Liquid courage
Iimagine that, like many other people, I am far more pleasant after I’ve had my first cup of coffee of the day. Considering I work in a newsroom — and journalists consume more coffee than people in any other profession, according to conventional wisdom and official studies — I’m surrounded by coffee-drinkers.
Sure there’s comfort in ritual, but coffee culture has become so pervasive that it’s fair to say I’m rather suspicious of people who don’t drink it.
“Hey, let’s grab a quick tea and chat about it,” doesn’t sound quite right.
“Let’s get a coffee” — now that has the ring of an ideal first date or a productive career move.
Personal preferences aside, and no matter how consumers are getting their fix — pods or beans at home, artisanal creations in coffee shops or ready-to-drink cold brews — coffee is one of the strongest-growing categories in the food and drink sector. Consider this: more than $250bn has been spent on coffee deals over the past six years. This is because there has been a global boom in coffee drinking and appreciation.
It’s little wonder then that Cocacola last week bought ubiquitous UK coffee chain Costa for $5.1bn — the beverage giant is keeping up with changing tastes and really just following the consumer.
Research firm Mintel estimates that the global coffee-shop market was worth $165bn last year, while retail sales of coffee in various forms accounted for another $56bn.
Coca-cola, in its quest to be a “total beverage company”, has added products like water, milk and pressed juice to its portfolio as sales of fizzy drinks wane and more countries bring in sugar taxes.
Costa is Coke’s biggest-ever acquisition, surpassing its 2007 takeover of Glacéau, the company behind the Vitaminwater and Smartwater brands. Costa is the third-largest player in the coffee-shop industry, well behind Starbucks and just behind Mcdonald’s.
Consumer-goods companies are betting big on coffee. Nestlé, for example, sealed a $7bn licensing deal for Starbucks’ retail business, while JAB Holdings, the billionaire Reimann clan’s European holding company, has also moved aggressively to buy up coffee assets. It owns Krispy Kreme Doughnuts and Jacobs Douwe Egberts.
For Coca-cola, which sells softdrink concentrate to its network of franchised bottlers, retail would be a new frontier. CEO James Quincey makes the point that this transaction is a “coffee strategy, not a retail strategy”, leading to speculation that the company will bring Costa coffee-vending machines (with ready-to-drink, coldbrew coffees and beans) to US petrol stations, varsity campuses and quickservice restaurants rather than open physical coffee-houses.
It’s Costa’s foothold in China that analysts are most bullish about — it has 450 stores already, and given Coca-cola’s deep pockets and distribution networks, Starbucks (which is betting big on that market) might have to watch its back. By the way, Coca-cola had $35.4bn in revenue last year and has a market cap of more than $191bn.
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The numbers bits
For Costa owner Whitbread, which had been pressured by activist investors to split off its coffee business, the deal is a timely boon. Before last Friday’s announcement, Whitbread had a market cap of £7.3bn, with analysts estimating that Costa represented £2.3bn of that. This suggests that the offer represents a premium of about 70% on the coffee chain’s estimated value.