Global coffee alliance: Nestlé joins hands with Starbucks

In a mammoth coffee mix, Swiss giant Nestlé will team up with American sweetheart Starbucks (SBUX) to sell its coffee outside its signature green-and-white outlets. This partnership between rivals will allow the Nescafe maker to make use of its extensive distribution network to sell coffee beans and other similar Starbucks products.

Nestlé will pay Starbucks about $7.1 billion in cash in a deal, that does not supposedly include Starbucks’ ready-to-drink coffee or other beverages.

As this looks like a move to strengthen Nestlé’s presence in the US, the Swiss giant that also owns Nespresso, will not be able to use its name along Starbucks.

However, this could mean that your Nespresso or Dolce Gusto machines could now see compatible Starbucks coffee pods.

In a consumer drinks market that saw frequent deals of late, Private investment firm JAB Holdings seems to have urged the agreement, as the consolidation wave hit Keurig Green Mountain, Douwe Egberts, and Peet’s Coffee & Tea.

Nice Cuppa

Despite the hefty deal value, Nestlé shareholders seem to be in favor, sending shares up 1.5%. Joining with American market leader Starbucks (14% market share), Nestlé could improve its current number-five position in the tight US coffee business.

The Swiss giant, which recently sold its US candy business to Ferrero for about $2.8 billion, seems to have started focussing more on the coffee-end of the business to reach end-consumers.

Terming it as “a great day for coffee lovers around the world,” Nestlé chief Mark Schneider looks to use what he terms a “global coffee alliance” to check the declining sales.

The maker of Kit-Kat also said 500 Starbucks employees would shift to its business as part of the transition.

Nestlé’s third-biggest acquisition will help retain its title as the top coffee company in the world. However, Seattle-based Starbucks will have the final say on the product range. Shareholders of the US coffee brand seem to have welcomed the union as well, as shares rose as much as 2.8% higher.