October 9, 2018

Coca-Cola announced it has agreed to acquire Costa Coffee from UK beverage company Whitbread for US$5.1 billion. The bold move represents the largest brand deal in history for the company and a means to position itself in control of a global coffee platform.

Founded in London in 1971, Costa Coffee is today a major global coffee brand with a platform that stretches across Europe, Asia Pacific, the Middle East, and Africa. Assets include nearly 4,000 retail outlets across 32 countries with highly-trained staff, a coffee vending operation, at-home coffee formats, and a state-of-the-art roastery.

The addition of this business to Coca-Cola’s portfolio, which already includes the market-leading Georgia brand in Japan, will provide a scalable coffee platform that brings with it critical expertise in a rapidly growing and popular consumer category. It also will strengthen Coca-Cola’s abilities in sourcing, vending, and distribution, and will complement the company’s existing operations.

“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola President and CEO James Quincey. “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.”

Not only does Costa give Coca-Cola a foothold in markets where it previously did not have a strong presence, but it also provides a platform from which to expand on a global scale.

Coffee is one of the strongest growing categories in the world and Coca-Cola needs to expand into coffee and hot drinks,” Quincey said in recent video. “While Costa isn’t present in every region, including North and South America, over time we are looking to bring Costa to more people in more places.”

Catching the Buzz

Demand for coffee in the U.S., the biggest coffee market in the world, is on pace to reach a new record, driven by increased consumption by younger drinkers. Millennials aged between 19 and 34 account for 44 percent of U.S. coffee consumption, according to Datassentials. And despite consumption dropping from 76 percent to 64 percent for people 60 years and older, and consumption falling for those between the ages of 40 and 59, the jump in demand by younger coffee drinkers has more than made up for the shift.

Between 2008 and 2016 daily consumption of coffee by people between the ages of 18 and 24 jumped from 34 percent to 48 percent, while for people between the ages of 35 and 39, daily consumption climbed from 51 percent to 60 percent, reports Bloomberg. Additionally, young people are drinking coffee at younger ages – as early as 14.7 years old.

This year, coffee consumption in the U.S. has reached a new record, with 64 percent of adults drinking at least one cup of coffee per day. This rate is 2 percent higher than 2017, and the highest rate of consumption for the country since 2012, according to findings by the National Coffee Association, reports Food Dive.

Trends such as these have been driving major CPG companies and investors to look toward coffee for a channel for growth.

In 2015 an investor group led by JAB Holding Co. acquired Keurig Green Mountain Inc. for $13.9 billion in cash.

In May of last year, Boulder Investment Group Reprise (BIGR Ventures) led a $17 million Series B for Austin-based High Brew Coffee, maker of natural, low-calorie, ready-to-drink, cold brew coffee beverages.

More recently, earlier this month, TSG Consumer Partners acquired a minority stake in Dutch Bros Coffee, the country’s largest privately held drive-thru coffee company, for an undisclosed amount. And Congruent Ventures led a $10 million Series A for California-based Bellwether Coffee, a zero-emissions commercial roaster and online coffee bean marketplace through which customers can order beans from a curated list of coffee farms.

At the same time, Italy’s Lavazza acquired the coffee business of Mars Inc. in a deal reported by Reuters to be valued at $650 million.

Perhaps it is Nestlé, however, that has made some of the largest moves to secure its place at the top of the coffee players. In September of last year, Nestlé agreed to acquire a 68 percent stake in specialty California-based coffee roaster and retail giant, Blue Bottle Coffee, for approximately $425 million.

Over the past 15 years Blue Bottle has grown internationally to operate a total of 55 coffee shops across the U.S. and Japan by the end of this year. The company also has an online presence, selling ready-to-drink and roast and ground coffee products on the online retail market.

This acquisition, however,  is dwarfed in comparison to Nestlé’s latest announcement of its agreement to pay $7.15 billion for the right to sell Starbucks’ beams and drinks through grocery stores and retail outlets around the world.

“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mark Schneider, CEO of Nestlé. “With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner.”
While these deals are all impressive, the deal that possibly reflects the weight that investors are placing on this category and its potential for return on investment occurred in 2015, when an investor group led by JAB Holding Co. acquired Keurig Green Mountain Inc. for $13.9 billion in cash.

-Lynda Kiernan