Coca-Cola buys Costa Coffee from Whitbread for PS3. 9bn

Other suitors werent wearing the right suit or driving the right auto Alison Brittain

The soft drink giant Coca-Cola is buying the Costa Coffee chain in a near-PS4bn bargain that underlines the scale of the global coffee revolution.

The takeover will overnight turn Coca-Cola into the UK’s biggest coffee shop player and dedicate it a foothold in what is one of the world’s fastest-growing drinks categories. The global coffee shop marketplace alone is worth $165 bn( PS127bn ).

Alison Brittain, the chief executive of Costa Coffee’s owner Whitbread, said here coffee chain had been approached by a number of potential buyers but Coke’s desire to snap up the 4,000 -store chain was a” dreaming deal” for investors.

Coffee shop figures

Whitbread, which also owns the Premier Inn hotel chain, bought Costa from its founders Sergio and Bruno Costa for PS19m in 1995 when it had only 39 shops. Shares in the UK group rose on the back of the bargain, closing up more than 16% as delighted investors responded to the much higher than expected sale price.

” The other suitors weren’t wearing the right suit or driving the right vehicle ,” explained Brittain of the other approaches it received.” It’s Coke we decided to go up the aisle with, with a very large ring on our finger .”

The takeover is the latest in a series of blockbuster bargains as drinkings manufacturers reinvent themselves for an age in which the sugar-laden soft drinks that constructed their names are in decline. PepsiCo recently bought the fizzy beverages maker SodaStream while the Swiss food giant Nestle has struck a $7.3 bn deal to license Starbucks-packaged coffees and teas around the world.

The UK could be nearing peak coffee, however, with the increasing numbers of stores growing from 10,000 in 2007 to 24,000 today, according to analysts at Allegra World Coffee Portal. There are nearly twice as many Costa Coffee branches in the UK as there are Starbucks and almost four times the number of Caffe Neros.

Alison
Alison Brittain, the chief executive of Costa Coffee’s owner Whitbread, said:’ It’s Coke we decided to go up the aisle with, with a very large ring on our thumb .’ Photograph: Nick Ansell/ PA

For Coca-Cola the prize is a global one, as demand for coffee grows at 6% a year, far ahead of its traditional soft drink heartland where sales are under pressure as consumers seek out healthier drinks. In potentially huge marketings markets such as China, the coffee culture is still in its infancy.

” They[ Coca-Cola] have no coffee in their scope ,” Brittain explained.” You could see Costa utterly everywhere, in vending machine, hotels, eateries, pubs, cafes- in all the places you assure Coke today .” Alongside the world-renowned Coke beverages, Coca-Cola’s fizzy brands include Fanta and Sprite, while its healthier products include Abbey Well water and Innocent smoothies. Last year Coca-Cola posted sale of $35.4 bn, while Costa’s revenues were PS1. 3bn.

When the bargain completes in the first half of next year Coke will own 4,000 Costa stores in 32 countries, with more than 2,400 of those in the UK, as well as more than 8,000 self-serve Express machines.

” Hot beverages is one of the few[ drinks] segments where Coca-Cola does not have a global brand ,” James Quincey, Coca-Cola’s British-born chief executive, said.” Costa devotes us access to this marketplace with a strong coffee platform .”

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Coca-Cola’s move into coffee comes in the same week the government once again set fizzy beverage manufacturers in the spotlight over their role in the health of young person. On Wednesday the government announced a ban on the sale of energy drinkings such as Relentless, which is owned by Coke.

Angus Grierson, the managing director of the advisory firm LGB Corporate Finance, said the lightning speed the deal was done- it was brokered in five weeks- reflected theurgency with which Coca-Cola wanted to reduce its reliance on sugary drinks.

” The bargain is an attempt to adapt speedily to changing savors , notably the continuing rise in popularity of coffee, particularly among millennial customers ,” Grierson said.” Customer are choosing lower-sugar ranges of soft drink more than they ever have, with sale of sugary drinkings declining rapidly, down 11% in 2018, thanks in part to the introduction of the UK’s first-ever sugar taxation .”

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