Plan to scale goes full steam ahead.
Big changes are brewing for coffee retailer Blue Bottle. In January, the company raised a steep fundraising round of $25.75 million, following a $20 million round in October 2012. In April, Blue Bottle acquired coffee bean subscription service Tonx, a brand particularly beloved by the tech set.
Today, Blue Bottle announced that the Tonx acquisition paved the way to launch its newly reconfigured subscription service, Blue Bottle at Home. The coffee company is also opening its first café overseas.
In a crowded marketplace, Blue Bottle at Home stands apart by delivering its trademark expertly sourced, single origin beans to your doorstep just 24 hours after roasting. Blue Bottle home delivery costs a flat $19 a month, while other boutique coffee roasters, including Chicago’s Intelligentsia and Portland’s Stumptown, offer tiered plans that can be adjusted to ship weekly or monthly. It’s hard to find a major coffee company that doesn’t have a recurring home delivery option. Even global leader Dunkin’ Donuts offers a monthly subscription plan starting at $8.99.
The slow-drip sales add up. According to market research firm StudyLogic, online sales of coffee, tea, and hot cocoa hit $12.5 billion in 2013, up from nearly $10 billion in 2011. Revamping subscription and online sales platforms is also on trend. In April, for instance, Peet’s hired digital marketing agency Razorfish to overhaul its e-commerce platform, which offers subscriptions for both coffee and tea, at various prices based on the coffee bean or tea leaf.
Nik Bauman, Tonx co-founder and now Blue Bottle’s Director of Digital Product, admits that in terms of offering a subscription, “We’re not doing something completely revolutionary.” Rather, he explains, “We’re sweating the details.” What type of coffee you want, at what cadence—and in the perfect packaging—should be a top-shelf experience.
The acquisition was warmly welcomed by Tonx, which needed a jolt of energy to move from savoring a strong digital following toward attempting to become a household name. “Jumping over that chasm and getting to real brand recognition in the marketplace—you can’t rush that,” Bauman says. “Investors don’t enjoy putting money behind the phrase ‘brand building’.” By aligning with Blue Bottle, Tonx was getting the boost of a proven brand.
Blue Bottle already had a skeletal subscription service. The idea of bringing on a technical partner to optimize the existing system had been percolating for a while. “David [Bowman, Blue Bottle’s CFO] and James [Freeman, Blue Bottle’s CEO] had been looking at Tonx before I called them,” Bauman says.
For founders known for obsessing about single origin beans, the blend of the two companies is surprisingly smooth. Blue Bottle is known for high quality control standards, refusing to outsource any offering, even down to its pastries. Freeman says though he greatly admires Tonx, the idea of an acquisition was, for a short time, a major philosophical hurdle. His biggest challenge was understanding that “it’s okay to not make it yourself sometimes,” he says with a chuckle. His team was behind the merger from early on. “Sometimes the reason to have people on your team is to listen to them,” he further concedes.
Blue Bottle at Home arrives at a time when, thanks to the ever-expanding subscription economy, you can have everything from beauty samples to exotic foods delivered straight to your door on a recurring basis. But Bauman notes that an off-the-shelf subscription model doesn’t actually fit that many businesses. He warns that simply getting someone to sign up isn’t the goal, and in fact, overselling your product up front is a great way to lose a potential long-term customer. “If you subscribe to paper towels and you get two bundles of six, you have 12 paper towel rolls sitting around,” he says. “And you don’t want that.”
Optimizing the Blue Bottle at Home experience isn’t just about looking at a virtual dashboard, though the engineering team does collect customer data to improve the overall experience. But Bauman notes that a typical Blue Bottle customer wants a delightful but utilitarian experience. Proactively reaching out to customers is a further extension of the thoughtful care Blue Bottle has been known for. “You have two months to make sure you meet and exceed [the customer’s] expectation,” Bauman adds. “They want us to have sweat the details, to have crafted things in a way that creates a pleasant and fun experience but not for fun’s sake.”
The acquisition also brews fresh opportunities for brick-and-mortar, with new cafés opening next week in Los Angeles and New York City. Blue Bottle’s first café abroad is slated open in Japan during the first quarter of 2015. “[Tokyo] is not a license. It’s not a joint venture,” Freeman emphasizes. “It’s all our money and all our risk.” Japan is also an ideal testing ground abroad, he notes. “Tokyo and Japan in general has most demanding consumer culture in the world. If we can please them, we’ve proven something we can bring back to benefit the U.S. market.”
Don’t expect Blue Bottle to saturate urban neighborhoods the way Starbucks did—at least, not yet. “Cafes are expensive. They take a long time to build. Even if we had all the money in the world, it would take a long time to build cafes,” Freeman explains. By taking a two-pronged approach with new storefronts and a customizable subscription plan, Blue Bottle can quench consumers’ thirst for both more shops and a better home brewing experience.
“Someone is our customer, whether or not they’re in a café or having Blue Bottle at home,” Freeman says.