Funding for Cold Brew Coffee
By Andre La Brac,
B. Riley & Co.
The trend for cold brew coffee began about five years ago when small operations in the U.S. market, like Stumptown Coffee Roasters, emerged. The rapidly growing demand for this new brand of coffee represents an increasing consumer market that only shows signs of further expansion, and with it, funding for cold-brew ventures.
Much like the “craft beer” phenomenon that has recently infused the beer market with more unique and popular alternatives for those willing to pay a premium, cold brew coffee is often marketed as a product made with better ingredients, using a process better than the traditional iced coffee.
Unlike the traditional coffee process, cold brew is never exposed to heat. Instead, it leverages time to extract the coffee’s acids, sugars, oils and caffeine by steeping ground coffee for 12 to 24 hours or longer; after which the coffee concentrate is filtered, diluted and then served chilled resulting in a smoother, less bitter taste than traditional hot coffee.
Like craft beer, however, this “premium” product also comes at a higher price and has promoted big players to launch their own cold brew lines. Starbucks, which started to experiment with cold brew in 2014 and sells at approximately 40% higher than iced coffee, also sells cold brew products in its entire fleet of U.S. stores, including different variations such as flavors and nitrogen-infused cold brews. Other big players like Dunkin’ Donuts, JAB and Illy have also begun similar endeavors.
Funding for upstart cold brewers has also increased. High Brew Coffee Inc., an Austin-based company that produces ready-to-drink (RTD) cold brew coffee, obtained $2.8 million in financing from 32 investors in September 2015. Last year, the company completed a Series A-2 investment led by CAVU Venture Partners, totaling $4 million. This recent funding came on the heels of a distribution deal with Dr. Pepper and Snapple Group covering major cities such as New York City, Chicago, Dallas, Austin and Houston. Other recent investments include Oakland, California based RTD cold brew company Black Medicine which received $1 million in crowd-funding and Stripes Group’s $50 million investment in Califia Farms, a natural beverage company with a product portfolio that includes cold-brew coffee.
While it is still a small component of the RTD coffee segment, making up just 0.4% of sales in estimated 2015, according to research by Mintel, sales of cold brew coffee have increased by over 330% from 2010 to 2015. From 2014 to 2015, retail sales of cold brew increased by 115%, amounting to $7.9 million in sales. Sales are only expected to expand, reaching $7.75 billion by 2020, according to the same research. In a market where the number of consumers that regularly drink coffee has not actually increased, this growth in market share is all the more significant.
As this trend in cold brew increases, so does the number of investments in the space. Only time will determine whether the trend continues long-term, but for now all the signs point to cold brew warming up.
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