Date
23 September 2018
The US$5.1 billion Costa deal is Coca-Cola's first attempt to expand into the coffee business. Photo: Bloomberg
The US$5.1 billion Costa deal is Coca-Cola's first attempt to expand into the coffee business. Photo: Bloomberg

How UK coffee chain Costa fits into Coca-Cola business

Coca-Cola has announced a deal worth US$5.1 billion to acquire British coffee chain Costa coffee, marking the first attempt by the world’s largest beverage company to expand into the coffee business.

Coca Cola has a history of 133 years and a market capitalization of over US$190 billion.

Last year, Nestlé paid US$500 million to acquire a 68 percent stake in Blue Bottle, a high-end specialty coffee brand in Silicon Valley. And in August this year, the Swiss-based company announced a US$7.15 billion licensing deal to sell Starbucks’ packaged coffee and tea products around the world.

Costa was founded in London in 1971. It targets the same clientele that Starbucks has. Costa now has around 4,000 outlets across the world, compared with 14,000 stores owned by Starbucks.

One of Costa’s biggest attractions is its self-service coffee chain Coffee Nation, which it acquired in 2011.

Including those of Coffee Nation, Costa now owns over 8,000 self-service coffee bars, located in gas stations, department stores, universities, hospitals and carparks.

Customers can order a cup of espresso, long black, latte, mocha or cappuccino from these self-service coffee machines, which provide better quality coffee than canned ones. Costa saves a lot in rental and labor costs, and these outlets run 24/7.

Starbucks has been trying to tap into this coffee market but has yet to achieve any progress.

As customers are increasingly aware of the importance of a healthy diet and begin to stay away from beverages with high sugar content, Coca-Cola has been diversifying into low-sugar products such as Zero, Light and Clear to adjust to the changing consumer behavior.

It has also introduced fresh juice, Vitamin water and other healthy beverages. With Costa on board, coffee would become another important income source for Coca-Cola.

This article appeared in the Hong Kong Economic Journal on Sept 3

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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