Strategic Analysis of Coca-Cola's Acquisition of Costa Coffee in 2018

Desklib provides past papers and solved assignments for students. This essay analyzes Coca-Cola's acquisition of Costa Coffee.

Individual Essay
1

Globalization is the term which is used everywhere in the recent business environment.
Globalization is adopted by the business houses to expand the area of operations and have higher
profit and productivity. Globalization can be adopted by the businesses in various ways like
mergers, acquisition, imports, and exports. This essay will throw light on one such event of an
acquisition of Global brand Costa Coffee by the very well known global company Coca Cola.
Coca-cola has acquired Costa to enter in the global market with a new product Coffee. The
acquisition took place in August 2018. The acquisition is a very big step for Coca Cola as the
company has embarked a new beginning in the global markets with Coffee which is altogether
different from the soda and the other beverages. Coca-cola acquired Costa which has more than
4000 outlets all over the world and is a very expensive coffee brand. The acquisition took place
to eat an amount of $ 5.1 billion. The company has taken the decision of acquiring Costs as the
coffee category is increasing at 6%per year and has a high value in the market. The acquisition of
Costa is the biggest acquisition of Coca Cola ever. This will prove to be really beneficial for the
company to expand its operations and productivity (Cadwalader, 2018).
PESTEL Analysis
2

The PESTEL analysis of the Coca Cola company with regard to this venture helps to understand
the factors which influenced this acquisition. Talking about the political aspect of this venture,
Coca Cola has operations in various countries and each country there are different food and
beverage laws. The company has to follow the rules and legislation of each country in order to
operate in the country. The acquisition of Costa increased the productivity and variety of
beverages for the company and this helped the company to enter the market with a new product
which is acceptable by each and every government (Pratap, 2016). Looking at the economic
aspect, there was a major financial crisis all over the world which reduced the profits of almost
all the big brands. In such situation also, Coca Cola managed to remain profitable. The effect of
the major financial crisis was on Costa also and this made the acquisition more suitable for both
the companies.
The social aspect of this event reveals that the people of the world as more health conscious now
and are moving towards the healthier drinks now. As it is known that soft drinks are not good for
health, the acquisition of Costs will provide major benefits to the company. Technologically,
Coca Cola is very ahead and uses the latest technology in the production and packaging of the
products. Costa also uses technology in the production of coffee. The merger of both the
company’s technology will provide higher benefits to the company. Looking at the
environmental perspective, the consumption of water is the major issue faced by many
countries. The acquisition of Costa will help the business to contribute to the water stewardship.
The legal aspect of the event expresses that there are various rules and regulations in different
countries. For the production of soft drinks, the major ingredient is water which is a natural
resource and each country has rules related to the usage of water by the industries. In such
condition, the acquisition of a coffee brand will provide support to the company in the countries
in which there is a shortage of water and have strict rules regarding the use of water (Pratap,
2016).
3

Porter’s five force model
The impact of the acquisition can also be understood by Porter’s five force model. The first force
of the model tells about the competitors. The first force is called the Competitor’s rivalry. The
major rival and competitors of coca cola are Pepsi. Both the companies are a leader in the
beverage market. Somehow, Pepsi has some advantages as it also produces Quaker oats, Doritos
and some other food products. This makes Pepsi strong in the market. The acquisition of a coffee
brand by Coca-cola will provide a competitive advantage to the company over Pepsi. The second
force is the threat of new entrants in the market. As the people are moving towards healthier
drinks, there is always a threat of new entrants to Coca-cola. But the acquisition of Costa has
made the company ready for the change. The third force is the threat of substitutes. The people
might start having coffee instead of soft drinks. The acquisition of Costa will help the company
to manage this change. The fourth threat is the bargaining power of the customers. The end
4

users of Coca Cola have high bargaining power. The company has to keep the prices of the
products low for the satisfaction of the end users (E. Dobbs, 2014). The acquisition of Costa will
help the company to have a new market of customers with low bargaining power and this will
enhance the overall profits of the company. The last force of the Porter's five force model is the
bargaining power of the suppliers. The bargaining power of the coca cola’s suppliers is also
high. The event will assist the company to bring down the bargaining power of the suppliers (Ho,
2014).
After the analysis of the factors affecting the acquisition event, it is clear that this event will
prove to be beneficial for the company. By this event, the company will enter the markets of
Europe, Africa, Asia and the Middle East with a new range of products. The operations of Costa
will be carried out normally as present but the operations will have a direct impact on the
profitability of Coca Cola. The company will surely have high profits in the future by this giant
alliance.
5

Reference
 E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), pp.32-45.
 Cadwalader, Z., 2018. Coca-Cola Acquires Costa Coffee For $5.1 Billion. [Online].
Sprudge. Available at: https://sprudge.com/coca-cola-acquires-costa-coffee-for-5-1-
billion-136576.html [Accessed 28 Jan. 2019].
 Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic
analysis. European academic research, 2(5), pp.6478-6492.
 Pratap, A., 2016. Coca Cola PESTEL Analysis. [Online]. chesh notes. Available at:
https://www.cheshnotes.com/2016/08/coca-cola-pest-analysis/ [Accessed 28 Jan. 2019].
 123writing. 2019. PESTLE and SWOT analysis of Coca Cola 2017. [Online]. 123writing.
Available at: https://www.123writing.com/free-sample/pestle-and-swot-analysis-of-coca-
cola-2017 [Accessed 28 Jan. 2019].
6

Appendix
PESTEL analysis of Coca Cola:
7

Porter’s Five force Model
8