Coca-Cola has chosen to enter a new market, one they feel is needed as more consumers are turning away from software drinks. The company is betting that serving those consumers coffee will help them in that endeavour and announced they have entered into a deal to purchase Costa.
Costa is one of the worlds largest chains of coffee. The deal is reported to be worth $5.1 billion and is an all-cash deal. This is the largest acquisition in Coca-Cola’s history, and that shows the extent of what the company is willing to invest in order to adjust to the changing taste buds of consumers. The purchase of Costa will place Coca-Cola as the 3rd largest in the coffee industry, behind only McDonalds and Starbucks.
Coca-Coal Set Sights on Coffee Consumption
While this announcement relates to coffee, the company is staging a war in other areas. That includes the food industry. Coca-Cola is looking into using its network of retailers and grocery chains to compete with Nestlé.
Nestlé just completed a deal that will see the company exclusively package Starbucks coffee. Nestle already has a control on the instant coffee market through their Nescafé instant coffee brand. The deal includes Starbucks tea.
With coffee sales rising around the world, Coca-Cola is setting their sights on the different ways coffee can be sold and served. This includes speciality creations to coffee pods for home consumption. It is expected that sales of coffee will increase by nearly 16% by 2022 and will outpace that of soft drinks.
Coca-Cola’s chief executive, James Quincey commented on the deal in a blog post saying, “The Costa brand has the potential for expansion into ready-to-drink coffee across many markets globally.”
Coca-Cola has been experiencing declining sales for over five years as more people are choosing healthier drinks versus soft drinks, which were a staple part of Coca-Cola’s success. This shift has impacted the industry as a whole and includes PepsiCo, Coca-Cola’s main competitor in sugary drinks.
This has caused both companies to rethink their product line of healthier drinks and snacks in order to remain profitable. PepsiCo recently closed on a $3.2 billion deal for SodaStream. That company sells a device that makes sparkling flavoured water for home use.
Costa was formed in 1971 as a roaster in London. The company was started by Italian brothers who ended up selling their company in 1995 to Whitebread, a British hospitality company. Whitebread has gone on to open over 2,400 outlets across the U.K, Asia and Europe. It also has over 8,000 machines that are self-serving throughout those markets.
While the company is most successful in the U.K, its growth has seen it make a name for itself in other countries and markets. With the vast network already in place by Coca-Cola, that growth will be increased exponentially.