A Wake Up Call for Starbucks? Coca-Cola Buys Coffee Chain Costa

In its latest move to diversify beyond soda, Coca-Cola is buying Costa, a UK-based coffee chain for $5.1 billion. The deal will give Coke access to the coffee market in Europe, the Middle East and Asia through Costa’s 4,000 stores. Coke plans to use its distribution network to further Costa’s expansion and challenge rivals like Starbucks, Nestlé, and JAB Holding Company.

Piping Hot Coffee Market

Coffee is a hot market with mergers and acquisition activity reaching $250 billion in value over the past six years. Nestlé has invested in artisanal, high-end coffees by purchasing a majority stake in Blue Bottle Coffee and acquiring Chameleon Cold-Brew in 2017. In August, it closed a $7.15 billion licensing deal to sell packaged Starbucks products. Since 2012, privately-held, Europe-based JAB Holding Company has gobbled up notable coffee brands including Caribou, Peet’s, and Keurig to build an empire of coffee and coffee-adjacent brands. JAB also acquired Panera, Krispy Kreme, and Einstein Bagels.

Meanwhile, Starbucks is focusing on the Chinese market. The world’s leading coffee chain inked a deal to collaborate with China’s tech giant Alibaba to strengthen its hold on the market and ward off local competitors. The partnership will create a “seamless Starbucks Experience” including a virtual Starbucks store on Alibaba’s platforms, a Starbucks delivery service through Ele.me, and “Starbucks Delivery Kitchens” in Hema supermarkets. Both Ele.me and Hema are owned by Alibaba.

Coke vs. Pepsi Rivalry Continues

As the world moves toward healthier products, deal activity is expected to continue in the food and beverage space. Just a few weeks earlier, both Coke and rival PepsiCo made moves to broaden their product offerings with Coke purchasing a minority stake in Kobe Bryant’s-backed BodyArmor on August 14 and PepsiCo striking a $3.2 billion deal for at-home carbonated drink maker Sodastream on August 20. If trends continue the way they have, pretty soon neither Coke nor Pepsi will be selling much of their eponymous brands.

Photo credit: Danny UK via Flickr CC BY 2.0