Nestlé Bets on Starbucks to Revive Coffee Sales

Michael Schaefer, Global Lead, Food & Beverage:

While the retail coffee business is a profitable one for Starbucks, it represents a small portion of its overall business—above all, Starbucks remains an operator of coffee shops. All of the company’s recent moves—from selling off the Tazo tea brand, to closing down online sales of Starbucks coffee through the Starbucks e-commerce site, among others—suggest a renewed commitment to its core business.

There is a strong argument for such focus—in key markets like China, consumers spend far more overall through coffee shops than on coffee at retail, a gap which is growing. Partnering with Nestlé instantly gives the company access to a vast global distribution and marketing network for its packaged coffee products, potentially offering stronger growth in more markets, whilst allowing Starbucks to focus on brand development and coffee shop experience.

For Nestlé, the deal represents a sea change in strategy—the company has long resisted allowing outside brands access to its Nespresso and Dolce Gusto pod platforms. While “Nespresso-compatible” products have existed in some markets for years, an official Starbucks partnership is something else altogether, with the Swiss company now devoting considerable resources to marketing an outside brand. With Starbucks coffee shops serving as a powerful brand driver in key emerging markets, this move allows access to an important and growing consumer base.