Coca-Cola, Costa Coffee deal brewing

IN A USD 5.1 billion deal to close in 2019, the Coca-Cola Company said it would acquire the Costa Coffee brand, a wholly owned subsidiary of Whitbread PLC in the UK.

The leading coffeehouse chain has nearly 4,000 outlets in the UK, and is present in 31 international markets including Asia Pacific, the Middle East, Europe and Africa. In its annual report 2015/16, Costa reported it serves coffee to 27 million customers every month. This gives Coca-Cola instant expansion into the coffee market. 

Coca-Cola president and CEO James Quincey emphasizes the decision to buy Costa is a coffee strategy more than a retail strategy. In an article, Mr Quincey was quoted as saying: “It’s not about having the largest number of stores. It’s about having the right number of stores to build the brand profitably in places we want to be and synergistically work across the four coffee segments [coffee shops, coffee vending, ready-to-drink coffee and at-home].

Costa has a coffee vending business and roasting facilities which will help Coca-Cola offer more coffee options such as at-home, convenience retail, and foodservice.

In his own commentary, Mr Quincy explains the coffee deal: “Let’s start with the simplest question, which is why now. It’s because coffee helps us get into hot beverages. Coffee is one of the fastest-growing beverage categories in the world, at 6%. It’s also a category with many different elements, from vending to coffee shops to roast-and-ground to instant to pods and capsules.

“In short, coffee is a big business with many formats. It’s also a remarkably fragmented business. No single company in the world has a strong foothold across all parts of coffee. And that includes Coca-Cola. We have great brands like our ready-to-drink Georgia coffee lineup in Japan, but Coca-Cola doesn’t have a broad, global portfolio in this growing category.”