Coca-Cola digs into coffee with $7b Costa purchase

Costa Coffee

Costa Coffee

It's an unusual move. Earlier this month, Coke took a minority stake in BodyArmor, a sports drink brand. So what's in the acquisition of the UK's biggest coffee chain for Coke?

Whitbread chief executive Alison Britain said the price paid by Coca-Cola was far higher than if Costa had de-merged into a standalone company.

"There are a lot of developed coffee shops here, both in terms of physical outlets and in terms of ritual and habit", Quincey said on a call with analysts on Friday.

Other big food brands are investing in coffee too. JAB Holdings, an investment holding company, has been buying up businesses and brands associated with Peet's, Caribou, Stumptown and Krispy Kreme Doughnuts.

McKevitt notes that Coke "doesn't now have any coffee outlets in its arsenal and this is an opportunity for the business to plug that gap and tap into this growing market". Quincey said that's because Coke doesn't have the resources or the right platform to sell coffee on its own.

"Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand", Coca-Cola Chief Executive Officer James Quincey said in the statement.

Director of the Institute for Public Policy Research Tom Kibasi claims the deal is "bad news for Britain", because "Coca-Cola is one of the world's worst tax dodgers and least ethical companies".




One of the most interesting takeaways from the announcement was Coca-Cola's description of Costa's business as being part of a "fast-growing, on-trend category, [sic]" despite the fact that Costa sales slumped in the first quarter of 2018.

Coke sells coffee under the Georgia brand in Japan and has some other local products for specific markets.

London-based Costa serves its drinks in more than 30 countries in Asia, the Middle East, Africa and Europe but does not have a presence in the United States. Coca-Cola said Costa would help plug a gap.

She said that Coca-Cola, which had $35.4bn in revenues in 2017 and has market capitalisation of over $191bn, has a global scale and supply chains that would enable Costa to grow and compete against worldwide rivals in a way that would not have been possible as a standalone company. This will be the first time Coke has run a retail business, albeit at arm's length, and there are opportunities to get closer to customers by selling direct.

"Brands are interested in securing the means of distribution", he said. That makes India among the few markets in which Costa Coffee is aligned directly with a PepsiCo bottling partner. The company also operates a business of 8 000 self-service machines.

Whitbread, which also owns the budget United Kingdom hotel chain Premier Inn, says that its board unanimously approved the deal and that it expects the sale to be completed by the first half of 2019.

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