Coca-Cola to purchase Costa Coffee for €4.4bn

Kate Holton and Martinne Geller.

Coca-Cola has agreed to buy coffee chain Costa for £3.9bn (€4.4bn) to extend its push into healthier drinks and take on the likes of Starbucks and Nestle in the booming global coffee market.

The purchase from UK’s Whitbread of Costa’s almost 4,000 outlets thrusts the world’s biggest fizzy drinks company into one of the few bright spots in the sluggish packaged food and drinks sector.

Paying about £1bn more than some analysts had expected, Coke will use its distribution network to supercharge Costa’s expansion as it chases current coffee chain market leader Starbucks and its almost 29,000 stores across 77 markets.

Beyond coffee shops, Coca-Cola chief executive James Quincey, himself a Briton familiar with the UK brand,

said Costa would provide an important growth platform ranging from beans to bottled drinks in what is one of the world’s fastest-growing drink categories, growing around 6% a year. Coke sells Georgia coffee in Japan, but wanted a bigger platform.

“Coca-Cola doesn’t have a broad, global portfolio in this growing category,” said Mr Quincey, highlighting Costa’s retail footprint, roastery, supply chain, and Costa Express vending system, which the company plans to expand.

But Coca-Cola will face a fight, as rivals are also bulking up in a fragmented market, keen to attract young people prepared to pay out for barista-made drinks and developing tastes for ever more exotic coffees.

Operating a retail chain marks a new challenge for 132-year-old Atlanta-based Coca-Cola, which mostly sells soft drink concentrates to a network of franchised bottlers.

In the key US market, an expansion of Costa shops into the country would be a threat for Starbucks, McDonald’s, and JAB, which owns a string of chains including Peet’s and Caribou. Meanwhile, a roll-out of canned or bottled coffee drinks through Coke’s bottling system could upset the dominance of a joint venture between Starbucks and PepsiCo.

The purchase of the biggest coffee chain behind Starbucks adds to Coca-Cola’s drive to diversify away from fizzy drinks and expand its options for increasingly health-conscious consumers, after countries started introducing sugar taxes.

Reuters

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