Nestle takes over sales of Starbucks in the grocery aisle

Nestle is paying more than $7 billion to buy the rights to sell Starbucks coffee and tea in supermarkets and other stores outside its coffee shops.

The deal comes with a huge price tag for Nestle, but it could pay off big for the Swiss company. Its Nescafe and Nespresso don't carry anywhere near the heft in America that the Starbucks brand does, with its $2 billion in annual sales. Nestle will also put Starbucks in grocery stores outside the U.S. and Canada.

The deal gives Nestle the rights to market, sell and distribute bags of Starbucks coffee beans, as well as its instant coffee. Nestle will also sell other brands owned by Starbucks, such as Seattle's Best Coffee, Teavana tea and Torrefazione Italia coffee, and will be allowed to put the Starbucks brand on Nestle single-serve capsules for coffee machines.

The agreement does not include bottled drinks like iced coffees and Frappuccinos that are sold in and outside of Starbucks stores.

Nestle hinted last year that it was looking at focusing on higher-growth areas like pet care, coffee and infant nutrition. In January it announced it was selling its U.S. candy business to Italy's Ferrero for approximately $2.8 billion. And last year, Nestle bought a majority stake in high-end coffee company Blue Bottle.

With the strength of the Starbucks brand, Nestle will be able to better compete against JAB Holdings, an investment holding company that has gobbled up coffee businesses and brands associated with Peet's, Caribou, Stumptown and Krispy Kreme Doughnuts.

Starbucks already has a deal with JAB, creating single-serve coffee for its Keurig brewers. Starbucks CEO Kevin Johnson said that deal is unaffected by the agreement with Nestle.

Nestle announced Monday that Starbucks Corp. will receive $7.15 billion in an up-front cash payment. Approximately 500 Starbucks employees will join Nestle, and operations will continue to be located in Seattle.

The deal is subject to regulatory approval and is expected to close by the end of the year.