Coffee chain Starbucks has sold the rights of offering its tea and coffee in retail and grocery outlets to Nestle at a price of over $7 billion. Sellers of coffee ranging from McDonald’s to Dunkin’ Brands have crowded the shelves of supermarkets with branded roasted and ground beans and the products from Starbucks will offer Nestle a larger stake in the fight without being required to introduce new brands to consumers in the United States.
In fiscal 2017 the revenues that were generated by Starbucks’ consumer packaged-goods business amounted to $1.8 billion and this around 8% of the coffee chain’s total.
“With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee,” the chief executive officer of Nestle, Mark Schneider, said.
Reserve and Roastery
Due to rising competition and falling mall traffic sales at the coffee shops of Starbucks have been slowing. Consequently Starbucks has launched higher-end stores going by the Reserve and Roastery brands with a view to competing with small chains and independent coffee shops which have been a hit with customers who are ready to pay a premium for specialty pastries and drinks. According to Mintel, a market research firm, there are close to 33,000 coffee retail outlets in the United States. This has been an increase of 16% compared to half a decade ago.
The Seattle, Washington-based coffee chain is also looking to launch additional coffee shops in the world’s most populous country China. The coffee chain expects China to eventually become a bigger market for its products than the United States. Recently Starbucks launched its first Roastery outlet in Shanghai.
This is not the first time that Starbucks is dropping ancillary businesses in order to concentrate on coffee shops. Last year in fall the coffee chain disposed of to Unilever its Tazo brand of teas at a price of $384 million. Starbucks also recently shut down Teavana stores which were mostly based in malls as a result of weak traffic.
The proceeds from Nestle sale will be returned to shareholders of Starbucks via share buybacks. The coffee chain has already indicated that it intends to give its shareholders around $20 billion in the course of three years in the form of dividends and buybacks. Besides the onetime payment of $7.15 billion Starbucks will also receive royalty payments from Nestle.