Nestlé pays $7.15 billion to license Starbucks products

Swiss food giant Nestlé announced Monday it will pay $7.15 billion (€5.97 billion) for the rights to market Starbucks products around the world, outside of the company's coffee shops.

Nestlé pays $7.15 billion to license Starbucks products
Paul Bulcke, Nestlé Chairman of the Board of Directors. Photo: AFP

The agreement gives Nestle, which owns the Nescafe and Nespresso brands, a strong platform for continued growth in North America, the company said in a statement.

is focusing on coffee as a main growth area and has already made some acquisitions in the sector.

The Starbucks business covered by the deal currently generates around $2 billion sales annually and includes coffee beans and ground coffee that Nestle will be selling in supermarkets around the world.

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

“Both companies have true passion for outstanding coffee and are proud to be recognised as global leaders for their responsible and sustainable coffee sourcing,” he said.

The deal does not include any of Starbucks' coffee shops and cafes.

Around 500 Starbucks staff will join Nestle, the company said, but the operations would continue to be located in Seattle.

Both companies would collaborate on “innovation and go-to-market strategies”, it said.

Starbucks president and CEO Kevin Johnson hailed the deal as “historic” and said it would create a “global coffee alliance”. 

Nestle, which has been under intense shareholder pressure to improve its profitability, has begun to reposition itself since Schneider took over at the start of last year.

The former head of German healthcare group Fresenius has pushed for the food giant to focus in on a few areas, like bottled water, infant nutrition and pet care, with coffee a top priority.

'Unexpected transaction'

While Nestle's Nespresso and other coffee products are omnipresent in Europe, they have had a harder time catching on in the United States.

Over the past 15 months, the company has clearly set its sights on high-end coffee brands in North America.

It snapped up a majority share in California-based Blue Bottle Coffee last September, and two months later 
bought Texas company Chameleon Cold Brew.

At the same time, Nestle has been selling off parts of its confectionary business, handing over its US candy business earlier this year to Italy's Ferrero for nearly $3.0 billion.

Analysts hailed Monday's deal.

“Nestle has once again surprised the market with an unexpected transaction,” Jean-Philippe Bertschy of Vontobel said in a research note.

He said that “coffee is one of the key growth pillars in the CEO's strategy, (and) allows Nestle to gain scale in the US, a weak spot so far.”

He acknowledged that “the price might appear expensive, but given the returns, the deal could exceed the cost of capital within three to four years”. 

The transaction, which needs approval from regulators, should be finalised by the end of 2018, Nestle said, adding that the deal should start making a positive contribution to its earnings per share and its growth targets starting next year.

The company saw its shares swell 0.6 percent in mid-morning trading at 76.84 Swiss francs a piece, as the Swiss stock exchange's main SMI index was up just 0.15 percent.

Starbucks, meanwhile, said it will use the cash to accelerate share buybacks. The Seattle-based company said it now expected to return some $20 billion to shareholders through buybacks and dividends by 2020.


‘Unlimited resources’: Switzerland’s Nestle goes vegan

Swiss food giant Nestle, which has made billions with dairy products, said Monday it will host start-ups that want to develop vegetarian alternatives.

'Unlimited resources': Switzerland's Nestle goes vegan

Nestle could thus find itself at the forefront of a sector that has strong growth potential, an analyst commented.

It plans to open its research and development (R&D) centre in Konolfingen, Switzerland to “start-ups, students and scientists” a statement said.

In addition to testing sustainable dairy products, the group plans to encourage work on plant-based dairy alternatives, it added.

Chief executive Mark Schneider was quoted as saying that “innovation in milk products and plant-based dairy alternatives is core to Nestle's portfolio strategy.”

The group unveiled a vegetable-based milk that had already been developed with the process, and technical director Stefan Palzer told AFP it planned to focus on 100-200 such projects a year.

Jon Cox, an analyst at Kepler Cheuvreux, noted that while Nestle had missed some consumer trends in the past, it has now “taken something of a lead in the plant-based alternative market for food”.

And “given its pretty much unlimited resources, Nestle is going to come out one of the winners in the space,” Cox forecast in an e-mail.

Nestle said that “internal, external and mixed teams” would work at the R&D centre over six-month periods.

Nestle would provide “expertise and key equipment such as small to medium-scale production equipment to facilitate the rapid upscaling of products for a test launch in a retail environment,” it added.

The Swiss food giant has long been known for its dairy products, but faced a boycott in the 1970s for allegedly discouraging mothers in developing countries from breastfeeding even though it was cheaper and more nutritious than powdered formula.

On Monday, the group's statement also underscored that the research initiative was part of its commitment to help fight global warming.

“As a company, we have set ambitious climate goals. This is part of our promise to develop products that are good for you and good for the planet,” it said.