Photo: Starbucks
Nestle has obtained the rights to market, sell and distribute Starbucks’ consumer packaged goods (CPG) and foodservice products around the world for $7.15 billion. The deal includes products under the Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia brands.
The alliance between the two companies was characterized by Starbucks CEO Kevin Johnson as “part of our ongoing efforts to focus and evolve our business to meet changing customer needs.”
"For Starbucks, the deal will help to drive brand recognition outside of its core North American and European markets as Nestle ramps up expansion using its distribution capacity," Neil Saunders, managing director at GlobalData Retail and a RetailWire BrainTrust member, told CNBC.
Starbucks has seen its growth rate in the U.S. moderate in recent quarters and the deal with Nestle is expected to allow the company to focus more on its stores. It does not appear, however, that Starbucks will reinvest the cash in its physical locations. Mr. Johnson indicated it would be used to increase shareholder value through stock buybacks and higher dividends.
Howard Schultz, chairman of Starbucks, has focused his efforts on innovation through the continuing development of the coffee giant’s upscale Reserve and Roastery concepts since he turned over CEO duties to Mr. Johnson in April of last year.
The deal will provide the Starbucks brand greater access to the single-service coffee market outside the U.S. where Nestle’s Nespresso system is one of the biggest drivers of the CPG giant’s business. Nestle, which has struggled to make headway in the single-serve segment in the U.S. going up against JAB Holding-owned Keurig, will now have products that not only work on the rival system, but are among the most popular items.
“Nestle needed a big brand, and they needed one fast,” said Alain Oberhuber, an analyst at MainFirst Bank in Zurich, told Bloomberg. “Starbucks is the only strong brand in roast-and-ground. It’s a rather defensive move — a bit late — but nevertheless, a strategically absolutely vital step.”
- Starbucks and Nestle Form Global Coffee Alliance to Elevate and Expand Consumer Packaged Goods – Starbucks
- Starbucks CEO sees Nestle deal as way to give $20 billion to shareholders over next three years – CNBC
- Nestle Bets $7 Billion on Starbucks to Revive Coffee Sales – Bloomberg
- Will Starbucks prosper or slide as CEO changes focus? – RetailWire