Coca Cola weighs Costa Coffee sale after bet sours

When Coca-Cola purchased Costa Coffee in 2018 for £3.9bn, the move was seen as a daring leap into the vibrant coffee market, promising to diversify the soft drink giant’s portfolio. Now, just seven years later, signs point to retreat as Coca-Cola considers selling Britain’s biggest coffee chain, with analysts suggesting Costa may fetch as little as £2bn.

James Quincey, Coca-Cola’s chief executive, recently admitted their Costa Coffee investment has not lived up to initial expectations. The company’s 2024 financial results revealed a 3 percent drop in coffee sales, driven primarily by Costa’s disappointing performance in the UK. Standalone accounts show a modest sales rise to £1.2bn in 2023, still trailing pre-pandemic levels while facing mounting costs and muted customer demand.

The cost of coffee beans has soared to record highs in 2024, exacerbating Costa’s challenges. Payroll expenses have surged due to changes in National Insurance and an increased National Living Wage, making labour costs a significant burden. Energy costs have jumped as well, magnifying the squeeze on margins for Costa’s energy-intensive outlets.

Costa’s value proposition has also faltered in a fiercely competitive market. Coffee aficionados are flocking to premium chains like Gail’s, while price-conscious consumers opt for value offerings at Greggs or McDonald’s. Costa’s pricing positions it between these two poles; a medium latte in Victoria costs £4, well above competitors across the street. Experts have also criticised its food quality and selection, arguing rivals such as Greggs, McDonald’s, Pret a Manger, and Gail’s deliver a superior food assortment at more accessible prices.

Coca-Cola has attempted to boost convenience by rolling out thousands of Costa-branded vending machines in convenience stores and petrol stations across the UK, propping up sales amid falling foot traffic in cafes. Yet, some argue this move has eroded the customer experience, replacing the personal touch and provenance story with a transactional feel that lacks authenticity.

While Costa retains national reach, opportunities for expansion remain limited in Britain’s mature coffee shop market. The brand’s push into supermarkets with canned and bottled drinks also failed to gain traction, suffering a 25 percent decline in sales in 2024 and forcing Coca-Cola to revisit its product recipe. Costa’s moderate success under Coca-Cola raises the question of whether the business would thrive better under new ownership with a sharper hospitality focus and broader portfolio synergies.

Preliminary talks have reportedly taken place with private equity firms and other prospective buyers, though no deal is guaranteed. Costa’s future now hangs in the balance as Coca-Cola weighs a strategic exit from a once-promising market.