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.