Coca Cola buy Costa to adapt to changing tastes as sugary drinks sales slump

Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth £3.9bn. Whitbread bought Costa,  the UK’s biggest coffee chain, for £19m in 1995 when it had just 39 outlets. It now has more than 2,400 UK coffee shops and 1,400 outlets in 31 overseas markets.

Commenting on the sale, Angus Grierson, Managing Director LGB Corporate Finance said, “The substantial premium Coca-Cola is paying reflects the urgency with which the company needs to reduce its focus on sugary beverages. Customers are choosing lower-sugar varieties of soft drinks more than they ever have, with sales of sugary drinks declining rapidly, down 11% in 2018 thanks in part to the introduction of the UK’s first ever sugar tax.”
 
He continued, “The purchase of Costa is an attempt by Coca-Cola to adapt quickly to changing tastes, notably the continuing rise in popularity of coffee, particularly among millennial consumers. Coca-Cola will have its work cut out to appeal to the coffee-savvy consumer, especially with the uncertainly and added pressures associated with Brexit and consumer spending. The UK’s coffee market is expected to hit £13bn by 2022, and while increasingly lucrative, the industry remains fragmented due to the increasing number of specialised artisanal chains catering to the more discerning and less brand-centric consumer, offering healthier food, differentiated products and an atmosphere to match.”

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