Starbucks and Nestle Brew $7 Billion Deal

Starbucks and Nestlé have agreed to a “global coffee alliance,” a licensing deal that grants Nestlé rights to market, sell, and distribute the Seattle-based coffee giant’s packaged products worldwide.

Here’s the scoop:

• Nestlé will have perpetual rights to sell Starbucks packaged products around the world, outside of Starbucks cafes.
• Starbucks brands included in the deal include Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA, and Torrefazione Italia.
• Nestlé will pay Starbucks a total of $7.15 billion.

More details:

The licensing deal helps Starbucks distribute its pre-packaged products around the world, using Nestlé’s large, existing network. Nestlé benefits by strengthening its coffee portfolio, which already includes the Nescafé and Nespresso brands.

By licensing Starbucks’ name, Nestlé will have one of, if not the most alluring brand-names in the coffee industry with which to attract more customers.

“With Starbucks, Nescafé, and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner,” Nestlé CEO Mark Schneider said in a statement. “This is a great day for coffee lovers around the world.”

While Starbucks has more than 28,000 retail locations around globally, it has yet to see a big break in the grocery and packaged foods sectors. Nestlé’s distribution could give Starbucks the boost it needs to expand into the space.

There’s no guarantee, of course, that either company will capitalize.

Switzerland-based Nestlé owns over 2,000 food and beverage brands in over 150 countries, and is one of the largest food and beverage companies in the world.

More coffee, less chocolate? In January, the Ferrero Group, a global confectionery group based in Italy, acquired Nestlé’s U.S.-based sweets business for $2.8 billion in cash.

What is a licensing deal?

A licensing deal, like the one struck between Nestlé and Starbucks, is an agreement that allows a company to “borrow” and use another company’s brand. A company might license another’s name to profit from its brand power.

In this case, Nestlé has licensed Starbucks’ brand in exchange for cash. The Starbucks name carries weight in the coffee world—perhaps more so than even Nestlé’s brands—and Nestlé hopes to harness it to increase its coffee sales.