By Claire Moraa

Coca-Cola may be exiting from its half a decade Costa Coffee deal for $2.35B

Costa Coffee’s performance has been dismal owing to the surge in coffee prices

Coca-Cola (KO +0.10%) is hinting at the potential sale of Costa Coffee. The beverage giant acquired Costa Coffee in 2019 for $5.1 billion in a bid to to diversify beyond soda and tap into the booming global coffee industry. However, over the last few years, the surge in coffee prices has been disheartening for industries and this may be one of the reasons for the sale. If the sale goes through, the company may be handed over for less than half of its 2019 sale price.

Why This Matters: Despite strong sales, Costa Coffee’s future remains bleep. Even with revenue going up by 3% year-on-year, it was still blacklisted as one of the poorest performers. This means that despite the profits, operational and cost challenges would still not translate to an overall profit. Coca-Cola’s sale could suggest that the company is refocusing on its core products or reacting to underperformance in the coffee segment. This pivot comes at a time when the beverage giant faces intensifying competition in the booming healthy drinks market that is expected to reach $32.8 billion by 2027.

As consumer demand shifts toward low-sugar, functional, and wellness-oriented beverages, Coca-Cola may be reallocating resources away from traditional retail coffee to better compete in a space now crowded with health-focused alternatives. The beverage giant is constantly unveiling new drinks that target the health-conscious consumer. Costa Coffee on the other hand may need to reposition itself with its over 3,000 global stores and how to stay afloat.

Situational Awareness: Being under a corporate giant usually shields companies like Costa Coffee from aggressive marketing and now that Coca Cola is looking to offload it, the transition may be difficult. However, all is not lost. This could give it a chance to refocus on its core markets and probably reposition itself. On the other hand, Coca Cola could use the regained capital to explore and expand into the healthy beverage industry.

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