Nestlé pays Starbucks $7.15bn for rights to sell coffee chain's products

Swiss food giant and US chain form global alliance aimed at reinvigorating coffee empires

The Swiss-based food giant Nestlé is paying Starbucks $7.15bn (£5.3bn) for the rights to sell the US coffee chain’s products around the world in a global alliance aimed at reinvigorating their coffee empires.

The deal for a business with $2bn in sales reinforces Nestlé’s position as the world’s biggest coffee company, with brands such as Nescafé and Nespresso.

The Seattle-based Starbucks, the world’s biggest coffee chain, said it would use the proceeds to return money to shareholders by speeding up a share buyback programme. The transaction does not involve any Starbucks cafes and will involve selling Starbucks bagged coffee, drinks and Nespresso-style pods.

The Nestlé name will not appear on Starbucks products. “We do not want the consumer to perceive that Starbucks is now part of a bigger family,” a Nestlé source said.

“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,” the Starbucks chief executive, Kevin Johnson, said.

Nestlé and Starbucks are joining forces in a highly fragmented consumer drinks category that has been involved in a string of deals lately. JAB Holding, the private investment firm of Europe’s billionaire Reimann family, has fuelled the consolidation wave with a series of deals, including Douwe Egberts, Peet’s Coffee and Keurig Green Mountain, narrowing the gap with Nestlé.

Coffee is popular with younger customers who have grown up with Starbucks. A willingness to pay up for exotic beans and specialty drinks means companies can generate stronger profit margins than in mainstream packaged food.

The Nestlé source said it would pay market-linked royalties to Starbucks after the initial fee. It will not buy any industrial assets as part of the deal but could step in to produce in markets where Starbucks is not present.

“Nestle is far and away the largest hot drinks company globally, with more in sales than the next five largest hot drinks companies combined,” Matthew Barry, an analyst at Euromonitor, said on Friday when the tie-up was first mooted. “However, Nestlé’s leadership position is less secure than it once was.”

Other big players are growing as well, including Italy’s Lavazza, which is the world’s No 3.

Guardian staff and agencies

The GuardianTramp

Related Content

Article image
Children as young as eight picked coffee beans on farms supplying Starbucks
Nespresso also named in TV exposé of labour scandal in Guatemala

Jamie Doward

01, Mar, 2020 @7:05 AM

Article image
Starbucks 'pays £8.6m tax on £3bn sales'

Coffee chain says it is a 'compliant and good taxpayer', but disclosure has led to calls for an inquiry into its tax affairs

Simon Neville and agencies

15, Oct, 2012 @8:17 PM

Article image
Starbucks blames UK profits plunge on Brexit and slowing growth
US coffee chain pays less corporation tax as its British profits slump by 60% from £34m to £13m

Zoe Wood

13, Apr, 2017 @12:32 PM

Article image
Starbucks' tax avoidance hasn't boosted our business, says Costa Coffee
Finance director of rival coffee chain's parent company, Whitbread, says tax row is likely to have damaged all big brands

Simon Bowers

23, Oct, 2012 @3:58 PM

Article image
Starbucks launches extra virgin olive oil-infused coffee
Oleato range now on sale in Italy and comes to the US, UK, Japan and Middle East later this year

Sarah Butler

22, Feb, 2023 @10:31 AM

Article image
Nestlé joins others to set up first UK-wide coffee pod recycling scheme
Exclusive: Jacobs Douwe Egberts also part of sector’s move to reduce environmental impact

Rebecca Smithers Consumer affairs corresponden

20, Nov, 2020 @12:01 AM

Article image
UK coffee chains criticised over sugar-laden products
Pret a Manger lemon drizzle cake contains 18 teaspoons, says Action on Sugar, with a Starbucks carrot cake next worst on 15

Rebecca Smithers

06, Dec, 2016 @12:01 AM

Article image
Starbucks ready to divorce Kraft
Analysts fear coffee firm could end up paying $1bn to end deal allowing Kraft to sell coffee beans under Starbucks name

Dominic Rushe

02, Dec, 2010 @7:00 AM

Article image
Starbucks legend delivers recovery by thinking smaller

Howard Schultz, who turned the coffee chain into a global giant, has restored its fortunes by halting aggressive expansion and redesigning stores for local communities

David Teather

21, Jan, 2010 @12:15 PM

Article image
Starbucks' Kris Engskov: from Oval Office to daily grind
Leaving the West Wing for west London, Starbucks' UK boss is still driven to want a job that is not just about making money

Zoe Wood

08, Dec, 2011 @9:15 PM