Coke buys a coffee chain, setting the stage for competition with Starbucks

The Coca-Cola Company has made the largest acquisition in its history — and its first involving a retail chain.

The soda giant has agreed to acquire U.K.-based Costa Limited for $5.1 billion. Costa operates nearly 4,000 coffee cafes across 32 countries, a coffee vending operation, for-home coffee formats and a state-of-the-art roastery. It also operates Costa Express, which offers “barista-quality” coffee in a variety of on-the-go locations, including gas stations, movie theaters and travel hubs.

Costa ranks as the leading coffee company in the United Kingdom and has a growing footprint in China, among other markets. The acquisition puts Coke in direct competition with Starbucks across global markets. Both Costa and Starbucks are particularly focused on expansion in China.

The deal gives Coca-Cola a significant presence in the global coffee market, whose growth is outpacing that of soft drinks. Global coffee sales, including instant coffee, are forecast to grow 15.6% by 2022, according to market researcher Euromonitor.

Costa also provides Coca-Cola with strong expertise across the coffee supply chain, including sourcing, vending and distribution, the company said. This will be a complement to existing capabilities within the Coca-Cola system.

“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola president and CEO James Quincey. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.”

The deal is expected to close in the first half of 2019. Upon closing, Coca-Cola will acquire all issued and outstanding shares of Costa Limited, a wholly owned subsidiary of Whitbread.