The Coffee Bean & Tea Leaf®’s Post

I have recommended strategic low-risk M&A to many of my large USA restaurant clients as the best way to penetrate international markets but to no avail. The franchising model takes years to scale and impact a public company's EPS. Create Restaurants Holdings (Japan) and Jollibee (Philippines) are on the right track in my opinion. Private Equity groups around the world are flush with restaurant groups they would like to sell, but USA chains are not the likely buyers. They are missing big opportunities to scale in global markets. https://lnkd.in/gsdFJvYa

"Consolidation in the #coffeeindustry is no breaking news – it has been quietly reshaping specialty coffee brands worldwide, and #coffeeshop service with it. A wave of specialty coffee acquisitions by #multinationals, including Nestle’s acquisition of Blue Bottle Coffee, Lavazza’s of Kicking Horse, and Peet's Coffee of Intelligentsia Coffee Inc. and Stumptown Coffee Roasters, for example, reflects a trend towards scaling up high-end coffee brands to reach a wider audience." - Coffee Intelligence In today's article, Sarah Charles speaks to Pete Litaca, Head of Coffee and Quality at Nomad Coffee Group. and Tim Sturk, Head of Coffee and Tea at  Aimers Coffee & Tea Ltd about the challenges and opportunities of upscaling specialty brands while continuing to add value and maintain the customer experience.

Consolidation in the #coffeeindustry is no breaking news – it has been quietly reshaping specialty coffee brands worldwide, and #coffeeshop service with it. Multinationals are increasingly scaling up acquired specialty coffee brands. But one pitfall has been a reported decline in #service as brands grow. 52% of surveyed consumers said customer service was the most important part of their experience after quality. Sarah Charles speaks with Pete Licata and Tim Sturk about some of the obstacles to the true upscaling of specialty brands, and the central importance of people and service – and valuing them. https://lnkd.in/eahpKUYU

Anyone familiar with the STNL space knows how popular the coffee sector is becoming. I wanted to take a dive into current pricing and market longevity for these deals. Over the weekend, I dedicated time to gathering data on the current on-market deals involving the leading coffee brands. On Market Inventory - Average Cap Rate and Days on Market as of 3/10/2024 Starbucks- 72 Locations, Cap Rate: 5.30%, 191 Days on Market Dutch Bro’s - 35 Locations, Cap Rate: 5.04%, 201 Days on Market 7Brew - 14 Locations, Cap Rate: 6.57%, 173 Days on Market Scooters - 12 Locations, Cap Rate: 6.38%, 209 Days on Market The average time on the market for all coffee locations currently listed is approximately 6.5 months. With prevailing interest rates, the overall market is experiencing a slowdown, resulting in fewer transactions. This decrease in activity also translates to a reduction in 1031 exchange funds, which are significant contributors to the NNN market. Also noteworthy is the difference in cap rates for Starbucks and Dutch Bro’s compared to those of 7Brew and Scooters. A notable difference in these brands is the strength of the tenant, while Starbucks and Dutch Bro’s are primarily corporate locations, 7Brew and Scooters tend to have a lot of franchisees guaranteeing their leases. Hope this was helpful! More than happy to share any market data, DM me if you need something specific.

WHO WILL BENFIT FROM CALRSBERG / MARSTONS / BRITVIC MERGER? I was recently inspired by Pete Brown to write a piece on the future of cask beer following his article on Carlsberg’s approach to the UK market.  Thanks to all those who engaged with that debate about the future of our national drink. It concluded that in a thriving beer category there should be room for all beer styles. Cask beer has all the attributes to appeal to a young generation and is showing double digit growth amongst local independent brewers. Businesses are free to make their choices but please don’t make it impossible for independent brewers to sell cask beer to the many who want to drink it. The positive response to the article prompted me to take a deeper look into the forthcoming enlarged Carlsberg / Britivc business and ask, simply what will happen and who will benefit? I have been surprised with the lack of debate on this deal and having worked in beer and soft drinks I feel reasonably well qualified to kick it off. The takeover announcement states that the new Carlsberg – Marstons - Britvic company will “take advantage of the highly synergistic relationship between beer and soft drinks.” It will merge a global brewer that sells one in seven pints in the UK beer market (including the biggest brewer of cask beer) with a soft drinks manufacturer with over a third of the UK licensed trade soft drinks market. In other words, a dominant corporation that will cast a huge shadow over the sector. In assessing this, ignore the more generic definition of “on premise” and focus specifically on UK pubs clubs and bars.. Why? Because in soft drinks much of the unlicensed on premise listing decisions are made in the head offices of McDonalds, Burger King, Subway and the global contract caterers like Compass. The UK on-licensed trade is where the impact of this deal will be most keenly felt, in the only outlets where it is legally possible to stock Pepsi alongside Carlsberg . The new consolidated company will control deliveries into those outlets, own both the beer and soft drinks dispense equipment which are essential for these drinks to be served and have a major stake in the company that services the kit when it breaks down. It would be interesting to know how many licensed trade outlets stock Carlsberg and not Pepsi and visa versa, remembering the stated aim of this new company is to “synergise” the two. Surely the only output would be to limit access to other suppliers of all sizes with products people want to buy. The small brewers I speak to tell me that access to market is their single biggest barrier to growth. I also know first-hand how challenging innovation in soft drinks is, even for big companies. I see no way that this newly formed foreign owned corporation would make either of those situations better. So who wins? The pub goer? The small supplier? The larger supplier? Or the newly formed Danish owned corporation? You decide. 

No blues for Blue Tokai Coffee Roasters (growth thesis) Blue Tokai recently raised yet another round for ₹290cr from Verlinvest, Anicut and A91 at a valuation of ₹1,500cr (post), marking the 11th fundraise for the Coffee chain The first valuation was at ₹12cr, 2015 (100x now). The valuation has more than tripled from 470cr in Feb-23 to 1500cr now. Could be a market cycle funding spree, but what value are investors seeing? The plan is to expand from 120 cafés now to over 350 in the next 2-3 years. The B2B partnership segment is interesting too. B2B partnerships with hotels, restaurants, corporates are increasing. Another aspect is average order value - currently at ₹500 with a 70/30 split of revenue between café and bon-café business segments. Overall revenue spiked from ₹40cr in FY21 to ₹240cr in FY24 (Source ET). However, PAT and EBITDA have declined and worsening. Further inspection points to marketing and other expenses currently killing the EBITDA Looking at their FY22 P&L - 3 items seem to be notorious for the losses A. Aggregator service charge (zomato/swiggy) - ₹6cr B. Rent - ₹9.4cr C. Business promotion & origination - ₹3.5cr The 3 items above combined for ~19cr (25% of revenue) FY22 revenue was ₹75cr; gross profit ₹42cr. In my educated guess, this 25% is probably even more in FY24, since Blue Tokai has expanded a lot since FY22, and operating leverages haven’t kicked in yet, given the growth. So what is the steady state? In my opinion, if gross profit stays around 55%, employee costs and benefits at 25%, and the 3 items (aggregator, marketing and business promotion) at 15%, other expenses 5% -> Blue Tokai could have ~10% PAT. As per ET, PAT loss is already expected to reduce to 5-7cr in FY25. FY24 saw losses of 15-20cr on a 240cr revenue (8.3% loss). That’s dependent on when and how the operating leverage kicks in, where more cafes scale up revenue disproportionately, enhance market share and penetration, reducing advertisement cost per cup of coffee, rentals per cup also declining. Employee cost per cup of coffee should also benefit from added revenue and utilisation of staff and baristas. Efficiency at scale is what should propel Blue Tokai into profitability. All in all, perhaps Blue tokai can be fully profitable around FY28 and by FY30 a scaled profitable player. Basis revenue growth between FY21-23, FY24 revenue should probably land at ₹200cr, if not more. If that revenue scales to ₹500cr in next 3 years, that could be a powerful chain with multiline business channels (D2C, B2B) as well as multiple products -> ground coffee, instant coffee (potential market), brewing equipment (including their recent home espresso machine offering), and café chain F&B business. It will be interesting to see this going forward. #coffee #café #privateequity #investmentbanking #finance #strategy #bluetokai P.S. these are strictly personal views and not related to my employer.

Interesting Play>> Panera Brands explores sale of Caribou Coffee and Einstein Bros Bagels sale of coffee, bagel chains, deal that could value the restaurant chains at more than $1.5 billion : looking to sell Bruegger’s Bagels, Noah’s New York Bagels and Manhattan Bagel Panera is hoping to command a valuation for the combined coffee and bagels businesses equivalent to more than 10 times their expected earnings before interest, taxes, depreciation and amortization of nearly $150 million in 2024 : Caribou Coffee has more than 800 locations in 11 countries. The bagel brands have almost 1,000 locations across the U.S. : JAB had been laying the groundwork for an initial public offering of Panera Brands over the past year--sources say

Is Your Brewery Ready for the London On-Trade Market? 🍻 At Tap'in, we understand that entering the London on-trade market can be a big decision for breweries of all sizes. Which is why, when a brewery registers their interest in working with Tap'in, we offer personalised advice to help you determine if now is the right time for your business and what services could be right for you. With experience onboarding both small and large operations, we pass on our knowledge to our clients so they can make the most informed decisions possible. Here are a few things to consider when deciding to make the leap into London on-trade distribution: - Can you free up the correct sales resource to drive sales? - Could you fulfil orders of 35 kegs a week? - Would it consume resource outside of your core delivery area? - Is your warehouse overwhelmed by the amount of kegs or cases you need to store, while also operating a dispatch area at the same property? - Will it transform your sales growth? If the answer is yes to any of these questions, it may be worth getting in touch with us. We're here to advise you every step of the way. If you have questions about pricing or anything else, feel free to drop me a DM.

Project Café USA 2025 is World Coffee Portal’s definitive guide to navigating the innovative and dynamic US branded coffee shop market, providing operators, investors and suppliers with the latest market data and insights to build powerful business strategies. Download brochure: https://lnkd.in/eYT4HH5P 𝗣𝗿𝗲𝘃𝗶𝗲𝘄 𝗼𝗳 𝗸𝗲𝘆 𝗳𝗶𝗻𝗱𝗶𝗻𝗴𝘀:  ➡ The total US branded coffee shop market grew 5.1% over the last 12 months to reach 42,773 outlets ➡ Of the 42,773 outlets, 35,544 are coffee-focused and 7,229 are food-focused ➡ The $54bn US branded coffee shop market achieved 7.4% sales growth over the last 12 months ➡ Many US branded coffee chains have raised prices over the last 12 months, with the average price of a 16oz latte now exceeding $5 ➡ Over 80% of industry leaders agree there remains significant growth potential for branded coffee chains in the US Visit the link below for more crucial insights from Project Café Europe 2024. #businessintelligence #coffeeindustry #coffee #businessstrategy #marketdata

Another insightful article by Jonathan Maze, Restaurant Business Online, discussing the challenges for Starbucks in China. A key point to remember is that this is not just a coffee story. The beverage price wars include all beverage categories (coffee, tea, ice smoothies, etc.) Swire Pacific, a large Coca-Cola bottler in China, recently announced weak results due to subdued domestic consumer confidence. They sell extremely affordable beverage products for the broad middle class. I think both Starbucks and Tim's will need to close a bunch of stores and find a new business model. Rapid expansion into secondary cities where price sensitivity is greater does not seem like a sound development strategy in 2024. https://lnkd.in/g6-_MVbW