The Coca-Cola Company, owner of the world’s sixth most valuable brand, is finally getting into the coffee shop business. For quite some time the company has been aiming for total beverage domination. A move towards coffee shop business can be seen as a logical step, but still came as a huge surprise for industry experts. The thing is, Coca-Cola is one of those companies that try to focus on their core business and rarely diversify outside one particular industry. The Coca-Cola Company was living by this strategy up until recently. Not so long ago the corporation has purchased a share in BodyArmor, a New York-based sports drinks manufacturer. Now it wants even more, looking for a full-scale project to devour. On Friday, the Coca-Cola Company has announced the purchase of UK-based restaurant chain Costa Coffee for $5.1 billion.
According to the top management, the acquisition of Costa Coffee is not about its restaurant business. Coca-Cola CEO James Quincey has stated that thanks to this purchase the company will get access to a great variety of unique products (including vending machines, to-go outlets, bottled iced coffee and roasted beans) and a wide distribution network.
However, Coca-Cola is not the only food brand to invest in coffee. Starbucks and Nestle have entered into a global strategic alliance (which means Nestle will be paying Starbucks $7.2 billion to market, distribute and sell its coffee). JAB, the company behind Peet’s Coffee, has recently reported an acquisition of Pret A Manger. Kreug, also controlled by JAB, has merged with Dr Pepper Snapple in the beginning of 2018.
According to Quincey, Coca-Cola is not going to open new Costa Coffee locations in the United States as it would have to compete with Starbucks. Instead, the company will be promoting and selling other products with a Costa label on them. Costa has over 4,000 facilities in 32 countries. As of now, the beverage company is thinking about expanding in Europe, the Middle East, Asia and Africa. Experts believe that retail presence can be beneficial for the company as a whole.
Will the acquisition be enough to refuel the Coca-Cola’s growth? One of the Warren Buffett’s favorites, Coca-Cola has demonstrated 15% growth over the course of 5 years, which is below the S&P 500 average annual growth rate for the same period. Some believe the company, lacking experience in the coffee-related fields and required resources, will fall short of its new competitors. Should the acquisition be a success, however, Coca-Cola will truly become a beverage monstrosity, selling everything from water to coffee and sports drinks.
The KO stock price can be expected to go up in the long run should the acquisition be a success. Should the new business model lack synergy, the share price can depreciate and even demonstrate negative growth for quite some time due to the loss of time and valuable resources.