Mergers, Acquisitions, and the Future of the Coffee Industry

Although it was only seven years ago, 2018 feels a world away. We hadn’t yet confronted a global pandemic, various geopolitical atrocities, or Taylor Swift’s six most recent albums.

The coffee industry was booming, with growth across many major markets, plus record exports on the production side. Booming, that is, unless you were a farmer, in which case you were often making less than the cost of production, following a collapse in the commodity market in autumn of that year.

2018 was also a time of consolidation, as corporations looked to capitalise on the industry’s growth by snapping up competitors. Over the previous few years, multinationals like the Kraft Heinz Company, Lavazza, and Nestlé had all acquired numerous smaller coffee companies. Meanwhile, the German investment firm JAB Holdings was spending billions buying brands including Keurig Green Mountain, Peet’s Coffee & Tea, and Caribou Coffee, as well as specialty coffee trailblazers such as Intelligentsia and Stumptown.

Coca-Cola even got in on the fun, agreeing to buy the U.K. chain Costa Coffee for a whopping £3.9 billion ($5.1 billion at the time), some $1 billion more than expected. Despite the possible overvaluation, most analysts thought it was an astute acquisition, one that gave the beverage giant access to a new sector and Costa’s sizeable international footprint.

Fast forward to 2025, however, and it’s clear that the halcyon days of 2018 have long since passed. 

The industry as a whole is being buffeted by economic, geopolitical, and climate headwinds. Coca-Cola’s investment in particular has not gone well. Costa has struggled for years, making cumulative losses while its parent company pulled $250 million out in the form of dividends. Costa is now on the verge of a sale to private equity firm Bain Capital for just half of what Coca-Cola paid seven years ago.

JAB, meanwhile, is looking to exit the coffee game completely. The German firm has engineered a deal for Keurig Dr Pepper (in which it holds a small stake) to acquire JDE Peet’s (a much larger share) for $18 billion. While the resulting merged brand will become the second-largest coffee company in the world, JAB will come out of the deal with $12 billion in cash, at a time when Bloomberg reports that its “coffee business has sputtered amid tougher competition in the US and higher green coffee prices”.

Coffee consolidation has always happened, and as long as multinationals dominate the industry, it always will. But Coca-Cola and JAB’s struggles—alongside the pressures facing the wider industry—could be a sign that the coffee industry is facing a prolonged period of decline. Or, perhaps, an opportunity for renewal.

Big Fish Eat the Little Ones

Mergers and acquisitions have been part of the coffee industry for centuries. During the late 1800s, for example, American sugar magnate Henry O. Havemeyer bought the Woolson Spice Company, which sold the Lion brand of coffee. He made the purchase in order to undercut a coffee trader, John Arbuckle, who was trying to muscle into the sugar business. Nestlé, meanwhile, was created following the merger of two competing dairy companies founded in the 1860s.

More recent coffee consolidation has come in waves. In the mid-20th century, as Mark Pendergrast notes in his book, “Uncommon Grounds”, American coffee roasters entered a buying frenzy. Competition intensified to the point where just five companies controlled more than 40% of the market. “Larger regional roasters gobbled up others in order to compete”, he writes. “The 1,000-plus wartime roasters dwindled to 850”.

Competition would soon grow even more extreme. As young people became enamoured of cool soda brands like Pepsi and Coca-Cola, “coffee roasters continued to battle one another for dwindling market share”, Pendergrast writes. “As profit margins tightened, the process of industry concentration accelerated, with mergers and bankruptcies narrowing the field to just 240 roasters by 1965”.

In a notable piece of foreshadowing, Pendergrast writes that Coca-Cola “jumped into the coffee fray” in 1964, merging with the Duncan Foods Company (eventually the Duncan Coffee Company). Together with Coca-Cola’s previous purchase of the instant coffee manufacturer Tenco, that move suddenly made it the fifth-largest roaster in the U.S.

The 1980s saw yet another round of coffee acquisitions. In 1981, Goldman Sachs bought J. Aron & Company, “the nation’s biggest supplier of green coffee beans”, according to the New York Times. In 1984, Nestlé acquired Hills Brothers Coffee for an undisclosed fee, right after Hills had itself purchased what the Los Angeles Times called the “nearly moribund” Chase & Sanborn Coffee.

In the early 2000s, Pendergrast writes that “coffee brands continued to be passed like trading cards”. The Indian coffee giant Tata bought Eight O’Clock Coffee for $220 million in 2006 as part of an international expansion strategy. Two years later, P&G sold Folgers, which it had acquired in 1963, to J.M. Smucker for more than $3 billion. It goes on and on.

The Coffee Industry Life Cycle

Clearly, none of this is new. Coffee companies have always bought and sold one another, growing and acquiring, then overexpanding and selling again.

The Harvard economist Michael Porter describes this pattern as an industry life cycle defined by four stages: introduction, growth, maturity, and decline. As Porter writes in his 1980 book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors”, “Rapid growth occurs as many buyers rush into the market once the product has proven itself successful. Penetration of the product’s potential buyers is eventually reached, causing the rapid growth to stop and to level off to the underlying rate of growth of the relevant buyer group”. 

While acquisitions always play a role, it is at this point in the business life cycle that consolidation becomes a predominant force. In the 2018 Coffee Barometer, co-authors Sjoerd Panhuysen and Joost Pierrot noted that the coffee industry had reached the mature stage of its life cycle. “As growth stagnates among larger players, they acquire smaller companies and diversify their portfolio to generate growth”, they write.

After years of investing in beauty and consumer goods, JAB Holdings emerged onto the coffee scene rather suddenly in 2012, taking Peet’s Coffee & Tea private for $1 billion. Soon after, it purchased Caribou Coffee and then Douwe Egberts. In 2014, it merged two recent acquisitions, the coffee arm of the multinational food and beverage company Mondelez and the Dutch roasting giant D.E. Master Blenders 1753, and then a year later added Peet’s to form JDE Peet’s. 

It was under this banner that JAB began acquiring specialty trailblazers like Stumptown and Intelligentsia. The reasons for doing so were pretty clearly articulated by Peet’s then-CEO Dave Burwick: He noted in a press release announcing the Intelligentsia purchase that “the growth of the super-premium coffee market continues to explode in the U.S.”

Nestlé and Chobani also got in on the action, buying Blue Bottle and La Colombe, respectively. In a 2022 Boss Barista piece detailing the implications of specialty coffee’s acquisition bonanza, Ashley Rodriguez described the outcome as “a cosmic shift” that “[breaks] the founding promise of specialty coffee”.

The major players seemingly had no qualms about such moves. For many, buying independent-coded brands was a valuable move that let them tap into new markets, as I wrote in 2023: “Peet’s owning Intelligentsia and Stumptown offers them a ready-made entry point into the specialty market, along with the positive reputation that a local coffee shop brings”.

Risky Bets, Unwise Investments

Coca-Cola’s 2018 purchase of Costa was less about specialty plaudits and more about the wider coffee sector’s growth potential. At the time, Costa was the largest coffee chain in the U.K. and the second-largest globally behind Starbucks; Coca-Cola paid a significant premium to close the deal.

Analysts pointed to Costa’s extensive supply chain and vending machine business as offering Coca-Cola an easy way to break back into coffee, as well as the potential to jump into the fast-growing ready-to-drink sector. The supercharged Asian coffee market was another draw, with Coca-Cola noting Costa’s presence in China as one of the motivations for the deal.

Less than a decade later, however, the investment turned sour. Coca-Cola could not have foreseen the difficulties that would soon beset both coffee and the wider world, including a global pandemic and associated supply chain crisis, rising inflation, an unhinged trade war, and the skyrocketing price of green coffee. Looming over everything else is the longer-term spectre of climate change. As a result, profit margins are shrinking and many companies are raising retail prices just as global coffee demand is forecast to fall 0.5% in 2025.

For JAB, the heavy bet on coffee also hasn’t seemed to pay off. Last year, the Financial Times reported that it was shifting its investment strategy towards insurance after being “overexposed to consumer companies, an issue that became acute during the pandemic”. Two of its publicly traded brands, JDE Peet’s and Krispy Kreme, have struggled in recent years, with John Foley of the FT describing it as a “middling investment record”. “With the exception of [Keurig Dr Pepper], anyone who bought in when JAB took those companies public has lost money”, Foley writes.

Coca-Cola’s cut-and-run, as well as JAB’s coffee exit, indicate we could be coming to the end of the mature stage of coffee—and moving into the decline stage.

What Comes Next

In his book, Porter describes various signals for the different industry stages. Signs of maturity include “mass market saturation”, “standardization”, “price competition”, and lower profits and margins. Signs of decline, meanwhile, include “little product differentiation”, “exits”, and the fact that prices might rise. We’ve seen all of this in coffee in recent years.

Decline doesn’t have to be the endpoint, however. Other interpretations of the industry life cycle offer the option for renewal or further transformation. 

In a 2014 paper, management professor Jochem J. Kroezen laid out how this might look. Compared to a declining industry, he writes, a renewed one might involve challenges to dominant players, the opening of new markets, and the evolution of consumer tastes that the current incumbents are unable to meet. This leads to a renewal of entrepreneurial activity and innovation, both from established players and challengers.

The advent of coffee’s third wave in the early 2000s is an example of such industry renewal. That era saw a young, innovative breed of businesses taking advantage of large, ponderous multinationals to open up a different market and attract new customers. Those incumbents were forced to innovate to keep up—at least until they decided it was easier to just acquire their challengers, and the whole cycle began again.

Consolidation will, presumably, always be a part of the coffee industry. The most recent wave of mergers and acquisitions, and the resulting fallout, looks a lot like what Porter would describe as an industry in decline. 

From another vantage, however, this could be a turning point for the industry—the beginning of a period of renewal. There are signs of change, many of which I’ve covered: The emergence of Luckin, Blank Street, and their copycats; growing coffee consumption at origin; the rise of the Yemeni cafe; the union wave; and farmer-owned coffee roasters, among others.

The old guard is exiting, and the new vanguard waits to emerge. For coffee, now is the time of decline—or opportunity.

Header image by Zonghao Feng via Pexels