Nestlé is scooping up two brands in fast growing markets to expand its product offerings in North America. The Swiss company will acquire Sweet Earth, a maker of plant-based foods, as consumer demand for natural, organic and healthy food grows. Nestle expects the market to reach $5.21 billion by 2020. Based in Moss Landing, California, Sweet Earth’s entrees and snacks are sold in stores like Target, Kroger, Walmart and Whole Foods and will strengthen Nestle’s existing vegetarian options.
Nestlé will also buy a majority stake in Blue Bottle Coffee, an artisanal shop that sells high-end coffee in its stores and through its online subscription business. Specialty coffee is growing in popularity and accounts for 15 to 20 percent of the coffee market in the US. Although Nestle already sells coffee and other drinks through its Nespresso and Nescafe brands, Blue Bottle Coffee will give it access to a premium, high-margin product with a loyal following. Nestle may have paid up to $500 M for a 68 percent stake in Blue Bottle Coffee and has the option to acquire the remaining stake if certain milestones are met.
Acquiring makes sense for Nestlé, a large food manufacturer that has struggled to grow organically and faced pressure from investors to move the needle. Traditional food players are finding it difficult to keep up with changing consumer demand and perception. Today’s consumers desire natural, “authentic,” and socially responsible brands; but unfortunately, that’s not what comes to mind when they think of Nestlé or any large corporation.
Acquisition is the best way to overcome this hurdle and attract critical customers. In buying Sweet Earth and Blue Bottle, Nestlé can tap into two high growth markets to gain immediate access to a growing customer base that will boost sales. Undoubtedly, some consumers might feel alienated when they hear of the deal and think that Sweet Earth or Blue Bottle have “sold out”, so Nestle will need to be careful in its integration strategy. For now, Sweet Earth and Blue Bottle will remain independent, as a way to assure consumers that their favorite brands will maintain the same culture and continue delivering the products they love.