Could a Private-Equity-Backed 'Collective' Offer a Template for Specialty Coffee’s Future?

Welcome to the third article in an ongoing series investigating private equity and venture capital in the coffee industry. If you missed them, you can catch up on the first and second parts here. This series has involved so much research and dozens of interviews—if you value this kind of in-depth writing about the coffee industry, please consider becoming a paid subscriber. And now, this:

The specialty coffee movement was built by independent businesses. Beginning in the 1970s—but really taking off around the turn of the century—the third wave of coffee was distinguished from what came before by a focus on quality and a distinctly indie attitude. The trailblazers were generally small roaster-retailers and cafes with no more than a couple locations, driven primarily by one or two passionate founders and catering to loyal local customer bases.

Most grew slowly, relying on word of mouth or Yelp reviews to develop a following. They did so against the odds: Building a coffee business is hard, and it takes a toll. Business owners and workers need to contend with long hours, razor-thin margins, and pressures ranging from changing consumer tastes to the continual expansion of coffee multinationals.

The majority of these businesses stayed small, but a few ambitious founders managed to grow faster and develop a regional or national reputation—think of Intelligentsia, Blue Bottle, and Stumptown. Eventually, they attracted attention from investors and bigger companies eager to capitalise on specialty coffee’s perceived buzz. 

But while big money snapped up a select cadre of the hippest brands, everyone else continued on their slow and steady trajectory, making coffee for their faithful fans—most without considering any real exit strategy.

What if there were a different way—a way for small specialty coffee businesses to unite under one umbrella, and utilise their various assets to benefit the collective? What if there were a kind of investment that didn’t come with ruthless cost-cutting in pursuit of bigger margins, or pumping a company full of money to make it more attractive to even bigger investors? What if growth didn’t have to mean sacrificing the quality- and community-focused ethos of specialty coffee?

That’s the pitch from FairWave Specialty Coffee Collective, a private-equity-backed organisation that has acquired numerous coffee brands across the American Midwest since 2020. The Kansas City-based collective has grown to include 10 companies from across the region, including mini-chains (Messenger Coffee Company, The Roasterie Coffee Company, Spyhouse Coffee Roasters) coffee shops (Black Dog Coffeehouse, Filling Station Coffee), and roaster-retailers (UP Coffee Roasters, Folly Coffee, Anodyne Coffee Roasting Co.), as well as a bakery (Ibis Bakery), and a cold brew manufacturer (Philtera Cold Brew, although it is no longer listed on FairWave’s website and according to Google is permanently closed).

Is FairWave’s model an example of how to combine big outside investment with an ethical, local-focused approach to coffee? Or is it just offering a specialty-branded version of the consolidation that is slowly devouring the coffee industry?

‘Behind-the-Scenes Support’

FairWave launched in September 2020 with the merger of two well-established Kansas City brands, Messenger Coffee and The Roasterie. The move was billed as a way for smaller, independent coffee companies to compete with the big chains. “We do not want to see local brands of coffee disappear or be squashed down by national brands”, FairWave CEO Dan Trott told Daily Coffee News at the time.

The collective’s aim, according to Joe Marrocco, FairWave’s vice president of coffee sourcing and product development, is to grow the individual companies it acquires while focusing on what made them successful in the first place. “We have a mission in FairWave to enhance local coffee brands in their respective markets so the brand itself truly stands out as a local brand and remains true to the things that allowed it to develop in that community where the coffee business was planted to begin with”, Marrocco tells me.

FairWave’s role is to contribute expertise and resources that smaller companies might not have access to on their own. According to Marrocco, FairWave offers “financial insights, industry best practices, all of that behind-the-scenes support so that brands can stay invested in their products and their experience in that local market. By combining those back-of-house things, we’re really able to have a bit of a scale business that is still very true to what those businesses started as”.

During the merger, owners of both Messenger and The Roasterie, along with Trott, became individual shareholders in the new entity. However, the largest shareholder is the private equity firm Great Range Capital, which bills itself as “private equity for the heartland”. With investments in an array of companies and sectors, from agricultural equipment to trucking to bottled water, Great Range Capital has raised over $360 million from investors since its inception in 2011 and had just under $200 million in assets under management in 2023. (That might sound like a lot, but the biggest PE firms—like Blackstone and The Carlyle Group—are playing with hundreds of billions of dollars in funding and assets.)

Isaac Hodges, FairWave’s vice president of collective growth and market ambassador (and previously the president of Messenger Coffee) explains that the collective has future plans that include education centres and green coffee importing. It also hopes to add more companies. “In 10 years we will have many more markets and many more brands and many more opportunities for growth”, he says.

The Collective

Part of that longer-term thinking is because of the particular type of support FairWave enjoys. “I do think that we are fortunate to be backed by a private equity company that is more of a long-hold private equity group”, Hodges says. (The average holding period for private equity companies is three to five years.) “They are here for the long game, and that’s why the leadership team is built out the way that it is because it is meant to be a thoughtful growth path”.

Hodges says that part of the appeal for owners of prospective new additions to the FairWave group is that they can continue ownership as part of the collective.

“The owners of businesses that have become part of the collective roll a portion of their ownership into collective ownership”, Hodges tells me. “It’s not just private equity that owns 100% of our business, we have people within who are part owners, who are shareholders or have options, we have past owners that are still very involved. So the collective is more of an empowering movement within these companies and within these communities as opposed to it just being a simple transaction”. After his company was acquired, for instance, Folly’s founder Rob Bathe joined FairWave as vice president of sales and business development for FairWave Minnesota.

For the owners, an exit strategy as well as continued ownership and involvement seems like an ideal outcome. From the outside, however, some worry that the wider impact of FairWave’s acquisitions could be a hollowing out of the Midwestern coffee scene. 

Kris Carlson, a former barista at Messenger and longtime Kansas City coffee professional, sees both sides to the FairWave approach. “In one way you can look at it as they’re eating up smaller coffee shops when they join the collective, but on the other hand, there are shops that are struggling and that need extra assistance”, Carlson says. “And that’s where something like FairWave can come in and help them keep afloat and it’s not necessarily like selling your soul”.

The collective element can also be intimidating, Marrocco admits. “If you think about being a really small business owner, and then all of a sudden the other companies that were in your community have now come together, just the optics of that can feel very threatening”. But FairWave says its focus is less on local companies and more on the big national coffee chains. “We work really hard to be collaborative and open and to not be super competitive against other small, local, specialty coffee-focused companies”, he says.

Mixed Reputations

As well as being good for a company’s owners, Marrocco and Hodges say that being part of FairWave is also positive for employees. The group employs between 320 and 350 people across three states, and they say workers can expect good wages (at least by coffee industry standards: The company recently advertised a cafe manager job in Minneapolis for $55,000 a year), benefits, and opportunities for advancement. “I think that’s one of the benefits of joining the collective—there’s a lot of opportunity to continue to learn and grow and find a job that suits you, whether it’s in the typical coffee role or if it’s in a tangential supportive role”, Hodges says.

These factors shouldn’t be underestimated, especially in an industry where they aren’t a given. Coffee work is notoriously unstable and low-paid, and outside investment or pooled resources can, in theory, alleviate some of those issues—if handled correctly. However, while FairWave garners praise in the coffee media, that view is more complicated locally.

A lot of those complex feelings relate to experiences workers have had with the individual coffee companies before they joined the collective. For example: When the first wave of COVID-19 washed across the U.S., Messenger Coffee and The Roasterie laid off the bulk of their staff. At Messenger, that meant 120 people lost their jobs. And while the majority were offered the chance to return, the experience wasn’t positive for everyone.

Then there’s Spyhouse, the Minnesota mini-chain acquired by FairWave in 2021. A year earlier, Spyhouse workers had tried to unionise, but the drive failed in the face of what organisers called “deceptive union-busting rhetoric”. In the run-up to the election, Spyhouse owner Christian Johnson offered to sell the business to his employees—although he informed the media of his plan before speaking with workers, which doesn’t exactly scream ‘good faith’. 

Recently, FairWave has also experienced some turbulence of its own; in March 2024, it laid off several employees. According to Bret Ivy, who was head roaster for Messenger Coffee when he was let go, Fairwave was making cuts around the company and had recently been putting more effort into collecting data to quantify quality and efficiency. “They’re in the fourth year of being a collective, and I think they’re understanding what’s needed for the collective and what’s not, what’s working and what’s not”, Ivy tells me.

For Ivy, the layoff came at the right time—he was looking to move on in search of a schedule that better suited his needs as the father of a newborn, and FairWave provided severance while he looked for that opportunity. The company also offered two months of paid leave when his daughter was born, as well as other benefits that are still out of reach for many coffee professionals. “Getting a 401(k) was really nice, for the first time in my professional career; PTO for the first time was really cool”, he says.

I sent a follow-up email to FairWave asking for more information about the layoffs, including how many workers were affected and why. FairWave’s chief marketing officer, Suzanne Gunning, replied but didn’t answer my specific questions about the layoffs, only saying that, “We don’t talk about individual employees out of respect for their privacy”.

No Place Else to Go

For my second piece in this series on private equity in coffee, I interviewed Dr. Eileen Appelbaum, co-director of the Center for Economic and Policy Research in Washington, DC. At the end of our conversation, I mentioned I would be writing about FairWave, and briefly described its approach of buying up small roasteries and cafes in cities across the Midwest.

“Just to let you know, that is a very common roll-up strategy, and what they will have at the end is market power”, Dr. Appelbaum told me. Roll-up strategies—when an investment firm buys up lots of similar companies in the same market and merges them—are becoming a more common approach within private equity. In fact, the Federal Trade Commission launched an inquiry in 2023 to look at serial acquisitions and how they’re impacting various industries.

“If you buy companies that are small, that are under whatever the [FTC] limits are, there’s no antitrust review of it”, Dr. Appelbaum explains. “But if you buy enough of them, you build a major company, right? You’re now the biggest coffee company in a couple of states or in a geographic region. The coffee will be good, the pastries will be good, the staff will be reasonably paid, it will be a pleasant place to go. All those things. But the end goal is to own enough of them that you can now raise the price. And there’s no place else to go.”

There are differences: FairWave is keeping its companies mostly separate, sharing resources but keeping the original branding in place. I asked about Dr. Appelbaum’s roll-up observation in my follow-up, and Gunning replied: “FairWave is not a private equity firm. Our collective works to support successful, growing businesses by sharing best practices and capacities. Our funds for growth come from banks and other private sources, but our collective operates independently”.

While the term “collective” brings to mind community and camaraderie—there’s something vaguely socialistic about the word—these are for-profit companies, not cooperatives. What happens when the backers themselves want to exit? The craft beer industry offers one possible avenue: Another private-equity-backed organisation that used the word “collective” in its name, CANarchy Craft Brewery Collective sold to the maker of Monster Energy drinks in 2022—albeit at a loss—after years of buying up small brewers.

When I ask Marrocco and Hodges about FairWave’s long-term plans, both emphasise that Great Range is in it for the long haul. “Obviously we do need to grow, but there’s not a set date written down or even a hopeful term established except for continued growth, continued development”, Hodges says.

A Frog in Hot Water

Many years ago, while working for a small roaster-retailer in Michigan, my boss shared his exit strategy with me, such as it was. Either some bigger coffee company buys him out, he said, or he dies; those were the options as he saw them. As a business owner, then, an opportunity like joining FairWave might seem like a golden ticket. You get to sell up—while retaining some ownership stake in the larger organisation—and leave your business in good hands.

For workers, the appeal is also pretty obvious: better wages, opportunity for advancement, and a feeling of security that comes from being part of a larger organisation. But of course that’s not always the case, and employees are just as vulnerable to layoffs or a change in priorities at a big company as they are at a small one. In a system built on exploitation and at-will employment, workers are always disposable.

Customers, meanwhile, probably didn’t even notice when FairWave acquired Anodyne or Spyhouse or Folly. The names didn’t change, they were mostly served by the same baristas—in fact, with centralised quality control and green buying, the coffee might even have improved. But much like stealth Starbucks locations, or the third-wave trailblazers bought up by multinationals, the entire goal is for customers not to notice. If they did, they might go somewhere else.

Maybe this really is a model for the future, a way for specialty coffee to adapt to a world of insecurity, competition, and perpetually rising costs. Perhaps in order to survive, more and more independents will have to give up a little bit of their independence to a big-money backer in exchange for stability.

But what’s lost in that trade-off? The way things are going, it’s not hard to envision a future in which most coffee companies are owned by the same handful of investment firms and multinationals. The branding might not change, but any independence will be an illusion, and the values that have long guided the specialty coffee movement could well be discarded. And like a frog in a pot of water, we might not realise what’s happening until it’s too late.