The Coca-Cola Company is brewing up a sale of Costa, Britain’s biggest high street coffee chain, more than six years after acquiring the business in a move aimed at helping it reduce its reliance on sugary soft drinks.
Sky News can exclusively reveal that Coca-Cola is working with bankers to hold exploratory talks about a sale of Costa.
Initial talks have already been held with a small number of potential bidders, including private equity firms, City sources said on Saturday.
Lazard, the investment bank, is understood to have been engaged by Coca-Cola to review options for the business and gauge interest from prospective buyers.
Indicative offers are said to be due in the early part of the autumn, although one source cautioned that Coca-Cola could yet decide not to proceed with a sale.
Costa trades from more than 2,000 stores in the UK, and well over 3,000 globally, according to the latest available figures.
It has been reported to have a global workforce numbering 35,000, although Coca-Cola did not respond to several attempts to establish the precise number of outlets currently in operation, or its employee numbers.
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This weekend, analysts said that a sale could crystallise a multibillion pound loss on the £3.9bn sum Coca-Cola agreed to pay to buy Costa from Whitbread, the London-listed owner of the Premier Inn hotel chain, in 2018.
One suggested that Costa might now command a price tag of just £2bn in a sale process.
The disposal proceeds would, in any case, not be material to the Atlanta-based company, which had a market capitalisation at Friday’s closing share price of $304.2bn (£224.9bn).
At the time of the acquisition, Coca-Cola’s chief executive, James Quincey, said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand.
“Costa gives us access to this market with a strong coffee platform.”
However, accounts filed at Companies House for Costa show that in 2023 – the last year for which standalone results are available – the coffee chain recorded revenues of £1.22bn.
While this represented a 9% increase on the previous year, it was below the £1.3bn recorded in 2018, the final year before Coca-Cola took control of the business.
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Coca-Cola has been grappling with the weak performance of Costa for some time, with Mr Quincey saying on an earnings call last month: “We’re in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the Costa business successfully.”
“It’s still a lot of money we put down, and we wanted that money to work as hard as possible.”
Costa’s 2022 accounts referred to the financial pressures it faced from “the economic environment and inflationary pressures”, resulting in it launching “a restructuring programme to address the scale of overheads and invest for growth”.
Filings show that despite its lacklustre performance, Costa has paid more than £250m in dividends to its owner since the acquisition.
The deal was intended to provide Coca-Cola with a global platform in a growing area of the beverages market.
Costa trades in dozens of countries, including India, Japan, Mexico and Poland, and operates a network of thousands of coffee vending machines internationally under the Costa Express brand.
The chain was founded in 1971 by Italian brothers Sergio and Bruno Costa.
It was sold to Whitbread for £19m in 1995, when it traded from fewer than 40 stores.
The business is now one of Britain’s biggest private sector employers, and has become a ubiquitous presence on high streets across the country.
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Its main rivals include Starbucks, Caffe Nero and Pret a Manger – the last of which is being prepared for a stake sale and possible public market flotation.
It has also faced growing competition from more upmarket chains such as Gail’s, the bakeries group, which has also been exploring a sale.
Coca-Cola communications executives in the US and UK did not respond to a series of emails and calls from Sky News seeking comment on its plans for Costa.
A Lazard spokesperson declined to comment.
