Starbucks announced last week they are acquiring ‘The Coffee Equipment Co’, manufacturer of the Clover brewing machine. See Seattle PI article “Starbucks deal ‘dream come true’ for manufacture of coffee maker“.
We’ve been talking about the Clover brewing machine quite a bit lately. See “Starbucks Tests the Clover in Several Stores” for more detailed information about the Clover brewing system.
Starbucks has been testing the Clover in several stores for the last few months. So, pending a successful outcome of the limited Clover testing, it only makes good business sense that Starbucks would acquire the manufacturer. Evidently, the test phase indicated good results.
Starbucks CEO, Howard Schultz, said they plan to put the Clover machine into all but the smallest stores. The machine is not inexpensive, a single unit sells for around $11,000. Let’s see, Starbucks has about 7100 stores in the US, and over 15,000 stores world wide. Let’s be conservative and say that they will put a Clover in 5,000 stores. Without acquiring the company, let’s say Starbucks were able to negotiate a significant volume discount and purchase the machine for $5000 per unit. That’s a $25 million purchase order right there.
The initial investment raised to launch ‘The Coffee Equipment Co” in 2004 was around $1 million. The small 11 person operation publishes that they have sold the machine to between 200 and 300 independent coffee houses in the US and Canada. Some stores have purchased two machines, so let’s again be conservative and speculate that the company has sold about 1,000 machines to date. At the current price of $11,000/unit, that would be about $11 million in sales over the last 5 years.
Hey, my numbers could be way off, but any way you cut it, the Starbucks purchase order alone would easily exceed the annual revenue of the company by a wide margin. And most companies acquired in a transaction like this are valued at some multiple of annual revenue or gross sales.
The other consideration for a volume order this size is the necessary financing that ‘The Coffee Equipment Co’ would have to secure just to scale up the manufacturing capacity. So, it only makes sense that Starbucks has acquired the company.
And good for Zander Nosler who co-founded ‘The Coffee Equipment Co’. I’m sure a very nice pop for him and the others with equity positions, as well as the private shareholders.
I’ve had the opportunity to try a cup off the Clover at four or five different independent coffee houses. The brewing system definitely produces a good result in the cup. Not necessarily dramatically better than what you might be able to achieve with a proper French press extraction, but consistently good results.
The real benefit with the Clover, in my opinion, is the ability to dial in the right parameters to achieve the same consistent result time after time for each custom brewed cup of coffee. And do this in a busy commercial environment where waiting for a 5 to 6 minute brew cycle with a French press or drip brew bar would be too inefficient. The Clover can typically complete a predictable full extraction custom brew in less than 90 seconds.
The acquisition, while probably a good thing for Starbucks, may be a disappointment for other coffee aficionados and independent coffee houses. The independent specialty coffee retailers, the initial target for the Clover machine, have been successful in differentiating a premium offering by offering coffee brewed with a Clover. And at a fairly hefty investment for the small store at $11,000 per unit. From what I can tell, the Clover has been a successful drawing card.
I’m sure these independent store owners would like to maintain this edge, and that will probably change somewhat once the Clover is brewing coffee at most of the Starbucks stores.
For Schultz, he would like to shift the edge and distinction to Starbucks, so he bought the company. However, although consistent with an ongoing initiative to upgrade the coffee experience at Starbucks, I’m not sure the Clover makes complete sense. The real distinction of brewing with the Clover is the ability to consistently bring out the full flavor and subtle taste characteristics from premium coffee beans, especially the interesting single origins such as a Sumatra Mandheling or an Ethiopian Harrar.
I just don’t see Starbucks in this end of the specialty market, at least not presently. But maybe that’s where Starbucks is headed? Today, I’m not convinced that the typical Starbucks customer who comes in for a cup of drip is interested in more than the one or two batch brew offerings that Starbucks prepares.
Hey, but then I don’t run the company either.
The good news, for interested coffee enthusiasts out there that have been waiting to see what the Clover is all about, your chance seems to be coming soon at a local Starbucks near you!