- $5.1 billion.
- Analysts say the move is likely to have a major impact on
- According to GlobalData, retail sales of hot drinks in China alone will hit $34.2 billion by 2022, and hot-drinks volumes across all channels have more than doubled there in the past five years.
Costa Coffee is to the UK what Starbucks is to the US.
It's the coffee chain that's so prevalent you'll find it on most street corners of major cities and towns, in thousands of self-service machines in gas stations around the UK, and in national grocery stores as "ready-to-drink" products.
While it may be the leading chain in the UK, where it has more than 2,400 stores, its reach beyond that lags behind Starbucks, especially in the US, where it has no presence. In total, Costa Coffee has 3,912 stores in 31 countries.
The news that Coca-Cola is buying the chain from Whitbread for $5.1 billion has sent shockwaves around the coffee world as analysts consider Costa's new potential for growth with Coca-Cola's "distribution muscle" behind it — and, especially, what it will mean for Starbucks.
While Starbucks is unlikely to be unseated from its position of power in the US market, analysts are expecting the new deal with Coca-Cola to allow Costa Coffee to better compete in its international markets, especially China, one of Starbucks' key regions for growth.
"a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come," CNN Money reported.
"Costa will become a listed entity in its own right and the clear market leader in the out-of-home coffee market in the UK," Brittain, said It
While Costa will likely struggle to break into the US market in terms of opening physical locations, there's an opportunity to sell its ready-to-drink products in stores, analysts say.
"The lack of any retail presence for Costa Coffee in the US means Starbucks has been able to dominate ready-to-drink coffee sales there up to now. Expect that to change in the coming years," Davison told Business Insider.
This will be of particular importance to both Starbucks and Costa as the hot-coffee market is enduring a long-term decline in the US, he said.
These products also give Coca-Cola an opportunity to compete with PepsiCo, its biggest rival, which has a partnership with Starbucks to distribute its ready-to-drink products to stores. According to Davison, this relationship is yielding big wins in terms of sales to become a retail business worth more than $2 billion.
"Now Coca-Cola wants in on this market," he said.