Coca-Cola has reportedly launched into coffee chain business as it allegedly believes that this move will edge the company closer to a complete domination of the beverage industry. On August 31, Coca-Cola officially announced that the company had agreed to purchase Costa Coffee, a coffee chain in the UK, for the sum of $5.1 billion.
This announced move has allegedly been tagged an unusual one because the typical move is for major beverage companies to develop their portfolios through investing in ambitious startups. For instance, Coke was in the news recently for taking a stake in BodyArmor, a maker of sports drinks, to help the company chase Gatorade. Similarly, Pepsi is reportedly acquiring SodaStream, a maker of consumer carbonation product.
However, purchasing a coffee chain that has already gained popularity is quite different from those other moves. The chief executive officer of Coca-Cola, James Quincey, has stated that this acquisition borders more on getting access to the numerous products offered by Costa such as its existing vending machines, iced coffee, the beans gotten from Costa’s roastery, and less about the ownership of restaurants. While addressing investors last week, he reiterated that the move was more of coffee strategy than retail strategy.
Other Popular Brands
It is pertinent to note that Coca-Cola isn’t the only popular brand making a substantial investment in coffee.
Other major food brands such as Starbucks and Nestle are also reportedly making investment moves. Both companies reportedly conceded to have a coffee alliance worth $7.2 billion. Also, the holding company of Peet’s Coffee, JAB, reportedly purchased Pret A Manger, a UK coffee and sandwich chain sometime in May. Also in January, Keurig, another brand owned by JAB, has reportedly merged with the American soft drink company, Dr. Pepper Snapple.
Earlier, the previous attempts by Coke to include coffee as a part of its portfolio didn’t work. The CEO allegedly stated that it was because the company had insufficient resources and didn’t possess the appropriate platform to put out its own coffee for sale. This purchase of Costa has the likelihood of changing that position. He stated that as a possibility because the coffee chain will help the company attain the goal of becoming a complete beverage company that offers everything including sports drinks and water.
Effects Of the Deal
Duane Stanford, the executive editor of Beverage Digest, a trade publication, opined that the complete beverage strategy is not only about the individual consumers. He added that the strategy is also important to the food services consumers of the company with the inclusion of restaurants and movie theaters. Stanford noted that if Coffee is unable to offer that category of customers a reasonable coffee option, it could stand as a setback for Coca Cola.
Quincey expressed that the company has no plans to open several new locations in the US given that doing so would mean competing with Starbucks. Rather than that, other products offered by Costa will be marketed in America. It is worthy to mention that Costa currently has over 4,000 stores present in 32 countries. Coca-Cola is allegedly seeking to expand the Costa outlets present in other locations such as Asia, Africa, and the Middle East.
Quincey noted that additional retail stores have the likelihood of helping people develop a penchant for coffee in the regions targeted. Stanford on that issue noted that when coffee is infused into people’s routines, it would increase their inclination to purchase other Costa’s products such as iced coffee and bean.
Experts have noted that the development of a presence in the retail industry would have advantages for Coke. A Forrester Research principal analyst, George Lawrie, stated that Coca-Cola can make use of Costa stores as outlets to sell other company products such as water and juice directly to the consumers instead of having to sell through a gas station or a grocery store. Lawrie noted that most brands have an interest in securing the distribution means.
Quincey noted that the company plans to use a loyalty membership scheme known as Costa’s coffee club membership to digitally market its products to the individual consumers.
In addition, Lawrie stated that Coca-Cola could make the stores serve as pick up locations for its customers who desire to directly order products from its website. The deal, however, still needs to be approved by shareholders and the relevant regulators and it is envisaged that it would be completed early next year.