friday, 31 august of 2018


Coca-Cola to buy Costa coffee for £3.9bn

Coca-Cola has paid £3.9bn to buy Costa, the UK’s biggest coffee chain, as the fizzy drinks maker becomes the latest company to tap into the hot market for coffee.

Alison Brittain, the chief executive of Costa Coffee owner Whitbread, said there had been interest from other buyers but Coke’s desire to snap up the 4,000 store chain had led to “an absolutely stonking deal” for the business.

(Photograph: Rui Vieira/PA)

Shares in Whitbread, which bought the chain from its founders Sergio and Bruno Costa for £19m in 1995 when it had just 39 shops, soared more than 15% as delighted investors responded to the much higher than expected sale price.

“They [Coca-Cola] want the coffee product, they have no coffee in their range. You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes – in all the places you see Coke today,” Brittain said. “It was when the Coca-Cola opportunity emerged that we could really see how the complementary nature of the Costa business and the Coke business would mean significantly higher value could be created in the future that would allow Coke to pay an increased price.”

When the deal 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 over 8,000 self-serve Express machines.

The UK is potentially nearing peak coffee with the number of shops growing from 10,000 in 2006 to 24,000 today, according to Allegra World Coffee Portal. There are nearly twice as many Costa Coffee branches in the UK as there are Starbucks and almost four times as many than Caffè Nero.

Coke said coffee is a “fast-growing, on-trend” category but that it is a market in which it has no major international brand.

“Costa gives Coca-Cola new capabilities and expertise in coffee,” said James Quincey, chief executive of Coca Cola. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.”

Coffee is proving hot business with Coke’s deal coming just days after Swiss food giant Nestlé started a $7.15bn deal to license Starbucks packaged coffees and teas around the world. Nestlé is looking to leverage the global recognition of the Starbucks name, with its 28,000 outlets worldwide, as the Swiss company struggles in markets including the US with its own products such as Nespresso an Dolce Gusto.

Earlier this summer Pret a Manger, the sandwich and coffee shop chain, was sold to Krispy Kreme owner JAB, a Luxembourg-based investment fund belonging to Germany’s wealthy Reimann family, for £1.5bn.

“Coca-Cola is one of the few companies in the world that could justify the [Costa Coffee] valuation,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown. “Its global reach should turbocharge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn’t have a killer brand.”

Coke’s move into coffee comes in the same week the government once again put fizzy drink makers in the spotlight over their role in the health of young people. On Wednesday, the government announced a ban on the sale of energy drinks such as Relentless, which is owned by Coke, to children in England.

Whitbread said a “significant majority” of the proceeds from the deal would be returned to shareholders. Some cash would be used to reduce its £350m pension deficit and pay down debt.

The company said it would now have “more firepower” to build and accelerate other businesses it owns including Premier Inn and Pure, the upmarket London food chain, in which it owns a 49% stake.

(Published by The Guardian, August 31, 2018)

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