coffee needed to be the primary focus entered the third wave coffee movement. The first wave of coffee you know cro-magnon. Man was coffee in cans kind of dead and then the second wave were very influential. Roasters like Peaks and Starbucks who tended to gravitate towards darker roasts less expression of terroir and then the third wave of coffee tends to emphasize lighter roasts more taste of terroir. Usually third wave coffee is used by people in the third wave of coffee.

02:22 Freeman rented a 186 square-foot shed near his apartment in Oakland's thomaskelep district and bought an old coffee roaster in hopes of expanding. His operation clarinetists don't accumulate a lot of wealth. So I put in all of the money I had plus a couple credit cards and in 2001 Freeman began his commercial operation. Freeman racked up $15,000 in debt to launch bluebottle and spent two years selling his coffee at farmer's markets around San Francisco and Oakland slowly building a dedicated following but in January 2004 that all changed remember being at the farmers market the Saturday that the Fancy Food Show was in town. It was like pretty crushing like 3040 people in line looked ups all these people in mind because word had gotten out somehow and just feeling like wow something happened a year later. Bluebottle opened its first location in the heart of San Francisco in a small converted garage. It was like a dead end alleyway that smelled like pee but just how many consumers are willing to pay five dollars for a cup of coffee.

03:24 That thing is crazy for people to pay five dollars for coffee. When there's people here selling coffee for $1 I usually pay like five dollars for coffee personally. I wouldn't pay five dollars for coffee but that's my project. I think it's crazy to pay five dollars for a cup of coffee. That's why if it's a good cup of coffee I'd say about $10. The maximum amount I would ever pay for a cup of coffee is probably six dollars that's about when it starts getting ridiculous and I hate myself perpetually until I finish the cup of coffee.

03:49 Today there are more than 80 bluebottle cafes around the world. As of july 2019 there are locations in the Bay Area New York City Los Angeles San Diego Boston and DC and 14 locations in Japan and two in South Korea. Blue Bottle has helped drive trends within the coffee industry particularly cold brew and New Orleans style iced coffees. It has also developed ready-to-drink products as well as an online coffee subscription. We prices ranging from $8 to $47 blue bottle has a reported 700 million dollar valuation and the company raised a total of 117 million dollars from some impressive outside investors like former Twitter CEO Evan Williams Google Ventures Instagram co-founder Kevin Systrom. Financial Giants Morgan Stanley and fidelity management u2 singer Bono actor and singer Jared Leto and legendary skateboarder Tony Hawk have all invested in Blue Bottle. In 2017 Nestle acquired a 68 percent stake in Blue. Bottle Blue Bottle sold a majority stake to Nestle that reportedly valued the company north of 700 million dollars. The reactions to the Nestle news were mixed so just how strong is the demand for super premium coffee. High-end semi expensive coffee is simply just not recession proof when the economy changes. People are gonna switch from buying this third way of coffee spending $5 a day on their cappuccino to spending more on dunkin donuts or the street card outside for that caffeine fix if they need be bluebottles.

05:26 Expansion beyond the bay area started once the US economy turned around. After the 2008 financial crisis. It opened its first New York City location not long after in 2010. Most recently in the past five years the retail coffee market and the coffee and snack shops industry specifically has increased in annualized four point six percent to reach about fifty point seven billion. In 2019 64% of Americans aged 18 or older said they've had a cup of coffee the day before according to a survey from the National Coffee Association in 2018. The latte was the most popular coffee drink among Americans in 2018. Between June 2017 and June 2018. Americans drink more than 67 million lattes. In 2018 cold-brew orders were 42 percent higher than iced coffee orders in the u.s. from 2014 to 2019.Prominent third wave coffee brands such as Blue Bottle Stumptown. Coffee roasters and Intelligencia coffee have grown at annualized rates of more than 20%. According to Ibis world bluebottles entrance into new markets hasn't always gone smoothly. In 2019 it closed to Miami locations about a year after opening Blue Bottle CEO Brian Meehan cited the opportunity quote to invest back in other regions in a statement to the Miami News Times in the US. Although artisanal coffee and third wave coffee has become really popular that has been mainly kind of segmented to really large cities with typically higher incomes and a lot of international consumers well that would typically one would think fit Miami. If there's already a surplus of coffee establishments. In Miami.

07:10 There may not just be the need and while much of blue bottles appeal lies in the quality of its coffee it still faces many challenges most notably increased competition. They have to not only compete price-wise with the big competitors like Dunkin that can give you a coffee for an expensive and fast. They also have to compete with the other artists in our third wave coffee operators. Blue bottles top competitors include a telogen SIA Stumptown and La Colombe. Even Starbucks got into third wave coffee in 2014 when it opened a Starbucks reserve roastery in Seattle. It has since open locations in New York Shanghai Milan and Tokyo. Even their cups don't even say Starbucks they just kind of have a star on them. They are wanting to associate with the brand that people know and love but also separate themselves a little bit by trying to become more niche in nuance. But Blue Bottle would not be here without Starbucks. I think we have a lot to thank Starbucks for in terms of creating a market where people want to go out to coffee and feel like that is a fun and acceptable thing to do. I don't see Starbucks as a competitor I I look to companies for inspiration rather than think about competition. Blue Bottle is still going through growing pains.

08:29 In May 2000 19. The company recalled 194,000 of its whole being coffee cans after they started exploding when people open them. That's a sad one because the product itself was a really really great. The coffee magically preserved at peak of freshness for many many months. I personally don't think you should give up on the cans entirely. So what will help the company continue growing staying true to Freeman's original mission in San Francisco and when we started there were these these models. These various so repeats like Starbucks like models of how cafes were supposed to be and I didn't like those models and I wanted to do something different and I was advised by many people with many opinions that those differences were going to make me unsuccessful where actually people were quite attracted to those differences. Differences of making coffee one cup at a time difference of not roasting things super dark the difference of having each milk drink steamed to order and with latte art on top. Those things that made it slightly more labor-intensive. A little bit harder a little bit more expensive. Those were actually the differences that attractive you.