Venture capital will now ruin coffee
Most mornings, fresh after a night of waking up anywhere between three and five million times to feed and change the baby, and then getting the preschooler ready, I stumble into the kitchen and crack open a cold one. A cold brew coffee, that is.
I generally don’t drink coffee, and as such, have no idea how to make it or even have any in my house (I usually buy it at a coffee shop near work), but the cruel Night Life means that, these days, I always have three or four cans in my fridge.
Lately, these cans are (locally Philly-made!) La Colombe Cold Brew Draft Lattes. (They are not paying me to write this, but I absolutely would not be against a case making its way to my house, as these suckers cost $3 a can.)
Cold brew is a special kind of coffee made by soaking the beans for 12 hours and involves several serious men and women in Warby Parker glasses. Here’s how La Colombe makes theirs to go. If you watch this and don’t immediately want one, regardless of whether you drink coffee or not, you’re probably a cyborg.
Cold brew was always a niche thing - companies like Blue Bottle (which started in Oakland, near Silicon Valley) have been making it all along, but in 2015, Starbucks started selling it, and coffee sales over the summer, when it’s usually out of demand, rose steadily.
In the past, coffee sales lagged during the summer and rose sharply during the holiday season. But cold brew now drives a surge in demand during warmer months, too, far more so than other iced coffee drinks. Coffee sales spike when the mercury rises. Cold brew is also attracting an entirely new audience for coffee: millennials, many of whom are making it their drink of choice.
[Cold brew] is now available at every one of its more than 13,000 locations in the United States, 800 of which also offer nitro. It’s a coffee with both mass-market appeal and indie credibility. Today, you can find cold brew at a coffee shop where everything is meticulously crafted by hand, and at a Dunkin’ Donuts.
Once Starbucks busted the market open, the demand increased. Now, every time I go to the grocery store, I usually see five or six different brands, and the range is only increasing. This is part of a larger trend of a growing amount of ready-to-drink coffees (or RTDs, in the food industry lingo):
Distributors have also seen the growth. McLane Co. reports “seeing 30% to 40% unit increases in RTD coffee for the first three months of 2019, especially on national brands,” says Michael Carlson, manager of merchandising for the Temple, Texas-based distributor.
“Three or four new RTD coffee manufacturers have been introduced into the McLane network within the last year,” Carlson says. “Part of the reason this category is doing so well is due to the convenience of the items, as well as the better-for-you aspect.” Specifically, he references RTD coffee’s reputation for having a clean label and using real sugar instead of corn syrup compared to soft drinks, as well as coffee’s heart-healthy halo.
But is it really just such a large change in consumer tastes that’s driving the vast variety of cold brew available?
The answer is no, and, as usual, venture capital is involved. It turns out that there is a venture capital industry for coffee, and, like its tech counterpart, it’s only growing.
Continuing a trend that began roughly four years ago, investors are pouring a record amount of venture capital into the industry. Coffee startups raised $600 million in the first seven months of the year alone--more than four times the total amount raised in 2017, according to data from CB Insights. By the end of 2018, that figure is expected to surpass $1 billion.
The Inc. article cites an increase in the popularity of coffee in America, an increasingly high standard for what constitutes “good” coffee, and Americans being too busy to make coffee, but I think the real answer is that all the people who used to do tech investments are now coming over to coffee.
Exhibit one is Sam Lessin. Remember Sam Lessin? He used to work at Facebook (Normcore link) and send emails to Zuck.
"I think everyone can see the prize with coffee," says Sam Lessin, a partner at Slow Ventures, which invested in coffee startups like Blue Bottle and Alpine Start. "Building an iconic brand in the space--can be a really big win."
The entrepreneurs behind these coffee startups say the venture funding is crucial to going up against the major chains like Starbucks and Dunkin', not just so they can compete on the ground with brick-and-mortar locations, but also to stay one step ahead on product innovation.
Then, there are the Uber people.
Bandit, founded by one of Uber’s earliest employees, is based on a pop-up coffee shop concept that’s exploding in China because it eschews the traditional brick-and-mortar model.
Bandit cafes look more like mall kiosks than coffee shops because they center around prefab, coffee-making equipment built at a factory in Michigan. The modules come fully equipped and can be easily moved, allowing Bandit to set up shop anywhere with a power outlet, including a warehouse, office building or hotel lobby, says founder Max Crowley.
And, of course, the traditional players, who have spotted the market value and made their way in, such as Dunkin’ Donuts, and Starbucks.
What seems to have happened is this: Blue Bottle and other hipster coffee companies introduced these concepts in the tech-savvy corners of the country, they grew in popularity, and were seen as potential run-away successes by the big chains, which brought them out into the mainstream. And now that the market is proven, a venture capital cottage industry has grown up to see how much more it can squeeze out of the market.
Dan Scholnick, general partner at Trinity Ventures, which invested in Bulletproof Coffee--a line of coffee beans, ready-to-drink beverages, supplements, and oils--still sees plenty of room for innovation among coffee startups.
"When you see disruption like that in a market, it's a signal it's a good opportunity for startups to enter and fill the void created by changing consumer tastes," Scholnick says.
I have to admit that I’m worried that La Colombe, which initially started out as a very well-respected local business that’s now doing great across the country, is going to implode. When I initially wrote this article, I wanted to write, “And La Colombe is not taking venture capital, so I don’t need to worry,” but it turns out that La Colombe is doing even better than that - it’s hired a New York investment bank to figure out how it can get to $1 billion. And! It gets even crazier than that, because, apparently, La Colombe is now being funded by the same guy who started Chobani Yogurt.
Now, Chobani and La Colombe have become even closer — Ulukaya is now the sole investor in La Colombe. He’s now the majority owner of the company with no board responsibilities, according to a statement.
The New York Times was first to report the story and said Ulukaya would not disclose the amount he invested. It did say that the Chobani founder “bought out Goode Partners, a small private equity firm that invested $28.5 million in La Colombe last year.” That cash helped La Colombe build new cafes in cities like Philadelphia, New York and Chicago. The company has plans to build 100 cafes across the country.
So basically my question now is, when will VC money ruin the only thing that allows me to live every day? And, also, when is this saga getting its own HBO special like WeWork?
Hopefully it’ll take longer than six months, which is when I’m crossing my fingers my son will start sleeping through the night and I can move back to drinking the Normcore beverage of choice: bootstrapped water for free from my tap.
Art: Peasant Girl Drinking Her Coffee, Camille Pissarro, 1881
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