Viewpoint: Reading the coffee grounds of the Nestlé-Starbucks deal

Jordan Rost is VP of Consumer Insights for Nielsen. He is often cited in business, trade and consumer press and regularly shares insights via Nielsen reports, industry talks and directly with Nielsen’s partners and clients. Prior to his time at Nielsen, Rost most recently spent nearly a decade at Google, where he led brand and retail consumer insights, trends and thought leadership.

Early last week Nestlé announced its intent to pay more than $7 billion to market Starbucks coffee products in grocery stores. The move, pending regulatory approval, amounts to a licensing deal, powering Starbucks’ expansion into China and beyond.  

But this move goes far beyond coffee. It’s making waves for food and beverage, and retail as a whole. Why? It’s blurred the channels. It’s about the changing relationship between brands and consumers. This is a story about what it means to be a retailer and what it means to be a brand today and in the future.

The new third place

Howard Schultz has said, “We're in the business of human connection and humanity, creating communities in a third place between home and work.”

That was 2006. Today, the third place is no longer between home and work. Instead, connection has emerged to become the new third place and mobile devices are enabling the “business of human connection” far beyond what any physical place ever could.

Today, much of retail is still built around the store. And brands still orient around the channels through which they sell. The Nestlé and Starbucks alliance is a recognition that the Starbucks experience can and needs to scale effectively beyond their cafes.

The future of retail requires strategies built less around specific places and more about enabling access for consumers, and connecting with them, wherever they may be.

In the words of Starbucks CEO Kevin Johnson, “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 differently, the Nestlé brand will scale the Starbucks retail experience. Even more simply: Brands will scale retail experiences.

This alliance is a big bet that in Nestlé’s hands, the Starbucks experience can scale to new places. And if recent trends continue to accelerate — and by all accounts they will — the future of coffee (and retail) won’t be tied to a place at all.

Coffee will become un-wired

Coffee is an experiential product, arguably more so than any other fast-moving consumer goods (FMCG) category. Whether it’s Starbucks Reserve Roasteries, which deliver the “immersive experience of coffee craft,” or the cold brew on tap at your local convenience store, more retailers are turning to coffee to breathe new life into their in-store experiences.

That said, dynamics are beginning to shift. Over the last year, Americans have spent $1.4 billion on coffee online, an increase of more than 60% over last year and more than any other food or beverage product. Perhaps more amazingly, e-commerce drove just 13% of total retail coffee sales, but accounted for 90% of all retail coffee growth. Grocery is certainly the next wave of “experiential” retail that will shift online and coffee is the tip of the spear.

For many, coffee is a routine or even a ritual. No surprise then that coffee is the second most frequently purchased product online via a subscription. It’s not clear how or if the Starbucks brand will fit into Club Nespresso, but Nestlé is ahead of many other FMCG brands in building a direct-to-consumer offering for the brand.

Nestlé has made ease of purchase and replenishment a priority for Nespresso. You can buy Nespresso pods directly through Nespresso.com and Amazon. Nestlé's Nespresso coffee pods are routinely some of the top-selling (and highest-rated) beverage items on Amazon. In fact, Nespresso has more top-selling products on Amazon than any other beverage brand.

As more consumers use digital platforms to automate replenishment, more FMCG brands need to think about their direct relationship with shoppers over time. When consumers can choose from any brand or product at the tap or swipe of a finger, the balance of power shifts from those that can control distribution to those that can control demand.

From music, to TV, and even our cars, more of the things we buy, we can “buy” on subscription. Consumers are trading ownership for accessibility. In the future, when more shoppers buy via voice-based platforms, this will be even more true.

The brands that can harness these new and emerging platforms to build demand and sustain relationships — true loyalty — will be the brands that win the shift to digitally engaged commerce.

What it all means

In Nestlé, Starbucks has found a partner who’s quite far along the journey toward building an “always on” brand. Americans can buy Nespresso pods in stores and online, from Nestlé directly or from retailers, and for consumption wherever they are.

It should be noted that retail loyalty has always been about making shopping easy and enjoyable — and it still is. What’s changed is that shoppers are choosing companies that leverage technology to turn connection into loyalty.

Digital tools have enabled shoppers to automate routine aspects of shopping. They also invite and engage shoppers to discover new ideas, products, brands and even stores themselves. To see this in action, look no further than the hundreds of thousands of Instagram posts from Starbucks Reserve Roasteries across the world, or in West Hollywood, where Brandless just wrapped its two-week-long “pop-up with purpose” that focused more on community engagement through compelling and rich content, versus selling products.

The modern-day third place isn’t a store at all. It’s an “always on” platform that grants consumers access across traditional channels and sectors. And no one brand nor retailer will be able to build that platform alone. We will surely see more similar unlikely alliances to come. In this challenging environment, it’s impossible to go it alone. The future of retail will require an always-on approach that can really only be attained through collaboration.