The Coca-Cola Company has announced its acquisition of Costa Coffee. This coffeehouse company based in the United Kingdom is the largest coffee chain in Europe and the world's second largest coffee chain after Starbucks.
China has the second largest number of Costa Coffee branches worldwide with 459. Only the UK has more branches (2,467).
The $5.1 billion acquisition of Costa Coffee will give Coca-Cola its first coffee brand and a massive one at that. Costa Coffee currently owns 4,000 Costa coffee houses in 32 countries. More than 2,400 of these stores are in the U.K., along with more than 8,000 self-serve Express machines.
Before its acquisition, Costa Coffee was a wholly owned subsidiary of Whitbread, PLC, a British multinational hotel, coffee shop and restaurant company based in Bedfordshire. It also owns Premier Inn, the largest hotel brand in the UK.
The takeover will give Coca-Cola a huge foothold in one of the world's fastest-growing drinks categories. Experts said the global coffee shop market is worth $165bn.
Coca-Cola CEO James Quincey admitted that hot beverages are one of the few drinks segments where the company does not have a global brand. He said Costa gives Coca-Cola access to this market with a strong coffee platform.
Coca-Cola's acquisition of Costa Coffee, however, brings with it a large risk factor. Data seems to suggest the coffee market in the U.K. might be close to saturation. There were more than 10,000 shops in 2007. That number has more than doubled to 24,000 today.
In Coca-Cola's favor is there are nearly twice as many Costa Coffee branches in the U.K. as there are Starbucks. Costa Coffee also has almost four times the number of Caffè Nero, another popular British coffee house.
But Coca-Cola might benefit from the fact the demand for coffee is still faster than that for soft drinks. Coffee demand is rising at six percent annually, way ahead of soft drinks. And, the coffee culture is still in its infancy in huge markets with potentially huge growth such as China.
Costa Coffee CEO Alison Brittain pointed out that Coca-Cola has no coffee in its range product range. She said one can see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes -- in all the places one sees Coke today.
Sources said this blockbuster deal was completed in all of five weeks. This rapid pace underscores Coca-Cola's desire to reduce its reliance on sugared drinks such as Coke, Sprite, and Fanta.
