Coca-Cola in talks over potential £2bn sale of Costa Coffee

New Delhi: Coca-Cola is in discussions with potential buyers about selling Costa Coffee in a deal that could be valued at around £2bn, according to a report by Sky News.

The US-based drinks group is said to be working with bankers on a review of the coffee chain, which operates more than 2,000 outlets in the UK. Lazard has reportedly been appointed to explore options for the business and gauge buyer interest.

Coca-Cola acquired Costa in 2018 from Whitbread, the Premier Inn owner, for £3.9bn. However, the chain has since faced higher costs, including rising coffee bean prices, and increased competition on the high street from rivals such as Pret a Manger and Gail’s.

City analysts told Sky News the sale could crystallise a multibillion-pound loss for Coca-Cola, with one suggesting that the chain could fetch about £2bn, nearly half the price paid seven years ago.

As per the report, Coca-Cola’s chief executive, James Quincey, told investors last month that Costa had “not quite delivered” and was “not where we wanted it to be from an investment hypothesis point of view”. He added that the business was “in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category”.

Preliminary offers for Costa are expected in early autumn, according to the report, although Coca-Cola could still decide not to proceed with a sale.

Costa employs nearly 18,000 people in the UK and reported turnover of £1.2bn in its 2023 financial year, up 9% on the previous year. Despite the increase in revenue, it swung to a pre-tax loss of £9.6m from a profit of £245.9m the year before, citing inflationary pressures and write-downs on investment values.

Costa, founded in 1971 by brothers Sergio and Bruno Costa, was sold to Whitbread for £19m in 1995 before changing hands to Coca-Cola in 2018. While its overall performance has been mixed, the chain paid £85m in dividends to its parent company last year.