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

Executives from coffee purveyor Starbucks (NASDAQ: SBUX) and packaged food and beverage behemoth Nestle (OTC: NSRGY) 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."

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Nestle. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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