Coca-Cola is weighing the future of Costa Coffee, the UK-based chain it bought in 2018 for about £3.9 billion ($5 billion), amid signs the investment has failed to deliver the expected returns.
A source familiar with the matter told Reuters that the U.S. soft drinks company has hired investment bank Lazard to review options, including a possible sale, and has already held early talks with a small number of potential buyers, mostly private equity firms. Sky News, which first reported the discussions, said preliminary offers are expected in early autumn.
The review comes after a difficult period for Costa, which has struggled under rising costs and fierce competition on the British high street. Coffee bean prices and broader inflationary pressures have eroded margins, while rivals such as Pret a Manger and Gail’s have attracted more of the premium end of the market.
According to filings at Companies House, Costa reported revenues of £1.2 billion in 2023, up 9% on the previous year, but swung to a pre-tax loss of £9.6 million compared with a profit of £245.9 million the year before.
A sale at current valuations would likely force Coca-Cola to take a multibillion-pound hit. Analysts suggest the chain could fetch around £2 billion, almost half the price Coca-Cola paid when it acquired Costa from Whitbread seven years ago.
That reality underscores the scale of the challenge facing Coca-Cola’s push into the coffee sector, which was intended to strengthen its hand against global rivals Starbucks and Nestlé.
Speaking on an earnings call last month, Coca-Cola chief executive James Quincey conceded that Costa had not quite delivered and was not where we wanted it to be from an investment hypothesis point of view.
He added that the company was reflecting on lessons learned while also considering new avenues for growth in the coffee category.
While no final decision has been made, a potential divestment would add to a wave of dealmaking across the food and beverage sector, where companies are reshaping portfolios to cope with inflation and shifting consumer demand for healthier products.
