- Coca-Cola is considering selling Costa Coffee, which it acquired in 2018 for approximately £3.9 billion, amid evolving market conditions and underperformance.
- A potential divestiture, reportedly valued at around £2 billion, would mark a strategic refocus on high-margin core beverage operations.
- The move aligns with broader industry trends of conglomerate streamlining and portfolio optimisation.
- Private equity interest in Costa is reportedly emerging, though no deal is yet assured and Coca-Cola may retain the asset if offers fall short.
- Implications for investors include potential capital unlocking for innovation or share buybacks, though risks such as valuation discounts and operational strain remain.
Coca-Cola, the global beverage giant, appears to be contemplating a significant strategic shift by exploring the sale of its Costa Coffee chain, a move that could reshape its portfolio and refocus efforts on core soft drink operations. Reports indicate the company has engaged investment bank Lazard to assess options, including a potential divestiture of the British coffee retailer acquired just seven years ago. This development comes amid evolving market dynamics in the coffee sector, where competition has intensified and consumer preferences continue to shift, prompting questions about the long-term fit of Costa within Coca-Cola’s broader business model.
Strategic Rationale Behind the Potential Divestiture
The decision to review Costa’s future aligns with broader industry trends where conglomerates are streamlining operations to enhance efficiency and capital allocation. Coca-Cola purchased Costa in 2018 for approximately £3.9 billion, aiming to bolster its presence in the burgeoning hot beverages market and diversify beyond carbonated soft drinks. At the time, the acquisition was seen as a bold step to compete with players like Starbucks and Nestlé, tapping into the growing demand for premium coffee experiences.
However, the coffee chain has faced headwinds, including rising operational costs, supply chain disruptions, and fierce rivalry in a saturated market. Costa operates over 2,000 outlets in the UK alone, with a global footprint that includes vending machines and ready-to-drink products. Despite these assets, the chain’s performance has not met initial expectations, particularly in the face of economic pressures such as inflation and changing consumer spending habits post-pandemic. A potential sale at a reported valuation of around £2 billion would represent a substantial discount from the purchase price, highlighting the challenges of integrating and scaling non-core assets in a volatile retail environment.
Analysts suggest this move could allow Coca-Cola to concentrate on high-margin segments like sparkling beverages, energy drinks, and emerging categories such as plant-based alternatives. By shedding Costa, the company might unlock capital for reinvestment in innovation or share buybacks, potentially boosting shareholder returns. This mirrors strategies adopted by peers in the consumer goods sector, where divestitures of underperforming units have become commonplace to adapt to a more agile, digital-first marketplace.
Market Context and Valuation Insights
The coffee industry has undergone rapid transformation since Coca-Cola’s entry via Costa. Global coffee consumption continues to rise, driven by urbanisation and premiumisation trends, but profitability has been squeezed by commodity price volatility—coffee bean costs have fluctuated significantly in recent years—and the proliferation of independent cafes and delivery services. Competitors like Starbucks have expanded aggressively, leveraging loyalty programmes and digital ordering to capture market share, while Nestlé has strengthened its position through partnerships and acquisitions.
In terms of valuation, a £2 billion price tag for Costa would imply a multiple reflective of current sector averages. Historical data shows coffee chains trading at enterprise value-to-EBITDA ratios between 8x and 12x, depending on growth prospects. Costa’s extensive UK network and brand recognition could attract private equity buyers, who might see opportunities for operational improvements or international expansion. Initial talks with potential bidders, including private equity firms, have reportedly begun, with indicative offers expected in the coming months. However, no deal is guaranteed, and Coca-Cola may ultimately retain the asset if bids fall short.
From a financial perspective, Coca-Cola’s latest metrics provide context for this strategic review. As of the market close on 24 August 2025, shares traded at $70.13, down 0.53 from the previous close, with a market capitalisation exceeding $301 billion. The stock’s 52-week range spans $60.62 to $74.38, indicating relative stability amid broader market fluctuations. Forward P/E ratios hover around 23.61, suggesting investor confidence in earnings growth, projected at 2.97 per share for the forward period. These figures underscore a robust core business that could benefit from divesting non-synergistic assets like Costa.
Implications for Investors and the Beverage Sector
For investors, the potential sale raises intriguing questions about Coca-Cola’s long-term diversification strategy. The 2018 acquisition was part of a push into adjacent categories to mitigate risks from declining soda sales due to health concerns and sugar taxes. Yet, if executed, this divestiture could signal a return to fundamentals, prioritising brands like Coke, Sprite, and newer entrants in functional beverages. Analyst sentiment remains positive, with a consensus rating of 1.6 (Buy) based on recent evaluations, reflecting optimism around the company’s global scale and distribution prowess.
Broader sector implications are noteworthy. A sale of Costa could invigorate M&A activity in the food and beverage space, where private equity has been active in carving out retail brands for turnaround plays. Potential buyers might include firms with expertise in hospitality, seeking to capitalise on Costa’s established infrastructure amid a rebound in out-of-home consumption. Conversely, if Coca-Cola opts to keep Costa, it may invest further in digital transformation or sustainability initiatives to align with evolving consumer demands, such as ethically sourced coffee and eco-friendly packaging.
Forecasts and Risk Considerations
Looking ahead, analyst models forecast modest revenue growth for Coca-Cola, with EPS estimates for the current year at 2.98. If a sale materialises, it could provide a one-time cash infusion, potentially supporting dividend payouts—the company boasts a strong track record here—or funding acquisitions in high-growth areas like non-alcoholic ready-to-drink beverages. However, risks abound: a discounted sale might pressure short-term stock performance, while retaining Costa could strain resources if coffee market challenges persist.
Sentiment from credible sources, such as Reuters and Sky News, indicates cautious optimism among industry observers, who view this as a pragmatic portfolio adjustment rather than a distress signal. Historical precedents, like Unilever’s divestiture of its tea business in 2021, demonstrate that such moves can enhance focus and valuation multiples over time.
In summary, Coca-Cola’s exploration of options for Costa Coffee underscores the fluid nature of corporate strategy in a competitive landscape. Whether through sale or retention, the outcome will likely reinforce the company’s adaptability, offering lessons for investors navigating similar diversification dilemmas in consumer staples.
References
- BusinessLive. (2025, August 24). International business briefs: Coca-Cola weighs Costa Coffee sale with Lazard. https://www.businesslive.co.za/bd/companies/2025-08-24-international-business-briefs-coca-cola-weighs-costa-coffee-sale-with-lazard/
- Business Standard. (2025). Coca-Cola considers sale of Costa Coffee in strategic business review. https://www.business-standard.com/amp/companies/news/coca-cola-considers-sale-of-costa-coffee-in-strategic-business-review-125082400652_1.html
- Global Banking and Finance. (2025). Coca-Cola divestiture: Costa Coffee. https://www.globalbankingandfinance.com/COCACOLA-DIVESTITURE-COSTA-COFFEE-3c57e4b5-37ed-483c-9f39-4f5aa88c1e9c
- Investing.com. (2025). Coca-Cola explores sale of Costa Coffee – source says. https://www.investing.com/news/stock-market-news/cocacola-explores-sale-of-costa-coffee-source-says-4207944
- Reuters. (2025, August 23). Coca-Cola explores sale of Costa Coffee, source says. https://www.reuters.com/business/coca-cola-explores-sale-costa-coffee-source-says-2025-08-23/
- Sky News. (2025). Coca-Cola brews up sale of high street coffee giant Costa. https://news.sky.com/story/coca-cola-brews-up-sale-of-high-street-coffee-giant-costa-13416553
- The Economic Times. (2025). Coca-Cola exploring sale of Costa Coffee – reports. https://economictimes.indiatimes.com/news/international/business/coca-cola-exploring-sale-of-costa-coffee-reports/articleshow/123475953.cms
- The Guardian. (2025, August 24). Coca-Cola in talks over sale of Costa Coffee. https://www.theguardian.com/business/2025/aug/24/coca-cola-talks-sale-costa-coffee
- TipRanks. (2025). Coca-Cola considers selling Costa Coffee in potential multi-billion-pound loss. https://www.tipranks.com/news/coca-cola-ko-considers-selling-costa-coffee-in-potential-multi-billion-pound-loss
- US News. (2025, August 23). Coca-Cola working with bankers to explore sale of Costa Coffee – Sky News reports. https://money.usnews.com/investing/news/articles/2025-08-23/coca-cola-working-with-bankers-to-explore-sale-of-costa-coffee-sky-news-reports
- WebProNews. (2025). Coca-Cola explores £2B sale of Costa Coffee amid challenges. https://www.webpronews.com/coca-cola-explores-2b-sale-of-costa-coffee-amid-challenges/
- Yahoo Finance. (2025). Coca-Cola in talks for cut-price Costa Coffee sale. https://ca.finance.yahoo.com/news/coca-cola-talks-cut-price-125818796.html
