---
title: "Coca-Cola Acquires Costa: To Rival Nestlé or to Secure a Way Out?"
description: "Coca-Cola has agreed to acquire Costa Coffee from Whitbread PLC for £3.9 billion (about $5.1 billion), marking its entry into the hot beverage market. The move comes as Coca-Cola faces declining carbonated soft drink sales and aims to diversify its portfolio, following Nestlé's $7.15 billion deal for Starbucks' retail business."
author: "New Distribution"
publisher: "New Distribution"
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published: "2018-09-05"
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# Coca-Cola Acquires Costa: To Rival Nestlé or to Secure a Way Out?

> Coca-Cola has agreed to acquire Costa Coffee from Whitbread PLC for £3.9 billion (about $5.1 billion), marking its entry into the hot beverage market. The move comes as Coca-Cola faces declining carbonated soft drink sales and aims to diversify its portfolio, following Nestlé's $7.15 billion deal for Starbucks' retail business.

Recently, the fiercely competitive coffee market has attracted much attention. After Nestlé completed its $7.15 billion acquisition of Starbucks' retail business, Coca-Cola, the carbonated beverage giant, could no longer sit still.
Coca-Cola announced that it has reached a definitive agreement with UK-based coffee chain Costa to acquire the world's third-largest coffee chain brand from Whitbread PLC for £3.9 billion (approximately $5.1 billion).
▲ Coca-Cola acquires Costa. Source: Coca-Cola official website
Upon hearing the news, some netizens joked about going to "Cocasta" to order a coffee-flavored Coke. Others quipped, "Starbucks must be panicking."
**Why did Coca-Cola choose Costa?**
Choosing Costa is likely a significant step in Coca-Cola's strategy to enter the hot beverage market.
Analysts point out that Coca-Cola's eagerness to enter the hot beverage market is related to the shrinking carbonated soft drink market and Coca-Cola's business transformation.
The reporter noted that in Coca-Cola's Q2 2018 financial report, its second-quarter profit fell 8% year-on-year to $8.9 billion; operating cash inflow decreased 22% year-on-year to $2.6 billion. Coca-Cola attributed the profit decline to lower volume in bottled beverage operations in North America and worldwide, while the decrease in operating cash inflow was due to higher taxes in some regions.
▲ Coca-Cola Company 2018 Q2 Consolidated Income Statement (simplified)
▲ Coca-Cola Company 2018 Q2 Consolidated Cash Flow Statement (simplified)
Facing a shrinking market, Coca-Cola has launched low-sugar products such as Diet Coke, Coke Zero, and Coca-Cola Life, hoping to win consumer attention with new health-oriented products, but with limited success. Data shows that Coca-Cola experienced revenue declines for nine consecutive quarters, and U.S. carbonated soft drink sales have fallen for twelve consecutive years.
Additionally, in April this year, the UK began imposing a "sugar tax" on soft drinks with high sugar content, and soft drink manufacturers were required to reformulate and reduce sugar content, worsening Coca-Cola's situation. It is reported that after this tax policy was implemented, Coca-Cola would need to pay about £0.1 (approximately RMB 0.9) per can in "sugar tax."
To some extent, these circumstances have forced Coca-Cola to accelerate its transformation. The "fall from grace" of carbonated drinks and the imposition of the "sugar tax" have inevitably expanded the scope of its acquisitions.
The reporter noted that in addition to the Costa acquisition, Coca-Cola has also acquired stakes in carbonated beverage brand Moxie and sports drink Bodyarmor this year. Furthermore, Coca-Cola has added brands such as Honest Tea organic tea, ZICO coconut water, Fairlife milk, and Topo Chico sparkling water to its portfolio.
▲ Coca-Cola's "Global Brand Strategy" Source: Coca-Cola official website
Regarding this foray into the coffee market, Coca-Cola CEO and President James Quincey stated that coffee, as one of the fastest-growing beverage categories globally, has different sales models in different scenarios, from vending machines to coffee shops. Coffee retail can meet consumers' needs more quickly and diversely in various situations.
Based on its positive outlook on the coffee market, Coca-Cola was attracted to Costa as a strong coffee retail platform. Additionally, Costa's mature operational experience, large customer base, and well-established supply chain and service chain deeply appealed to Coca-Cola. James Quincey said that acquiring Costa is part of Coca-Cola's "coffee platform strategy," not just a "coffee retail strategy."
**Carbonated soft drinks enter sunset industry**
**Coca-Cola's performance declines for six consecutive years**
From 2012 to 2017, Coca-Cola experienced several years of declining performance. From 2012 to 2016, Coca-Cola's revenues were $48.017 billion, $46.854 billion, $45.998 billion, $44.294 billion, and $41.863 billion, respectively.
Among these, Coca-Cola's 2017 annual report showed significant declines in both revenue and net profit. According to the financial report, net profit attributable to shareholders was $1.248 billion, down 81% year-on-year. Meanwhile, PepsiCo also suffered, with 2017 net profit of $4.857 billion, down 23.26% year-on-year.
Industry insiders believe that the main reason for the two giants' declining performance is the rapid change in the consumer market, specifically the decline of the carbonated soft drink category. Zhu Danpeng, a Chinese food industry analyst, believes that from a macro perspective, the carbonated soft drink category has lost competition to health-oriented beverages and other categories; from a micro perspective, carbonated drinks are affected by health trends and have entered a sunset industry.
For a long time, health issues related to obesity caused by cola have plagued Coca-Cola. Previously, after Coca-Cola launched its traditional Christmas truck tour in 2017, Public Health England called on city councils and shopping centers to ban the Coca-Cola Christmas truck visits to address children's growing tooth decay and obesity problems.
**Decarbonation transformation achieves results**
**All-category expansion brings better-than-expected interim results**
In recent years, in response to ongoing health concerns, Coca-Cola has been determined to reform its carbonated drinks. Last year, Coca-Cola announced the discontinuation of Coca-Cola Zero Sugar, replacing it with Coke Zero Sugar, which has already appeared in 25 countries and regions including the UK, Mexico, and the Middle East. Earlier, a "fat-burning" cola called Coca-Cola Plus became popular in Japan, gaining many fans immediately after its launch, with Japan claiming it was developed over ten years.
Coca-Cola has developed "Total Beverage" as a key part of its innovation and transformation. Before investing in BodyArmor, Coca-Cola also invested in Mexican sparkling water brand Topo Chico and coconut water brand Zico.
Coca-Cola's intention to decarbonize is clear. It is gradually moving away from the constraints of carbonated drinks and exploring non-carbonated areas, which is commendable.
At the recent Asia-Europe Expo in Urumqi, Xinjiang, Coca-Cola showcased its innovation achievements in China for the first time. Among them, all-category beverages, from sodas, fruit juices, and teas to coffee, drinking water, and milk-containing drinks, were on display. Sprite Fiber+, Coca-Cola Fiber+, Purejoy Shen Fiber Water, and the new Chuan Tea House sugar-free tea series were popular products.
Thanks to Coca-Cola's transformation efforts, the company's Q2 2018 financial report showed that both sales revenue and profit exceeded analyst expectations. After attempting all-category expansion, the company's overall beverage sales also grew.
According to the financial report, due to the ongoing restructuring of its bottling operations' franchise rights, Q2 revenue fell 8% year-on-year to $8.9 billion, but still exceeded market expectations of $8.54 billion; adjusted earnings per share (EPS) was 61 cents, also above the expected 60 cents; net income reached $2.3 billion, up 64% year-on-year.
Coca-Cola CEO James Quincey stated at the earnings meeting that double-digit sales growth of Coke Zero Sugar in North America was mainly driven by teenagers; Diet Coke also performed better this quarter than last. Quincey believes that new packaging and new flavors have played a role—Coca-Cola launched new flavors of Diet Coke in smaller cans in the U.S. and UK, and also introduced stevia-sweetened no-sugar Coke in New Zealand. Quincey said: "These changes have retained existing consumers and attracted some new customers to try."
This article is compiled from: Zhongjing Xinwei, Tencent News
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