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Coca-Cola to take a run at Starbucks

Written by Tom Ryan

Photo: Costa

Marking its biggest acquisition ever and first step into retailing, Coca-Cola announced plans to plunk down $5.1 billion to acquire Costa Limited, the third-largest player in coffee retail, well behind Starbucks and just behind McDonald’s.

In prepared remarks, CEO James Quincey said the acquisition will give Coca-Cola a global brand in hot beverages in the “fast-growing, on-trend” coffee category. Expanding at a six percent annual clip, coffee offers a wide range of opportunities to expand, including:

  • Opening stores;
  • Selling beans, pods and ready-to-drink beverages to restaurants, cafes and retailers;
  • Opening vending machines at on-the-go locations (gas stations, movie theaters, travel hubs).

Costa, with a foothold in all these areas, is expected to benefit from Coca-Cola’s vast distribution network.

Coffee is also “remarkably fragmented,” according to Mr. Quincey, with no single company operating across all formats globally. Coca-Cola currently sells Dunkin’ Donuts’ bottled coffee in the U.S. and ready-to-drink Georgia coffee in Japan.

“And yes, it’s a great brand,” added Mr. Quincey. “I know many people aren’t familiar with Costa, especially if they live in North and South America, where Costa isn’t part of the marketplace. But Costa has a deep heritage, especially in its home market of the UK, where it is the leading coffee company.”

Of Costa’s 3,800 stores, 2,500 are in the UK, a greater number than Starbucks.

Asia, where Costa has about 450 stores in China, may present one of the biggest growth opportunities, should coffee become trendy in the region. In markets such as the U.S. that have many coffee shops, Coca-Cola’s opportunity overall is being able to offer “total beverage solutions” to existing customers.

“In the end, this is a coffee strategy, not a retail strategy. And so, there is opportunity for great value-creation through the combination of Costa’s capabilities and Coca-Cola’s marketing expertise and global reach,” said Mr. Quincey.

The coffee category saw a good deal of consolidation this year, including Nestlé SA’s acquisition of the rights to sell Starbucks across retail; JAB, the parent of Krispy Kreme and Peet's Coffee, acquiring Pret A Manger; and Dr Pepper Snapple buying Keurig.

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