Coca-Cola ventures into Coffee with $5.1 billion Costa deal

The heads of Whitbread and Coca Cola met at a Microsoft conference by chance before the Costa sale was mooted

The heads of Whitbread and Coca Cola met at a Microsoft conference by chance before the Costa sale was mooted

"In the last few years we've been building the brand of Costa and making it worldwide, and so for the first time really now, we've had an organisation like Coca-Cola who are really interested in the Costa business. Costa gives us access to this market with a strong coffee platform".

It's Coca-Cola's latest move to diversify as health-conscious consumers, at least in America, move away from traditional soda.

Quincy also said that this is a "coffee strategy, not a retail strategy". Coca-Cola's other investments in recent years have included milk that is strained to have more protein and a push into sparkling water.

Coca-Cola already owns the Georgia and Gold Peak coffee brands, which make bottled and canned drinks.

The purchase will give Coca-Cola a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion.

Chief executive James Quincey says hot beverages have been the big gap in the company's range of drinks.

Now that investors have got their wish in monetising the coffee brand, pressure will inevitably become more focussed on the Premier Inn brand which has been undergoing a significant rebranding, as well as opening up new revenue opportunities in Germany and China.

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Whitbread shocked the City on Friday with a £3.9bn deal to sell Costa to Coca-Cola.

Still, Costa outranks Starbucks in the United Kingdom - it also operates a business of 8,000 self-service machines - and is expanding in markets such as China. Quincey indicated that one potential early expansion route would be to use Costa's vending operation and expand the company's ready-to-drink products. "Coca-Cola are one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

The deal marks a healthy return for Whitbread, which bought the chain for just 19 million pounds in 1995.

Coca-Cola made its first formal approach to Whitbread in late June and the negotiations progressed quickly, with a deal signed on August 31, eight minutes before it was announced to the stock market, Brittain said.

It will also contribute to the company's pension fund, she told CNBC in an interview Friday, and help pay off company debt.

The Sunday Times meanwhile reports that industry observers predict that that global groups such as Holiday Inn and Crowne Plaza owner InterContinental Hotels Group (LON:IHG), AccorHotels and Marriott International could see Premier Inn as an attractive asset to add to their portfolios of brands.

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