The Coca-Cola Company’s KO announcement on Aug 31 to acquire Costa Limited from its parent Whitbread PLC for $5.1 billion is aimed at tapping the massive coffee market with Costa’s network and expertise.
The deal gives Coca-Cola access to a strong coffee platform across Europe, Middle East, Asia Pacific and Africa through Costa’s direct retail outlets. It will also help Coca-Cola to capitalize on Costa’s knowledge of hot beverages in a fast-growing category, which is hugely popular among customers.
Coca-Cola’s decision to enter into the hot drinks’ market is an effort to keep up with customers’ changing taste and focus on popular products that are considered healthy.
New Brand Image for Health-Conscious Customers
In recent years, Coca-Cola has tried to break away from the perception of its drinks being unhealthy. The company has launched new brands that promote sugar-free, low-calorie, noncarbonated products such as Diet Coke, Coca-Cola Zero and Coca-Cola Light, Ciel, Dasani, SmartWater, and fruit juice brands such as Minute Maid, Simply Orange and Del Valle in order to meet the evolving consumer demand for healthier drinks.
Despite the company’s attempts to focus on healthier drinks, the fact remains that Coca-Cola’s signature beverages are fizzy soft drinks that are not preferred by a growing number of health-conscious consumers. Coffee, which is one of the most popular beverage categories in hot drinks, is a market that Coca-Cola can expand into with new strategies along with Costa’s existing critical knowledge of brewing hot beverages and nearly 4000 retail outlets worldwide.
Coca-Cola Isn’t the Only Company Redesigning its Portfolio
Coca-Cola’s move isn’t the first of its kind in adopting a competitive food and beverage market with ever-changing customer preferences. PepsiCo PEP, in an attempt to link itself with healthy products, announced on Aug 20 its plans to acquire Israel-based SodaStream SODA for $3.2 billion. SodaStream converts water into sparkling water.
Switzerland-based Nestle NSRGY, which is world’s largest food and beverage company, also made a deal with Starbucks SBUX on Aug 28 for $7.15 billion to acquire exclusive rights to sell the latter’s packaged coffees and teas through its distribution network.
While SodaStream sports a Zacks Rank #1 (Strong Buy), Coca-Cola, Pepsico and Starbucks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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