According to NBC News, Coca-Cola has agreed to purchase the UK brand coffee chain Costa Coffee for $5.1 billion.
Costa, which has maintained over 4,000 stores in 32 countries, was previously owned by Whitbread, which acquired the coffee chain in 1995. Whitbread plans to reportedly use its sale profits to expand another one of their brands, Premier Inn Hotels. According to some analysts, the soda company paid around $1.3 billion more for the coffee chain than many had anticipated.
Coca-Cola CEO James Quincey says that acquiring Costa will expand the corporation’s platform and allow it grow 6 percent each year by introducing different bottled drinks and products. “Coca-Cola doesn’t have a broad, global portfolio in this growing category,” Quincey said.
Whitbread chief executive Alison Brittain told BBC that Coca-Cola is buying Costa because “they want the coffee product, they have no coffee in their range.” Brittain says that she is under the impression that Coca-Cola is acquiring the coffee chain in order to start making “ready to drink, cold brew coffees.”
“You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes – in all the places you see Coke today,” Brittain added.
Now, Coca-Cola will have to compete against other global coffee companies who are preparing to attract a younger and ever-changing consumer base.
Earlier in the year, Nestle and Starbucks agreed to enter into $7.2 billion licensing deal, allowing Nestle to sell Starbucks products outside of their usual retail stores. Additionally, JAB, which owns Krispy Kreme and Peet’s Coffee, purchased the sandwich chain Pret A Manger. Coca-Cola is also facing competition from fellow soda rival Pepsi, which recently agreed to buy SodaStream earlier this month.
Coca-Cola’s expansion of Costa Coffee shops in the United States would certainly present a threat to Starbucks and the various coffee companies owned by JAB. Managing a retail chain for the first time will also present a challenge to the soda corporation, but Quincey remains determined, noting that he has “a strong management team” and claiming that Coca-Cola will grow to be even more profitable than before because Costa is “a winning company that can go global.”
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand,” Quincey added. “Costa gives us access to this market with a strong coffee platform.”
Coca-Cola’s newest purchase demonstrates the corporation’s efforts to diversify their market, moving away from sugary drinks to a wide-ranging array of coffee products.