Nestle buzzing in $9.5b deal to sell Starbucks coffee

Nestlé Inks Deal to Sell Starbucks Products World-Wide

Nestle is going to start selling Starbucks coffee and will pay the US chain $7.15 billion. The company also confirmed that from next year, it will use Starbucks brand in its Dolce Gusto and Nespresso brands.

Pablo Zuanic, an analyst at Susquehanna International Group, noted that the deal will increase Nestle's share of the United States coffee market - which now stands at just 3%.

Susquehanna analyst Pablo Zuanic explains how the Starbucks (NASDAQ:SBUX)-Nestle (OTCPK:NSRGY) deal changes the landscape.

According to Nestlé, the Starbucks business - which constitutes the majority of the coffee chain's channel development segment - generated revenue of €1.68bn (US$2bn) in fiscal 2017.

"This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle", Kevin Johnson, president and CEO of Starbucks was quoted as saying in the Nestle statement.

The deal is Nestle's first tie-up with a major rival in coffee.

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Coffee is popular with younger customers who have grown up with Starbucks and are willing to pay for exotic beans and specialty drinks that translate into richer profit margins than mainstream packaged food.

The deal is subject to regulatory approval and is expected to close by the end of the year.

The chain's executive chairman Howard Schultz, who says his vision for Starbucks came after a trip to Milan in 1983, had originally slated the opening of the new branch in the northern Italian city for early past year.

Nestle, which will take on about 500 Starbucks employees, will not buy any industrial assets as part of the deal.

The deal gives Nestlé, which is based in Switzerland, a stronger foothold in America and allows it to better compete with JAB Holding, the investment group owned by the Reimann family, from... Recent purchases include vegan and vegetarian product maker Sweet Earth and a minority stake in Freshly, a company that sells prepared meals directly to USA consumers. We are delighted to have Starbucks as our partner. Nestle also has joint ventures with General Mills for cereal, Lactalis for dairy products and R&R for ice cream.

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