The current retail value of the U.S. coffee market is estimated to be worth approximately $48 million dollars. Coca-Cola has historically done quite well without dipping into the coffee market, but the soda manufacturer and beverage titan just placed a large bet on coffee — a $5.1 billion bet.
According to The New York Times, Coca-Cola announced its plans to purchase Costa, one of the world’s biggest coffee chains, for $5.1 billion in cash.
Though it seems like Coke has been relatively quiet in recent years, this new acquisition is its largest in nearly a decade, proving that the company is willing to spend top dollar in order to stay atop the beverage market.
Coke’s sales have actually been falling for the past five years, but the company’s jump to coffee could be exactly what it needs to get back on top. People love coffee — and now that Coke is running Costa, they’ll be able to compete with some of the biggest coffee retailers in the U.S. and the world.
The U.S. imports around 27.5 million bags of coffee, accounting for about one-quarter of global un-roasted coffee imports, making it the world’s largest single buyer. These coffee beans are constantly being shipped across oceans in order to provide coffee-lovers with tasty and affordable drinks. Standard TEU shipping containers can hold about 3,500 shoe boxes and 40ft high containers can hold more than 8,000 — that’s a lot of coffee being shipped across nations. Now, a significant percentage of all those coffee shipments will have that iconic Coca-Cola label on the side.
“It’s more important than ever that Coca-Cola make a serious and significant investment in the category because it’s the right thing to do to serve our consumers with more of the drinks they want, which in turn helps our customers,” said James Quincey, Coke’s chief executive officer.
According to Business Insider, this deal clearly outlines Coke’s long-term plans, as the $5.1 billion purchase is actually 16 times more than Costa’s projected 2018 earnings.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” added Quincey. “Costa gives us access to this market through a strong coffee platform.”
This deal is likely to be seen as a direct challenge to the Starbucks dominance across the United States. Costa already has more coffee shops in the UK than Starbucks and has been expanding globally. In October, Costa bought out Yueda, the second most popular coffee chain in China (behind Starbucks).
“Coca-Cola doesn’t have a broad, global portfolio in this growing category,” added Quincey. “There’s a lot of coffee stores in the U.S. There’s more room for growth in Europe and Asia. This is a coffee strategy, not a retail strategy or a food strategy.”
Coca-Cola has been producing and distributing products since the 1880s. With this latest acquisition, they are certainly hoping to remain not only relevant within the global beverage sector, but the king of the caffeinehill.