Nestle is pouring billions for rights to sell Starbucks worldwid

Nestle Spends $7.15 Billion To Sell Starbucks Coffee

Nestle Spends $7.15 Billion To Sell Starbucks Coffee

Nestle will pay 7.15-billion dollars for the rights to market and sell Starbucks retail products in grocery stores, restaurants and other outlets globally. Nestle has reportedly struggled for years with its own products, like Nespresso and Dolce Gusto, in the US. Their JAB Holding Co. has spent more than $30 billion building a coffee empire by acquiring assets such as Peet's Coffee and combining with Mondelez International Inc.'s coffee business.

"It allows Nestle to gain scale in the U.S., a weak spot so far", he said. "Nestle's ongoing share-buyback program will remain unchanged", the company said in a statement. Its shares had dropped about 9 per cent this year.

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

The deal between the two companies will have Nestle handling the the Starbucks brand when it comes to consumer packaged goods and foodservices.

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 is expected to close by the end of this year.

The agreement only covers Starbucks' packaged goods sold outside the USA company's stores.

That added complexity may make it harder to run the coffee business, and there's a risk that the Starbucks food-service sales cannibalize those of Nescafe.

Schneider said that the "global coffee alliance" with Starbucks was "a great day for coffee lovers around the world", adding, "With Starbucks, Nescafe and Nespresso, we bring together three iconic brands in the world of coffee". The new deal will give the Swiss company control of Starbucks capsules, among other products. "Starbucks is the only strong brand in roast-and-ground".

The company's US$425 million purchase of a stake in Blue Bottle Coffee a year ago was a step back into the segment, whose growth prospects have revived as coffee consumers become more sophisticated.

According to Nestlé, the Starbucks business - which constitutes the majority of the coffee chain's channel development segment - generated revenue of €1.68bn (US$2bn) in fiscal 2017. Starbucks' chief financial officer called the valuation "very, very compelling". Higher sales at the operating segment were primarily driven by increased sales through the global channels and sales of packaged coffee, foodservice and single-serve products. Nespresso several years ago also introduced a machine that is more attuned to U.S. consumers' preference for bigger cups of joe.

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