Coca-Cola drops Costa Coffee sale after private equity bids fall short: report

Coca-Cola has abandoned plans to sell its Costa Coffee chain after offers from private equity firms failed to meet expectations, the Financial Times has reported.

The US beverage group ended talks with remaining bidders in December, drawing a close to a months-long auction process, according to the FT report citing people familiar with the matter.

While Coca-Cola could revive plans to sell Costa in the medium term, the decision marks a setback for a deal that had already struggled to gain momentum.

Private equity interest falls short

Firms that reached the later stages of talks included TDR Capital, the owner of supermarket group Asda, and Bain Capital’s special situations fund, which holds investments in Gail’s and PizzaExpress.

Earlier in the process, Apollo, KKR, and Centurium Capital had also examined the opportunity, the report said.

Coca-Cola had been targeting a valuation of around £2bn for Costa, well below the £3.9bn it paid in 2018 when it acquired the chain from Whitbread.

That gap between expectations and bids ultimately proved too wide, prompting the company to step back from the sale.

An acquisition that failed to meet expectations

Coca-Cola bought Costa Coffee for an enterprise value of $5.1bn to strengthen its position in the global coffee market, where it competes with Starbucks and Nestlé.

At the time, the group said Costa would help it tap into growth beyond soft drinks by leveraging its global distribution network and brand strength.

However, the strategy has delivered mixed results.

In July, chief executive James Quincey acknowledged that the acquisition had “not quite delivered” and was “not where we wanted it to be from an investment hypothesis point of view,” an unusually frank admission from the company’s leadership.

Mounting financial and competitive pressures

Costa’s financial performance has deteriorated in recent years.

Operating losses more than doubled to £13.5m in 2024 from £5.8m a year earlier, even as sales edged up 1% to £1.2bn.

The chain, founded in London in 1971 by Italian brothers Bruno and Sergio Costa, operates about 2,700 cafés across the UK and Ireland.

The recent figures stand in stark contrast to the pre-pandemic period, when Costa regularly generated annual profits of up to £100m.

Footfall has been uneven, margins have been squeezed, and the brand has struggled to keep pace with both value-focused rivals such as Greggs and newer, trend-driven chains like Blank Street and Black Sheep Coffee.

Industry analysts say the market has become crowded and unforgiving.

Clive Black of Shore Capital told the Independent that Costa may have reached “peak Costa” in the UK, leaving it more exposed to competition.

He also pointed to a growing number of independent and artisanal cafés offering what consumers perceive as a better experience and less corporate feel.

Rising costs add to the strain

Beyond competition, coffee chains are contending with higher costs, including wage increases, higher National Insurance contributions, and persistent inflation in coffee bean prices.

Pret’s move to launch a meal deal and Greggs’ aggressive value positioning highlight how price sensitivity among consumers has reshaped the sector.

For Coca-Cola, the stalled sale leaves it weighing whether to persist with a challenging asset or revisit divestment when market conditions improve.