Wake Up And Smell The Coffee! Big Food Is Rethinking Its Caffeine Bets As Trump Tariffs Brew Trouble For The Market

• On Monday, Reuters reported that the Swiss consumer goods giant was working with Morgan Stanley to explore options for its Blue Bottle Coffee business, including a sale.
• Freshly appointed CEO Philipp Navratil is undertaking a cost-reduction revamp of the food giant. 
• Soda giant Coca-Cola is also said to be exploring a sale of its Costa Coffee business and has reportedly held initial talks with a small number of potential bidders, including private equity firms.

When U.S. President Donald Trump took office for the second time this year, coffee prices weren’t as high as they are today, but subsequent tariffs on Brazil, the largest coffee producer, drove prices to record highs. Tariffs had driven up coffee prices, which were already trending high due to droughts in top-producing countries such as Brazil and Vietnam.

Even though Trump has now removed the 40% tariffs on Brazil, which has led to coffee prices easing over the past few days, concerns about demand for the premium coffee business remain.

As Nestlé reportedly prepares to explore the sale of its Blue Bottle Coffee business, eyes are turning to how food giants are either shedding underperforming units from their portfolios and focusing on higher-cost, higher-growth segments or buying rivals to revive their struggling businesses.

Dan Coatsworth, investment analyst at AJ Bell, said in an emailed response to Stocktwits that companies are increasingly focusing on what they do best, rather than trying to be all things to all people.

Nestlé’s Ditching Blue Bottle Coffee?

On Monday, Reuters, citing people familiar with the matter, said that consumer goods company Nestlé was working with Morgan Stanley to explore options for its Blue Bottle Coffee business, including a sale.

The report noted that this was part of newly appointed CEO Philipp Navratil’s view for the company, in which he outlined plans to exit the physical retail business.

Navratil is undertaking a cost-reduction revamp of the food giant. In October, the Swiss company announced a planned reduction in global headcount of 16,000 over the next two years.

“The world is changing, and Nestlé needs to change faster. This will include making hard but necessary decisions to reduce headcount over the next two years,” Navratil then said.

The report noted that Nestlé bought a majority stake in Blue Bottle Coffee in 2017, valuing the premium roaster known for its drip coffee at roughly $700 million. 

Coca-Cola’s Stance On Costa Coffee

Soda giant Coca-Cola is also said to be exploring a sale for its Costa Coffee business. In August, Sky News reported that the company had held initial talks with a small number of potential bidders for Costa, including private equity firms.

Coca-Cola had acquired Costa in a $5.1 billion deal back in 2018, but CEO James Quincey said in July that the company’s investment in Costa is not where it wanted it to be from an investment perspective. “I mean the business is still a good business, but it's not quite delivered on the different verticals of growth that we were hoping to accelerate much quicker,” Quincey said.

Keurig’s $18 Billion JDE Peet Plan

Keurig Dr Pepper’s $18 billion takeover of JDE Peet's is a 20% premium to JDE Peet's closing market price on August 22. The company aims to split the merged entity's coffee business and other beverage segments into two separate, publicly listed U.S. companies.

The company in July said that, looking to the back half, the U.S. coffee segment will need to manage the impacts of higher commodity inflation, increased tariffs, and consumer uncertainty amid additional price increases.

Analyst View On Nestlé’s Blue Bottle Sale

Coatsworth noted that reports that Nestlé might offload its premium coffee brand Blue Bottle Coffee wouldn’t come as a surprise. “The parent group is cutting jobs and trying to accelerate earnings growth, a strategy that means taking a bold decision on how to right-size the company both in terms of resources and assets,” he said.

“Coffee is a highly competitive market and Nestlé’s future might lie in businesses that have scale. Blue Bottle looks like small fry in the bigger scheme of things for Nestlé,” Coatsworth said.

He added that Blue Bottle’s retail outlets also don’t align with Nestlé's core business model of big brands stocked by third parties.

Stocktwits User Reaction

Retail sentiment on Nestlé remained unchanged in the ‘neutral’ territory, with message volumes at ‘low’ levels, according to data from Stocktwits. Sentiment for Coca-Cola was in ‘neutral’ territory, an improvement from ‘bearish’ a day ago, while Keurig Dr Pepper’s retail sentiment dipped to ‘bearish’ from ‘neutral’ territory a day earlier.

U.S.-listed shares of Nestlé have gained nearly 22% this year, Coca-Cola’s stock has gained over 15% and Keurig Dr Pepper’s shares have dropped 12% year-to-date.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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