On a recent visit to Ethiopia's southern Yirgacheffe region eight hours from Addis Ababa, the buyer for Intelligentsia Coffee bumped into a familiar face.
"I saw a random white guy walking around in a field, and it turned out he was a friend and competitor," said Watts.
U.S. craft coffee purveyors are getting less lonely. The segment is a small but growing slice of the $27.9 billion U.S. coffee market, which has increased in recent years at an annual average rate of 5.6 percent and is expected to reach $33.7 billion by 2018, according to research firm IBISWorld, though it does not yet separate revenues for high-end purveyors.
Small bi-coastal chains Intelligentsia, Blue Bottle Coffee and Stumptown Coffee Roasters lead the so-called "third wave" or "slow coffee" movement, while industry behemoth Starbucks Corp shows off its craft roots selling limited-supply "reserve" coffees for up to $50 for a half-pound bag.
The new generation of upscale coffee shops and roasters includes dozens of operators around the country. They are in a race to find rare and distinctive beans and hope to elevate one of the world's oldest and most popular drinks in the same way that craft beer brewers, boutique wineries and olive oil makers won fans by focusing on high-quality ingredients and production.
During the last two years, private equity firms, venture capitalists and wealthy individuals such as former professional skateboarder Tony Hawk, and tech luminaries Instagram Chief Executive Kevin Systrom and Jack Dorsey, a co-founder of Twitter and Square, have poured in well over $55 million - including a large cash jolt for San Francisco-based Philz Coffee in May.
Not your typical retirement investors, they are often coffee connoisseurs themselves and are eager to capitalize on the new breed of enthusiasts who were raised on espressos and lattes popularized by Starbucks.
Customers are willing to pay dearly for their java habit - $80 for a half-pound of rare, roasted beans and $3 and up for a cup of individually prepared "pour over," high-tech "siphon" coffee, or old school espresso. Those prices are as much as triple the cost for an average cup of coffee and bean prices are at least 10 times more.
Sales are expected to climb as the U.S. job market improves and more Americans treat coffee as an experience rather than a utilitarian pick-me-up, said IBISWorld analyst Andrew Krabeepetcharat.
But experts also wonder if there will be enough demand beyond wealthy, urban enclaves to support meaningful growth and whether getting bigger would hurt the mystique that fueled the craft operators in the first place.
"I don't think the (exotic) market is that big," said Bonnie Riggs, restaurant analyst for the NPD Group's foodservice unit. While many people may try such coffees as a treat, winning the loyal, frequent users needed to support significant growth will be a challenge, she said.
Blue Bottle founder James Freeman and his peers say they do not aspire to Wall Street-style expansions, nor the pricey exclusivity of high-end wine.
For around $5, "you can have an incredible experience at a high-end coffee bar and get something impeccably sourced and roasted and made," said Freeman. "It's the democratization of luxury."
EXOTIC, EXCLUSIVE
The new movement is built on the success of Starbucks, whose founder and CEO Howard Schultz often speaks of the "romance" and "theater" of coffee and is credited with pioneering coffee's "second wave" by shifting the masses from cheap, hours-old brew to fresh-made drinks from premium beans.
With some 12,900 cafes in its U.S.-dominated Americas region, Starbucks holds the biggest share of the country's coffee market with 18.7 percent of revenue, according to IBISWorld. That figure shows how competitive and fragmented the business is in the United States, where local cafes, fast-food chains and even gas stations peddle coffee and lattes.
(For a graphic on the top coffee-producing countries, click link.reuters.com/typ38t)
"We are all focused on that highest quality cup of coffee and there is room for everyone to grow," said Craig Russell, senior vice president of Global Coffee for Starbucks.
Seattle-based Starbucks is a major buyer of artisan beans, going up against rivals like Chicago-based Intelligentsia, which sells half-pound (8-ounce) bags of its Santuario Geisha roast from Colombia for $80.50 and expects to grow to 12 stores this year from nine.
"The third wave of coffee really is about understanding the craft and the lifestyle of coffee," said Instagram CEO Systrom, a self-described coffee addict and one of a group of investors led by True Ventures and Index Ventures that poured $20 million into San Francisco-based Blue Bottle late last year.
He and fellow investor Hawk, who said he kicked in $100,000, also advise Blue Bottle on its growth plans.
Investment opportunities appear limited to the very wealthy - but it is not for a lack of effort from fans of the cafes.
"We get all sorts of weird inquiries all the time," said Sightglass co-founder Jerad Morrison, who did accept startup capital from Dorsey, a personal friend.
Baristas at the new coffee shops often sport handlebar mustaches, bow ties or suspenders. They spend long moments lovingly tamping espresso, coaxing clever designs from frothy cappuccino milk, or coaching customers as they select beans.
It is a time-consuming process that bears little resemblance to the button-operated speed and efficiency of Starbucks' current generation of espresso machines.
The third wave caters to fanatics like Northern California author Bill Tancer, 47, who said a "coffee concierge" opened his eyes to a new world of coffee during a visit to Philz, which received an "eight figure" investment from Summit Partners, a private equity firm. TechCrunch reported that the infusion was in the $15 million to $25 million range.
Summit and Philz declined to comment.
"We had this back and forth about what I was looking for in a cup of coffee - did I want rich, light, more acid, flowery?" said Tancer, who since has become a home roaster.
"There are so many coffees out there to discover. It's a bit of an adventure," he said.
HAND UP OR SELL-OUT?
In 2011, Portland, Oregon-based Stumptown, which has nine coffee bars, took a large investment from TSG Consumer Partners, a private equity firm. The parties declined to quantify it, but two sources familiar with the deal said it was in the area of $20 million to $25 million and constituted a controlling stake.
The sources declined to be identified because the information is not public.
Some die-hard fans fretted that the craft coffee trend-setter had sold out, considering that TSG has a strong track record of investing in small brands, helping them grow, and selling them to large corporations. Indeed, one of its most notable investments was a stake in vitaminwater maker Glaceau, which was ultimately sold to Coca-Cola Co for $4 billion.
TSG declined to comment, but Stumptown's new president, Joth Ricci, said maintaining the brand's identity would be a major factor in any future deal.
"You figure out the right fit for a brand. Some work really well and some don't," Ricci said.
Customers said Stumptown's quality remains high, even if it now seems a little more corporate.
"I've definitely seen them go from their scrappy roots to almost acting like a franchise. ... It feels a little less genuine but, I don't think the quality has gone down at all," said videogame maker Lindsay Gupton, 47, who lives in Seattle.
While he is still loyal to Stumptown, Gupton is on the lookout for coffee's "fourth wave."
"I'm such a coffee purist. I'm always going to seek out the latest, greatest," said Gupton.
