Coca-Cola to buy Costa coffee chain for $5.1 billion


While Canadians might not yet be familiar with the brand, they might soon be introduced. Coke recently took a stake in sports drink maker BodyArmor to compete with Gatorade, and Pepsi announced that it is snatching up DIY seltzer maker SodaStream.

The latest acquisition is a continuation of the diversity push.

The deal comes hot the heels of another big money acquisition in the sector. "A significant majority" of the proceeds will be given to the shareholders, the firm added. In 2006 there were 10,000 coffee shops in the United Kingdom; there are now 24,000, according to Allegra World Coffee Portal. Costa would also be able to expand into ready-to-drink categories using Coke's expertise and marketing heft, making the two businesses "remarkably complementary".

The $5.1 billion deal that gives Coca-Cola instant heft in the coffee industry began on the sidelines of the Microsoft CEO Summit. Coca-Cola pitched the deal as a way to gain exposure to the fast-growing coffee segment.

While Coca-Cola does serve ready-made coffee from vending machines in Japan, it does not have a hot-drink category.

"In short, coffee is a big business with many formats".

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The deal also puts the India business in a piquant situation. "No single company in the world has a strong foothold across all parts of coffee, and that includes Coca-Cola".

Coca-Cola needed a coffee fix, but it could have gone for a better brew. DIL said it was too early to comment. The coffee shop chain "is determined to realise its strong potential overseas".

"This transaction is great news for shareholders as it recognizes the strategic value we have developed in the Costa brand and its global growth potential and accelerates the realization of value for shareholders in cash", said Alison Brittain, Whitbread's chief executive.

The British company Whitbread is selling Costa for £3.9 billion, or R74 billion.

Its current owners, Whitbread, are selling the chain in order to focus on their Premier Inn hotel business.

Coke is under pressure to establish itself in new markets, with annual sales that have been in decline since 2012. The out-of-home coffee market is not one to be underestimated. It's "great news for shareholders", but critics say it's bad for Britain.

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Quincey said in a call with investors Monday that millennials are willing to spend their money on drinks but are looking for more diverse options.

Richard Horwell, MD of Brand Relations, predicts this could cause friction with Starbucks, which now has a "strong relationship" with Coke.

Costa Coffee has sought worldwide expansion in recent years, particularly in China, as it looked to offset declining sales on British high streets.

JAB added the United Kingdom -based food-and-coffee chain Pret A Manger in a $2 billion deal earlier this year, following its past acquisitions of high-end coffee brands Peet's and Stumptown.

But Coca-Cola will face a fight, as rivals are also bulking up in a fragmented market, keen to attract young people prepared to pay out for barista-made drinks and developing tastes for ever more exotic coffees.

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