Coca-Cola Enters Hot Beverage Market With $5.1B Purchase Of British Chain Costa Coffee

In an effort to further diversify from the soda industry, The Coca-Cola Co. KO has announced new plans to keep up ina highly competitive market. Following the news of Starbucks Corp. SBUX’s licensing deal with Nestle, as well as the merged Keurig Dr Pepper Inc. KDP, Coca-Cola has made a deal of its own.

What Happened

Coca-Cola announced plans Friday to buy Costa Coffee for $5.1 billion. As of 2016, the British coffee shop is the world’s second-largest coffee chain, according to a report by the chain’s parent company Whitbread.

Why It’s Important

Tigress Financial analyst Ivan Feinseth weighed in on the acquisition in a Friday newsletter.

“The acquisition of Costa follows Coke’s recent acquisition of sports drink maker BodyArmor in an attempt to compete with PepsiCo, Inc. PEP's Gatorade. Costa Coffee currently operates over 4,000 coffee shops in 32 countries including China,” Feinseth said.

“The Costa acquisition is a bold move by Coke as it continues trying to expand outside of its core beverage business and increase its retail presence," the analyst said. 

"I continue to remain neutral on Coke, but I like when companies continue to diversify their core businesses, and this is another interesting turn in the company’s long history." 

What’s Next

The deal positions Coca-Cola directly in the competitive coffee market, according to Feinseth, with competitors such as: 

• Starbucks.
• Nestle, which owns Nescafe and the Blue Bottle chain.
• JAB Holding Co., which owns Caribou Coffee, Krispy Kreme, Peet’s Coffee and Panera.

After Pepsi's $3-billion purchase of SodaStream earlier this month, competition in the soda industry continues to increase and diversify.

Coca-Cola CEO James Quincy commented on the intent of the Costa Coffee deal in a Friday statement. 

"Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand," Quincy said. "Costa gives us access to this market with a strong coffee platform." 

Coca-Cola shares were down 0.34 percent at $44.80 at the time of publication Friday. 

Related Links:

Sports Drink Wars: Coca-Cola Acquires BodyArmor Stake In Challenge To Gatorade

Food And Beverage Earnings: Reports Coming Up From Coca-Cola And McDonald's

Photo courtesy of Coca-Cola.