Coca-Cola Considers Selling Costa Coffee in Strategic Shift

Soft drinks giant eyes possible £2bn sale of UK’s leading high street coffee chain

Introduction: Costa on the Cusp of a Sale

Coca-Cola is exploring a potential sale of Costa Coffee, the UK’s largest high street coffee chain, in a move that could mark a significant shift in strategy for the Atlanta-based beverage giant. Having acquired Costa for £3.9 billion from Whitbread in 2018, Coca-Cola now appears to be reconsidering its place in the coffee market.

Reasons Behind the Potential Sale

Coca-Cola’s decision to review options for Costa comes as it continues to wrestle with the chain’s underperformance. Despite having a footprint of over 2,000 stores in the UK and more than 3,000 globally, Costa has struggled to match its pre-acquisition revenue levels.

• In 2023, Costa posted revenues of £1.22bn – a 9% year-on-year rise, but still below the £1.3bn recorded in 2018.
• Analysts speculate the chain might now fetch around £2bn – nearly half of what Coca-Cola originally paid.
• A global workforce of approximately 35,000 and operations in countries like India, Japan, Mexico, and Poland add to the chain’s substantial footprint.

Despite these challenges, Costa has returned over £250m in dividends to Coca-Cola since the acquisition.

What Coca-Cola Is Saying

Coca-Cola has engaged investment bank Lazard to handle early-stage discussions with a small number of private equity firms and strategic bidders. While no firm decision has been made, indicative offers are expected in the early autumn.

CEO James Quincey recently acknowledged the challenges on an earnings call, stating:

“We’re in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the Costa business successfully.”

This suggests that Coca-Cola remains open to either selling the business or restructuring it further.

Costa’s Place in the Market

Costa remains a dominant force on the UK high street, facing strong competition from:

• Starbucks
• Caffè Nero
• Pret a Manger (also rumoured to be seeking a public listing)
• Gail’s Bakery (targeting more premium coffee shop consumers)

Costa Express vending machines also give the brand significant reach across non-traditional locations.

However, growing consumer interest in premium and independent coffee shops has eaten into Costa’s market share and appeal.

Implications for the Market and Investors

Should Coca-Cola proceed with the sale, it would send a clear signal about the company's intention to streamline operations and refocus on its core strengths. For potential buyers, Costa offers:

• A recognised brand with global potential
• Strong infrastructure and retail presence
• Opportunities for innovation, restructuring, and growth

For Coca-Cola, offloading Costa may help shore up investor confidence by demonstrating financial discipline and adaptability.

Conclusion: Brewing a New Chapter?

The potential sale of Costa Coffee would be a defining moment for both Coca-Cola and the UK’s coffee retail landscape. Although the brand has struggled to meet expectations under Coca-Cola’s ownership, it still boasts an extensive footprint and global brand recognition.

A successful sale could unlock value for both Coca-Cola and prospective investors, while reshaping the competitive dynamics of the UK coffee market.

Whether Costa remains part of Coca-Cola’s global empire or becomes the centrepiece of a new ownership story, one thing is clear – the next few months could determine the future of one of Britain’s most recognisable high street names.

Source: (Skymoney.com)