Global food giant Nestlé is paying Starbucks $7.15bn (£5.3bn) for the rights to sell the US coffee chain’s products around the world in a global alliance aimed at reinvigorating their coffee empires.
Guardian reports that the deal worth $2bn in sales would reinforce Nestlé’s position as the world’s biggest coffee company, with brands such as Nescafé and Nespresso.
The Seattle-based Starbucks, the world’s biggest coffee chain, said it would use the proceeds to return money to shareholders by speeding up a share buyback programme. The transaction does not involve any Starbucks cafes and will involve selling Starbucks bagged coffee, drinks and Nespresso-style pods.
The Nestlé name will not appear on Starbucks products. “We do not want the consumer to perceive that Starbucks is now part of a bigger family,” a Nestlé source said.
“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,” the Starbucks chief executive, Kevin Johnson, said.
Nestlé and Starbucks are joining forces in a highly fragmented consumer drinks category that has been involved in.
JAB Holding, the private investment firm of Europe’s billionaire Reimann family, has fuelled the consolidation wave with a series of deals, including Douwe Egberts, Peet’s Coffee and Keurig Green Mountain, narrowing the gap with Nestlé.
Coffee is popular with younger customers who have grown up with Starbucks. A willingness to pay up for exotic beans and specialty drinks means companies can generate stronger profit margins than in mainstream packaged food.
The Nestlé source said it would pay market-linked royalties to Starbucks after the initial fee. It will not buy any industrial assets as part of the deal but could step in to produce in markets where Starbucks is not present.
“Nestle is far and away the largest hot drinks company globally, with more in sales than the next five largest hot drinks companies combined,” Matthew Barry, an analyst at Euromonitor, said on Friday when the tie-up was first mooted. “However, Nestlé’s leadership position is less secure than it once was.”
Other big players are growing as well, including Italy’s Lavazza, which is the world’s No 3.