Walk the streets of London, or any major British city, and you’ll inevitably run into Costa Coffee, the retail chain trailing only American giant Starbucks in number of outlets globally.
More than half of Costa’s 4,000 stores — plus another 7,000 Costa Express machines — are concentrated in the U.K., but the brand has also brewed up an expansion into 31 international markets including China, where it plans to open 1,200-plus outlets by 2022 to offset flagging sales at home.
Parent company Whitbread PLC had announced plans to spin off the brand in April. That’s working out to the benefit of Atlanta-based Coca-Cola Co., which on Sept. 4 said it had agreed to buy Costa for £3.9 billion, or about $5.1 billion at current exchange rates.
As Coke diversifies away from its classic “sparkling” beverages (soft drinks) now increasingly eschewed by health-conscious consumers, it’s balancing portfolio spread across categories like water, milk, juice and more. Coffee, by some counts the world’s most popular drink, is another natural fit, as well as an area where Coke has limited exposure.
Coca-Cola’s Georgia Coffee is a strong brand in Japan, especially in the canned segment, but executives think Coke’s global coffee business will soar to new heights as they capitalize on Costa’s expertise in sourcing, vending and serving customers face-to-face in stores. The market globally is still fragmented, Coke believes.
“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola President and CEO James Quincey in a news release. “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.”
Mr. Quincey said in a note published on Coke’s website that coffee is the best performing of the coveted hot beverages sector, growing at 6 percent per year.
He added that Costa shouldn’t expect massive changes in how it operates.
“It’s very important to me that we let Costa be Costa. We’ll operate Costa with our successful, connected-but-not-integrated model within Coca-Cola,” Mr. Quincey wrote.
Costa made $312 million in pre-tax profit on $1.7 billion in global sales last year.
The deal is subject to shareholder approval by Whitbread and antitrust approval by both the European Union and China.
Its announcement comes days after Starbucks, the behemoth of the global out-of-home coffee sector, was revealed to be the suitor code-named “Project Yogurt” finalizing plans for a 500-job corporate office in Atlanta.