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Coca-Cola’s Interesting Growth Story with Costa Acquisition

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Coffee with Costa

On August 31, soda giant Coca-Cola (KO) announced an agreement to acquire Costa from its parent company Whitbread. Costa is a leading coffee company in the United Kingdom and has a presence in more than 30 countries. Coca-Cola is acquiring Costa for $5.1 billion. The acquisition is expected to be completed in the first half of 2019.

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Deal synergies

The Costa acquisition will help Coca-Cola build its presence in the hot beverages market. Coca-Cola’s coffee portfolio includes the popular Georgia brand in Japan and other coffee products in several countries. Costa generated revenues of $1.7 billion in fiscal 2018, which ended on March 1. Costa operates 2,400 coffee shops in the United Kingdom, more than 1,400 stores in 31 international markets, and more than 8,000 Costa Express self-serve units.

Coca-Cola’s strong distribution network will help in the further expansion of the Costa brand and also help it compete with leading and larger players such as Starbucks (SBUX), which operates ~25,000 stores around the globe.

Growth beyond soda beverages

Coca-Cola (KO) has been looking for growth opportunities in other beverage categories beyond the traditional soda beverages. That’s because customers are looking for healthier choices compared to sugary carbonated drinks. On August 14, Coca-Cola announced the acquisition of a minority stake in Bodyarmor, a popular sports drink maker. Coca-Cola has also been making bolt-on acquisitions to expand its business in growth categories such as functional beverages. One example is the 2017 acquisition of Ades (a soy-based beverage maker).

Aside from its efforts to boost its top-line growth through innovation and strategic acquisitions, Coca-Cola has also been streamlining its operations with its refranchising initiatives. For details on Coca-Cola’s performance in the second quarter of 2018, please read What Drove Coca-Cola’s Organic Revenue Growth in Q2?

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