A year on: Analysts reflect on the announcement of the purchase of Costa by Coca-Cola

28/08/2019
A year on: Analysts reflect on the announcement of the purchase of Costa by Coca-Cola

Analysts reflect on the purchase of Costa by Coca-Cola a year after the announcement of the deal.

It has been a year since Coca-Cola announced it was to buy Costa for £3.9bn.

In May this year, Coca-Cola ceo James Quincey revealed that it was working closely with the management team at Costa to accelerate plans for ready-to-drink (RTD), stores and vending machines in the UK and Asia.  He has also said that the acquisition of Costa would not see it go “head to head” with Starbucks.

By June Coca-Cola and Costa Coffee announced the first major product launch, since the soft drinks’ giant acquisition– a chilled coffee in a can for the ready-to-drink market – as Coca-Cola looks at making Costa the “world’s number one coffee business”. 

Leading analysts are predicting more activity from Costa a year after Coca-Cola announced the purchase of the brand.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said that the acquisition of Costa did not mean that Coke would suddenly be dominating the coffee sector. But she added that it would be “playing catch up” with companies such as Starbucks, whose ready-to-drink products are sold by FMCG giant, Nestlé.

“Coke hopes to introduce Costa to at least ten markets in 2020, but it will still be in the shadow of the green and white cup,” she said.

As Costa is mostly a regional brand she said it would be “interesting” to see how it will go down in international markets, she said. 

“Coca-Cola has plenty of experience in getting the most out of smaller, existing brands- and we’re seeing that with the product innovation on the Costa business,” she added. 

“This is a potentially lucrative move by Coke, but just how much of the pie it will be able to take remains to be seen,” she said.

Greg Johnson, leisure equity analyst, at Shore Capital said that the industry has not seen anything “earth shattering yet”.

He said that the coffee shop market was becoming increasingly competitive before the Costa sale with the roll out of major coffee shop chains and growth of independents.

“Costa in a way was battling a combination of a tough high street and battling falling foofall and increasingly better competition,” he said. 

He added that Coca-Cola made the purchase to diversify its drinks portfolio with the launch of its RTD and vending.

“Given their distribution capability and marketing capabilities you would have thought its plan was to take the Costa developments – trial them in the UK and then broaden it out,” he said.

 

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