UK-based coffee chain Costa Coffee finally marked its entry into the North American territory with its first retail store launched in Atlanta, Georgia, this month. Founded in 1971, Costa Coffee is a UK coffeehouse chain well-known for its premium coffee. With over 4,000 locations globally, it ranks second after the largest coffee maker, Starbucks (SBUX). In the UK, Costa coffee has a strong following, with 2,681 locations, whereas global coffee giant Starbucks has only a little over 1,000 stores there.
Costa Coffee was acquired by Coca-Cola (KO) in January 2019 for a whopping $4.9 billion. Coca-Cola’s initial plans to increase the presence of Costa Coffee in the U.S. took a backseat due to the onset of the COVID-19 pandemic.
Since then, Costa Coffee has had a limited presence in the U.S., operating through automated Costa Coffee Smart Café machines and BaristaBot locations.
Coca-Cola: Looking to Capture Coffee Market Share
During the pandemic, coffee consumption saw humungous growth, and Coca-Cola looks all set to capture more market share with the expansion of Costa Coffee stores in the U.S. Separately, Coca-Cola also acquired a 30% stake in Casa Del Caffè Vergnano, an espresso company based in Italy.
During its Q2 earnings call last month, Coca-Cola stated that its Coffee business grew 15%, driven by the continuous expansion of Costa coffee across locations globally.
Markedly, Costa Coffee has expanded its on-the-go coffee outlets with 300 new store openings in the UK. It also wants to expand its on-the-go store count to 500 by 2025.
Is KO Stock a Buy, Sell, or Hold?
The Wall Street community is cautiously optimistic about KO stock, with a Moderate Buy consensus rating based on seven Buys and three Holds. The average Coca-Cola price target of $69.50 implies 10% upside potential from current levels.
However, Coca-Cola scores a ‘Perfect 10′ on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Final Thoughts: Coca-Cola’s Costa Coffee Can Pressure Starbucks
Though neither Coca-Cola nor Costa Coffee has set out targets for their expansion plans in the U.S. market, they could surely bring in some competition for Starbucks.
It’s important to note that Starbucks has been in talks to sell its UK business due to rising costs and compressed margins as well as increased competition from the local players in the U.K., including Costa Coffee.
Only time will tell how the two giants will capture the growing coffee market in the U.S. in the times to come.