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Coke Acquiring Costa Coffee

The Coca-Cola Company is becoming a major player in the retail coffee industry. It announced Thursday that it is acquiring Costa Limited, which was founded in 1971, in London and now has nearly 4,000 retail outlets, a coffee vending operation, for-home coffee formats and Costa’s state-of-the-art roastery.

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

The acquisition from Costa parent company Whitbread PLC is valued at $5.1 billion and will give Coca-Cola a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion, according to the release.

For Coca-Cola, the expected acquisition adds a scalable coffee platform with critical know-how and expertise in a fast-growing, on-trend category. Costa ranks as the leading coffee company in the United Kingdom and has a growing footprint in China, among other markets. Costa has a solid presence with Costa Express, which offers barista-quality coffee in a variety of on-the-go locations, including gas stations, movie theaters and travel hubs, according to the release.

The acquisition will expand the existing Coca-Cola coffee lineup by adding another leading brand and platform. The portfolio already includes the market-leading Georgia brand in Japan, plus coffee products in many other countries, according to the release.

Costa also provides Coca-Cola with strong expertise across the coffee supply chain, including sourcing, vending and distribution. This will be a complement to existing capabilities within the Coca-Cola system.

“The Costa team and I are extremely excited to be joining The Coca-Cola Company,” said Costa Managing Director Dominic Paul, in the release. “Costa is a fantastic business with committed and passionate associates, a great track record and enormous global potential. Being part of the Coca-Cola system will enable us to grow the business farther and faster. I would like to say a huge thank you to our customers and to everyone in the Costa team who have helped us build the business to this position, and I look forward to the next exciting chapter in Costa’s vision of Inspiring the World to Love Great Coffee.”

Howard Telford, head of Soft Drinks at Euromonitor International, called the news “interesting” saying that under current leadership, Coca-Cola is viewing itself as a “total beverage company.”

“This means entering new and emerging retail soft drinks categories outside of CSD — recently acquiring Topo Chico or this month’s investment in Body Armor, for example. It means innovation across the portfolio in areas like flavored water and RTD coffee and it means dipping a toe in the alcoholic drinks space in Japan earlier this year with a canned Chu-Hi brand.”

It also means taking a wider view of the many different occasions where people consumer beverages outside of retail.

We saw PepsiCo acquiring SodaStream and seeking a bigger presence in at-home consumption. We saw Keurig acquire Dr Pepper Snapple in the US last year — again seeking more presence across occasions,” he said.

And foodservice coffee is growing.

“Over the last five years, we’ve seen almost US$20 billion in growth from specialist coffee shops globally. We can see the success that a brand like Starbucks have had in building premium brands in their café locations and then bringing these to retail (hence the large sum that Nestle paid to license these retail brands earlier this year).”

Telford doesn’t expect fundamental changes in Costa’s presence in the short-term and thinks the business will be largely managed separately.

“Longerterm, I think there are many possible advantages for Coca-Cola,” he said. “Perhaps RTD Costa-branded beverages in the Coca-Cola system, using Costa’s expertise in bean-to-cup vending, and most importantly acquiring a true global coffee brand that has demonstrated strong growth outside the home.”

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