Coca-Cola's $5 billion Costa Coffee acquisition fails to break into coffee market

Coca-Cola acquired Costa Coffee for $5 billion in a major bet by former CEO James Quincey to break into the global coffee and tea market. The plan was to use Coca-Cola's expertise to expand Costa with espresso vending machines and bottled coffee wherever Coke products are sold.

The acquisition has largely failed due to several miscalculations. Costa's vending machines proved more expensive and complicated for Coke bottlers to place in stores than traditional cold beverage dispensers. In the $23 billion ready-to-drink coffee market, Coca-Cola was outdone by its biggest rival as Frappucino, a joint venture between PepsiCo and Starbucks, became the top-selling brand in the US.

Former Costa managing director Jason Cotta said there was a view that Coca-Cola's global vending machine network could be married with Costa Express machines for huge placement. He said that turned out to not be true and left six months after the acquisition.

Coca-Cola has been left running more than 2,700 Costa coffee shops concentrated in the UK and Ireland, where Costa has remained relatively unknown in the US market. The company unsuccessfully tried to sell Costa late last year. Former operations manager Chris Clowes said the failed acquisition is a very public rounding error that will make Coca-Cola more cautious on future acquisitions.

Coca-Cola said Costa Coffee is a business they believe in and coffee is an important part of their total beverage company strategy. Revenue is trending up and the company has been trimming costs, which some former employees interpret as a sign that new CEO Henrique Braun may try to sell it again in the coming months.