Coke buys U.K. coffee giant Costa
As soft drinks slump, Atlanta company moves into hot beverages.
Coca-Cola has agreed to buy U.K. coffee-shop leader Costa for $5.1 billion in its biggest acquisition in eight years, pushing the soda pioneer into the fiercely competitive java market.
Whitbread agreed to sell Costa Coffee Ltd., which operates more than 3,800 stores in 32 countries, rather than go ahead with a plan announced in April to spin it off as an independent company. Whitbread shares soared the most in 19 years as analysts said the business fetched a surprisingly high price.
Coke’s annual sales have been in decline since 2012. The Atlanta-based company is entering the coffee-shop market to make up for waning soft-drink demand, even as competitors such as Starbucks Corp. and JAB have already cornered many key locations.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” Chief Executive Officer James Quincey said in the statement.
Makers of soft drinks are branching out as consumers seek alternatives to sugary sodas. Earlier this month, PepsiCo agreed to pay $3.2 billion for SodaStream Ltd., which makes carbonated-water dispensers. The Costa purchase is Coca-Cola’s biggest push into operating stores, just as weak consumption in the U.K. leads a series of retailers such as BHS out of business.
Coca-Cola’s first overture came in June, Whitbread CEO Alison Brittain said on a call with journalists. “It’s been a very fast transaction,” she said.
After missing out on the heady growth phase of coffee shops, Coca-Cola is entering when the market in countries like the U.K. and the U.S. is crowded.
Costa’s like-for-like sales in the U.K. dropped 2 percent in the company’s first quarter as the retail market weakened.
Still, Costa outranks Starbucks in the U.K. and is expanding in markets such as China.