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Starbucks expands retail reach in $7B deal with Nestlé

Swiss food giant to sell chain’s packaged coffee worldwide

Starbucks is expanding the global distribution of its packaged coffee and single-serve pods under a $7 billion cash deal with Swiss food giant Nestlé, which owns Nespresso and Dolce Gusto coffee systems.

Nestlé is paying Seattle-based Starbucks $7.15 billion for the rights to market, sell, and distribute at-home packaged coffee and tea for the following brands: Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia.

The deal, expected to close by Oct. 1, includes adding Starbucks-branded flavors to Nestle’s premium single-serve capsule systems: Nespresso and Dolce Gusto.

CEO Kevin Johnson said Nestle’s reach and scale will instantly amplify the brand across global foodservice channels.

“This is a big unlock for growth,” Johnson told investors during a special conference call held Monday morning to discuss the deal.

Nestlé said the Starbucks packaged coffee agreement provides a significant boost to the company’s coffee business, which is the company’s largest growth category.

"With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee,” Nestle CEO Mark Schneider said in a statement. “This is a great day for coffee lovers around the world."

Analysts noted that Starbucks’ core business would likely benefit from the additional brand exposure.

"Starbucks will gain meaningful help in market segments in which it has little-to-no presence at present, which over time should help its Starbucks-brand retail stores in those markets," said analyst Mark Kalinowski of Kalinowski Equity Research.

The deal does not include the chain’s popular ready-to-drink line of beverages. PepsiCo still distributes those drinks, which have grown into a more than $2 billion retail business.

Nestlé said about 500 Starbucks employees will join the Nestlé family as part of the deal. Operations will continue to be based in Seattle, Nestle said.

 Contact Nancy Luna at [email protected]

Follow her on Twitter @FastFoodMaven

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