Can Verve Coffee stay true to its Santa Cruz roots as it embarks on a national partnership with Capital One?
Quick Take
Verve Coffee Roasters has grown to become a major brand in artisanal coffee, with a successful wholesale business and 19 cafés across California and as far flung as Tokyo. But it’s Verve’s partnership with Capital One that could catapult the brand to a national footprint by the end of 2023. For Santa Cruzans, the collaboration with a major financial institution begs a larger question: Can the company that first brought the laid-back Santa Cruz vibe to California’s coffee scene sustain its boutique, surfer-chic appeal as it ascends the national stage?
Desperate for something other than a Starbucks cup of coffee one morning in midtown Manhattan, I was stunned to spy a large neon Verve Coffee logo blazing on Lexington Avenue. A Verve café in a Capital One bank branch … in New York? I bounced up the blond wood steps, took in the familiar leafy decor and excitedly told the cashier that I was a loyal Verve customer from Santa Cruz.
He rolled his eyes, commented that they hear a lot of that, and asked for my coffee order.
Verve is accustomed to success.
Founded in 2007, the well-known Santa Cruz company has grown to become a major brand in artisanal coffee. Verve now operates 19 cafés across California and as far flung as Tokyo. The company’s ready-to-drink, flash-brewed nitro and oat milk canned lattes are available nationwide at major grocery chains, and its seven blends of instant coffee are stocked at Amazon and REI. Verve’s whole-bean business accounts for 20-25% of its total revenues, sold directly to consumers via the Verve website and Amazon, and wholesale to more than 2,000 restaurant, hotel and café accounts. (The private company doesn’t publicly disclose its finances.)
But it is Verve’s new partnership with Capital One — which establishes a street-level presence at 50 locations in major markets around the country — that will catapult the brand to a national footprint by the end of 2023. Verve was chosen by Capital One from a dense field of West Coast artisanal coffee brands to replace Peet’s Coffee in the bank’s millennial-focused Capital One Cafés across 18 states and Washington, D.C.
That has set it apart from some of its Santa Cruz brethren, such as Cat and Cloud, who say they are willing to sacrifice rapid growth to focus on forging personal relationships with their customers.
Verve itself is seeking to downplay the Capital One partnership. Contacted for an interview, Verve spokesperson Katie Kelso insisted that Verve’s expansion to 50 co-branded Capital One cafés amounts to little more than “an elevated wholesale account. I mean, yes, Capital One did announce it, but on an obscure page on the Capital One website, and they sent out a trade press release,” she said. “But we’re keeping it under wraps.”
For Santa Cruzans, the partnership with a major financial institution begs a larger question: Can the company that first brought the laid-back Santa Cruz vibe to California’s coffee scene sustain its boutique, surfer-chic appeal as it ascends the national stage?
The Verve story
Santa Cruz defines Verve’s origins, where the first cups of coffee were served at its 41st Avenue location more than 15 years ago. Founders Ryan O’Donovan and Colby Barr designed and built the interiors by hand, taking inspiration from old Houzz magazines and aiming for a residential, living room aesthetic. That decision set them apart and helped to defines the brand.
“We just wanted a place that felt more residential than commercial and felt awesome. It ended up to be a good thing for us, because it made us different. Being in Santa Cruz kicked off our differentiation,” O’Donovan commented on the “Legends and Losers” podcast in 2017.
Barr was quoted by FoodGPS in 2018 saying, “We created our own unique aesthetic over the years — we emphasize a clean, minimal, California-meets-Scandinavian-style design with tons of natural light and plant life.”
Verve is one of many companies defined as third-wave coffee purveyors, who look to bring high-quality, single-origin artisanal coffee to the market while also creating a financial structure that supports small farmers and their ecosystems around the world.
What the heck is third-wave coffee?
The genesis of Verve and other artisanal coffee brands is driven by a desire to bring flavor-forward coffee to the market and create a financial ecosystem to support the small farmers who produce it around the world.
Think of first-wave coffee as coming from a supermarket, pre-ground in a 2-pound can. This is the Folger’s and Maxwell House era, with television commercials featuring a smiling housewife wearing an apron and a bow. In the first-wave era, most people were barely aware that coffee comes from plants and beans.
The second-wave era is defined by brands like Starbucks, Seattle’s Best and Caribou, when drinking coffee moved to an all-day, customized affair in an always-handy café. These beans were typically purchased in bulk, by region, from cooperatives of farmers who pooled their beans to make a blend just better than medium quality. The first and second waves were roasted — in the opinion of specialty coffee connoisseurs — aggressively, to give the final product a consistent (if bitter) flavor across both geography and time.
Third-wave coffee has a lighter roast, with a transparent, batch-specific roasting date, and the beans tend to be single-origin with an individual flavor profile. Artisanal, single-batch farmers are typically paid up to four times the amount that second-wave cooperative participants earn. The demand for third-wave coffee is booming, and companies like Verve now receive beans from all over the world sent by farmers hoping to forge a direct sales relationship and develop a measure of financial stability, despite yield fluctuations brought on by global warming.
The cupping score: Roasted beans make the grade
There is no single global method or measure for grading green coffee beans, as systems have grown up by region over time. But the Specialty Coffee Association (SCA) has developed a point system that is universally used to judge roasted beans, and specialty coffee buyers might notice this score displayed on bags of beans. It is similar to the wine rating numbers that often hang on shelves below the bottles, and the scoring works kind of like a wine tasting.
The SCA defines what kinds of cups, temperature of water, amount of ground coffee — even the type of spoon to be used in blind-comparison coffee tastings. Rigorously trained tasters grade each attribute on a scoring system between 6/good, 7/very good, 8/outstanding, 9/excellent and 10, which apparently doesn’t happen because there is no adjective associated with a 10 ranking. Then points are deducted from the overall score for flaws and defects.
The attributes scored are: fragrance, flavor, aftertaste, acidity, body, balance, uniformity, clean cup, sweetness and number of defects. First-wave coffees, known as commercial grade, score in the 50s and 60s. Second-wave, or specialty, coffee grade scores up to the high 70s, and artisanal coffee scores over 80, and rarely up to the low 90s.
— Ashley Spencer
With other artisanal bean suppliers in this segment, Verve buys direct and roasts scientifically in a manner that allows the flavor of the bean to endure. This is why coffee brands are now so careful to define bean origins — their customers have learned to taste the difference and seek out specific flavor profiles.
Barr was a pioneer in forging on-site relationships with small, single-lot farmers who had previously sold their secondary coffee crops to a regional mill. Barr targeted the ideal microclimates for farms that he thought could consistently produce high-quality beans and approached single-lot growers, establishing direct, win-win sales deals. As Verve’s business has grown, those farmers have converted more land to coffee. There are now well over 100 single-lot farmers on contract supplying beans.
The company quickly built a loyal customer base attracted to Verve’s high-end cool design sensibility, ethical sourcing and commitment to environmental stewardship — consumers willing to pay more every day for a premium experience.
“Verve plays in this uppity third-wave coffee world where there is a perception that we might be pretentious and so hip that we make people uncomfortable, but we want to welcome stroller moms and grandparents too. It’s why we are available in so many places and in so many formats,” former Verve CEO and current advisory board member Mike Eyre told Lookout, summing up the diversity of Verve’s business enterprises.
Verve also found a ready audience among the denizens of Silicon Valley, signing exclusive supplier relationships with branded cafés at companies such as Google, Apple, Salesforce and Meta.
“Tech campuses are aggregators for a certain demographic,” noted Barr, speaking to Entrepreneur Magazine in 2019.
Tech workers also proved to be an extremely valuable customer base for companies looking to sell to millennials, which helped put Verve on Capital One’s radar when the bank began searching for a cooler West Coast-based coffee partner to replace Peet’s Coffee & Tea in its network of cafés.
Out with the old
An early pioneer in specialty coffee and the legacy Capital One coffee brand for 16 years, Peet’s and its parent company, JAB Holding Company, have not commented publicly on the reasons for the end of the partnership.
In an email statement to Lookout, Nannette Richardson, Peet’s head of channel marketing, said: “We were honored to be the coffee that Capital One picked to roll out its café concept. Now we’re delighted that another California coffee company will be part of the next chapter for the cafés.”
However, there are three business factors that likely contributed to the strategic change.
Peet’s demographic is aging, and the brand is more “Marin hippie in a battered Volvo” than the millennial customer Capital One is now targeting for no-fee checking and savings accounts and credit cards. Peet’s is second-wave, rather than third-wave, coffee — it’s an important sustainable sourcing and flavor distinction that matters to the customer Capital One aims to attract.
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San Francisco-based Peet’s is also no longer an independent coffee label. It was snapped up in 2012 by German conglomerate JAB Holding Company for $1 billion.
Since then, many third-wave West Coast brands and their more staid predecessors have been consolidated by multinational corporate interests.
After buying Peet’s, JAB went on to gobble up Caribou Coffee later that year for $340 million and then Intelligentsia Coffee & Tea and Portland’s Stumptown Coffee in 2015 (both with purchase prices still undisclosed). It bought Krispy Kreme ($1.35 billion) and Keurig Green Mountain Coffee ($13.9 billion) in 2016.
Multinational food and beverage giant Nestlé purchased a majority stake in Oakland-based coffee chain Blue Bottle Coffee Company in 2018 for $425 million, and then Seattle’s Best Coffee for an undisclosed amount in 2020. Nestlé, parent to the Nespresso and Nescafé brands, rounded out its beans business with the rights to sell Starbucks-branded products in grocery chains for $7 billion.
Verve, meanwhile, remains independent without taking on any venture capital investment, and it has turned down deals with Walmart and Costco, citing a lack of cultural fit.
Millennials, it turns out, like a maverick, which for Capital One meant Peet’s no longer fit the bill. The bank’s cardholders receive a 50% discount on coffee beverages at all locations, and the coffee’s brand needs to appeal enough to cardmembers that they seek out the cafés, or better yet apply for a Capital One card to enjoy the daily discount on a vanilla oat milk double-shot latte.
Located in 50 high-visibility metropolitan locations around the country, Capital One Cafés are designed to foster personal interaction with a bank that is proudly tech-based. Using coffee as — forgive the pun — common ground, these mashup banking/community centers offer comfortable work and meeting spaces, access to fee-free ATMs, and events that range from movie nights, pumpkin carving contests and Waffle Wednesdays to free financial seminars for small businesses.
The Verve look and feel, blond wood, plants, warm lighting and real artwork on open shelving — the living room vibe that Barr and O’Donovan describe creating at their first location — is the ideal backdrop to foster the personal, informal interaction that Capital One Cafés are designed to foster.
But the partnership also means delivery of a customer experience that Verve increasingly has little sway over. Capital One Cafés will be staffed and managed by Chicago-based Tradecraft Coffee & Tea, a subsidiary of Compass which provides full-service business-to-business beverage programs for dozens of high-end coffee brands to enterprise, hotel and restaurant accounts around the country.
Coffee with a Santa Cruz flair
Verve might be the first coffee brand to take the Santa Cruz surfer vibe to a national stage, but back at home there are more recently launched local artisanal brands that believe fiercely in a customer-focused, slow-growth strategy.
Among them stands Cat and Cloud Coffee, which was founded by a Verve alum in 2016 and operates four local retail locations. Staunchly protective of its brand, Cat and Cloud says it is willing to sacrifice rapid growth in order to remain true to its founding mission of delivering not just a great cup of coffee, but a pleasurable interaction with the people who represent the brand.
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“It’s important to actually be humble — we genuinely believe that the customer experience is important,” said Cat and Cloud co-owner Jared Truby, who was Verve’s first employee and did just about every job at the company other than roasting before leaving to start a rival brand with Chris Baca and Charles Jack. He added: “Being the hottest brand at the cheapest price isn’t a long-term strategy to build upon because a new brand will always come along and be cooler.”
The physical infrastructure necessary to ramp up volume and service wholesale accounts is expensive. The appeal of one artisanal coffee bean versus another is largely subjective. Beans in this category are all high quality — so how much does the experience outside the cup influence the consumer behavior of high-end coffee drinkers? Is it brand association or customer interaction that will deliver staying power?
Truby, for his part, recognizes that the emphasis on personal interaction will impact the speed of Cat and Cloud’s strategic growth. But he says the coffee brand is intent on forging a careful and considered path toward success. “We know that the company is not going to grow as fast as some others,” he said in a subtle nod to Verve. “We’re not going to own homes anytime soon. It’s not all about the money. Every time we have a little bit of surplus we invest in our team so that we can grow authentically.”
Verve coy about new partnership
Back in Manhattan, the Verve logo is up in neon at the flagship Capital One Café on Lexington Avenue. The banking giant touts the new partnership in headlines on its website: “Verve Coffee Roasters: Coming to all Cafés. Capital One Café is proud to feature Verve Coffee Roasters — a leading craft coffee, sourcing the very best coffee in the world.”
In fact, after vetting dozens of West Coast coffee brands, Capital One senior vice president Jennifer Windbeck touted the bank’s decision to partner with Verve in an enthusiastic release, saying: “We wanted to elevate that [café] experience even more by bringing in a coffee brand that believes in the same high-quality standards we do, and we know Verve Coffee is just the team to do it.”
Verve spokesperson Kelso and her counterpart at a Los Angeles public relations agency were effusive about Verve’s “beloved” Santa Cruz community, but asked Lookout to hold off for a year to cover the Capital One partnership so as not to “confuse” the coffee company’s national base of loyal mail-order customers. Verve plans to send emails to existing bean buyers on a market-by-market basis as nearby Capital One Cafés take on the Verve branding.
Barr declined an interview request, due to the planned email-based rollout campaign, but forwarded the following comment: “We will continue discovering the best coffees in the world, which is ever ongoing, and partner with those producers so our customers can drink the highest-quality coffees available and know they are sourced with ethics and excellence at the forefront even as we expand nationally.”
Whether Verve can continue to grow authentically as it strives to become a nationally known brand is something to consider as a consumer, staring into the middle distance over a morning cup of artisanal coffee at a local café. Is it the beans that brought you in — or the branding and ambiance? Do you choose a café because the cashier and the barista say good morning, and mean it — or aim to avoid all eye contact?
And if you see a Verve logo in neon somewhere completely unexpected in your travels around the country, would you bounce up the steps with pride to that tried-and-true Santa Cruz connection, or would you feel like checking out that new, seemingly fresh-to-the-market upstart down the street?
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FOR THE RECORD: This story has been updated with the current title of Verve advisory board member Mike Eyre and to reflect the number of the company’s cafés and wholesale distribution points. A reference to Capital One offering mortgages has also been removed.
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