The Swiss-owned Nestlé Group has agreed to pay Seattle-based Starbucks approximately $7.2 billion for the rights to sell its branded coffee in catering services, restaurants, and supermarkets. The deal that still must be approved by the United States federal government would not affect company-owned coffee shops.
Why Does Nestlé Want to Sell Starbucks Branded Coffee?
There may be several reasons why the Swiss-owned company would want to own the largest coffee company in the United States. The Swiss-owned company already manufactures and sells Nespresso and Nescafe.
As it is, Nestlé might be hoping that the introduction of the new brand’s products to their lineup could enable them to get ahead of their competition. They currently hold second place behind JAB Holding Company.
Nestlé has reportedly been having trouble garnering support for their coffee brands from buyers under 60 years old in the United States. The company controls just three percent of the US market and is behind Dunkin’ Brands at six percent, and Starbucks at 15 percent.
Therefore, this latest deal could make Nestlé’s offerings more exciting to younger consumers. In turn, this would also help the coffee brand to capture more of the market share.
Nestlé declared that it will now produce single-serve products for the home market. This is a move that the company has long resisted. However, it began changing its mind last year, following other purchases around the globe.
The Early Effects of the Deal
Early indications are that stock value for the Swiss coffee brand will increase with this purchase. The company’s stock rose by 1.57 percent on the day of the announcement.
Starbucks will also be able to devote more of its attention to its brand’s lucrative stores. The company announced that it would use the money to fund stock buybacks.
The Swiss-owned business will not begin to make changes to its products until the $7.15 billion deal is approved. About Starbucks 500 employees may move from Seattle to Alexandria, Virginia when the process is complete. This is expected to take place sometime in the late summer or early fall.
Consumers might see products resulting from this deal on their store shelves as early as this winter.
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