Nestle and Starbucks Set Deal to Expand Their Coffee Empires

By Douglas A. McIntyre Updated Jan 12, 12:00AM EST · Published May 7, 5:24AM EDT

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Nestle and Starbucks Set Deal to Expand Their Coffee Empires — © courtesy of Starbucks Corp.

Two of the largest companies in the coffee business have created a huge marriage that will benefit each one’s growth. Swiss food giant Nestle will pay Starbucks Corp. (NASDAQ: SBUX) $7.15 billion to distribute its coffee worldwide. It is a bonanza for Starbucks, which has seen its business start to slow.

Management of the U.S.-based coffee retailer disclosed:

Starbucks Corporation will form a global coffee alliance with Nestlé S.A. to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods (CPG) and Foodservice. With a shared commitment to ethical and sustainable sourcing of coffee, this alliance will transform, expand and elevate both the at-home and away-from-home coffee and related categories around the world.

While Starbucks has coffee shops around the world, its ability to sell coffee in retail outlets other than its own is limited.

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According to Kevin Johnson, Starbucks president and chief executive officer:

This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé, This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values.

Also, the deal will help two Starbucks financial initiatives. The first is to return $20 billion to shareholders. The other is to put a foundation under its financial performance. Starbucks management said the partnership would boost its earnings through its 2021 fiscal year, if not earlier. Starbucks could use the help. In its most recent quarter, global comparable store sales rose only 2%. Revenue rose 14% to $6 billion. At many companies, this revenue increase would be impressive. But Starbucks has posted better growth in recent years. Its share price is about $58, compared to a 52-week high near $65.

It is far too early to say how much the Nestle deal will help Starbucks coffee sales overseas. However, it has the $7.15 billion from Nestle and that is enough to transform its financial results for three or four years.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.