Coca-Cola to buy Costa coffee as it looks to diversify beyond sugary drinks

Coca-Cola is making a move into the hot beverage market with the acquisition of Costa for £3.9bn as it looks to diversity away from its core business of sugary drinks.

Coca-Cola is acquiring the Costa coffee chain from owner Whitbread as it looks to move into the coffee market and shore up its business as sales of fizzy drinks high in sugar continue to fall.

The deal, worth £3.9bn, has been unanimously approved by Whitbread shareholders. Whitbread will now focus on its Premier Inn business, which it operates in the UK and Ireland.

Whitbread has owned Costa since 1995, when it bought it for just £19m. It has since grown from 39 outlets to more than 2,400 coffee shops in the UK and 1,400 in 31 overseas markets. It also operates nearly 8,300 Costa vending machines worldwide.

However, shareholders had been pushing for Whitbread to sell or spin off Costa so it could concentrate on its hotel and restaurant business. Whitbread revelaed plans to spin off the business in April, but has now decided a sale would be a better deal for shareholders, with the price paid by Coca-Cola higher than the likely returns from spinning it off.

Speaking on the BBC’s Today programme, Whitbread CEO Alison Brittain said the acquisition showed Coca-Cola’s desire to move into coffee because it has “no coffee in its range”. She expects Coke to use the Costa name to create a range of 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,” she said.

Diversifying beyond sugary drinks

Coca-Cola describes Costa as a “scalable coffee platform”, saying it has bought the business for its critical know-how and expertise in a fast-growing, on-trend category. It also provides Coke with knowledge of the coffee supply chain, including sourcing, vending and distribution, and the potential for expansion.

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

It also offers another sign that Coke, along with its peers, is looking to diversify away from its core business of sugary drinks. Pepsi has been similarly active on the acquisition front, recently buying SodaStream.

Michael Hewson, chief market analyst at CMC Markets UK, says: “It would It would appear that [Coca-Cola], like a lot of its peers, is looking to diversify away from its core business of sugary drinks, an area that has been increasingly attracting government ire due to a rising global obesity problem.”

Recommended

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Pete Austin 3 Sep 2018

    The problem seems to be with all sweet drinks, not just sugary drinks, so expanding into a greater variety of drinks is a good move for the long term.
    https://www.usnews.com/news/health-care-news/articles/2018-04-23/study-artificial-sweeteners-linked-to-diabetes-obesity

Leave a comment

Close

Discover even more as a subscriber

This article is available for subscribers only.

Sign up now for your access-all-areas pass.

If you're an existing paid print subscriber find out how to get access here.

Subscribers enjoy unlimited access to unrivalled coverage of the biggest issues in marketing, alongside practical advice from the digital experts at Econsultancy.

With a subscription to Marketing Week Premium you will get full access to:

> World-renowned columnists

> Analysis & case studies

> Exclusive leading-edge insight

> Carefully curated reports & briefings from Econsultancy

> Plus, much more including a £300 discount for the Festival of Marketing

Subscribe now

Got a question?

Contact us on +44 (0)20 7292 3703 or email customerservices@marketingweek.com

If you are looking for our Jobs site, please click here

Subscribers enjoy unlimited access to unrivalled coverage of the biggest issues in marketing, alongside practical advice from the digital experts at Econsultancy.

With a subscription to Marketing Week Premium you will get full access to:

> World-renowned columnists

> Analysis & case studies

> Exclusive leading-edge insight

> Carefully curated reports & briefings from Econsultancy

> Plus, much more including a £300 discount for the Festival of Marketing

Subscribe now