Cash brews robust U.S. craft coffee market

Sun Jun 2, 2013 6:25pm EDT
 
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By Lisa Baertlein, Marcy Nicholson and Martinne Geller

(Reuters) - For exotic coffee connoisseurs like Geoff Watts, the search for the perfect bean isn't the solitary quest it once was.

On a recent visit to Ethiopia's southern Yirgacheffe region eight hours from Addis Ababa, the buyer for Intelligentsia Coffee bumped into a familiar face.

"I saw a random white guy walking around in a field, and it turned out he was a friend and competitor," said Watts.

U.S. craft coffee purveyors are getting less lonely. The segment is a small but growing slice of the $27.9 billion U.S. coffee market, which has increased in recent years at an annual average rate of 5.6 percent and is expected to reach $33.7 billion by 2018, according to research firm IBISWorld, though it does not yet separate revenues for high-end purveyors.

Small bi-coastal chains Intelligentsia, Blue Bottle Coffee and Stumptown Coffee Roasters lead the so-called "third wave" or "slow coffee" movement, while industry behemoth Starbucks Corp shows off its craft roots selling limited-supply "reserve" coffees for up to $50 for a half-pound bag.

The new generation of upscale coffee shops and roasters includes dozens of operators around the country. They are in a race to find rare and distinctive beans and hope to elevate one of the world's oldest and most popular drinks in the same way that craft beer brewers, boutique wineries and olive oil makers won fans by focusing on high-quality ingredients and production.

During the last two years, private equity firms, venture capitalists and wealthy individuals such as former professional skateboarder Tony Hawk, and tech luminaries Instagram Chief Executive Kevin Systrom and Jack Dorsey, a co-founder of Twitter and Square, have poured in well over $55 million - including a large cash jolt for San Francisco-based Philz Coffee in May.

Not your typical retirement investors, they are often coffee connoisseurs themselves and are eager to capitalize on the new breed of enthusiasts who were raised on espressos and lattes popularized by Starbucks.   Continued...

 
Coffee beans are sorted in the roasting area at Sightglass, a coffee bar and roastery, in San Francisco, California May 8, 2013. REUTERS/Robert Galbraith