Coca-Cola is reportedly preparing to part ways with Costa Coffee, Britain’s largest coffee chain, as the US beverage giant reviews its options with the help of investment bank Lazard. Coca-Cola has likely already met potential buyers to explore a possible sale of the brand, which could come at a heavy loss.
The company bought Costa from Whitbread in 2018 for £3.9 billion, hoping to expand its reach in the global coffee market. But since then, Costa has struggled with rising costs, including higher coffee bean prices, and stiff competition on the high street, a report by The Guardian said.
The report further added that as per analysts, any sale is unlikely to match Coca-Cola’s purchase price, with estimates suggesting the chain could now be worth as little as £2 billion. If a deal goes through, it would mark another big change for Costa, which has already switched ownership once in the past decade.
According to a Sky News report, Coca-Cola is expected to receive initial offers for the sale of Costa Coffee in early autumn, but it is also stressed that a sale is not guaranteed. The report also said that Coca-Cola, Costa, and Lazard did not respond to questions from the news agency.
Talks of possible sale
Coca-Cola’s chief executive James Quincey recently told investors that Costa Coffee has not met expectations and has fallen short of what the company had hoped for when it bought the chain, The Guardian reported. He said that Coca-Cola is now reviewing what it has learned from the business and considering new ways to expand in the coffee market.
According to a Sky News report, Coca-Cola has held early talks with a few potential buyers, including private equity firms. The investment bank Lazard is advising the company on its options and measuring interest from bidders. Initial offers are expected in early autumn, but sources said Coca-Cola may still decide against selling.
Rising costs and failing profits
Costa Coffee, which employs about 18,000 people and runs more than 2,000 outlets in the UK, has struggled with rising costs and tough competition from rivals such as Pret a Manger and Gail’s.
The chain reported revenues of £1.2 billion in 2023, up 9% from the previous year. But it swung to a pre-tax loss of £9.6 million, compared with a profit of £245.9 million a year earlier. The company blamed inflation and write-downs on some investments for the decline.