- Coca-Cola’s coffee business is at a crossroads.
- Its $5 billion acquisition of Costa Coffee hasn’t worked out as expected, its CEO said on Tuesday.
- Coke still views coffee as a “super attractive business,” Quincey said.
Coca-Cola’s foray into coffee is losing its buzz. Now, the drink giant is rethinking its approach, its CEO said.
Seven years ago, Coke paid about $5.1 billion for Costa Coffee, a UK-based chain of coffee shops. While Coca-Cola didn’t have a lot of experience operating cafés, the deal gave the company a foothold in the coffee industry, which it viewed as a key growth area.
Coca-Cola CEO James Quincey said on the company’s earnings call on Tuesday that “the investment hypothesis didn’t work out as we expected.” He said the company hoped to see “much more growth” outside the retail stores that make up its core business.
Coca-Cola makes most of its money selling drink concentrates and other ingredients to partner companies that manufacture and sell the beverages that customers buy in restaurants and stores.
Still, Quincey said coffee is a “super attractive category” that’s large and profitable for Coca-Cola. It has invested in Costa’s UK stores and expanded the use of automated coffee machines that use the Costa name, he said.
The business “just didn’t create a multiplier so far that we are looking for,” Quincey said.
Coca-Cola is “reflecting” on what its coffee business should look like going forward, he said.
In August, Reuters reported that Coca-Cola was working with an investment bank to explore a sale of Costa. Quincey did not address a potential sale of Costa on Tuesday’s call.
Coke’s stock was up about 4% on Tuesday after the company reported that net sales grew 5% to $12.46 billion in the third quarter.
Besides Costa, Coca-Cola has also experimented with a version of its eponymous drink mixed with coffee.
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