An analyst says the beverage giant's acquisition of Costa Coffee provides a route into the lucrative China market.
Coca-Cola Company has announced that they have bought Costa Coffee from its parent company, Whitbread PLC, valued at US$5.1 billion.
According to Coca-Cola, this will give them a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion.The deal is expected to close in the first half of 2019.
“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” Coca-Cola president and CEO James Quincey said in an announcement.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform,” he added.
Meanwhile, Whitbread said that the money will be directed to the group’s reduction of debts, contribution of pension funds and for the further expansion of Premier Inn in UK and Germany.
They also believe that the acquisition is a sign that they have made Costa earn a recognised strategic value in terms of its brand’s strength, multi-channel presence and international growth potential.
“The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders. Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn,” Alison Brittain, Whitbread CEO, said.
Quincey further commented that Costa has the ‘right’ number of stores for building brand profitability across the four coffee segments: coffee shops, coffee vending, ready-to-drink coffee and at-home.
“They have developed the pieces of the puzzle that will allow us to put them together with the rest of our portfolio, whether its bottles or fountain or our own vending, and be much better beverage providers to our customers in many channels,” Quincey said.
Costa’s potential for international growth
Jonathan Davison, beverage analyst at GlobalData, surmised that Costa’s potential growth internationally is what Coca-Cola sees in the brand.
“The chain might be the biggest in the UK, but it lags well behind Starbucks globally. Coca-Cola’s distribution muscle will no doubt help close the gap and boost sales significantly in the long run,” he says.
Another factor is said to be the brand’s 449-outlet presence in China where the volumes of hot beverages have doubled in the past five years. GlobalData says retail sales of hot drinks in China alone will hit US$34.2 billion by 2022.
“Global expansion will no doubt start there,” Davison added. “Another factor at play is the company’s ready-to-drink (RTD) coffee business. This is a sector in which chief rival PepsiCo has already partnered with Starbucks, so this acquisition offers a potential platform to boost Coca-Cola RTD brands such as Honest Coffee.”
(Photo credits: Coca-Cola Facebook and Costa Coffee website)
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