Recent developments follow remarks from Coke’s CEO, James Quincey, who indicated to investors last month that the company’s “investment in Costa is not where we wanted it to be.”
In FY 2023, Costa Coffee reported a turnover of £1.2 billion, marking a 9% increase from the previous year. However, the company also faced a pre-tax loss of £9.6 million, contrasting sharply with a profit of £245.9 million in the prior year.
The Coca-Cola Company purchased Costa Coffee for £3.9 billion from Whitbread in 2018, a strategic move aimed at diversifying beyond sugary drinks.
“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” Quincey stated at the acquisition’s 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.”
Sky News reports that should Coca-Cola decide to sell Costa, it would incur a financial loss, with estimates placing Costa’s value at around £2 billion.
Why is Coca-Cola Selling Costa?
According to Julian Wilds, director at Wilkin Chapman Rollits, several factors are likely prompting the sale, including an initial overvaluation during the purchase.
“Clearly Coke overpaid Whitbread when buying Costa for £3.9bn in 2018. Competition in the high street has intensified, and the froth has gone off the out-of-home coffee market; additionally, employment and coffee bean costs have soared, significantly affecting margins,” he noted.
“The net result is that Costa with multiple outlets is not where Coke wants to be, prompting their strategic decision to exit. Unfortunately, Coke will likely have to accept a substantial discount, rumored to be as high as half the original purchase price.”
“This divestment is less about Costa Coffee’s brand failure and more about delayed returns on significant investments,” added Veena Giridhar Gopal, managing director of Search Fund sponsored by NCA.
“Store refurbishments, Express [store] rollouts, and the RTD launch have not delivered the expected uplift. Moreover, the RTD coffee category itself has faced challenges in developed markets like the UK and US.”
“Coca-Cola likely views Costa as part of a broader caffeine strategy. However, limited traction in key APAC markets complicates global scaling. Their focus now seems to be shifting toward more scalable formats that better align with Coca-Cola’s core strengths.”
“In a UK market with over 11,800 coffee shops, Costa has excelled at making coffee accessible, expanding through petrol forecourts and grocery placements in high-growth meal deals. Simultaneously, they have grown a retail coffee presence that enhances the home experience,” observed Mark Field, CEO of Prof Consulting Group.
“So why exit a sector estimated at over £6 billion with a robust growth outlook until 2030? The high street has become increasingly competitive as consumers develop a deeper understanding of coffee. New entrants differentiate themselves, targeting higher-paying customers with premium experiences ranging from food to coffee and social environments. In addition, competitors like Greggs offer significant value, heightening overall competition.”
A Great Opportunity for Prospective Buyers
“Upon reflection, Costa could have had more freedom to innovate and drive long-term coffee leadership, potentially unlocking greater profits and efficiencies.”
“In my view, any new ownership would benefit from a significant footprint and loyal following, paving the way for a revamped product offering and customer experience that aligns with the coffee-first transformation in both the food-to-go and retail segments.”
Reports indicate that preliminary discussions have occurred with several potential bidders, including Apollo, the owner of Wagamama, who are rumored to be interested in acquiring the coffee chain.
KKR, another US equity firm, has also engaged with Lazard (Coca-Cola’s advisor); however, Sky News suggests they are unlikely to proceed with a purchase.
With over 2,000 locations in the UK and more than 3,000 worldwide, Costa Coffee was founded in 1971 by brothers Sergio and Bruno Costa before being acquired by Whitbread for £19 million in 1995.
Further Movement in Coffee
In related news, Keurig Dr Pepper (KDP), owner of well-known brands such as Dr Pepper, 7UP, and Schweppes, has announced plans to acquire Dutch coffee company JDE Peet’s for €15.7 billion (£11.7 billion).
Post-acquisition, KDP plans to separate into two independent entities—one focused on refreshment beverages and the other on coffee.
After the split, KDP’s CEO Tim Cofer will lead the ‘Beverage Co.,’ while current CFO Sudhanshu Priyadarshi will become CEO of ‘Global Coffee Co.’
