Coca Cola to Buy UK’s Costa Coffee for $5.1 Billion

The Coca-Cola Company has agreed to buy Costa Coffee chain for $5.1 billion (approximately £3.9 billion) including debt to extend its push into healthier drinks and take on Starbucks Coffee and Nestlé in the global coffee market. With over 2,380 coffee shops, Costa, headquartered in Dunstable, England, is the largest coffee shop business in the United Kingdom.

The purchase from Whitbread PLC’s of Costa Limited’s almost 4,000 outlets in 32 international markets the deal expands Coca-Cola’s efforts to move away from carbonated drinks and toward healthier options for increasingly health-conscious consumers, while pushes the world’s biggest soda company into one of the few bright spots in the sluggish packaged food and drinks sector.

Announcing the sale, James Quincey, president & CEO of Atlanta, Georgia-based Coca-Cola, 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 remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform.” Quincey’s coffee strategy is focused on global expansion, primarily in Europe and Asia.

The deal was unanimously agreed to by the Whitbread board to be in the best interests of shareholders, the company said in a statement. The transaction is conditional upon agreement by Whitbread’s shareholders and various other approvals, including anti-trust approvals, and is expected to be completed in the first half of 2019. London-based Whitbread acquired Costa in 1995, for £19 million when it had only 39 shops.

Howard Telford, head of soft drinks at global market intelligence firm, Euromonitor International, points out that “under current leadership, Coca-Cola has begun to view themselves as a ‘total beverage company.’ It means innovation across the portfolio in areas like flavoured water and RTD coffee and it means dipping a toe in the alcoholic drinks space in Japan earlier this year with a canned Chu-Hi brand.”

Telford says that another big occasion beyond retail is foodservice coffee. “Over the last five years, we’ve seen almost US $20 billion in growth from specialist coffee shops globally. We can see the success that a brand like Starbucks have had in building premium brands in their café locations and then bringing these to retail (hence the large sum that Nestlé paid to license these retail brands earlier this year).”

Costa Coffee is the largest global coffee shop chain globally after Starbucks and McDonald’s McCafé and has an established presence in Europe and Asia. “I wouldn’t expect fundamental changes in this presence in the short-term and I would expect the business to be largely managed separately, but longer term I think there are many possible advantages for Coca-Cola: perhaps RTD Costa branded beverages in the Coca-Cola system, using Costa’s expertise in bean-to-cup vending, and most importantly acquiring a true global coffee brand that has demonstrated strong growth outside the home,” says Telford.

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