Starbucks and Nestlé Form Global Coffee Alliance
Starbucks Corporation announced on 6 May that it will form a global coffee alliance with Nestlé SA to accelerate and grow the global reach of Starbucks brands in consumer packaged goods (CPG) and foodservice. Through the collaboration, Nestlé will bring Starbucks packaged coffee into regional markets globally, and Starbucks brand portfolio will be represented on Nestlé’s single serve capsule systems, including Nespresso and Nescafé Dolce Gusto.
As part of the alliance, Nestlé will obtain the rights to market, sell, and distribute Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia packaged coffee and tea in all global at-home and away-from-home channels. Nestlé will pay Starbucks USD $7.15 billion in closing consideration, and Starbucks – with a focus on long-term shareholder value creation – will retain a significant stake as licensor and supplier of roast and ground and other products going forward.
Additionally, the Starbucks brand portfolio will be represented on Nestlé’s single-serve capsule systems.
“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,” says Kevin Johnson, president and CEO of Seattle, Washington-based 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.”
“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” says Mark Schneider, CEO of Vevey, Switzerland-based 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 recognised as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world.”
According to both companies, this global alliance combines the strength and affinity of the Starbucks brand with the global reach of Nestlé and its iconic coffee brands, creating new growth opportunities in the established North American markets and unlocking expansion in international markets. In the United States, it also enhances Nestlé’s retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks strong presence in K-Cup pods. As part of this perpetual global license agreement, Starbucks will lead in sourcing, roasting and Starbucks global brand management for the alliance, while the two companies will work closely together on innovation and go-to-market strategies to bring the best coffee to customers around the world.
The agreement is subject to customary regulatory approval and is expected to close this summer or early fall. The agreement excludes ready-to-drink (RTD) coffee, tea and juice products.
Starbucks intends to use the after-tax proceeds from this up-front payment primarily to accelerate share buybacks and now expects to return approximately USD $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020. Additionally, the transaction is expected to be earnings per share (EPS) accretive by the end of fiscal year 2021 or sooner, with no change to the Starbucks’ currently stated long-term financial targets.
Commenting on the partnership announcement, Matthew Barry, senior beverages analyst at Euromonitor International, says, “This deal would instantly make Nestlé into the market leader in North America at retail. That is a pretty significant shift in the global coffee landscape, as North America was somewhere JAB Holdings had the edge on Nestlé. That is now true only of Eastern Europe, where JAB retains a narrow lead. It is a further step in the consolidation of the global coffee market that has seen many of the big players get even bigger in the last few years.”
