Analysis

Could Coca-Cola's Costa move signal a US coffee raid? - Analysis

Most popular

What will be Ian Curle's Edrington legacy?

'Healthy alcohol - the trend to watch in 2019?

The beer category in 2019 - just-drinks predicts

Is craft spirits approaching a reset moment?

MORE

Last week's announcement by The Coca-Cola Co that it will spend US$5.1bn on the Costa coffee chain shifts the paradigm in the global drinks industry, according to one analyst. At the same time, many questions remain about the future direction of Coca-Cola as it looks to operate in the retail channel.

Since assuming leadership of Coca-Cola in May last year, James Quincey has made clear his intention for the group to become a "total beverage company". Does this term now stretch to being a seller of drinks as well as a brand owner? 

Last week's acquisition appears to confirm this as the case.

Speaking after the announcement, Quincey was keen to sing the retail channel's praises. "Retail shops are important for sales, of course," he said on Friday. "They're also pivotal in building a brand so it can have even more success beyond its own stores."

Why is The Coca-Cola Co buying Costa? - Comment

In acknowledging the "paradigm shift" in a note to clients last week, SIG Susquehanna analyst Pablo Zuanic pointed out the expansion of Coca-Cola's total beverage strategy to include hot beverages. "So far, in what relates to coffee," he writes, "the focus, for the most part, has been on (cold) RTD coffee via licencing agreements in the US (Dunkin, McCafe), a very nascent strategy in Europe (using the Honest brand in RTD coffee) and, of course, in Japan via the Georgia brand.

"Something must have (forced?) led the company to decide a long-term coffee strategy in hot/cold coffee would not be viable without Coca-Cola owning a (some) 'hot coffee' brand(s)."

In another client note on Friday, Ali Dibadj at Bernstein posed some questions for the future:

  • Will the Costa brand resonate outside its current footprint?
  • What will be the impact of foodservice relationships now that Coca-Cola has become a competitor too?
  • How will Coca-Cola organisationally balance "leaving Costa alone" and "helping it expand"?
  • What will happen to Coca-Cola's current coffee brands?
  • What other categories could be part of Coca-Cola's "total beverage" strategy?

One final point: Coca-Cola's Costa play does nothing new for the group in the US, where Costa isn't present. Following Coca-Cola's definition of its strategy to a logical conclusion and, considering its ongoing relationship with the Dunkin business – Coca-Cola coolers are present in all Dunkin stores – then Zuanic suggests: "Dunkin …  would become a very logical move for Coca-Cola."

US investors may want to give their brokers a call around about now.


Related Content

The Coca-Cola Co targets Costa's retail power with US$5.1bn coffee chain takeover

The Coca-Cola Co targets Costa's retail power with US$5.1bn coffee chain takeover...

Why is The Coca-Cola Co buying Costa? - Comment

Why is The Coca-Cola Co buying Costa? - Comment...

This week in soft drinks & bottled water, featuring more on Coca-Cola's Costa purchase, PepsiCo's recycled plastic pledge and Powerade's sports-based push in Australia

This week in soft drinks & bottled water, featuring more on Coca-Cola's Costa purchase, PepsiCo's re...

Coffee and doughnuts – Will The Coca-Cola Co’s Dunkin’ Donuts move pay off? - Comment

Coffee and doughnuts – Will The Coca-Cola Co’s Dunkin’ Donuts move pay off? - Comment...

Oops! This article is copy protected.

Why can’t I copy the text on this page?

The ability to copy articles is specially reserved for people who are part of a group membership.

How do I become a group member?

To find out how you and your team can copy and share articles and save money as part of a group membership call Sean Clinton on
+44 (0)1527 573 736 or complete this form..



Forgot your password?