Starbucks and Nestlé’s Global Coffee Alliance
In 2018, Starbucks and Nestlé, two of the top food and beverage consumer brands in the world, formed the Global Coffee Alliance. As a result, Starbucks became a major licensor and supplier of all the coffee products going forward, Starbucks’ brand would be represented on Nestlé’s single-serve capsule systems, and Nestlé would obtain the rights to market, sell, and distribute Starbucks’ brands packaged coffee in regional markets. This partnership also strongly emphasized both companies’ commitment to sourcing coffee ethically and sustainability as it pledged to collaborate to create “the world’s first truly sustainable agricultural product” (Starbucks, 2018). Mark Schneider, the CEO of Nestlé, happily welcomes this alliance by stating that this partnership brings together the most “iconic brands in the world of coffee. […] both companies have [a] true passion for outstanding coffee” (Starbucks, 2018).
Hearing this, you may be wondering: “hmm, aren’t Starbucks and Nestlé competitors? They are both extremely well known for their coffee and even the CEO of Nestlé states that himself…so why are these supposed enemies partnering together?” This is indeed very surprising, especially considering the fact that in 2009, Starbucks and Nestle were just battling it out in the general retail market with Nestlé having “its own line of ads contending that Starbucks is four times as expensive as Nescafé” (Lex, 2009). While this partnership between two giant competitors may seem odd, we can dive further into explaining this situation with graph theory. Let’s jump back to before their partnership!
Consider a graph of the nodes that represent the top three competitor companies in the retail coffee industry: Starbucks, Nestlé, and Dunkin’ Donuts. All three are competitors and mutual enemies (each company is enemies of the other two companies). For instance, Starbucks is enemies with both Nestlé and Dunkin’ Donuts, and the same holds true for Nestlé and Dunkin’ Donuts. They all compete against each other, trying to reach the top of the saturated coffee market. As you can see in the image below, this results in a triangle with three negative edges between the company nodes.
According to the Balance Theorem, there are two situations for a network to be completely balanced: either everyone has positive relationships or there are two groups. For instance, given a set of companies A, B, C, there is 1) three plusses meaning that the three companies have mutual positive relationships, or 2) one plus and two minuses meaning that two out of the three companies have a positive relationship, and they have a mutual enemy which is the third company (Easley, Kleinberg 120). Thus, since the graph above doesn’t have one of these two structures, the triangle is unbalanced. All the relationships between the company nodes are negative, causing stress and instability due to the possibility that two companies would join forces and go against the third, turning one of the edges into positive (Easley, Kleinberg 121 and 130). Crazy how this sounds really familiar!
Well, you guessed it – this almost perfectly aligns with what occurred with Starbucks and Nestlé. It is interesting to learn how the concern and root of tension in the previous unbalanced graph resolved and played out in real life. When Starbucks and Nestlé partnered up and formed the Global Coffee Alliance, they made a positive relationship, resulting in the graph balancing out. As shown in the image below, the relationships between the three nodes have changed from negative, negative, negative to positive, negative, negative (unstable to stable). As previously detailed, this aligns with the balance theorem because it results in two groups that dislike each other: Starbucks and Nestlé in one group against Dunkin Donuts in the other group.
This partnership against the mutual enemy, Dunkin’ Donuts, isn’t too surprising as we discussed in class how unbalanced triangles tend to naturally balance themselves out over time. Likewise, it can be reasonably inferred how Dunkin’ Donuts is the mutual enemy that prompted the alliance. They are a leading fast-food chain competitor in the retail coffee market so their lower prices have placed significant stress on its competitors (Lex, 2009). Thus, by joining forces against the mutual enemy, Starbucks and Nestlé benefitted from each other with both companies’ stocks rising after the announcement and their advancement in their sustainability goal.
Sources
Easley, David, and Jon Kleinberg. Networks, Crowds and Markets: Reasoning about a Highly Connected World. Cambridge University Press, 2010.
Lex. “ Starbucks vs Nestlé.” Financial Times, Financial Times, 29 Sept. 2009, www.ft.com/content/7e3c652c-acfe-11de-91dc-00144feabdc0.
“Starbucks and Nestlé Form Global Coffee Alliance to Elevate and Expand Consumer Packaged Goods.” Starbucks, 6 May 2018, stories.starbucks.com/press/2018/starbucks-and-nestle-form-global-coffee-alliance/?fbclid=IwAR2z4d03UH8YddrvBlgyNl1ZuvC9ICXP4x8akfINVRF4X8vspnEwVsjprD8.