Nestle will pay $7.2 billion in order to globally distribute, market and sell packaged products from Starbucks. "With Starbucks, Nescafe and Nespresso we bring together three iconic brands in the world of coffee".
"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. It's now adding Starbucks coffee and tea products to the list. This is the first time that a big multinational FMCG company such as Nestle has partnered with a leading Coffee rival.
Coffee is popular with younger customers who have grown up with Starbucks and are willing to pay for exotic beans and specialty drinks that translate into richer profit margins than mainstream packaged food.
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Starbucks, worth $44 billion and ranked the second-most-valuable brand in fast food in BrandZ's Global 2017 report, intends to use the proceeds for stock buybacks.
The agreement, expected to close by the end of the year, excludes ready-to-drink products, and all sales of any products within Starbucks coffee shops.
The Starbucks business covered by the deal now generates around $US2 billion in annual sales and includes coffee beans and ground coffee that Nestle will be selling outside of Starbucks' coffee shops.
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The deal will entail Nestle taking on about 500 Starbucks employees and will not make any changes to the ongoing share buyback program. Market leader Starbucks has a 14 percent share, according to Euromonitor International. The agreement only covers Starbucks' packaged goods sold outside the USA company's stores.
It bought Texas-based Chameleon Cold-Brew in November and took a majority stake in Blue Bottle Coffee, a small upscale cafe chain, in September.
Starbucks has announced a new partnership with Nestlé in an effort to expand its global reach of prepackaged java.
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Nestle sells General Mills' Haagen-Dazs brand in the United States and Hershey sells Nestle's KitKat in the United States. It will also add the brand to its own Nestle single-serve capsule product.