Nestlé-Starbucks: great alliance in coffee market

6 years ago - Published in Breaking views

Nestle and Starbucks on Monday announced a global marketing deal, in which the Swiss food and drink giant will market the coffee company’s consumer and foodservice products. The deal gives the Nestle “perpetual rights” to market Starbucks products globally outside of its coffee shops, and will pay Starbucks $7.15 billion up front as part of the agreement. “This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle,” said Kevin Johnson, president and chief executive officer of Starbucks.

The alliance underlines Nestle’s efforts to capture more upscale java drinkers in the U.S., where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co. The investment company of Europe’s billionaire Reimann family has spent more than $30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet’s.

“The deal with Starbucks allows Nestle to keep JAB at a distance,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note. He added that the price may seem expensive, but the investment may pay off within three to four years. “It allows Nestle to gain scale in the U.S., a weak spot so far.”

Nestle expects the business to contribute positively to its earnings per share and organic growth targets from 2019. Around 500 Starbucks employees will join Nestle as part of the deal, which is expected to close by the end of 2018.

Starbucks said Nestle will also obtain the rights to sell packaged coffee products under brands including Seattle’s Best Coffee, Starbucks VIA and Torrefazione Italia. The deal also includes Teavana tea brand, though it excludes ready-to-drink products and all sales within Starbucks coffee shops.

“With Starbucks, Nescafe and Nespresso, we bring together three iconic brands in the world of coffee,” Nestle Chief Executive Officer Mark Schneider said in the statement. The deal is Nestle’s largest since he began leading the company last year.