Coca-Cola makes a deal to acquire one of the world’s biggest coffee chains.
Plan to purchase British chain to put U.S. beverage giant in top 3 java giants
LONDON — As consumers shy away more and more from sugary soft drinks, Coca-Cola has found a new way to cater to them: Serve them coffee. The U.S. beverage titan said Friday that it planned to buy Costa, one of the world’s biggest coffee chains, for 3.9 billion pounds, or $5.1 billion, in cash.
The deal — Coke’s biggest-ever acquisition of a brand, surpassing its 2007 takeover of Vitaminwater — shows just how much the company is willing to spend to keep up with changing tastes.
The takeover will give it the third-largest player in the coffee shop industry, well behind Starbucks and just behind McDonald’s.
But Coke’s latest bet will also plunge the company deep into a war over coffee consumption, in all its forms, that’s being waged by a pair of food giants.
One is Nestlé, which owns Nescafé instant coffee and the highend Blue Bottle chain, and which recently closed a $7.15 billion deal for the exclusive marketing rights to Starbucks packaged coffee and tea. The other is JAB, the acquisitive European conglomerate that has remade the coffee industry through a spending spree.
Though Coke will gain its first significant retail footprint through the deal, the company appears more interested in using its vast distribution network to help it sell Costa products in grocery stores and to restaurants.
“The Costa brand has potential for expansion into ready-to-drink coffee across many markets globally,” James Quincey, Coke’s chief executive, wrote in a blog post about the deal Friday.
The company also supplies coffee to restaurants, and owns a coffee vending business with 8,000 machines on the market, Quincey noted.
With JAB having snapped up so many coffee shops, Coke chose an obvious target: Britain’s biggest coffee chain.
Founded as a roastery in London 47 years ago by two Italian brothers, the company was sold to British hospitality company Whitbread in 1995.
At that time, it had just 39 stores. Now the coffee business has more than 2,400 outlets in Britain and 1,400 in other markets around Europe and Asia, as well as 8,000 Costa Express self-serve machines.
What made Friday’s deal possible was Whitbread’s announcement in April that it was spinning off the Costa business, amid pressure from activist shareholders like hedge funds Elliott Management and Sachem Head, to focus on its faster-growing Premier Inn line of hotels.