IPO

Is Peet’s IPO Poised To Percolate?

investing initial public offering

Yes, we all like coffee.  It may be among the basic things getting us through the pandemic and working from home.

News came this week that JAB Holding will bring JDE Peet’s (formed through the merger of Jacobs Douwe Egberts, a Dutch coffee roaster and the coffee chain Peet’s, based in the US) public on the Amsterdam Exchange later in the month, as reported by The Wall Street Journal.

The offering, according to Reuters, could be worth as much as $764 million.

As quoted by the newswire, “We see a reasonable amount of stability in the financial markets right now,” CEO Casey Keller said this week. “We see the coffee and tea market as a relatively resilient category in different types of economic conditions and even during this current crisis.”

Peet’s reflects both the tailwinds and the headwinds of current consumer spending.  Consider the fact that roughly 80 percent of the annual sales, which clocked in at just under seven billion euros last year, is tied to spending at home (through pods and ground coffee and whole beans).

The remaining 20 percent come from “out of home” channels, where consumers buy coffee in restaurants, hotels and stores. The company also operates roughly 250 coffee shops, which, along with pretty much all avenues of brick and mortar commerce, are largely shuttered for now.

The firm said Tuesday that it had served about 130 billion cups of coffee and tea in the latest year. And its view of the medium to long term is sanguine — projections call for organic revenue growth (at constant commodity prices) of 3 percent to 5 percent. Looking at the first quarter of 2020, Peet’s said revenues were up a bit more than 3 percent.

Here’s an interesting twist on the 80/20 rule, then, where 80 percent of sales target the consumer in his or her home, and the 20 percent that’s done in public spaces has to wait to come back but is more than offset by that home-bound java fiend.

To get a sense of how resilient coffee is, at least to those who drink it, Nestle said last month that beverages, including coffee offerings such as Starbucks products, Nescafe and Coffee mate grew at a high single-digit rate in the first quarter, as measured year over year. Overall, the beverages segment gained 3.9 percent.

The vagaries of coming to market in this environment are fairly easy to identify: Wild swings have dominated stocks in recent days and weeks. And for consumer-focused companies, there remains the possibility that consumer spending will pull back, and that pods and high-end arabica give way to more economical Folgers.

And yet: Where there’s a seismic shift in how consumers spend their money, and where they consume what they’ve bought, Peet’s may be well-positioned for a digital-first, stay-at-home mindset. As noted this week in the study, “The Great Reopening: Tracking Digital’s Quantum Leap,” 42 percent of more than 2,000 consumers surveyed said that they are engaging in routine activities online more often.

The shift is a significant and sticky one, as roughly half that tally, at 23 percent plan to keep those routines online even after the pandemic passes. As many as 12.8 percent have gone online more often to shop for groceries, a subset that would, of course, include beverages (and thus coffee).

It may be the case that we’ll give up a lot before we give up the morning jolt, which may just be enough to jolt Peet’s when shares come to market.

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