Hull University Business Strategies Report: Coca-Cola & Costa Coffee

This report analyzes Coca-Cola's acquisition of Costa Coffee, examining the business environment, micro and macro trends, capabilities, and competencies of both companies. It explores the challenges, opportunities, and threats facing the combined organization, including PESTLE and SWOT analyses. The report provides recommendations for successful strategic implementation, including key metrics for measuring success. It delves into the strategic rationale behind the acquisition, including the desire to expand beyond soft drinks and into the hot beverage market. The report also considers challenges such as cultural mismatches, communication hurdles, and employee disbelief, while highlighting opportunities for growth in the coffee market, expansion in China, and leveraging Coca-Cola's distribution network. Recommendations address strategic direction, implementation, and control, with a focus on ensuring the long-term success of the new venture. The report also assesses the financial implications and the potential for cost savings and market leadership.

Running Head: COCA-COLA 0
Coca-Cola
Business Strategies
Student Name:
Student University:

COCA-COLA 1
Executive Summary
Coca-Cola aims to enlarge its product line hence acquiring companies from different parts of
the world. This report will address the problems faced by Coke such as high sugar
containment and negative publicity due to unhealthy carbonated drinks. In this report,
situational analysis regarding Coca-Cola has been done. It is found that the company is facing
challenges regarding environmental factors while other factors support the business
environment of Coca-Cola. This company is facing the issues related to stakeholder
management. In this report it is also found that acquiring Costa will enhance the overall
resources of the Coca-Cola. This company is facing challenges such as pay high, bad
strategic rationale, culture mismatching, communication hurdles, impractical performance
expectations, management being over-confident, and existing employees disbelief. However,
it has opportunities in terms of the fact that it will have profit of acquiring Costa valued to be
$0.8 trillion to $1.5 trillion. On the other hand, this company faces threats related to climate
change having impact on getting approvals.

COCA-COLA 2
Contents
1.0 Introduction.....................................................................................................................3
2.0 Coca-Cola and Costa Coffee...........................................................................................3
2.1 Coke’s problems..........................................................................................................4
3.0 PESTLE Analysis............................................................................................................4
4.0 Capabilities and Competencies.......................................................................................7
4.1 Challenges...................................................................................................................8
5.0 Opportunities and Threats...............................................................................................8
6.0 Recommendations...........................................................................................................9
7.0 Measures.........................................................................................................................9
8.0 Conclusion.....................................................................................................................10
9.0 Bibliography..................................................................................................................11

COCA-COLA 3
1.0 Introduction
In 1892, Coca-Cola as founded to be an American corporation for manufacturing carbonated
sweet beverages. The company provides more than 2,800 products in 200 plus countries as
the world’s largest distributor (Britannica, 2019). Costa Coffee is an international company
that operates 4,256 vending machines in the UK where the company also focuses on
economic and social welfare for the groups who grow coffee with 100% pure coffee beans
from Rainforest Alliance farms (Bulman, 2015). It is a fully owned secondary of Whitbread-
Coca Cola procurement undecided with a huge coffeehouse chain with 3,277 stores in more
than 31 countries. Further, the final intention was told of acquiring Costa Coffee by Coca-
Cola for $5,1bn by 2019 (Arthur, 2018). In this report, the aim is to analyse the environment
of the companies with its micro and macro trends impacting the decision to purchase
knowing its competences and capabilities with challenges faced by Coca-Cola for new
undertakings. Moreover, after the combining of the companies, the opportunities and threats
they face, and the recommendations to make sure about the successful execution by directing
new strategies with its measures are going to be discussed as well.
2.0 Coca-Cola and Costa Coffee
Cola-Cola wanted to acquire Costa Coffee from its parent company Whitbread PLC for
$5.1bn which was finalized in 2019. In the UK, Costa Coffee was leading with almost 4,000
stores globally and its operations in China. The reasons for acquisition were on the basis of
Coca Cola as a marketing and distribution expert and Costa Coffee for its capabilities. Its
purchase provides strong expertise for Coca-Cola with resourceful supply chain that includes
sourcing, distribution, and marketing. The acquisition with Costa coffee gives the capacity
capabilities in the future. The Costa’s Express 8,237 machines universally for large built up
of business which was helpful for the expansion of Coca-Cola’s existing offerings (Forbes,
2018).
Another aspect was diversity in fast-growing and new segments as Coca-Cola is a non-
alcoholic instant drinking beverage player. The hot beverage availability in the market helps
in expansion increment at a fast pace as Costa is the number one brand for coffee, especially
in the UK. The opportunity for growth in China increases for the companies with an increase
in consumption and control over the market. It also leads to the new revenue increment with
resources for Costa as Coca-Cola has the capability of expansion to move economically and
faster than Whitbread (Rao-Nicholson, et al., 2016). With the widespread of companies, the

COCA-COLA 4
interaction possibilities increased as well with the sale of Costa products and vending
machines through its distribution network.
Source: (Riley, 2018).
2.1 Coke’s problems
The strength of Coca-Cola is the growth of its brand with an impact on profit and revenue,
and smaller sales volume currently and awareness. The issue faced was unevenness in the
total beverages strategy and the declining of carbonated drinks in the developed markets of
the US to live healthy lives. Another issue leads to the threats in the main Coke business due
to negative publicity as the use of plastic bottles or cans was putting pressure on activists
worried about the environment. The use of sugar in the beverages mentioned the pressure of
campaigners and governments which imposed a tax on sugar in some countries. The
acquisition of Costa’s coffee bought the ethical issues in farming but the stability in prices
and cooperation within companies saved this problem for Coca-Cola (Walsh, 2018).
3.0 PESTLE Analysis
It is a global non-alcoholic beverage company that serves and supplies services to the
customers as per the regulations and demands with the availability of technology.

COCA-COLA 5
Political: Coca-Cola is under Food and Drug Administration (FDA) and it is essential for
them to fulfil the government decided regulations and changes done by the law in distribution
which includes taxes, changes in the workforce, accounting, and internal marketing (Radis,
2015).
Economic: Coca-Cola is a global company and distribution of products is done across
countries with different cultures, desires, customs, and tastes. As per the preferences of the
customers, the company needs to change and update products by creating new flavours. The
customers mainly from the US require healthy substitute drinks with nominal efforts for
moving in the same direction (Veličković, et al., 2019).
Social: The majority of products distributed by the company looking at the culture in the
countries and the demands of the customers (Fournier & Alvarez, 2019).
Technological: Costa coffee helped Coca-Cola with its machines and in the manufacturing of
the products for high and better quantities for making sure of faster delivery and development
related to quality products (Pagani & Pardo, 2017).
Legal: The rights related to the business with existing and new products developed by the
company within the process are engaged (Smits, 2017).
Environmental: Coca-Cola gets affected by the accessibility of water which is important for
development to drink but climate change can make it different. The company can suffer
losses due to this issue and need to face the environmental laws at the time of manufacturing
products for production and distribution expect the advantage of humid climates (Jones &
Comfort, 2018).
Micro-Environmental factors affecting business in the company are all related to stakeholders
including suppliers and distribution channels, competitors’ level, the impact of customers,
media and the general public, employees and shareholders' availability. The same goes for
Coca-Cola acquiring Costa where objectives are based on the situations discussed above as
mentioned for the further assortment from sugary carbonates focusing on functionality and
health as soda drinks at the time of acquisitions (Brenes, et al., 2016). It is done for the
continuous push as it was the big deal for Coca-Cola and playing strategically to expand
further than soft drinks and moving to hot drinks. The company thought of boosting the
investor base by adding hot beverages with growth in coffee as well which was the part of the
investment category for helping and serving customers the drinks as much they want.

COCA-COLA 6
Another reason was to hold the position in the fast-growing market as coffee is a huge
business and helps in expansion with a strong position including Coca-Cola. The investment
was done in coffee machines to reach at a global level for complementing the existing system
with Coca-Cola (Green, 2018).
The chain drives with realizing a strong position across the seas with the US' biggest
international brand and the UK’s biggest coffee chain for product development, fast and rapid
growth expansion and market share potential universally. It also established the possibilities
with distribution network with more opportunities for expanding universally by operating in
multiple markets. Coca-Cola routing directly to the high street for the business opportunities
filling the gaps and moving to the market for growth with increase in competitive
marketplace after the acquisition of Costs which will speed up its position by Coca-Cola’s
distribution channels. It will increase the competition in the market and approach to become a
market leader. The decisions of acquisition will relate to the cost savings as Costa was not so
cheap but needed to get adjusted according to the expectations of the market. Coca-Cola
thought of cost-saving opportunities by scraping back some of the heavy prices quickly as
Costa has a strong coffee supply chain. It includes the global distribution, logistics network,
and sourcing of Coca-Cola interacting to boost Costa’s profitability (Selwood & Mattinson,
2018).
Source: (Chernukha, 2018).

COCA-COLA 7
4.0 Capabilities and Competencies
The strategy behind this acquisition with Costa coffee and plans of Coca-Cola for the future
was revealed by CEO James Quincey of Coca-Cola. As coffee is trending, profitable,
significant and fast-growing; Costa is a strong platform to engage with consumers through
channels globally which creates value creation opportunity at its greatest by the combination
of Coca-Cola’s marketing proficiency and Costa’s capabilities and global reach. The fastest-
growing beverage is coffee where Costs is growing at 6% valuing $0.5 trillion and also
fulfilling the mission of Coca-Cola by moving beyond soda and becoming a total beverage
company. It helps in increasing the opportunities for entering into new markets of the non-
alcoholic beverage industry marking to $1.5 trillion now (Arthur, 2018).
 The acquisition was made after looking at the potential for expansion which needs to
get worked knowing the position of business globally where there will be ups and
downs for positioning the brand underlined by geography establishing the coffee
culture, introducing in the market. Costa coffee provides great opportunities and
expansion in the markets globally.
 The companies are connected but not united as Costs is going to operate in a similar
manner as they do always. Costa asked for the existing employees working in the UK
to waiters in stores globally with respect and values.
 The step taken in retail industry was a question for Coca-Cola which was different to
think for success. The company will retain and leave a place with existing
management running the retail stores. The expansion and had the capability for
recruiting individuals for helping them where it is important to make a recognizing
strategy.
 As per the acquisition, it is a coffee strategy and not a retail strategy because retail is a
smaller part of a coffee strategy where stores play a major role and culture. This
strategy in business results in return on capital with development.
 Coca-Cola wanted to increase its strength by buying Costa and to be a leader in the
marketplace. The things helped them to increase include great stores, tasting coffee,
brand experience and winning strategy; marketing and quality coffee beans.
The strategy considers the environment engagement and actions like mergers & acquisitions
which are helpful to support and reinforce for the same. Hence, there was no coffee strategy

COCA-COLA 8
but a business of coffee looked to grow (Moye, 2018). The strategy Coca-Cola includes is a
retail strategy, marketing and distribution strategy, and an integration strategy.
4.1 Challenges
The main challenge at the time of acquisition is to achieve the desired goals, especially
financial goals. The other challenges include:
 to pay high to the target company
 the company with bad strategic rationale
 culture mismatching
 the communication hurdles with the leading brand acquired
 hard to integrate implementation and planning
 impractical performance expectations
 acquire the company’s management being over-confident
 the acquired company’s existing employees disbelief
According to Coca-Cola, Costa coffee is worth the price as it is substantial, trending,
profitable and fast-growing.
5.0 Opportunities and Threats
Coca-Cola is going to compete within $485 billion in space of hot beverages and small cold
beverages as well. In Europe 2017, Coke opened its first premium range of instant drinking
cold coffee with availability in the UK as well. As estimated, Coca-Cola has 15% of total
share globally in coffee sector with Starbucks ad Nestle as competitors. The came up with
new flavours in Coca-Cola and the sales of would-be cannibalization at the time of
acquisition with Costa enabling sharing activities and competencies to help as per employed.
The opportunity of Coca-Cola after acquisition with Costa was valued from $0.8 trillion to
$1.5 trillion with evolution of the total beverage company (Nunes, 2018). The company was
facing the present climate of charges with threatening economic approvals, and a lack of
customer confidence linked to the growth of the company after the acquisition (Oakes, 2018).
Trade fears after the happening of Coca-Coal and Costa acquisition in markets where the
European markets fall after threatening by President Trump to make the US out of WTO
(Monaghan, 2018).

COCA-COLA 9
6.0 Recommendations
Coca-Cola after the increase of expansion rate by launching its first energy drink named
Coca-Cola Energy after the acquisition with Costa. The company promises to innovate by
covering different events in various markets. Coca-Cola aims at “mid-day slump” target
which restates the desire of maintaining the company’s relevancy with expansion in events
(Fleming, 2019). To recommend, the company needs to expand its operations and increase its
profitability by promoting to use its products and services for building up the customers'
confidence. To start emerging in the new markets, and change with development and
innovation for better growth and performance. Coca-Cola and Costa need to be the leading
brand universally being the right partner for the expansion of future generations. There are
some doubts and risks which may differ from the results in future as expected. The risks
consist of health-related conditions, poor quality, various preferences of consumers, water
scarcity, safety of products, and negative implications of health including biotechnology-
derived elements and wholesome sweeteners and more. The company needs improvisation in
every aspect of demand increment and productivity; need to be concerned about the changes
in security and enhancement in services provided to consumers and development in markets.
The recommendations need to be done with every innovation needed in the future according
to the preferences of the consumers and change in the market. It is essential for both the
companies to fulfil the expectations and look forward to the future for success as required by
the law and better outcomes.
7.0 Measures
Coca-Cola decided to be the brand leader in the market, explorers for developing new
products, and challengers with market shares. They wanted to build with innovation for
making better marketing and packaging as planned for strategies. The metric they looked for
the innovation contribution in increasing the revenue growth and volume with the existing,
and the new the company can contribute in to enhance the base. The analysis is done to the
profit margins in the retail businesses. The investors increase in value with the high-level
growth of Costa impressively and change of Carbonated Soft Drinks continuously and
operating by lowering the profit margins with an inheritance of Coca-Cola for success. The
drawback was the Trade War and the political draw at high-level between two countries to
think about. The competitors of Coca-Cola in the market are Starbucks and Dunkin’ Donuts

COCA-COLA 10
cold product distribution. But with the right strategic move, Coca-Cola is taking advantage of
the growth and boosting the product offerings for generating success (Solovieva, 2018).
In 2018, the financial measures related to Costa underlined depreciation and remuneration,
earnings before interest and tax, do not exclude the joint-ventures income and revenue as per
the regulations. The performance is measured by monitoring including statutory measures
with IFRS (International Financial Reporting Standards) accordingly. The alternate measures
for better performance in business internally were consistent by providing investors and
management with additional information about Costa’s business and its financial
performance. The profitability measures were adjusted specifically considering a comparison
of Costa’s business with other familiar businesses in the future looking for potential like
Coca-Cola (The Coca-Cola Company, 2018).
8.0 Conclusion
To conclude, Coca-Cola acquired Costa to face challenges with better protection of its
product. The company working with strategies in the business to maintain customer base,
distribution channel, improvements in global structure for attaining business success and
expansion. They worked on a relationship to handle the external and internal environmental
factors to know the effects on the company. Being a popular brand and its image, they gained
customer loyalty towards them and the company to understand customer’s requirements and
buying habits with recommendations and measures to apply them for better performance and
growth.

COCA-COLA 11
9.0 Bibliography
Arthur, R., 2018. Coca-Cola CEO reveals rationale behind Costa acquistion - and outlines
its strategy for conquering the coffee category. [Online]
Available at: https://www.beveragedaily.com/Article/2018/09/03/Coca-Cola-CEO-on-Costa-
Coffee-acquisition
[Accessed 13 September 2019].
Arthur, R., 2018. Coca-Cola to acquire Costa Coffee for $5.1bn. [Online]
Available at: https://www.beveragedaily.com/Article/2018/08/31/Coca-Cola-to-acquire-UK-
coffee-brand-Costa-Coffee-for-5.1bn
[Accessed 13 September 2019].
Brenes, E. R., Martínez, C. & Pichardo, C. A., 2016. Centrolac. Academia Revista
Latinoamericana de Administración, 29(1), pp. 2-19.
Britannica, 2019. The Coca-Cola Company. [Online]
Available at: https://www.britannica.com/biography/Roberto-Crispulo-Goizueta
[Accessed 13 September 2019].
Bulman, B., 2015. 10 Facts About Costa Coffee. [Online]
Available at: https://www.redbrick.me/10-facts-costa/
[Accessed 13 September 2019].
Chernukha, V., 2018. Coca-Cola Enters the Coffee Market. What to Expect?. [Online]
Available at: https://blog.iqoption.com/en/coca-cola-enters-the-coffee-market-what-to-
expect/
[Accessed 14 September 2019].
Fleming, M., 2019. Coca-Cola preps launch of ready-to-drink Costa product. [Online]
Available at: https://www.marketingweek.com/coca-cola-costa-product/
[Accessed 14 September 2019].
Forbes, 2018. Why Is Coca-Cola Paying A Hefty Premium For Costa Coffee?. [Online]
Available at: https://www.forbes.com/sites/greatspeculations/2018/09/04/why-is-coca-cola-
paying-a-hefty-premium-for-costa-coffee/#62e278271643
[Accessed 13 September 2019].