Blue Bottle: The best coffee you may ever drink

By Michael V. Copeland, contributor

FORTUNE — As it does every day, a line trails out of the door at Blue Bottle Coffee Co. in Mint Plaza, a formerly grubby intersection of small streets and walkways in the center of San Francisco. Architects in chunky plastic-framed glasses, bike messengers in plaid shirts and skinny jeans, and a trio of older women with clanky jewelry all wait patiently in an alleyway for their turn to taste what many believe is the best coffee on the planet.

Inside Blue Bottle, customers sit at a sunny hickory-topped counter to pour “siphon” coffee from glass containers that look as if they were borrowed from a biotech lab, or sip happily from an off-the-menu latte called the Gibraltar, after the faceted glass it is served in. Hungry patrons demolish poached eggs on thick slabs of toast and nibble on beautiful pastries while they read about the diverse origins of the coffees they are drinking: Yirgacheffe Koke from Ethiopia or Fazenda Sertaozinho from Brazil.

Joining the queue, like everyone else, is James Freeman, the CEO and founder of Blue Bottle. He dresses like his architect clientele, sporting black jeans, a muted gray shirt, and funky black shoes he picked up from a cobbler in northern Michigan. He is unfailingly polite, greeting all the staff and many of the customers by name. Unlike the rest of the people in line, Freeman scans the room looking for anything out of place. He checks his iPhone and notices that the list of single-origin coffees on the counter doesn’t match current information on the website. An e-mail is sent. Freeman, 45, lets out an understated cheer when he sees a man buying a copy of R Is for Rosetta: A Blue Bottle Coffee Coloring Alphabet, a newly printed book that Freeman and his staff agonized over, in typical fashion.

CEO and founder sounds official, and it is, but it doesn’t quite capture Freeman’s quirky brand of entrepreneurship. “Are 25 meetings about a coloring book real CEO stuff?” Freeman jokes. “I get these ideas in my head, and I can’t let go until they are done exactly right.”

At this moment Freeman and Blue Bottle appear to be the real deal. Blue Bottle is helping lead a caffeinated charge that first gathered momentum on the West Coast, in places like San Francisco, Los Angeles, Portland, and Seattle. First there was diner coffee, then Nescafé and Folger’s instant, followed by the vente-size growth of Starbucks (SBUX) and Peet’s (PEET). Freeman and his cult-coffee cohort (see last page of article) are the next phase of coffee.

It’s coffee that is obsessively sourced, with provenance so detailed that buyers like Freeman can not only tell you the names of some of the people who pick it but describe the shade trees under which it grows. It’s coffee that is painstakingly roasted to bring out aromas and flavors described by terms like pea shoot, dried banana, and hay. And because the precious organic beans deserve no less, the coffee is brewed in elaborate glass contraptions imported from Japan, or slowly hand-poured into individual drip filters, using kettles with spouts as slim and graceful as a swan’s neck. For an extra 50¢ or a dollar per cup, and an extra five or 10 minutes in line, Blue Bottle elevates your coffee experience well above anything you’ve had before, or even what you thought was possible.

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If Starbucks is a late-model Honda Accord with all the bells and whistles, Blue Bottle coffee is a 1955 Alfa Romeo Giulietta. Sure, the Alfa might cost more and require a bit more attention, but it reaches an aesthetic standard that the Accord simply can’t match. Blue Bottle coffee reflects similar craftsmanship and attention to detail. But as Freeman sets out to bring his couture coffee to a broader audience, even he wonders whether everyone is ready.

From wind blower to bean roaster

Freeman grew up in Humboldt County, a rural region up the coast from San Francisco that’s known primarily for its gigantic redwoods and prodigious, powerful crops of marijuana. In high school Freeman rebelled by not smoking pot, instead devoting himself to playing classical clarinet. “I was the nerdiest boy ever,” Freeman says, “at home reading and listening to the London Philharmonic.” After college and a master’s degree in music, he embarked on a decade-long career as a journeyman clarinetist around the Bay Area, but by his own account he was only good enough to get gigs he didn’t want.

Around 2001, burned out on the life of a performing musician, Freeman turned his attention to another passion of his: coffee. Blue Bottle started life in a 186-square-foot former potting shed adjacent to Freeman’s Oakland apartment. Freeman would roast coffee beans in his shed, then load the beans and a drip coffee contraption into his Peugeot station wagon and drive to farmers’ markets in Berkeley, Oakland, and eventually the Ferry Plaza in San Francisco.

Eight years ago Freeman was busy making coffee at his cart on a dreary winter day at the Ferry Plaza. He recalls hearing the usual customer chitchat. The next time he looked up, the line at his cart was 15 people deep. It turned out that a gourmet food trade show was going on at the Moscone convention center. Word had gotten out about Blue Bottle. Freeman’s initial thought was that he was going to need to roast more coffee. “I was like, whoa, what has happened?” Freeman says. “It’s basically been like that ever since.”

As a musician, Freeman rose every morning for years to practice chromatic scales on the clarinet before even putting his pants on. He applies that same discipline and attention to detail to source, roast, and prepare the perfect cup of coffee. “It’s really about an appreciation for unnecessary beauty,” Freeman says, “and a willingness to work for it.”

In some ways Freeman seems out of phase with modernity. His reference points are Proust, Mozart, early 1970s stereo equipment, and 1920s Japanese coffee gear. He never says “dude.” Hanging out with Freeman, you get a Christopher Robin vibe that comes from his polite vocabulary and quiet, almost lilting, speech patterns.

That is not to say Freeman is an easygoing guy. “He can be very stubborn,” says Jay Egami, a friend of Freeman’s who imports coffee and equipment for Japanese beverage giant UCC. Egami sold Freeman the $20,000 halogen-powered siphon machine that sits in the Mint Plaza café. Egami says that his friend’s stubbornness stems from his desire to have everything just right.

If you are a restaurant that doesn’t have the right equipment to prepare Blue Bottle coffee — that is to say, if you try to use a run-of-the-mill brewing machine — Freeman won’t sell you coffee, no matter how popular or well reviewed a joint you run. He won’t sell you ground coffee — whole beans only. You can’t order an espresso in a to-go cup (just drink it). He is “deeply skeptical” of would-be wholesale customers who are more than a short drive from one of his roasteries. Ideally, he wants your espresso or filter coffee sitting in a cup ready to drink within four days of when the beans were roasted, and three is even better. When asked how long you can store beans ground for espresso, he responds: “About 45 seconds.”

No mugs, muffins, or t-shirts

From his farmer’s market roots, Freeman quickly expanded to semi-permanent carts and kiosks. In 2008 he took an investment from Kohlberg Ventures, a Silicon Valley-based VC firm that has backed several high-end food companies including Scharffen Berger chocolate, later sold to Hershey (HSY). Freeman will say only that he took “less than $5 million” and is still majority owner of Blue Bottle by a substantial margin.

With the investment, Freeman built a larger coffee roastery and commercial baking kitchen in Oakland. (The pastry program is run by Freeman’s wife, Caitlin Williams Freeman, whom he met at the Berkeley farmers’ market.) In addition to Mint Plaza, Freeman now operates a full-fledged café in San Francisco’s Ferry Building and a smaller café in the San Francisco Museum of Modern Art. Cueing off the art that surrounds them, the pastries replicate, in butter and sugar, works from the museum’s permanent collection.

There isn’t a formula to Freeman’s retail operations, but they do display a consistently clean, unadorned aesthetic. There’s no art on the walls, no music for sale, no “PBMs” (perfunctory bran muffins, in the Freeman lexicon) behind the counter. Blue Bottle doesn’t sell coffee mugs or T-shirts, even though it could move a boatload. “I just can’t figure out how to do a Blue Bottle T-shirt,” Freeman says. “I don’t wear T-shirts with logos. Why would I sell them?”

You can buy a Blue Bottle cotton cap, as worn by employees in the roastery and bakery. You can also buy — get this — $150 pajamas made from blue-and-white micro-striped cotton Italian shirting. The Blue Bottle logo adorns a pocket beneath a collar finished with royal-blue piping. Like everything Freeman turns his mind to, the pajamas are exquisite. Are they a hot seller? Hardly, but Freeman loves the pajamas just as he loves the coloring book. They reflect his personal aesthetic, in the same way that Apple’s (AAPL) limited, beautifully executed product line reflects that of Steve Jobs.

With the Bay Area officially gaga over his coffee, Freeman went looking for the next territory to invade. It had to be a location that Freeman himself would want to visit every other week, and where he could persuade loyal staffers to move. It also had to be a place sorely in need of some good coffee. That place is New York City.

In the past two years Blue Bottle has opened a roastery and café in the Williamsburg section of Brooklyn. Because of his requirement that all products be utterly fresh, Freeman operates a bit like the ancient Roman army: Set up a supply base (the roastery), then spread out and conquer. Over the summer he opened a kiosk on the High Line, New York’s greatest landscaping triumph since Central Park. And just like San Francisco, the coffee hipsters are lining up. Sales this year from all the Blue Bottle stores and wholesale accounts combined are in the $15 million to $20 million range, Freeman says. It’s not Starbucks — not even in the same universe. But for now, Freeman is content to grow at 70% or so a year. “I have no desire to be the next Starbucks,” he says. “Starbucks is already Starbucks, but there are ways to grow that are interesting and keep things tight.”

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Operating a kiosk frequented mainly by tourists doesn’t prove that Blue Bottle will catch on among New York residents. And Blue Bottle’s success in Williamsburg doesn’t demonstrate the wider appeal of Freeman’s approach to coffee: Brooklyn or Oakland, the neck beards, fixed-gear bikes, and taste in coffee are all the same. However, Freeman’s next act will be a true test. In the fall he’s opening a café in a former UPS store (UPS) in the concourse level of Rockefeller Center. Yes, that Rockefeller Center, with the Christmas tree, ice rink, tourist hordes, and thousands of harried New Yorkers shuttling back and forth to their offices.

Like Continental bars where customers go for a café cortado or an espresso, Freeman is aiming for a grownup coffee place, all walnut and marble. “I want it to be dignified,” he says. “You can’t go to a place where you can order a giant pumpkin latte and expect it to be dignified.”

There’s dignified, however, and then there are angry patrons who don’t want to wait for a hand-poured cup of filter coffee. Freeman knows this and is working out a system to keep time-strapped customers in a line separate from coffee drinkers who can wait for that pot of siphon coffee or the hand-pour. “There’s a chance that people are going to be enraged by us and hate us, and it’s going to be a horrible failure,” Freeman says. “But we haven’t had any belly flops yet.”

Maybe he’s due for a failure. Despite his exquisite taste and uncompromising quality standards, Freeman may not be the best guy to lead Blue Bottle through its next growth phase. Both are possible, he says. But he also knows what happened when a bunch of high-powered lawyers from the neighborhood started nosing around the Blue Bottle café in San Francisco’s Ferry Building.

Initially there was resistance, Freeman says. Who has the time? Eventually they tried the coffee. What happened next has been the same every place Blue Bottle has gone. All those masters of the legal universe, with no time to spare for a siphon pot? They got in line like everyone else.