Nestlé buying rights to market Starbucks products for $7.15 billion

Nestlé SA will pay $7.15 billion for the international rights to market Starbucks Corp. packaged products sold at retail outside Starbucks branded locations, mainly supermarkets. The deal, touted as a “global coffee alliance” by the two companies, combines the global distribution power of Nestlé with the biggest name in coffee.

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. 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.

According to the companies, the deal 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.

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The agreement excludes ready-to-drink coffee, tea and juice products. Also, 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 told Reuters.

“While Starbucks has global brand recognition, this is an opportunity to bring the 'at-home experience' to new places in partnership with the reputation and familiarity of the Nestle brand, most notably in European markets," said Mary Rodwogin, managing director of Seattle-based business advisory firm Exvere. "As for the industry itself, coffee continues to be a growth area for many large CPG companies. In this new partnership, industry stakeholders should expect Nestle to leverage Starbucks’ brand presence while Starbucks will continue to push industry boundaries to meet consumer expectations.”

The deal still needs approval from regulators and is expected to be finalized in summer or early fall this year, the companies said. Approximately 500 Starbucks employees will join the Nestlé family to drive performance of the existing business and global expansion. Operations will continue to be located in Seattle.

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“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Nestlé CEO Mark Schneider. “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.”