Coca-Cola Abandons Sale Of Costa Coffee – CoffeeTalk

Coca-Cola has decided to discontinue its plans to sell the Costa Coffee chain due to unsatisfactory bids from private equity firms. As reported by the Financial Times, the company ceased discussions with the remaining bidders in December, bringing an end to a protracted auction process that began in August. Initially, Coca-Cola engaged with financial advisors to explore a sale of Costa, potentially at a price significantly lower than the £3.9 billion it paid for the brand in 2018 from Whitbread.

Coca-Cola had anticipated better outcomes for Costa, the largest coffee chain in Britain, but deteriorating financial circumstances, specifically escalating costs related to coffee beans and intensified competition on the UK high streets, led to a reassessment. The company was reportedly looking to divest Costa for approximately £2 billion, implying a considerable loss on their original investment.

Among the potential buyers in subsequent negotiation rounds were TDR Capital, which owns Asda, and Bain Capital’s special situations fund, known for investing in brands like Gail’s Bakery and PizzaExpress. Earlier participants in the auction included private equity firms such as Apollo, KKR, and Centurium Capital, linked to the rising Luckin Coffee from China. The auction process was facilitated by the investment bank Lazard.

Coca-Cola’s outgoing CEO, James Quincey, who will step into the role of executive chair later this month, admitted to investors that Costa “has not quite delivered” and did not align with their investment expectations. Quincey is set to be succeeded by COO Henrique Braun, although the company has indicated that it is not completely ruling out the option of selling Costa in the future.

With approximately 2,700 stores across the UK and Ireland, Costa has been under intense pressure to maintain profitability amid fluctuating costs and competition from higher-end coffee brands like Gail’s and independent shops, as well as budget options from entities like Greggs and McDonald’s. Despite these challenges, rival coffee chain Caffè Nero reported a 5% increase in sales at established locations and a total rise of 7% to £185.4 million over the past six months, highlighting a contrasting success story.

Founded in 1971 by Italian brothers Sergio and Bruno Costa, the chain was acquired by Whitbread in 1995 for £19 million. When Coca-Cola made the purchase, it was optimistic about the potential for value creation. Recent financial records show Costa generating revenues of £1.2 billion in its 2024 fiscal year, reflecting a mere 1% increase from the previous year, while its operating losses expanded to £13.5 million, attributed to underwhelming customer traffic and competitive pressure from lower-priced rivals.

Read More @ The Guardian