Nestle makes €6bn bet on Starbucks

By Thomas Mulier and Corinne Gretler

In the third-biggest transaction in Nestle’s 152-year history, the Swiss food giant will spend almost €6bn for the right to market Starbucks products from beans to capsules.

Nestle won’t get any physical assets in the deal. Instead, chief executive Mark Schneider is harnessing the name recognition of Starbucks, with its 28,000 outlets around the globe and massive draw in the US. 

Nestle has struggled there for years with its own products like Nespresso and Dolce Gusto.

Nestle could use a jolt — sales rose at their weakest pace in more than two decades last year. 

By entering a marketing pact with Starbucks, the Swiss company is revealing the limits to growing with Nescafe and Nespresso. 

“Nestle needed a big brand, and they needed one fast,” said Alain Oberhuber, an analyst at MainFirst Bank in Zurich.

“Starbucks is the only strong brand in roast-and-ground. It’s a rather defensive move — a bit late — but nevertheless, a strategically absolutely vital step,” he said. 

Nestle shares rose 1.25% in Zurich. Its shares are unchanged in the past year. 

Nestle’s Nespresso portioned-coffee business is one of its largest growth engines, but knockoff capsules — including Starbucks-branded ones — that are compatible with the machines have dented revenue.

The new deal will give the Swiss company control of Starbucks capsules, among other products.

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 second-most-valuable brand in fast food, according to BrandZ’s Global 2017 report, which estimates it is worth €36.8bn.

Nestle has been struggling to gain market share in the US, given the prevalence of Starbucks and Green Mountain, which was bought out by Europe’s billionaire Reimann family.

Their Jab Holding has spent more than €25bn building a coffee empire by acquiring assets and combining with the Mondelez coffee business. Jab is the biggest danger for Nestle.

The Nestle-Starbucks alliance comes just as Jab purchases Dr Pepper Snapple for €15.6bn.

- Bloomberg


Related Articles

KitKat loses EU-wide protected trademark status

More in this Section

Jo'Burger restaurants go into liquidation

Kerry Group buys US ‘clean label’ firms for €325m

Irish mortgage rates end the year as most elevated in Europe

Westport emerges as 'Botox capital of the world' as plant sells $4bn of Botox to the world in two years


Lifestyle

Lindsay Woods: At a time of year when the pace is frenzied and days are full of school plays and deadlines, the chance to break from routine is a welcome one

On the red carpet: Margot Robbie, Saoirse Ronan, Diane Kruger and Cheryl

Raise a glass to Christmas festivities

The best festive desserts to try out this Christmas

More From The Irish Examiner