Strategic Management in Hospitality

This report discusses the strategic management of Coca-Cola in the hospitality industry, specifically focusing on the acquisition of Costa coffee. It explores the type of strategy used, the reasons behind the acquisition, and the strategic challenges faced. The report also highlights the strategic growth pursued by Coca-Cola and its impact on the company's growth and expansion.

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Coca-cola
Strategic management in Hospitality

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Contents
Introduction..........................................................................................................................................2
Type of strategy..................................................................................................................................2
Why Coke bought Costa....................................................................................................................4
Why Costa sold to Coke....................................................................................................................7
Strategic challenges to be faced in the acquisition........................................................................9
Identification of the type of strategic growth pursued with evidence..........................................11
Conclusion.........................................................................................................................................12
References........................................................................................................................................13

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Introduction
The strategic management is the continuous scheduling, monitoring, evaluating and
considering all the factors which are necessary for the organization to encounter its
goals and purposes. It is supportive to the company in evaluating the present
situation. This report embraces the strategic management of Coca-Cola. The report
critically defines the acquisition of Costa by Coca- Cola. Costa coffee was bought by
Coke from Whitebread and underlined the scale of the global coffee revolution. Coke
became UK’s biggest coffee shop player after the acquisition. It was great news for
the shareholders as it identified the strategic value developed by Whitebread in the
Costa brand along with the international growth potential. It even enhanced the
realisation of value for the shareholders in cash. The strategy used by Coca-Cola
has been described in the report. Further, the report includes the reasons why Coke
bought Costa and why Costa sold to Coke. The strategic challenges faced by the
company have been defined along with the strategic growth being pursued.

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Type of strategy
Coca-Cola has taken another significant step in order to become a total beverage
company what it aspires to be. Coca-Cola does not have a coffee strategy. It has a
coffee business which seeks to grow in numerous ways. Coca-Cola grows its
business depending on the choice of strategies. It comprises a retail strategy, an
integration strategy, marketing and distribution strategy (Cheptegei and Yabs, 2016).
The integrated strategy was used to create an incorporated and seamless
experience by Coca-Cola to interact with the customers of Costa. Coca-Cola even
used direct marketing and social media to create a unified experience by acquiring
Costa. It has been considered that coffee has a market share of over $500 bn. Coca-
Cola can easily enter in the market with the acquisition of Costa and strengthen the
business in the coming years. Coca-Cola uses the scheme of marketing products at
fewer prices in the starting years and grabs the market share. It does not require any
heavy investment to be made by Coca-Cola as Costa has already an established
system.
Coca-Cola also makes use of the distribution strategy to sell coffee to the vending
partners and customers. Coca-Cola can also set its outlets at the petrol pumps and

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convenience stores. It can enhance the sale of coffee. The company can even cater
to the supermarkets, cornerstones, retailers, cafes, nightclubs, restaurants and petrol
stations. Coca-Cola has already established portfolio adding new item appeals to the
customers. It has a role in gaining profits to Coca-Cola by adding coffee.
Why Coke bought Costa
Coke bought Costa coffee from Whitebread. It is the biggest acquisition of the UK’s
coffee chain.
Additional diversity away from the sugar carbonates
The recent launches and acquisitions of Coke’s are dedicated to wellbeing and
functionality. The soda drinks of the company whether syrupy or made with the
sweeteners drop favor with customers. Coke introduced low-calorie ice tea brand
Fuze tea, honest coffee, honest tea range, Adez and variety of dairy unconventional
smoothies. Coke also seized a minor stake in Body Armor which is an energy drinks
brand. The latest acquirement of Coke is a persistence of the assortment thrust
(Bower, 2018).

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It is a great opportunity for Coca-Cola to develop beyond soft drinks and transfer into
the hot drinks sector. The company has come up with the standout offer representing
significant transformation for the company. Added hot beverages for the 1st time and
gave an enhancement to the investor’s base. The company has made a significant
investment in the category by growing in coffee and hot beverages segment. It is the
appropriate thing to serve customers with ample drinks wanted by them, it helps
customers.
Share in the fast-growing market
Attaining stake in the market is also one of the reasons that Coke bought Costa. It
has been revealed that sales of coffee shops endure rising in the United Kingdom.
The almost £3,378m sale is made in 2017 and anticipated to increase by 1.5% in
2018 to attain £3,427m. The deal made by Coke follows $7.1 bn tie-ups and Nestle
acquired an eternal global license to create Starbucks branded products through the
globe (The Guardian, 2018). The contract of Coca-Cola allowed stepping up efforts
on the coffee division to encounter Nestle. Coffee is considered as one of the leading
beverage categories globally and a category of various elements. Coffee is a great
business accompanied by various formats and a fragmented business.

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Global Reach
The ready to drink of Coke comprises brands like Chaywa, Honest Coffee and
Georgia cold brew in the Japanese retail. The soft drinks do not have an extensive
and global portfolio. Therefore Costa is the best way to add coffee and it can
complement to Coke’s existing system. This deal is also going to benefit Costa as
the company can determine its prospective overseas. The amalgamation of a
universal super brand and the UK’s leading coffee chain will certify sustained product
expansion, larger market share and expansion overseas (Wheelen, et al. 2017).
Costa has also various opportunities to expand internationally with the effective
operations of Coke. Coke can also widen its portfolio and make a further expansion.
Drink route to the high level
Coke does not have its own coffee outlets and it is a prospect to mass the gap and
knock into the emerging market. The coffee market cannot be underestimated and is
growing by 4.3%. The taste for the coffee of people does not seem to turn anytime
soon (The Guardian, 2018). The acquisition of Costa by Coke can increase presence

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in the competitive marketplace such as coffee and restaurant space (Doz, 2017).
This deal will also speed up the position of Coke in ready to drink beverages.
Cost savings
Costa is valued at almost £2.7bn which is not cheap. The price tag of Costa valued
at £3.9bn which is 16.4 times the business of 2018. It is appropriately more than
Starbucks. Coca-Cola is expecting to graze back specific of the immense prices
rapidly through the cost-saving prospects (The Guardian, 2018). The accumulation
of Costa in Coca-Cola will convey strong proficiency across the supply chain
comprising obtaining, marketing, and distribution (Haskova, 2015).
Why Costa sold to Coke
The sale to Coke offered Costa stimulating possibilities to reflect in new setups like
chilled options and extent to an extensive audience through Coca-Cola’s well-settled
distribution network. Costa has various opportunities to expand universally. Costa
can expand its operations in various markets with the label of Coke and can take
Costa to the next level. This deal can even hasten the position of Costa as a ready
to consume through the distribution channels of Coca-Cola. Coke will introduce

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Costa brands in order to strive for the retail outlets in order to grab the coffee market
(Tucker, 2017).
Coca-Cola sold its business to Coke as it can take beyond the presence of the
company from the UK to the other 30 countries. The business model of Costa is
majorly about to franchise its stores than owning directly. Coca-Cola is very familiar
with this business model as it does the same with the bottling network. There is
enough profit to go around for the company. Coca-Cola attained revenue of $35.4bn
in 2017 and market capitalization over $191bn which represents huge opportunity
growth for the company (The Guardian, 2018). Coca-Cola is such a famous brand
and it can give fame to the products of Costa. Costa sold to Coca-Cola as it can be
seen absolutely everywhere comprising pubs, restaurants, hotels, vending
machines, and cafes. As a result of the acquisition, Costa attained a substantial
premium. Costa was attractive enough to Coca-Cola that it was ready to pay a hefty
premium (Steinbach, et al. 2017). The acquisition was also beneficial to Costa as it
was weak. The Costa was also seen excited to be associated with Coca-Cola as it
can track a great record and enormous global potential. The vast distribution network

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of Coca-Cola is effective for the Costa to sell in the grocery stores and restaurants. It
can even boost sales in the long run (Schönweger and Messerli, 2015).
Costa was tackled by Whitbread for more than two decades in the UK. Whitbread
was having shareholder’s burden to spin off the business in order to allow it to grow.
Whitbread decided to part ways with the business completely after approving to sell
Costa to Coca-Cola. Costa will sell all the outstanding shares of the company. It will
be subjected to customary closing conditions comprising antitrust sanctions in the
European Union and China. On the other side transforming portfolio of the Coca-
Cola can be proved innovative for the Costa. The company can also reduce
environmental impact by replenishing water and reducing sugar from the drinks. It
can also help to bring local opportunities worldwide (Ozretic-Dosen, Brlic, and
Komarac, 2018).
Strategic challenges to be faced in the acquisition
Coca-Cola has made serious and substantial investment as it is the appropriate thing
to serve customers with lots of drinks they want. In turn, it helps customers and
develops loyalty. Costa is having a strong consumer proposition. It can help Coke to

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engage with customers through multiple platforms and channels (Oetzel and Miklian,
2017). Coca-Cola faced a challenge in getting regulatory approval of the
shareholders in order to become a total beverage company. It can chase the taste of
millions of the customers by diversifying away from the fizzy sodas to healthy drinks.
Costa comes with a surplus of capabilities whereas Coca-Cola does not possess
any. Costa is a retail company and having a service business. The company sells
directly to consumers. On the other side, Coca-Cola is having a well-developed
network of 3rd party bottlers which manages manufacture, sales, and delivery of the
beverages (Menon and Yao, 2017).
Coca-Cola can attain head-ache with the ethical issues associated with coffee
farming. Coca-Cola is already having over 500 soft drink brands, adding another
brand can create difficulty. The portfolio can be uneven can lead to challenges.
Coca-Cola mainly sells drinks in cans or plastic bottles so it can create massive
pressure from the environment activists (Bettis, et al. 2016). The company can even
come under massive pressure from the government for the quantity of sugar in the
products. A few countries have initiated a tax on sugar. On the other side, it is

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common to drink coffee with sugar so Coca-Cola will be liable to pay unnecessary
charges.
Coca-Cola can even face lack of planning around integration. The sales operations
of Costa are integrated with Coca-Cola. The biggest problem realized with
integration was cultural. Both the companies operated at a different pace. The
struggle can be faced in post-acquisition sales (Hill, Schilling and Jones, 2017). The
challenges related to employee retention are also faced. The negative attitude of the
employees can create a problem in the growth of the organization.
Identification of the type of strategic growth pursued with evidence
Coca-Cola made a substantial stock in hot drinks, a market which still remains
hugely fragmented. Coca-Cola is anticipated to grow internationally focused on the
few markets. Coffee is a substantial, fast-growing and profitable category. It is the
biggest acquisition made by Costa in the last eight years. The acquisition of Costa
Coffee by Coca-Cola can cut its acquaintance to sugar and elastic bottles. The
acquisition of Costa by Coca-Cola representing a multiple of 16.4x costa FY18. The
acquisition of Costa gave Coca-Cola instant heft in the business from which it was

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absent (Ivanaj, et al. 2015). The deal with Costa, open business line for the Coca-
Cola.it even underscored the pressure to search out new areas of growth. The
acquisition of Costa supported Coca-Cola and created growth in the immediate
consumption outlets which are stationed everywhere from supermarkets to petrol
pumps. Coca-Cola has dabbled in coffee, started selling Coca-Cola coffee plus in
Japan and Australia. The company even expanded into Vietnam (Ansoff, et al.
2019). The addition of hot beverage in Coca-Cola lead to the addressable market
proportion and jumped to $1.5 trillion. Furthermore, this section is rising at a rapid
pace that is 6% per year. The acquisition of Costa also benefited Coca-Cola by
driving sales in China. It drives the international growth of the company. The buyout
of Costa in South China gave full control of the Chinese operations to Coca-Cola
(Mazzei and Noble, 2017).
Conclusion
Coke’s decision of purchasing Costa has resulted in huge profits to the company.
The company generated great revenue by adding hot beverages to the portfolio. It
helped Coca-Cola to reach globally and attain a large number of market share. On

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the other side, it also helped Costa to expand in more than thirty countries. Although
Coca-Cola faced challenges in acquiring Costa, results were worth attaining.

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(2019). Implanting strategic management. Springer.
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