This is an English adaptation of a FoodBud historical article originally published on April 17, 2022.
Peet’s Coffee entered China in October 2017 with Hillhouse Capital, the same month Luckin Coffee opened its first store.
More than three years later, Luckin had become a domestic leader with more than 6,000 stores, after a rapid IPO, an accounting scandal, delisting, and a rebound from its low point. Peet’s China footprint, by contrast, was still only 79 stores. Narrow Door’s data showed 78 stores, mainly concentrated in Jiangsu, Zhejiang, and Shanghai, including 39 in Shanghai.
Peet’s parent company, JDE Peet’s, listed in Amsterdam in 2020 in a process completed in only 10 days, described here as the fastest on record. Luckin went from founding to IPO in 18 months, then delisted 13 months later.
According to Luckin’s 2021 annual report, its 2021 revenue approached RMB 8 billion, exceeding Peet’s Coffee’s global sales scale.
JDE Peet’s 2021 annual report showed full-year revenue of EUR 7.0 billion, equivalent to RMB 48.4 billion, with organic growth of 6.1%. Peet’s Coffee contributed EUR 903 million, equivalent to RMB 6.2 billion, up 7.8% from EUR 838 million in 2020.
Peet’s website showed 340 stores in the U.S. market.
In JDE Peet’s 2021 earnings call, China became a more visible part of the story than in prior reports. Management pointed to strong delivery demand in China and Peet’s store expansion.
In 2021, JDE Peet’s organic growth was 11% in the U.S. market and 19% in China.
CEO Fabien Simon said the company was strengthening Peet’s brand-building in China. By the end of 2021, Peet’s China store count had more than doubled to 70 stores. Its stated China ambition was 150 stores.
Peet’s often leaned on its association with the “father of Starbucks” in China-facing positioning, but operationally it remained far from Starbucks China. Starbucks China generated more than RMB 20 billion in revenue in 2021. According to one consulting firm cited in the original article, larger Peet’s stores produced around 800 cups per day, smaller stores averaged around 400 cups per day, and average ticket was RMB 50-60, implying annual China revenue of several hundred million RMB.
Peet’s pace in China was slow compared with Tims China, which entered the market in February 2019 and had reached 410 stores by early 2022.
As more coffee brands took prime locations in mature markets, the window for Peet’s was narrowing. The article also noted that Peet’s China CEO Vivian Zhang had left in March 2022.
The direction of Peet’s China business was therefore still unclear.
Even if Peet’s China performance was not especially eye-catching, JDE Peet’s was backed by JAB, which remained a major investment force. JAB took JDE Peet’s public in 2020 and helped Krispy Kreme relist in 2021.
According to JAB’s 2021 annual report, JAB managed USD 55.5 billion in assets. Its investment activity covered six areas, with foodservice-related exposure mainly in coffee and beverages, fast-casual restaurants, and “indulgence.”
JAB began investing and consolidating in coffee and beverages in 2012. JDE Peet’s became the cornerstone platform for this category, while Keurig Dr Pepper served as another listed platform for strategic investment and consolidation.
From 1987 to 2021, global equities delivered annual returns of 9%, while restaurant equities delivered annual returns of 14%, according to the article’s summary of JAB’s view. JAB believed fast casual offered attractive long-term growth and return prospects, while the investor challenge was choosing the right benchmark brands in winner-takes-most markets.
JAB’s fast-casual portfolio centered on Panera Brands and Pret A Manger.
In November 2021, JAB combined Panera Bread, Caribou Coffee, Einstein Bros. and other brands into Panera Brands, which had announced plans to file an S-1 for an IPO. Panera Brands had more than 4,000 stores globally, 110,000 employees, and nearly 50 million active members.
In September 2018, JAB acquired Pret A Manger for about GBP 1.5 billion, including debt. Pret was the company in JAB’s portfolio most affected by the pandemic. After the pandemic, management rebuilt the business model: digital transactions rose from 0 to 40%, the company moved toward multi-channel operations and franchising, and it launched a coffee subscription plan.
JAB defined “indulgence” as lower-frequency consumption with high emotional value, part of a happy life. As in luxury goods and spirits, the challenge was identifying the right assets and brands.
In 2016, JAB took Krispy Kreme private and carried out strategic restructuring. The business shifted from a traditional wholesale model toward a fresh-product strategy. JAB viewed Krispy Kreme as having a distinctive business model and a deep moat, including brand strength.
JAB’s 2021 annual report showed stakes of 55% in JDE Peet’s and 33% in Keurig Dr Pepper. It also held 85% of Panera Brands, 75% of Pret A Manger, 45% of Krispy Kreme, and 84% of Espresso House, the Swedish coffee chain.
JAB’s platform strategy aimed to build proprietary industry insight through acquisition and consolidation, while creating synergies such as purchasing scale in coffee, talent mobility across platforms, and sharing proven practices between companies. For example, Panera’s coffee subscription experience could support Pret A Manger’s strategic transformation.
JAB also argued that a platform strategy gave it more flexible exit options. It split the coffee and beverage business into two companies because it believed companies that become too large can become enemies of strong returns. The same logic was being applied in fast casual: Panera Brands had been separated and was preparing for an IPO, while Pret A Manger and Espresso House would need another 3-4 years to continue building value.
Note: IPO plans, ownership stakes, store targets, revenue figures, and forward-looking timelines are historical as of the 2022 article.