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Coca-Cola’s failed coffee investment faces uncertain future as sale rumors brew

August 26, 2025 12:58 pm

Coca-Cola (KO) bet big on Costa Coffee. Now it’s rethinking the whole deal.

“Our investment in Costa is not where we wanted it to be from an investment hypothesis point of view,” CEO James Quincey said on its second quarter earnings call.

Now, Sky News reported that Coca-Cola may be exploring a sale of Costa. The company is reportedly working with bankers at Lazard and has engaged in early discussions with a limited number of potential buyers. Coca-Cola and Lazard did not immediately respond to a request for comment.

The $5.1 billion acquisition in 2018 was one of Quincy’s first gambles as chief executive. The move was supposed to give Coca-Cola a “strong” foothold in the global coffee market, from retail stores to ready-to-drink (RTD) cans.

But execution and growth have stalled. Costa reeled in 1.3 billion pounds (then $1.7 billion) of revenue in fiscal year 2018 but posted 1.22 billion pounds for fiscal year 2023. The company reportedly may be sold at a price tag closer to 2 billion pounds ($2.7 billion).

“Costa did a great job in the UK with things like lattes and cappuccinos, but that just isn’t really the case in the US,” Rothschild & Co Redburn analyst Charlie Higgs previously told Yahoo Finance. “It’s just such a competitive market that maybe they can make a bigger push, but it wouldn’t be the cheapest market to go after. There’s just so much competition.”

In the US, Costa’s business is focused on a business-to-business and packaged goods approach. Costa Professional offers equipment and support to businesses and reportedly has 250 Smart Café coffee vending machines around the country. In 2024, it launched an RTD iced coffee line featuring canned lattes and cold brews in retailers like Amazon Fresh (AMZN) and Walgreens (WBA).

Globally, Costa operates more than 4,000 stores in over 50 countries, plus more than 14,000 Smart Café self-serve machines. The company offers a range of RTD beverages across Europe and Asia.

“Coke bought that coffee business right before COVID,” Beverage Digest editor Duane Stanford told Yahoo Finance. “Companies were pulling back to save, there was a shortage, and supply chains were tough. The last thing you were going to do was put ready-to-drink coffee in the market.”

After lockdowns eased, Costa’s margins were hit again, this time by steep inflation, Higgs said.

Prices for arabica coffee have whipsawed in recent years, driven by extreme weather events and supply disruptions. After spiking in 2022, it plunged to around $1.50 per pound by mid-2023, surged again by over 70% in 2024 to $2.50, and then soared to record highs of around $4.30 per pound in early 2025.

“Given the tenor of comments and the lack of traction so far, I think it’s fair to assume they wouldn’t get back what they paid,” Consumer Edge senior analyst Connor Rattigan previously told Yahoo Finance. “They paid 16.4x EBITDA, which was staggeringly high, even back then.”

That said, Quincey is not afraid to cut losses. He already slashed Coca-Cola’s brand portfolio by half in 2020, nixing brands like Odwalla, Hubert’s Lemonade, and Zico’s coconut water.

Coca-Cola’s second quarter revenue increased 1% year over year to $12.5 billion, with adjusted earnings per share growing 58% to $0.88, surpassing Wall Street’s expectations. However, global unit case volumes declined by 1%, indicating soft demand in key markets.

Coca-Cola’s stock has gained 11% year to date, compared to the S&P 500’s (^GSPC) 10% advance and rival PepsiCo’s (PEP) 1% drop.

Scaling up Costa’s RTD offerings could still offer growth, particularly in international markets, as competitors like Starbucks aggressively fight for the US. In North America, Starbucks operates through a joint venture with PepsiCo (PEP), which helps it distribute RTD products like bottled frappuccinos.

In contrast, Coca-Cola has largely treated Costa as a test-and-learn project, Stanford said. This lack of clear commitment has contributed to the brand’s stagnation. Its RTD launches have lacked the scale and support of a typical Coca-Cola rollout.

“That RTD brand is so small and sporadic in terms of distribution, it doesn’t even show up on our data,” Stanford added.

“Costa still has potential,” Rattigan said. “But at this point, it really comes down to whether Coca-Cola has the capacity, and the willingness to finally prioritize it.”