Nestlé and Starbucks recent partnership

By Amélie BLANCHERI

Nestlé is the first largest food company in the world in term mainly of revenues.

This is also the house of brand of Nescafé and Nespresso, two very massive brands in the coffee industry, who are competing in a very competitive market in which strategies are crucial in order to stay strong in the market.

Starbucks as we all know is a strong brand in the world and more especially in the coffee market.

In May 2018, the Swiss group Nestlé and the American group Starbucks have announced the signature of a partnership in order to allow Nestlé to commercialize a big amount of products in supermarkets.

The amount announced is supposed to be about 5,98 billion of euros (7,15 billion in dollars) according to the different sources. [1]500 employees from Starbucks in the US and Europe will join Nestlé during this partnership4.

With this alliance, Nestlé will be allowed to commercialize products, more specifically in supermarkets, restaurants and catering operations under the name of Starbucks worldwide.  

This is a win-win partnership for both brands because Nestlé can use its reach and reputation worldwide to make Starbucks even more famous and more accessible to the mass market at a bigger audience: this is a way to bring Starbucks in people’s home.

Nestlé hopes to reinforce its position in the American market: “Nestlé is making a new offensive in the US decade (…), in which they were enjoying limited success as most coffee drinkers avoid small espressos”[2].

produits-starbucks-nestle

Source: Google

Nestlé thanks to this operation is hoping to reach a new target: the millenials1. In fact, young people are frequent buyers of Starbucks and an integrated part of the Starbucks culture: they are willing to pay more if it is in exchange of style, recognition, and more sophisticated beverages as they already do in the brand stores.

According to L’Usine Nouvelle, this alliance will not include selling Starbucks coffee and other ready-to-consume products, but only individual capsules in the same way it is done for Nespresso or Nescafé. It is even mentioning that “Starbucks will continue to produce packaged coffee and other goods in North America, while Nestlé will be in charge of the rest of the world”2. On products, Nestlé’s name will be hidden in order to avoid any confusion.  

Starbucks is a very strong brand in the United States of America, this implies that their directors don’t want people to think that the brand belongs to another group. The website also specifies that Starbucks will keep its authority concerning its range of products.

Nestlé underlines that this deal will allow creating premium products with high-level packaging, strong flavors and new types of coffee beans[3]. This also means that the prices will be higher than the average coffee than the consumers can find in supermarkets.

In the words of Bloomberg, Starbucks is expected that this partnership will be profitable by 2021 or even before. They expect a return of around 20 billion dollars by 2020[4].

Both groups will work together on innovation and commercialization strategies.

Mark Schneider, the director of Nestlé said: “This transaction marks a big milestone for our coffee business, the largest categories with the quick growth of Nestlé”[5].

This partnership will allow Nestlé to focus on improving its market share in the American market, which was, for now, the weak point of Nestlé. Since 2017, the Swiss group has multiplied its purchases in North America by acquiring two others coffees brand: Blue Bottle Coffee and Chameleon Cold Brew[6].

Lastly, if you already went shopping in supermarkets and walked around the shelves, you might already saw Starbucks products. In fact, Nestlé since 2016 was selling some Starbucks compatible capsules under the Nespresso name. These capsules were only on sale at Carrefour or Monoprix thanks to a previous collaboration. The price was high (circa 3,79€ for a pack of 10) and positioned as a premium coffee. The brand was justifying its prices because of the quality of its products “100% Arabica” targeted to true connoisseurs[7]. The director of the operations at Starbucks said that “the objective was to have a complete offer allowing consumers to get Starbucks’ shop experience at home”7.

This collaboration might end or be modified following Nestlé and Starbucks new partnership.

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Source: LSA Conso

To conclude, it will be interesting to see how this partnership will be developed in the near future…

SOURCES:

[1]https://www.usinenouvelle.com/article/nestle-conclut-une-alliance-avec-starbucks-pour-7-15-milliards-de-dollars.N689899

[2]https://www.bloomberg.com/news/articles/2018-05-07/nestle-enters-7-2-billion-global-coffee-alliance-with-starbucks

[3]https://www.la-croix.com/Economie/Entreprises/Nestle-commercialiser-cafe-Starbucks-2018-08-28-1200964527

[4]https://www.bloomberg.com/news/terminal/P8CJECMEQTXC

[5]https://www.lexpress.fr/actualite/monde/nestle-debourse-7-milliards-de-dollars-pour-exploiter-starbucks_2006575.html

[6]https://lexpansion.lexpress.fr/actualites/1/actualite-economique/nestle-boucle-la-transaction-avec-starbucks_2032738.html

[7]https://www.lsa-conso.fr/starbucks-lance-une-offre-de-capsules-compatibles-nespresso,244143

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