Nestle S.A. buys licensing agreement to sell Starbuck’s coffee globally

Swiss-based food giant Nestle S.A said it has acquired a licensing agreement from U.S.-based coffee chain Starbucks to sell its bagged coffee globally using Nestlé’s enormous global distribution network.

The deal is said to be worth $7.15bn in cash.

Nestle which is known for its Nescafe and Nespresso coffee brands will market Starbuck’s bagged and pod coffee as well as drinks but will not be involved in any of Starbucks cafes or ready-to-drink products.

According to the agreement, Nestlé’s name will not appear on Starbuck’s products.

“We do not want the consumer to perceive that Starbucks is now part of a bigger family,” a Nestle source said.

The agreement also requires Nestle to pay Starbucks market-linked royalties. In addition, Nestle will not acquire any industrial assets as part of the deal, but could step in to produce in markets where Starbucks is absent.

According to analysts, the agreement will strengthen Nestle’s position in the United States where it currently lags behind other coffee producers in the number five position with just 3% market share. However, it is the international opportunities that hold the most promise for Nestle with its global distribution network.

Nestle said that the agreement would expand its high growth and margin coffee business, while Starbuck’s CEO Kevin Johnson noted that the deal will expand the company’s reach through Nestle’s distribution channels, making Starbuck’s brand products accessible to more consumers “around the world”.

Starbuck’s bagged coffee generated $2bn in sales in 2017, a 4% rise but less than the 10% growth it saw in the prior year.

Nestle said it expects the deal to contribute positively to its earnings from 2019.

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