Coca-Cola to acquire Costa Coffee for $5.1bn

Costa was founded in London in 1971, and is now the world's second largest coffee chain. 

It is the leading coffee company in the UK with a growing footprint in China and more than 30 other countries. “The acquisition of Costa will give Coca-Cola a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion,”​ says Coca-Cola.

The acquisition of Costa Limited from parent company Whitbread PLC is valued at £3.9bn ($5.1bn). Costa operations include its brand, nearly 4,000 retail outlets, a coffee vending operation, for-home coffee formats and Costa’s roastery. Costa also has Costa Express, which offers barista-quality coffee at on-the-go locations.

“Costa, in various formats, has the potential for further expansion with customers across the Coca-Cola system,”​ says Coca-Cola.

Coca-Cola and coffee​

Whitbread bought Costa Coffee from founders Sergio and Bruno Costa for £19m ($25m) in 1995, when it had 39 outlets. Today that has grown to nearly 4,000 outlets: of which around 2,400 are in the UK and the rest in overseas markets.

Whitbread announced its intention to split off Costa as a separate business earlier this year. 

Coca-Cola sees coffee as a ‘significant and growing segment of the global beverage business’. However, it points out that no single company operates across all formats worldwide, with the market largely fragmented.  

Coca-Cola’s coffee portfolio already includes market-leading Georgia in Japan, plus other coffee products worldwide. 

James Quincey, Coca-Cola President and CEO, said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide. ​

“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.”​

Whitbread shareholder approval is expected to take place by mid-October. The deal is subject to customary closing conditions, including antitrust approvals in the EU and China.

The deal is expected to close in the first half of 2019.

Coca-Cola: Not just about Coke

Coca-Cola has pledged to become a 'total beverage company' - moving beyond soda and into other beverage categories - and nothing illustrates this better than its acquisition of Costa. 

Acquisitions have to date have included a broad spectrum of beverage categories: such as Latin American soy-based beverage AdeS​ ​(2017), premium sparkling mineral water Topo Chico (2017), and RTD tea Honest Tea (2011), as well as taking a minority stake in cold-pressed juice Suja Juice​​ (2015). 

It is also experimenting with other beverage categories in-house: such as with a lemon flavored alcoholic beverage in Japan.​​ 

But by acquiring the world's second-largest coffee chain, Coca-Cola is taking a particularly huge leap into coffee: a promising category that resonates with today's trendy millennials and energy-seeking consumers. As Coca-Cola CEO James Quincey points out, coffee is a category where Coca-Cola only has a relatively small presence - but that will all change once this transaction is complete. 

Thanks to Costa's strong consumer base across Europe, Asia Pacific, the Middle East and Africa, Coca-Cola sees Costa as a strong launchpad for expansion in the coffee category worldwide. 

And Coca-Cola's acquisition  - which comes just days after Nestle gained the rights to Starbucks' retail coffee​​ brand in its third biggest acquisition ever - is a reminder that the coffee category is really heating up. 

Pic:istock/brebca