Nestle Spends $7.15 Billion To Sell Starbucks Coffee

Nestle Spends $7.15 Billion To Sell Starbucks Coffee

Nestle chief executive Mark Schneider, who in 2016 became the first outsider to run Nestle in nearly 100 years and who is attempting to boost the company's profit through expansion, described it as a "significant step". Instead, chief executive officer Mark Schneider is harnessing the name recognition of Starbucks, with its 28,000 outlets around the globe and massive draw in the U.S. Nestle has struggled there for years with its own products like Nespresso and Dolce Gusto. Starbucks stock was indicated 2.8% higher. Starbucks CEO Kevin Johnson said that deal is unaffected by the agreement with Nestle.

Nestle is making a new offensive in the USA a decade after Nespresso renewed a push into that market, enjoying limited success as most coffee drinkers avoid small espressos.

Starbucks already has a deal with JAB, creating single-serve coffee for its Keurig brewers.

With an estimated net worth of $44 billion, Starbucks was ranked the second most valuable brand in fast food, according to BrandZ's Global 2017 report.

Nestle and Starbucks are joining forces in a highly fragmented consumer drinks category that has seen a string of deals lately.

Coffee is popular with younger customers who have grown up with Starbucks.

Schneider has reportedly been attempting to boost the company's profit through expansion.

Starbucks said it now expects to return approximately $20 billion in cash to shareholders in share buybacks and dividends through fiscal year 2020.

The world's largest packaged food producer won't get any fixed assets in the deal, but expects Starbucks' name recognition both in the U.S. and across the globe to expand its market share.

"Nestle expects this business to contribute positively to its earnings per share and organic growth targets as from 2019". Sales are to be booked by Nestle, which is to pay royalties to Starbucks.

The Swiss company also revealed in its announcement that 500 Starbucks employees will transfer over to its business but they will continue to be located at its Seattle headquarters.

The agreement will strengthen Nestle's position in the United States, where it is the No. 5 player with less than 5% of the market. "Starbucks is the quality, mass-market leader", said Erik Gordon at the Univesity of Michigan's Ross School of Business.

"It allows Nestle to gain scale in the United States, a weak spot so far", he said.

Other big players are growing as well, including Italy's Lavazza, which is now the world's No 3. Last year's $425-million purchase of a stake in Blue Bottle Coffee was a step back into the roast-and-ground segment, whose growth prospects have revived as consumers become more sophisticated about coffee. And a year ago, Nestle bought a majority stake in high-end coffee company Blue Bottle. Nestle will also put Starbucks in grocery stores outside the USA and Canada. The Swiss company will take control of Starbucks capsules, among other products.

The deal is Nestle's first tie-up with a major rival in coffee.

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