The Coca-Cola Company has entered a definitive agreement to acquire Costa Coffee, a U.K.-based retail coffee chain with a presence throughout Europe, Asia Pacific, the Middle East and Africa, for $5.1 billion. Costa operates nearly 4,000 outlets in addition to coffee manufacturing and vending businesses.
“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said James Quincey, President and CEO of Coca-Cola in a statement. “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.”
The deal gives Coca-Cola access to a scalable coffee footprint that is already the leading brand in the U.K. and has a foothold in China, as well as other emerging markets. The deal is subject to customary closing conditions, including antitrust approvals in the EU and China, and is expected to close in the first half of 2019.
The addition of coffee shops with long hours can offer a strong advantage for manufacturers like Coca-Cola, according to George Lawrie, VP, Principal Analyst at Forrester. The deal will help the company develop additional direct-to-consumer and subscription services, which offer greater customer lifetime value than traditional brick-and-mortar distribution channels.
“There is no question that traditional manufacturer channels are in peril as manufacturers struggle to keep pace with escalating trade fund spending, competition from retailers’ private labels and Amazon‘s entry into new markets,” said Lawrie in commentary provided to Retail TouchPoints. “These trends will drive brands to develop the capability to sell and fulfil directly to consumers. Acquiring Costa Coffee and developing it as a global chain would help Coca-Cola to forge a tighter relationship with consumers as well as providing local staging for last mile deliveries.”
Coca-Cola’s acquisition of Costa will help the beverage manufacturer compete with Nestlé, which acquired the right to distribute Starbucks coffee and tea products for $7.2 billion in May. Costa’s international presence also will help Coca-Cola develop its foodservice in regions Starbucks has not yet dominated: 60% of Starbucks cafés are concentrated in the Americas, while 11% are in Europe, the Middle East and Africa, and 28% are in China and the Asia Pacific region.