Costa Coffee could change hands again after it emerged that Coca-Cola has met potential buyers to discuss a cut-price deal to off-load the chain.
The American soft drinks company is said to be working with bankers on a review of Costa, Britain’s biggest coffee chain, that could lead to it being sold.
Coca-Cola had high hopes for the Costa brand when it bought it in 2018 from Whitbread, owner of the Premier Inn hotel chain, for £3.9bn. However, the chain has struggled with rising costs, not least the rise in coffee bean prices, and increased high street competition.
The sale of Costa could realise a multibillion-pound loss for Coca-Cola, according to City analysts. One told Sky News, which first reported the sale talks, that it could fetch just £2bn which would be nearly half what it had paid for the business.
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”.
Coca-Cola is said to have held talks with a small number of possible bidders, including private equity firms, according to Sky News, which cited unnamed sources.
The investment bank Lazard is reportedly helping Coca-Cola to review options for the chain and gauge interest from buyers. Preliminary offers are expected in early autumn, although the report noted that the drinks maker could decide not to proceed with a sale.
Costa has more than 2,000 outlets in the UK and early 18,000 employees. However, as well as rising costs it has faced competition from upmarket rivals, such as Pret a Manger and Gail’s.
Costa turned over £1.2bn in its 2023 financial year, according to the most recent annual accounts filed at Companies House, up from 9% on the previous year. However, it reported a pre-tax loss of £9.6m, compared with a profit of £245.9m the year before. Costa blamed the loss on inflationary pressures, as well as write-downs on the value of some investments.
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Costa, which was founded in 1971 by Italian brothers, Sergio and Bruno Costa, was sold to Whitbread for £19m in 1995. When Coca-Cola bought the business in 2019, Quincey said there were “great opportunities for value creation”.
While Costa’s financial performance has been mixed, last year it paid out £85m in dividends to its owner.
Coca-Cola and Lazard were approached for comment.