Coffee Gets a Hot Dose of New Competition

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The world is getting smaller, or at least more connected. In an odd reversal of business, it seems more and more brands are being consolidated under one big owner -- almost the way it was in the early part of the 20th century. Yesterday, another massive company slipped under the waves, when D.E. Master Blenders agreed to sell itself off to Joh. A. Benckiser, or JAB.

Never heard of JAB or Master Blenders, you say? That's not really surprising, as both are European companies. But even if you don't know them, you know their work, and with this purchase, you might know their wrath.

The Continental Congress
JAB is a sort of multiheaded beast of an investment arm, which buys and holds companies for the Reimann family. The Reimanns, in turn, are wealthy -- about $20 billion net worth  -- heirs to a chemical company fortune. JAB is a private investment arm, which works on its own and through three other vehicles:

  • Coty is a majority-owned beauty product company, which produces Calvin Klein, Adidas, and other designer perfumes.
  • Reckitt Benckiser is a home-products company, which manages dozens of brands, including Air Wick, Clearasil, and Old English in the United States.
  • The LABELUX Group owns Jimmy Choo and Bally and focuses on high-end fashion

The most recent buying spree has come from the root company, JAB. In the past year, it has purchased Peet's Coffee and Tea for $975 million, Caribou Coffee for $340 million, and now Master Blenders for $9.8 billion. In less than one year, the company has amassed a multibillion-dollar global coffee position.

This is where we look out
That's a good reason to be worried, if you're an investor in Starbucks (NASDAQ: SBUX  ) or Green Mountain Coffee Roasters (UNKNOWN: GMCR.DL  ) or really any major coffee company. Master Blenders' main line is a brand called Douwe Egberts, which used to be served in Burger King (UNKNOWN: BKW.DL  ) until the company signed with Seattle's Best, a Starbucks brand.

So far, JAB has said that it's not planning to combine the operations of its three new brands. Instead it plans to keep the American coffee shop companies doing their thing, and the European production arm doing its thing. But Master Blenders does have the ability to make pods to go up against Green Mountain and others, and if it wanted to, the company could use that capability to make a move in the American market.

It could also move against Starbucks, by using its European production capabilities to bring new lines to the U.S., or by using its U.S. cafe brands to bring new competition to Starbucks in Europe. No matter what JAB does, it's almost certainly going to present new challenges for U.S. coffee brands in the future. Investors should watch for any new business lines from JAB and keep an eye out for more acquisitions in the near future.

With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.

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  • Report this Comment On April 13, 2013, at 9:13 PM, pdg2 wrote:

    "So far, JAB has said that it's not planning to combine the operations of its three new brands. Instead it plans to keep the American coffee shop companies doing their thing,..."

    Which is what? Making hundreds of baristas unemployed?

    20% of Caribou stores are being closed and another 20% are being converted into Peet's stores, per Minnnesota newspapers.

    Danke Schoen, JAB!

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