What does a global giant need to grow? Coffee: Coca-Cola buys the coffee shop chain Costa Coffee

The global coffee shop market is estimated to be worth around $165bn (£127bn), with forecasts that this is likely to continue to grow in the future. Such large sums of money and growth forecasts have made the coffee shop industry an attractive one for many businesses.

Vanilla latte costa

The UK’s largest coffee shop chain Costa Coffee has recently announced it is being sold to the global soft drinks giant Coca-Cola for £3.9 billion. Given Costa’s current owner Whitbread bought the company from its founders Sergio and Bruno Costa for £19 million in 1995, this somewhat demonstrates the scale of growth the coffee shop industry has experienced in recent decades. The sale isn’t really a surprise, there have been discussions in the media about how Whitbread has been under pressure from investors to spin off Costa as a separate business. And as the Chief Executive of Whitbread, Alison Brittain, explained, they had been approached by a number of investors but the one from Coca-Cola offered a ‘dream deal’ for investors.

The move by Coca-Cola into the coffee market isn’t a huge surprise either. While Coca cola has a global soft drinks empire, it doesn’t have a strong coffee presence its range and so the move is seen as their way of entering the game. In a time where there is increasing pressure to reduce consumption of sugar-laden soft drinks, a move to expand their coffee range seems sensible.

Coca cola is buying a ready-made network in coffee with 4,000 Costa stores in 32 countries; 2,400 of these are in the UK, as well as 8,000 self-service machines. By buying an established coffee brand, they can use their existing distribution network to scale this up in terms of expansion of its stores, but also its products. The popularity of ready-to-drink coffee products, and in particular cold brew coffee, has been booming and since Coca-Cola specialises in producing bottled drinks, I would expect to see a proliferation of Costa branded products in Coca-Cola vending machines near you soon after the deal takes place.

Costa Coffee in the UK has experienced very rapid growth in recent years reaching just over 2,400 stores by 2018, which is twice as many as its closest competitor Starbucks. Although there have been reports that the company have experienced falling sales, blamed on falling footfall in the high streets. The UK market in terms of high street Costa stores is clearly close to saturation, but for it’s store expansion I would expect Coca-Cola to focus on Costa’s international expansion, with a strong focus on Asia where it already has started to develop a presence. As I explored in a recent journal article on the growth of coffee shop culture in China, the Chinese market presents an attractive opportunity for expansion with a growing middle class and a rising taste for coffee along side this. Costa Coffee has already outlined ambitious expansion plans for the region, and with Coca-Cola well established distribution network in the region, it seems likely that this area of the world may be where it turns its attention to expand its store network.

The recent purchase by Coca-Cola is just one of several high value moves by large companies to expand their presence in the coffee business. The investment firm JAB has made several acquisitions which expand its coffee portfolio. It already owned chains such as Peet’s Coffee, Caribou Coffee and Krispy Kreme (which while its main focus is donuts, they also sell a lot of coffee), but also acquired the US specialty coffee companies Stumptown and Intelligentsia and the UK based Pret-a-manger (for around $2 billion). There were also moves from Nestle to buy a 68% stake in the US specialty coffee company Blue Bottle for $425 million and  $7.1 billion in a deal to be able to sell Starbucks products. These are the larger moves taking place in the coffee and coffee shop industries, and there are many other smaller mergers and acquisitions taking place that are changing the way the coffee shop industry looks and operates.

These big money deals demonstrate the scale of the coffee shop industry, and the desire for companies to claim their position in the market. There is more to be written about the impact of such changes on the coffee market, and of the various mergers and acquisitions taking place across the industry. Will these moves create a homogenization of coffee culture? What impact will these moves have on coffee growers and others in the coffee supply chain? Are the forecasts for growing coffee consumption and coffee shop industry sustainable?

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