Coke long ago recognized that its flagship soda products would drop into what would probably be a permanent decline, as beverage substitutes have continued to proliferate over the past two decades and consumer tastes continue to broaden. As such, the company has made numerous investments and now has myriad products across the entire beverage spectrum. But Coca Cola was missing one important drink in its growing portfolio --coffee.
And so the newly-diversified soft drink giant is acquiring the U.K.'s biggest coffee chain, Costa. With well over 2,000 stores in the U.K. and another 1,400 scattered across 30 countries, this gives Coke an instant brick-and mortar presence across a nice chunk of the globe. But the company insists that the strategic move isn't about establishing a physical presence, but about getting an instant revenue jolt from the coffee sector and market share in a very large and still growing industry.
The coffee market is a crowded one, and Starbucks dominates, but considering that 460 stores are in China, a rapidly-growing, but still small market for coffee, it looks like there is a great deal of upside to the acquisition. Until now, Coke did not have a hot beverages global brand, and coffee is growing at a fairly healthy 6% clip globally, even though growth has slowed somewhat in the U.S. Surprisingly to most Americans, Costa is actually the third largest global coffee chain behind competitors Starbucks and McDonald's McCafe.
Coca Cola has made a multi-billion dollar bet on coffee, but some wagers in marketing are more sure than others. Good industry growth coupled with the obvious strengths that Coke brings to the table indicate that this diversification strategy will pay off even as consolidation is an indication that the market is probably maturing. Indeed, the China market alone could guarantee that this will be a huge success for Coke.
Discussion: Is this a good idea? How should Coke manage the Costa brand? Do you see any synergies between the two brands?
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