Big companies are good at lots of things. Managing complex supply chains. Buying in bulk to get the lowest prices from suppliers. Getting products on lots of store shelves and in front of lots of consumers.

But they’re not good at everything. Like being cool.

Which is why, over the past few years, big brands have gone on a buying spree, snapping up small, hip, high-end companies that have the kind of image and street cred that some multinational conglomerates have acknowledged they are unable to create on their own.

In the latest deal in the space, announced earlier this week, Nestle, the world’s largest food and beverage company, is buying Oakland’s Blue Bottle Coffee, a chain with just 40 locations, all in trendy urban neighborhoods, all with baristas who take an improbably long time to craft a cup of pour-over coffee.


Terms of the deal were not disclosed, but the Swiss firm is reportedly paying as much as $500 million for a majority stake in Blue Bottle, valuing the coffee company at more than $700 million.

Why spend that much on a tiny chain rather than trying to build one from scratch, possibly for much less cash? Because Nestle knows there’s a good chance it wouldn’t work, said Nick Setyan, a food and beverage analyst at downtown L.A.’s Wedbush Securities.

“I don’t think they view that as their core competency,” he said.

In many ways, the idea of a tiny coffee chain that charges high prices — a small, basic coffee costs $3.75, almost twice the price at Starbucks — for painstakingly produced products is the opposite of Nestle, a publicly traded corporate giant that makes mass-produced, affordable products available everywhere. Nestle’s brands run the gamut, from Dreyer’s ice cream and Cookie Crisp cereal to Gerber baby food and Purina kibble.


And that’s kind of the point of the deal, said Taylor Palmer, an analyst at research firm IBISWorld. In buying Blue Bottle, Nestle is buying a company whose customers care about all the little things Blue Bottle does and that Nestle typically doesn’t.

“They’re able to tap into a brand that people really identify with, and one with values people don’t necessarily associate with larger brands,” he said. “They can attach themselves to the feeling that is elicited by consumers when they see these brands.”

That same thinking has motivated other deals, too, across all sorts of industries.

Walmart has acquired trendy online retailers Bonobos and Modcloth. Big hotel chains have acquired high-end “boutique” hotels. Consumer products giant Unilever paid $1 billion for millenial-focused grooming company Dollar Shave Club.


But nowhere has the trend been more noticeable than in the food and beverage industry, particularly in beer and coffee.

Two years ago, Emeryville’s Peet’s Coffee & Tea acquired two craft coffee companies, Portland’s Stumptown and Chicago’s Intelligentsia. Peet’s itself was acquired back in 2012 by Luxembourg consumer products conglomerate JAB Holdings, which also owns Krispy Kreme Doughnuts, Panera Bread and fashion brands Jimmy Choo and Belstaff.

AB InBev, the owner of Budweiser, has numerous craft-beer holdings, including Chicago’s Goose Island Beer Co., Seattle’s Elysian Brewing and L.A.’s Golden Road Brewing. Big Belgian brewer Duvel Moortgat owns Kansas City’s Boulevard Brewing and Paso Robles’ Firestone Walker.

Heineken this year acquired Petaluma’s Lagunitas Brewing Co., and Constellation Brands, the owner of Mexican mega-brews Corona and Modelo, paid $1 billion for San Diego’s Ballast Point Brewing Co. in 2015.


In the most recent suds deal, Japanese brewery Sapporo announced last month it had acquired San Francisco icon Anchor Brewing, one of the pioneers of the U.S. craft-beer industry.

In every case, those buyers have deep enough pockets that they could try to start high-end coffee or craft beer brands of their own.

That’s the tack Starbucks has taken, announcing last year that it aims to put high-end coffee bars — under the Starbucks Reserve brand — within many of its existing locations, and eventually to open hundreds of standalone Reserve coffee bars.

Often, it’s important to not promote the parent brand’s association with the smaller brand once an acquisition is made. Deborah MacInnis, professor, USC’s Marshall School of Business


But IBISWorld’s Palmer said consumers are much more likely to stick with a craft brand once it’s been acquired by a bigger company than they are to become loyal to a new brand created by a big company.

“When consumers see a brand being built by a large multinational, and they see it marketed as a craft beverage or craft product, they view those products with a heavy dose of skepticism,” he said. “But when it’s a brand that’s acquired, people can still view it as what it was before.”

Setyan agreed, saying there’s little evidence to suggest customers change their behavior after these deals.

“Most consumers don’t pay enough attention to even know,” he said.


Indeed, big corporate buyers often go out of their way to leave these companies alone, at least on the surface, so as not to taint their independent image, said Deborah MacInnis, a marketing professor at USC’s Marshall School of Business.

“Often, it’s important to not promote the parent brand’s association with the smaller brand once an acquisition is made,” she said. “The brand loses some of its specialty and niche appeal when the corporate brand becomes strongly associated with it.”

In a statement announcing last week’s acquisition, Nestle said Blue Bottle will “continue to operate as a stand-alone entity, while having full access to Nestle’s well-recognised capabilities in coffee and its strong global consumer reach.”

In other words, don’t expect Blue Bottle to start selling Nescafé instant coffee.


It’s possible for big companies to create successful, higher-end, craft-style brands of their own, but the success stories are few.

McDonald’s launched its McCafe line of Starbucks-style coffee drinks the better part of a decade ago but has continued to rethink the offering as it continues to try to capture drinkers of higher-end coffee.

Coors, part of conglomerate MolsonCoors, launched beer brand Blue Moon, which remains a popular seller — despite a 2015 lawsuit, since dismissed, that argued Coors was deceiving customers by promoting the brand as craft beer.

Analysts said there’s another reason big companies are buying and don’t seem to mind spending big bucks on smaller firms.


Remember all those things big companies are good at doing? Those can help quickly ramp up distribution, sales and profits at the acquired companies once they are brought into the corporate fold.

Palmer, for instance, expects Blue Bottle, with the size and bargaining power of Nestle behind it, will be able to significantly lower the price it pays for everything from coffee beans to coffee cups. But because of the company’s craft image, it probably won’t be lowering the prices it charges to customers.

“That’s one of the crazy things about companies acquiring craft brands,” Palmer said. “People will still associate Blue Bottle with a certain level of quality, so they’ll be willing to pay as much as they are now. They’ll be selling the same $5 cup and getting a significant increase in profit.”

james.koren@latimes.com


Follow me: @jrkoren

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