As some of you may know, I’m a former Nestlé executive. I learnt a lot there, met many great people and parted on good terms several years ago.
Whilst I follow many companies in the consumer products industry, one I follow very closely is my former employer.
Last week Nestlé produced very strong third quarter sales, up 6.5%. As I write the stock is up over 8% YTD.
Notably the sales of Starbucks were up over 15%. Whilst Nestlé doesn’t explicitly break out the Starbucks sales, in 2020 they were quoted at CHF2.7b, around US$2.8b.
Starbucks sales are around 3% of total Nestlé revenue. It sounds small but actually that’s a very big number.
The Starbucks brand is a huge bonanza. Nestlé was granted the perpetual rights, yes that’s my emphasis, to market Starbucks packaged coffee and food service products globally in 2018.
Nestlé paid around $7.2b and I imagine is paying annual royalty fees too. However coffee is highly profitable. For example the Nespresso business, which sells a significant amount of Starbucks is said to make over 85% gross margin.

It’s easy to see the very rapid return on investment for this deal. And that number doesn’t factor in the increased leverage Nestlé has with the retail trade on pricing and critically space management; every additional facing for a Nescafé or Starbucks coffee is one less for Nestlé’s competitors.
Starbucks was attracted to Nestlé because of its global reach and penetration.
Over half of Starbucks stores are in North America. Besides these markets Starbucks is strongest in China, Japan and then Britain.
If you’re sitting in Seattle there are huge white spaces where Starbucks has simply yet to land.