ETFs React to Nestle and Starbucks Joining Forces

08 May, 2018, 02:35 | Author: Corey Lynch
  • Nestlé pays $7.15 billion to license Starbucks products

Swiss-based food giant Nestle will pay Starbucks $7.15 billion in cash for the rights to sell the U.S. coffee chain's products around the world, tying a premium brand to Nestle's global distribution muscle.

"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", Johnson said.

Nestle said in its announcement that it will own the rights to market Starbucks' coffee, claiming that it generates $2 billion in annual sales.

It is a bold stroke by new Nestle Chief Executive Mark Schneider, who has made coffee a strategic priority as he tries to convince uneasy shareholders, including activist Third Point, that he can boost the sprawling group's performance.

The move enhances Nestle's brand among USA coffee drinkers. while Starbucks will gain more brand recognition overseas.

Schneider described the "global coffee alliance" with Starbucks as "a great day for coffee lovers around the world".

Further, Nestle stated that it will use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year. The agreement is expected to close by the end of this year. It comes as Nestle's Nescafe brand of instant coffees has lost market share in four of the past five years, according to Euromonitor. "Starbucks is the only strong brand in roast-and-ground".

For 2017, Starbucks channel development unit booked a 4% rise in revenue year-on-year - something of a slowdown from the growth rate of 10% reported in the prior year.

The agreement excludes Starbucks' ready-to-drink coffee, tea and juice products.

The deal is Nestle's first tie-up with a major rival in coffee. Nestle also added niche brand Chameleon Cold-Brew previous year to expand its portfolio in the U.S.



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