Market wakes to Nestlé coffee deal
• Right to market Starbucks products in supermarkets around the world seen as a strong platform for growth in North America
Swiss food giant Nestlé announced on Monday it will pay $7.15bn in cash for the rights to market Starbucks products around the world, outside of the company’s coffee shops.
The agreement gives Nestlé , which owns the Nescafe and Nespresso brands, a strong platform for continued growth in North America, the company said in a statement.
Nestlé 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 generates about $2bn sales a year and includes coffee beans and ground coffee, which Nestlé will sell in supermarkets around the world.
“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Nestlé 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 Starbucks shops and cafes.
About 500 Starbucks staff would join Nestlé , the company said, but the operations would continue to be located in Seattle. Both companies would collaborate on “innovation and goto-market strategies”, it said.
Starbucks president and CEO Kevin Johnson hailed the deal as “historic” and said it would create a “global coffee alliance”. Nestlé, 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 on a few areas, like bottled water, infant nutrition and pet care, with coffee a top priority.
While Nespresso and other coffee products are omnipresent in Europe, they have had a harder time catching on in the US.
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, Nestlé has been selling off parts of its confectionery business, handing over its US sweets business to Italy’s Ferrero for nearly $3bn.
Analysts hailed Monday’s deal. “Nestlé has once again surprised the market with an unexpected transaction,” JeanPhilippe Bertschy of Vontobel said in a research note. He said “coffee is one of the key growth pillars in the CEO’s strategy [and] allows Nestlé to gain scale in the US, a weak spot so far.” He acknowledged “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, Nestlé said, adding that the deal should start contributing to its earnings per share and its growth targets starting in 2019.