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Costa, Moxie Deals Point to a Larger Strategy For Coke

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.