By Joyce Yu
Coca-Cola announced to buy UK coffee chain Costa Coffee for £3.9 billion ($5.1 billion), putting itself in direct competition with Starbucks and several other global coffee brands.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand,” UK born Coca-Cola CEO James Quincy said on Friday. ” Costa gives us access to this market with a strong coffee platform.”
With consumers becoming more health conscious by shifting away from soda which have long underpinned Coke’s business empire, the company’s sales have been falling for the past five years. The latest deal — Coke’s biggest acquisition in almost a decade is another evidence of Coke’s spending appetite to keep up with changing tastes. Shares of Coca-Cola fell more than 1% following the news while its future competitor Starbucks gained slightly by 0.4%.
Costa has opened more international stores over the last three years against competition from Starbucks, particularly in China. Its extensive retail network is one of the key considerations of the deal. With nearly 4,000 stores across 32 countries, Costa will bring with it “a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion,” Coca-Cola said in a statement.
Landscape of the soft drink sector has experienced significant changes recently. Earlier this year, Nestle and Starbucks forged a $7.2 billion global coffee alliance, where Nestle will market, sell and distribute Starbucks products outside its stores worldwide. JAB, the Luxembourg-based holding company that owns brands like Krispy Kreme and Peet’s Coffee, acquired UK sandwich and coffee chain Pret A Manger in May. Another of JAB’s coffee brands, Keurig, merged its business with Dr Pepper Snapple, a US soft drink company, in January.
“Costa is a good fit — and the best way — for Coca-Cola to add a global coffee platform that will complement our existing system,” James Quincy noted. Whitbread, which acquired Costa in 1995, said it will use proceeds from the sale of the coffee business to expand its other big brand, Premier Inn hotels. The deal, which is expected to be completed in the first half of 2019, still needs to get approval from shareholders and regulators.