Nestle, Starbucks Strike $7.5 Billion Deal

Business

Nestle struck a $7.5 billion deal with Starbucks this week that will give the Swiss food and beverage company exclusive rights to sell Seattle’s signature coffee in stores around the world. The deal, was announced Monday, allows Starbucks to turn their attention on their more profitable store-operations, as well as higher-end Roastery shops.

“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 Kevin Johnson, president and chief executive officer of 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.”

The deal also gives Nestle the right to sell other Starbucks properties, including Seattle’s Best Coffee, Teavana and Torrefazione Italia products. Starbucks says their earnings per share will increase by the year 2021. The company also stands to make a large amount of money from sales and royalties. Exact details on how much Starbucks would make yearly off of those revenue streams haven’t been announced at this time.

“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. This is a great day for coffee lovers around the world.”

Starbucks coffee is a roughly $2 billion business, but some believe that the addition of the new deal will allow for the company to grow even more profitable. Starbucks says it plans to use the money to increase buyback stocks to $20 billion.

Analysts believe part of Nestle’s overall strategy will be to expand its line if single serve pods to include Starbucks products, a market Keurig Green Mountain has a stranglehold on in North America.

Starbucks is also said to be focusing on its higher end Reserve bars and Roastery locations where cups of coffee go for as much as $10.

Photo by Marco Arment via Flickr

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