UPDATE: May 7, 2018: The deal went through and was formally announced.

Dive Brief:

• Nestlé is paying $7.15 billion to Starbucks to sell the coffee chain's coffee beans and drinks in grocery stores and other outlets around the world, the companies said in a statement. The Swiss company also will pay royalties on all future sales.
• Nestlé, which already owns Nespresso and Taster's Choice brands, will add Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana and Starbucks VIA to its beverage portfolio. The business has $2 billion in annual sales.
• The purchase is Nestlé's latest move into the coffee space. Nestlé last year purchased a 68% stake in Blue Bottle Coffee and Chameleon Cold-Brew, an organic, fair-trade manufacturer of ready-to-drink coffee and coffee concentrate products. “This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mark Schneider, the company's CEO, said in a statement.

Dive Insight:

Nestlé has highlighted coffee as a growth priority, and adding Starbucks to the fold will give it a popular brand recognized by consumers around the world. It will enable Nestlé to have a bigger foothold in the ready-to-drink sector popular with consumers who value convenience — and are increasingly turning away from sugary drinks in favor of better-for-you products such as tea, water and coffee. 

An estimated 64% of American adults drink a cup of coffee each day — up 2% from 2017 and the highest level since 2012, according to a survey from the National Coffee Association cited by Reuters. In addition, nearly half of millennials said they had consumed a gourmet cup of coffee the previous day.

Nestlé​ has been repositioning its business for much of the last year in an effort to stoke growth and withstand billionaire activist investor Daniel Loeb. His hedge fund purchased about 1.25% of the company's shares last summer, and he has outlined several changes Nestlé could make, including improving margins and innovating in its core business. Nestlé, which also owns brands in the U.S such as Lean Cuisine, Tombstone pizza and Hot Pockets, recently shed its American candy business to Nutella owner Ferrero Group for $2.8 billion. 

Even before taking a majority stake in Blue Bottle Coffee and purchasing Chameleon Cold-Brew last year, Nestlé had a strong position in coffee with Taster's Choice, Nescafe and Nespresso. A purchase of the Starbucks brands will strengthen that position even more, potentially deepening its relationship with coffee suppliers and shippers and increasing its negotiating power with grocery store chains.

While Nestlé​ is the world's biggest coffee company, according to Reuters, it is the No. 5 player in coffee in the U.S. with less than 5% of the market. With coffee consumption growing domestically, having the Starbucks brand will be important to helping Nestlé​ increase that share and fortify its position in the space.

Still, the coffee space is already incredibly competitive. Coca-Cola sells Dunkin Donuts branded coffee drinks and recently partnered with McDonald's to distribute a line of ready-to-drink McCafe Frappes in grocery stores. Other brands also line shelves, including La Colombe, which reportedly is looking to sell a minority or majority stake in the premium coffee brand. Nestlé also competes with JAB, which owns Keurig Green Mountain, Peet's Coffee and Stumptown Coffee Roasters, as well as J.M. Smucker's Folgers and Kraft Heinz's Maxwell House.

The transaction appears to be a wise move for Nestlé to meet its own internal objectives. As the sale of its U.S. candy business and Monday's Starbucks deal have shown, Nestlé​ is not content to be a distant player in any particular space and is aggressively moving into areas that better position it to tap into rapidly changing consumer trends.