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Nestle to pay Starbucks $7.15B for Exclusive Coffee Licensing Rights

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Published on : May 08, 2018

Regional giants in the food and beverages industry in developed markets are finding strategic deals as a viable, quicker route to expand their overreach to emerging economies. This is also emerging as a preferred route to bolster their core portfolio in their domestic markets. Switzerland-based Nestlé S.A, a globally food and beverage company, has inked a pact with Starbucks Corporation, a U.S.-based coffee company to bag exclusive rights to sell the latter’s packaged coffees and teas all over the world.

Under the agreement that takes the shape of licensing agreement, the Swiss company will pay Starbucks Corp US$7.15 Bn all in cash. In addition, the coffeehouse chain will receive revenue accruing from the sale of the products and royalties by Nestle. On the other hand, the transnational food and drinks company will be able to use the branded capsules offered by Starbucks for its capsule systems Dolce Gusto and Nespresso.

Strategic Deal combines Reputation of Prominent Coffeehouse Chain with Distribution Muscle of Nestle

The licensing agreement entered by the U.S. coffeehouse chain and the Swiss company underscores the strategic edge that will be leveraged by combining a global coffee brand with the competency of global distribution channels posed by Nestle. The deal will benefit both the players in unique ways.

Seattle-based Starbucks will use the proceeds to fund planned repurchase of stocks from $15Bn to $20 Bn, which will also boost its earning per share by 2021, stated the company. Furthermore, the deal will enable millions of consumers around the world to enjoy the Starbucks experience, particularly in China. It could have otherwise taken massive capital and large distribution muscle to expand the reach of its products across the globe, stated its group President. More important, the agreement will enable Starbucks to focus on the U.S. market, who is faced with tough competition from several fast-food chains and upmarket coffee houses in its home turf.

Nestle on the other hand can leverage on the potential to fortify its growth and improve its positioning among its investors.