How Coca-Cola’s Costa Coffee Acquisition Lost Its Way — Explained

Coca-Cola Co. bought the British chain Costa Coffee in August 2018 for $5.1 billion (nearly £3.9 billion), pitching it as the company’s ticket into the coffee business. More than eight years later, Costa is still mostly a UK and Ireland chain. The global coffee push that Coke promised has not materialised.

The deal has been hurt by a series of miscalculations, according to a Bloomberg report. Vending machines that were costlier and harder to install than expected, a weak brand profile in the United States, a pandemic that shut Costa’s shops and a rival that took the lead in bottled coffee all played a part. The result is that Coca-Cola has largely missed out on a market it set out to win.

The deal was a major bet by then Chief Executive Officer James Quincey on the global coffee and tea market, which Coca-Cola estimated at $570 billion. At the time, Coke competed in only a small part of it. Quincey said Costa gave the company more than a brand, and described it as a platform to scale up its operations.

Coke is competitive in pretty much every category of cold beverages, and the plan was to use that expertise to grow Costa well beyond its home market. The chain would travel through Coke’s bottling and distribution network, with espresso vending machines and bottled coffee placed nearly everywhere its drinks are sold.

Why The Barista-in-a-box Plan Stalled

The vending machines were called Costa Express, a range of “barista-in-a-box” units. Bloomberg reported that they proved costlier and more complicated for bottlers to install than the cold beverage dispensers they were used to. Soda machines need very little upkeep, while Costa Express units needed daily care, which many bottlers found hard to manage.

Jason Cotta, a former managing director at Costa who left six months after the acquisition, described the thinking behind the plan to Bloomberg. “There was a view that you could — because of Coke’s own global vending machine network, which is global and hugely successful — you could marry the two things together and get this huge placement of Costa Express machines,” he said. “That turned out to not be true.”

The United States posed a separate problem. Coca-Cola was wary of opening many Costa cafes there, fearing it would cause trouble with McDonald’s, one of its most valued customers. Without cafes, the brand had almost no recognition in the country. American consumers were also not used to high-quality espresso from vending machines, and they were unwilling to pay coffee-shop prices for it. Coke still kept investing in new ideas, including a “BaristaBot”.

A Rival Took The Shelf Space

The ready-to-drink coffee market in the US is worth nearly $23 billion, and Coke had hoped to take a significant cut of it. According to Bloomberg, its biggest rival got there first. Frappuccino, a joint venture between PepsiCo and Starbucks, is the top-selling brand in the market, while Costa remains relatively unknown. In other words, the very market Coke wanted to enter is one where its rival already holds the top spot.

That has left Coca-Cola mainly running more than 2,700 Costa shops across the UK and Ireland. Chris Clowes, a former operations manager at Costa who is now a supply chain consultant, put the deal in perspective for Bloomberg. “It’s almost a rounding error for Coca-Cola, but it’s a very public rounding error,” he said. “I think they’ll be a lot more cautious on future acquisitions,” Clowes added.

A Pandemic, Rising Costs And A Loss-making Year

Costa also ran into events that no deal plan could have covered. Its UK shops were shut in 2020 during the COVID-19 pandemic, which led to a major loss of revenue. Express vending machines performed well once restrictions eased, but the wider recovery under Coca-Cola’s ownership was not strong. The company also lagged on refurbishing its shops during this period.

The pressure has continued since. In 2024, Costa generated around £1.2 billion in revenue but posted an operating loss of £13 million. Higher wages, rising coffee prices and intense competition from both budget and premium rivals squeezed the business.

Is Coke Looking For The Exit?

Late last year, Coca-Cola tried to sell Costa and did not succeed. Reports said the bids came in below expectations and valued the chain at around £2 billion, roughly half of what Coke paid in 2018.

Since then, Costa’s revenue has been trending up and the company has been trimming costs. Some former employees told Bloomberg they read this as a sign that Henrique Braun, Coke’s new Chief Executive Officer, may try to sell the chain again in the coming months.

Coca-Cola has denied this. In a statement, the company said it is not in the market to sell Costa. “Costa Coffee is a business we believe in. Coffee is an important part of our total beverage company strategy, and the actions Costa has taken are delivering positive results,” Coke said. The company added that it is focused on driving long-term growth and success.

For now, the focus has shifted to the existing estate. The more than 2,700 shops in the UK and Ireland are where cost cuts, refits and new product pushes are being directed, rather than a global rollout through bottlers as first promised.

On the ground, Costa has been pushing iced drinks and matcha to younger customers, refitting its high street shops in the UK and planning a new headquarters in Hertfordshire.