Blue Bottle Coffee: Riding the “Third Wave”

Blue Bottle Coffee, backed by Nestle, now has the opportunity, resources, and–arguably–responsibility to walk the talk of environmental sustainability.

Oakland-born and San Francisco-raised, Blue Bottle is part of the third wave of coffee: hip, sustainable, and free trade. In September 2017, Nestle—the 150-year-old Swiss food and beverage conglomerate—purchased a majority stake in Blue Bottle Coffee at a rumored price tag of $500 million. Along with the new asset, Nestle acquired all the responsibilities associated with the third wave: improving their supply chain, managing concerns of self-proclaimed coffee connoisseurs, and addressing the effects of climate change within the coffee production industry. Conversely, Blue Bottle Coffee now has the opportunity, resources, and–arguably–responsibility to walk the talk of environmental sustainability.

Scientists believe that within the next 30 years, major coffee-producing regions around the globe will experience the debilitating effects of climate change. Many farms from which Blue Bottle sources its coffee are located in poor, equatorial nations such as Brazil, Vietnam, Colombia, Indonesia, and Ethiopia. Coffee farmers in these countries are already battling unpredictable weather patterns and extreme climate conditions [1]. Climate change is a source of concern for Blue Bottle Coffee and Nestle for obvious reasons. As more countries experience weather volatility and extreme climate conditions, there will be inevitable strains on coffee production processes [1]. Additionally “research suggest that the incidence of pests and diseases such as coffee berry borer, leaf miner, nematodes, coffee rust and others will increase as temperatures rise. The consequent need for more control will make coffee production both more complicated and expensive” [2]. As these regions face the consequences of rising temperatures, water shortages, and intense climate conditions, Blue Bottle and Nestle will need to innovate and educate farmers, distributors, and other stakeholders in their supply chains.

Promote sustainable coffee production practices
In many coffee-producing regions, farmers utilize shade growing techniques. Shade grown coffee plants are cultivated under a canopy of trees, promoting symbiotic relationships between organisms. Many coffee producers are replacing this environmentally friendly practice with sun cultivation techniques to significantly increase yield [2]. This change in cultivation technique promotes deforestation and increased usage of pesticides and water, leading to soil erosion and loss of key organisms [2].

Nestle has attempted to address these and other issues through The Nespresso AAA Sustainability Program. The AAA Sustainability Program, a collaboration between Nestle and the Rainforest Alliance, was founded in 2003. It currently supports 40,000 farmers in cultivating coffee more sustainably through education and innovative practices [5]. The AAA Sustainability Program is based on “social and environmental standards developed by the Sustainable Agriculture Network (SAN).” These standards include measures to promote soil and water conservation, integrated waste management, ecosystem conservation, and wildlife protection. Nestle, by 2020, hopes to source over 80% of its coffee from farmers and cooperatives that participate in the AAA Sustainability Program [5]. Blue Bottle Coffee must take advantage of the AAA Sustainability Program and push Nestle to continue innovating as the it expands across the country [4].

Leverage farmers’ cooperatives to meet sustainability standards
Blue Bottle Coffee primarily imports single origin coffee. Their website describes single origin as follows:

“In the simplest terms, a single origin is coffee defined by its provenance. We can trace the coffee back to one farm, farmer, season, harvest, or processing method…a single origin is always rooted to a specific place and is as unadulterated as coffee can be.” [3]

Although Blue Bottle tends to focus on the aesthetic value of single origin coffee, it has many tangible benefits. Blue Bottle can build strong relationships with farmers and cooperatives and gain insight into farming practices implemented abroad. This provides Blue Bottle with immense influence. As they continue to “nurture long-lasting relationships with farmers”, they can in turn invest in education and promote sustainable coffee cultivation practices [3].

Additional opportunities for Blue Bottle Coffee
As Blue Bottle and Nestle realize synergies in their supply chains, it will be imperative that Blue Bottle remains true to the standards on which its brand was born: a transparent supply chain and a propensity towards environmental sustainability. Blue Bottle should participate in growing efforts to diversify the coffee gene pool. As rising temperatures decrease the amount of available land, Blue Bottle should invest in seed technology that can adapt to changing farmland and climate patterns [1]. Blue Bottle must align with organizations such as World Coffee Research that are developing new technologies to mitigate climate change.

Challenges & concerns
As Blue Bottle Coffee continues to expand under Nestle’s majority ownership, will it be able to maintain its independence and environmental sustainability standards? Additionally, as demand for coffee increases in new markets, how will major players in the coffee industry stay competitive and maintain rigorous environmental standards across the globe? Is it possible to do both effectively? [WC: 777]



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Student comments on Blue Bottle Coffee: Riding the “Third Wave”

  1. While Blue Bottle purports to be a business focused on sustainability through its brand marketing, I question the premise that the company currently exercises transparent and largely sustainable supply chain practices. Judging by the arcane disclosure on its website, Blue Bottle does seem willing to compromise on environmental standards to source and deliver its product:

    “We purchase a number of coffees from Fair Trade certified cooperatives; however, many producers decide it’s in their best financial interest to channel their resources toward continued advances in quality and sustainability instead of the expensive process of certification. We like to factor a producer’s efforts toward greater quality as well as environmental and economic responsibility into our purchasing decisions, regardless of their certification status.”1

    While Fair Trade certification factors into Blue Bottle’s supply chain decision making process, this nebulous party line and the absence of any specific metrics provides the company with significant latitude in establishing environmental standards for their suppliers. As Blue Bottle integrates into its new corporate parent and copes with the pressure to grow into its $700 million valuation, but continues “to operate as a stand-alone entity”, all stakeholders in the organization – from Nestle to customers – should consider whether Blue Bottle’s sustainability program has been designed to mitigate environmental impact or whether it’s just another shiny marketing tactic to appeal to the new wave of ostensibly environmentally-conscious craft coffee consumers.2

    1 FAQ.
    2 Nestlé acquires Blue Bottle Coffee.

  2. My concern with Blue Bottle’s CSR credentials under Nestle majority ownership is that they risk being diluted by the knowledge that the Nestle, the “parent company” holds itself to a lower standard in its supply chain than Blue Bottle. It is then fair to think that when consumers see that difference between the two that they might grow skeptical of whether under new ownership Blue Bottle will continue to stay try to what they have set out to do in CSR or whether Nestle will squeeze the supply chain for greater profits at the expense of local farmers.

  3. Thank you for the article. As raised above, the major concern indeed is Blue Bottel’s integrity to maintain it’s sustainable standards in light of Nestle control. I believe the company’s value preposition lies heavily on that supply chain guarantee to maintain fare trade and environmentally friendly operations. Therefor, I believe the public will hold it accountable which will result in lesser risk.

    As also stated, true desire to create framers eduction network is necessary. Farmers may not acknowledge fully the long term benefits of this methods and may favor current earnings. I hope Nestle is sincere in it’s intents and that they see the long term sustainability of the message directly related to those standards.

  4. I wonder if Blue Bottle is leveraging Nestle to reuse the huge amount of waste generated in coffee production. Wastewater can be reused in a number of ways (or Nestle’s resources can be invested in developing infrastructure to use letter to begin with). There’s a new business called CoffeeFlour that reuses coffee cherries to produce flour — I wonder if Nestle can do something similar to generate synergies across its food products.

  5. Love blue bottle!!

    As the company scales I question the ability of a larger organization to be able to maintain rigorous environmental standards. Starbucks also started with the some of the same corporate initiatives. With scale, comes the need to increase volumes at a faster and at larger pace. I think Blue Bottle will face tough challenges in maintaining a large supply while also maintaining their environmental standards. While it is possible to do both with some level of efficiency, it will all depend on the scalability of Blue Bottle, especially now that Nestle is invested as well.

  6. When I first read your description of the Nespresso AAA Sustainability Program, I was wary of the effects the program might have on the farmers participating. I can of course understand the long-term benefits that more sustainable practices can have for producers, via increasing the longevity and durability of their plants, but often these long-term benefits come with short-term sacrifices in terms of profits. This could be devastating for the farmers, even if they desire the long-term benefits. I was heartened to see that a study showed that farmers who participate in the program have a net income 8.7% higher than farmers who are not involved. This is a result of Nestle paying these farmers more as a result of their participation. I wonder if this will be sustainable for Nestle in the long run – are the increased payments reflective of the increased prices Nestle will be able to secure for the sustainably-sourced products, or is this an extra “sign on bonus” to incentive early participation?

  7. Great article! Even with the work Nestle/Blue Bottle is doing on the sustainability front, I’m still very concerned how vulnerable they are to the effects of climate change. Given the increased frequency and severity of natural disasters, especially in coffee-growing regions, supply and price of coffee beans are increasingly unpredictable. I see this as an opportunity for Blue Bottle, as a disruptor to the established coffee landscape. Blue Bottle can support and invest in alternative growing processes, which could serve as a strong competitive advantage over the long-run.

  8. Thank you for the great article – It is indeed a intriguing question to think of whether (1) Blue Bottle can share the “best practice” of supporting sustainability and free-trade to Nestle, influencing the entire collection of coffee products (e.g. Nespresso, Nestle Gold Blend Coffee, etc.) (2) Nestle’s global coffee supply chain will eventually internalize Blue Bottle to adopt large-volume coffee beans. My thought is lining towards the former one, as coffee consumers become more sophisticated (educated by competitors like Starbucks) about the source of coffee beans, it will be unavoidable for Nestle to adopt at least the same standard especially for its high-end (Nespresso) and retail (Blue Bottle) products. However, the blended coffee like Gold Blend sold through mass channel such as super market, will likely to adopt to stricter sourcing standard later. I am looking forward to enjoying more sustainable and responsible coffee in the near time horizon, cheers!

  9. Very interesting read! I understand that Blue Bottle is working with its coffee bean suppliers to establish environmental-friendly standards that may help mitigate supply chain disruptions and fight climate change from a production perspective, but I would be curious to learn more about the company’s approach in other areas of the supply chain, such as transportation, warehousing, and in-store practices, to reduce its environmental impact. For example, what measures is Blue Bottle taking to cut energy consumption and reduce carbon footprint within the store? My hope is that this type of holistic approach to combat climate change may become easier to achieve as a unit within Nestle which has a larger reputation to manage (therefore CSR is a larger part of its corporate strategy) and has a more extensive distribution system that is already aligned with certain environmental standards. Customers also play a huge role in recognizing sustainability and transparency as a point of differentiation among players, and may even be willing to pay up for highly sustainable products to share the responsibility.

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