Please ensure Javascript is enabled for purposes of website accessibility

How Starbucks and Nestle are Benefiting From Their "Coffee Alliance"

By Asit Sharma - Updated Feb 25, 2020 at 4:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The two global giants are reaping rewards of complementary strengths.

Executives from coffee purveyor Starbucks (SBUX 0.04%) and packaged food and beverage behemoth Nestle (NSRGY 1.31%) are confident that new products arising from their "Global Coffee Alliance" will help both companies expand global sales, according to a Reuters interview this week. 

Reuters jointly interviewed Nestle's head of coffee brands David Rennie, and Starbuck's channel development president, John Culver. Starbucks and Nestle formed the Global Coffee Alliance in 2018 when Nestle paid roughly $7.2 billion for the right to license packaged coffees, teas, and ready-to-drink (RTD) beverages from Starbucks.

The deal supplements various licensing relationships Starbucks has pursued in recent years such as its relationship with PepsiCo, which manufactures and distributes Starbucks-branded RTD products. Licensing has helped Starbucks develop a "capital-light" revenue stream outside of its retail sales and institutional foodservice businesses. The deal has given Nestle access to the Starbucks brand -- as Reuters points out, this helps it compete against privately held JAB Holdings, which owns a number of popular packaged coffee brands that enjoy muscular shelf space in the grocery store channel.

Close-up of coffee beans being poured into a commercial roaster.

Image source: Getty Images.

Rennie stated that Nestle would extend its international Starbucks presence from 40 markets to 50 markets by the end of this quarter. Reuters reported on Tuesday that Nestle is launching Starbucks' premium soluble (instant) coffee globally in 12 twelve markets, which include China, the U.K., Brazil, Japan, and Mexico, among others.

Nestle improved the $2 billion in annual revenue it acquired from Starbucks via the alliance by 15% last year. This rapid growth benefits both parties, as Starbucks is poised to reap long-term licensing revenue from the relationship. The Starbucks brand and Nestle's global distribution reach are formidable complementary advantages. As Starbuck's Culver noted, there remains "lots of white space for the Starbucks brand outside of North America."


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
$73.42 (0.04%) $0.03
Nestle S.A. Stock Quote
Nestle S.A.
$118.03 (1.31%) $1.53
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$165.60 (2.09%) $3.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.