Why is Coca-Cola buying Costa Coffee for £3.9bn?

Whitbread has sold the successful Costa Coffee franchise to Coca-Cola to focus on growing its hotel chain Premier Inn

Why is Coca-Cola buying Costa Coffee for £3.9bn?

Few brands have played such a pivotal role in turning Britain into a coffee-drinking nation like Costa. Whitbread, the multi-brand company, has spearheaded the franchise’s growth since acquiring the business in 1995. Since then Costa has gone from 39 shops to having over 2,200 shops in the UK. But now it seems as if their story together is at an end.

On Friday August 31, Whitbread announced it would sell Costa to Coca-Cola to the tune of £3.9bn. The deal will enable Whitbread to focus more on the expansion of its hotel brand Premier Inn.

Commenting on the deal with Coca-Cola, Alison Brittain, chief executive at Whitbread, said she was proud of what the company and Costa had achieved together in the last two decades. However, she believed it was the last few years’ focus on growing the business into a multi-channel and international brand that has made the acquisition with Coca-Cola such a good fit. “[It] has resulted in this unique strategic opportunity to combine the Costa brand with Coca-Cola’s global scale, product and distribution capabilities,” Brittain explained. “This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas. As a result of this strategic sale our teams, pensioners, suppliers, shareholders and other stakeholders will all have the opportunity to share in the benefits.”

Coca-Cola on its part made no secret as to why the soda giant is buying the business – it’s because doing so will help it get into hot beverages. Given the coffee market is one of the fastest growing sectors in the world, with UK coffee shops having seen their turnover jump by 7.3% in the last year alone, it’s easy to see why Coca-Cola would be interested in getting its foot inside the door.

While Coca-Cola has a ready-to-drink coffee offering in Japan, it doesn’t have a broad global portfolio in the market. But by gaining access to Costa’s shops and its Costa Express vending machines , the soda giant aims to change that.

Speaking of the deal, James Quincey, president and CEO at Coca-Cola, said: “Costa gives Coca-Cola new capabilities and expertise in coffee and our system can create opportunities to grow the Costa brand worldwide.

“I’d like to welcome the team to Coca-Cola and look forward to working with them.”

The holidays may still be a long time coming but it seems as if Christmas came early for the Costa franchisees who are sure to benefit from Coca-Cola’s awesome distribution network.

Eric Johansson
Eric Johansson