The Coca-Cola Co.’s acquisitions of Costa Coffee and Moxie speak to the company’s strategy to move away from high-sugar beverages.
The company has been on a downward trajectory, with soft drinks, vitamin water and coconut water seeing drops in sales, says Bill Sipper, managing partner at Cascadia Managing Brands, a global beverage consultant, reported Forbes (Sept. 4).
“In order to maintain market share, they have to buy the little guy,” says Sipper.
Moxie, a regional soda company formerly run by a Kirin-owned bottling company in New England before being acquired in August, is recognized for its bitter taste and having only 25 grams of sugar per can. The brand has a “cult following,” Sipper says, and it sells extremely well.
“Coca-Cola can grow it to half a million cases,” Sipper says. “It’s all about incremental sales.”
Since the company has been emphasizing natural soda, and Moxie is a carbonated brand, it doesn’t blend in with a prevailing strategy, Sipper says, adding that Coca-Cola acquiring Moxie is more of a tactical move and won’t have much impact on its bottom-line.
Coca-Cola has had problems innovating and launching new products on its own, so it’s necessary for the company to acquire a small beverage like Moxie, notes Sipper.
The “big guy,” Costa Coffee, is expected to be beneficial too. On Sept. 1, Coca-Cola acquired the overseas retail coffee chain, which has 3,800 outlets, for $5.1 billion. Since Coca-Cola has done very well in Asia and is a global company, it likely can grow Costa’s business there as well.
“Costa is a strong consumer proposition,” said James Quincey, Coca-Cola’s president and CEO, on a conference call about the deal Aug. 31. “It’s got a scalable coffee platform to engage with consumers across multiple formats and channels. In the end, this is a coffee strategy, not a retail strategy.”
With Costa, Coca-Cola’s addressable market goes up to $1.5 trillion from $800 billion, with hot beverages growing at about 6% in revenue, Quincey said. Consumers continue to be interested in the beverage market, but Millennials especially are seeking more diversity.
Coca-Cola is looking to expand its cold ready-to-drink market, and potentially expand into hot ready-to-drink like the company’s Japanese business, and hopes to use Costa to do so.
“The UK is a very open marketplace in the sense that there are local competitors and global competitors,” Quincey said. “Costa has done well in the other 30 countries that it’s been in. I think that’s a good sign that it can travel.”
For the full story, go to this week’s Food Institute Report.
Chris is a business writer and market analyst that focuses on the Markets, Legal and Washington sections of the Food Institute Report. In addition, he assists in compiling data for various Food Institute publications throughout the year. He invites you to contact him via email at firstname.lastname@example.org to talk about anything food-related.
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