Success does leave clues and when two global leaders combine forces for a common goal odds are very good that success will follow. In the case of Nestle’ and Starbucks partnership there is a new platform positioned to move both brands from good to great industry positioning according to Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions®.
The partnership between Starbucks and Nestlé is a $7bn licensing deal that brings two of the coffee industry’s biggest companies together to create an alliance that will edify both firms’ bottom line according to Johnson. According to Johnson, “Brand relevance is in part driven with innovation in new food products in combination with new avenues of distribution all of which are the platform for the new electricity.”
Johnson stated “that in my minds-eye the new electricity must be very efficient for the supply and includes such things as new distribution, grocerant consultants, urban farming, marketing. This program has all of that.
Foodservice retailers to survive the next generation of retail must embrace the artificial intelligence revolution while simultaneously embracing fresh food that is portable, fresh, with differentiation that is familiar not different. That will require brands to embrace new fresh food partnerships more now than ever before according to Johnson.
In this case for Nestlé, the deal offers an opportunity to move seriously into the US coffee market, where its footprint has up until now been weak. It also gives it a better opportunity to compete with rivals, including JAB, a private equity company that is now the second biggest retail coffee business in the world after deals to buy Kenco, Douwe Egberts and Keurig, as well as coffee chains including Peet’s and Espresso House.
At first glance it might seem strange that Starbucks would want, or need, Nestlé’s help to sell coffee. It is already the biggest coffee shop chain in the world with a brand equity that you would think would make selling in retail easy. The fact is, Starbucks’ traffic growth has been slowing amid competition from fast-food chains such as McDonald’s pushing more aggressively into the market and more premium (and often independent) coffee shops.
Starbucks now needs to focus its attention on returning its core retail store business to growth. And while retail is a major opportunity, building up this side of the business on its own would have been a distraction and taken a lot of investment in both time and money according to many published reports.
The Nestle / Starbucks deal is a classic licensing arrangement, in that extremely large amounts of money are changing hands for apparently no tangible assets. Nestlé will pay Starbucks just over £5bn to enable it to exclusively sell the Starbucks brand of coffee beans, capsules and ground coffee products around the world. That money is, without question, the greatest benefit of brand equity. It’s 100% marginal income and comes without any expectation that Starbucks will provide any form of product to aid Nestlé in its business.
Now remember that Starbucks will then receive a fixed proportion of Nestlé’s sales of Starbucks coffee in the form of quarterly licensing income. While no-one but the top brass will know the final levy, it is almost certainly going to be 3% of retail price. So, for every £8 bag of Starbucks coffee that Tesco sells next year, 100% of it will come from Nestlé but 24p from each sale will go to Starbucks.
Too many marketers scoff at licensing as a bad branding move for their brand. Get a grip in an evolving onmichannel retail world I defy them to turn down millions in pure profit every year. Where is your new electricity? Could outside-eye’s help you find the right fit to help you drive top line sales and bottom line profits?
So just what is your New Electricity? Success does leave clues www.FoodserviceSolutions.us is the global leader in grocerant niche business development. We can help you identify, quantify and qualify additional food retail segment opportunities. Has your company had a Grocerant ScoreCard completed a Grocerant Program Assessment, or new Grocerant niche product Ideation? Want one? Call 253-759-7869 Email: Steve@FoodserviceSolutions.us
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