CPG giant Nestlé and iconic coffee chain Starbucks formed an alliance to expand the reach of Starbucks products in the consumer-packaged goods and foodservice industry. Nestlé closed the $7.15 billion-dollar deal with the Seattle-based Starbucks Corporation on Sunday.
According to the alliance, Nestlé has the rights to sell, market and distribute products under the Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia brands globally under the at-home and away-from-home categories. However, the coffee company will retain a substantial stake as the licensor and supplier of their well-known Starbucks coffee products. In addition, the agreement excludes Nestlé from selling any of Starbuck’s ready-to-drink coffee, tea and juice products. However, Nestlé plans on adding Starbucks branded coffees to their line of single-serve capsule systems, building on Starbucks’s already popular K-cup line.
“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mark Schneider, CEO, Nestlé. “With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world.”
As part of the agreement, Starbucks will take charge of sourcing and roasting their coffee products as well as managing their global brand. The two major companies will work together in innovating their products and developing go-to-market strategies. Currently, the agreement is awaiting regulatory approval and expected to officially close this summer or early fall.
Starbucks plans on using the agreement money to speed up share buybacks for their investors. According to the coffee company, the money acquired from this deal would return about $20 billion in cash to investors in the form of share buybacks and dividends by 2021, at the latest.
Starbucks isn’t the only coffee company that Nestlé had its eyes on in the last few years. Last year, the coffee giant bought a 68 percent majority stake in artisan coffee company Blue Bottle. Additionally, in November, the Swiss CPG company acquired Chameleon Cold-Brew, a producer of premium, organic cold coffee beverages. These acquisitions, along with Nestlé’s original coffee brands – Nescafé, Nespresso and Tasters Choice – allow the CPG manufacturer to have a hand in almost every coffee category on the market, making it the world biggest coffee company.
Starbucks on the other hand, has been facing some challenges as consumers are starting to turn away from mainstream products and look for more niche and artesian coffee options. In April, the company revealed that they experienced a quarterly drop in visits to their cafés. This slight decrease in popularity may be why the company sold their Tazo tea brand to Unilever in November for $384 million. In addition, the company has been closing down underperforming Teavana retail stores. Starbucks hopes their rapid expansion in China will help them gain more profits as well. The coffee giant is also investing in opening 1000 Starbucks Reserve stores and a few Roastery coffee emporiums in an effort to beat out new and niche coffee chains such as Blue Bottle and Intelligentsia Coffee.
This new partnership with Nestlé will allow Starbucks to grow their stake in the CPG market with an experienced and reputable organization.
“This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé,” said Kevin Johnson, president and chief executive officer, Starbucks. “This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values.”