Coca-Cola weighs sale of Costa Coffee amid rising costs and competition
Costa Coffee might change ownership again after it was revealed that Coca-Cola has met with potential buyers to discuss a discounted deal to sell the chain.
The American soft drinks company is reportedly collaborating with bankers on a review of Costa, the UK’s largest coffee chain, which could lead to its sale.
Coca-Cola had high aspirations for the Costa brand when it purchased it in 2018 from Whitbread, the owner of the Premier Inn hotel chain, for £3.9bn. However, the chain has struggled with rising costs, including the increase in coffee bean prices, and heightened high street competition.
According to City analysts, the sale of Costa could result in a multibillion-pound loss for Coca-Cola. One analyst told Sky News, which first reported the sale discussions, that it could fetch only £2bn, nearly half of what was paid for the business.
Coca-Cola’s chief executive, James Quincey, informed investors last month that Costa had “not quite delivered” and was “not where we wanted it to be from an investment hypothesis point of view.”
He added that the company was “in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category.”
Coca-Cola is said to have engaged in talks with a small number of potential bidders, including private equity firms, according to Sky News, which cited unnamed sources.
The investment bank Lazard is reportedly assisting Coca-Cola in reviewing options for the chain and gauging interest from buyers. Preliminary offers are expected in early autumn, although the report noted that the drinks maker could decide not to proceed with a sale.
Costa has more than 2,000 outlets in the UK and nearly 18,000 employees. However, in addition to rising costs, it has faced competition from upscale rivals like Pret a Manger and Gail’s.
Costa generated £1.2bn in revenue in its 2023 financial year, according to the most recent annual accounts filed at Companies House, an increase of 9% from the previous year. However, it reported a pre-tax loss of £9.6m, compared to a profit of £245.9m the year before. Costa attributed the loss to inflationary pressures and write-downs on the value of some investments.
Costa, which was founded in 1971 by Italian brothers Sergio and Bruno Costa, was sold to Whitbread for £19m in 1995. When Coca-Cola acquired the business, Quincey said there were “great opportunities for value creation.”
While Costa’s financial performance has been mixed, it paid out £85m in dividends to its owner last year.
Coca-Cola and Lazard were approached for comment.
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