Blue Bottle and Tartine look to scale without losing identity

Silicon Valley is highly caffeinated at the best of times. But when in 2012 the artisanal coffee company Blue Bottle Coffee took a $20m investment from backers including venture capital funds Google Ventures, True Ventures and Index Ventures, as well as the founders of Instagram and Twitter, "everyone was just saying 'that's the end'," recalls Chad Robertson.

"Coffee people are pretty particular and very judgmental. It was just brutal, all the talk coming out," says Mr Robertson, the co-founder of Tartine Bakery, another artisanal favourite of the tech crowd.

Mr Robertson had been grappling with the same challenge as Blue Bottle: how to scale a decidedly analogue business. "It's very hard and rare, and not normal to start growing a company, especially a really artisanal brand, and improve it as you go," he says.

But Mr Robertson is so confident that Blue Bottle has "shown they can do it" that he sold Tartine this week to his Oakland neighbours, as part of a joint plan to expand across the US, into Asia and perhaps even Europe.

Founded as a farmers' market stall in 2002 by chief executive James Freeman, Blue Bottle has almost doubled its store count to 18 since that initial 2012 funding. It opened its latest outlet in Tokyo in February.

Despite their popularity with San Francisco's tech elite, Blue Bottle stores have no wiFi and no plugs because Mr Freeman wants people to talk to each other, rather than hide behind laptop screens.

Each bag of Blue Bottle beans bears the date it was roasted but they are never ground in store because, Mr Freeman insists, customers should grind them at home to preserve the flavour.

Obsessive details such as this have helped make him a poster boy for independent coffee culture across the US - and beyond.

"When that first investment round happened, I told people I wanted them to taste this investment before they see it," he says. So he doubled Blue Bottle's quality control staff, built a training curriculum for its baristas, increased employee salaries and benefits, and had its buyers fly to more growers, more often.

The coffee chain could become to Starbucks what the burger chain Shake Shack is to McDonald's, suggests Tony Conrad, a partner at True Ventures. "Starbucks is a $75bn company. Can we get 1 or 2 per cent of that?" asks Mr Conrad. "That's a billion dollar opportunity."

Blue Bottle says it is tapping into a new consumer that is "waking up" to product quality and food sourcing, says Bryan Meehan, executive chairman.

The challenge will be to find a way of scaling an independent-minded brand. "Starbucks were once the highly sought after artisanal place that everyone wanted in their community. Then they became big and monolithic, and perceptions of them changed," says Glenn Carroll, a professor at the Stanford Graduate School of Business.

"The problem this company [Blue Bottle] will face is now they are operating like a business that is pursuing market share and possibly maximising profit down the road . . . " he adds. "They are not anywhere near there yet but to the purist who cares about these things they have sold out. To the person who is fed up with Starbucks and wants something more artisanal they may be very appealing."

Mr Robertson and Mr Freeman have known each other for years but it was Mr Meehan, a co-founder of Fresh & Wild, the British chain of organic food stores that was acquired by Whole Foods Market for $38m in 2008, who sealed the Tartine deal. He managed Blue Bottle's 2012 fundraising and another $26m round last year, led by Morgan Stanley.

Mr Meehan says that sales are due to more than double this year and that the company is "very profitable at a store level", as it continues to invest in back-office infrastructure and new openings.

Tartine is Mr Meehan's fourth acquisition at Blue Bottle, after Tonx, an online coffee bean retailer, Handsome Coffee, a roasters in Los Angeles and Perfect Coffee. The latter created a system, still in development, which grinds beans in an oxygen-free environment that can be vacuum sealed and mailed to customers to preserve the just-ground flavour.

As Perfect Coffee shows, there is more tech DNA in the merging cafes than it might appear. Last year Blue Bottle hired Arion Paylo, who wrote the software that runs Apple's Genius Bar, to be its head of design and development. Tartine, for its part, counts so many Apple employees as customers that it appears in demonstrations and ads for the iPhone maker's new Watch.

Like Apple, Blue Bottle also prefers to control its retail experience, with wholesale accounting for just 10 per cent of revenues. "Nobody looks after your product more than you," Mr Meehan says.

While international expansion has focused on Asia, Mr Meehan says that opening Tartine in London "looks compelling . . . It's just a question of sequence."

Mr Freeman says he is yet to figure out whether Blue Bottle's scale tops out in the tens, hundreds or thousands of stores.

"I think the coffee is better this year than it was last year and hopefully I can say the same thing next year," he says.

But despite all its tech ties, he is confident it does not face the same threat as other well-financed Silicon Valley start-ups. "We are not going to be disrupted - even though I hate that word - because coffee is tangible."

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