Coca-Cola Launches RTD Coffee Under Costa Brand

Coca-Colahas announced the launch of its much awaited Costa Coffee RTD as the soda giant forges ahead with further broadening of its portfolio.
The company best known for its trademark Cola said that the new offerings will come in variants of Classic Latte, Caramel Latte, and Black Americano.

The coffee range which will first hit the shelves in Great Britain later this month, followed by Poland and China (countries chosen because of Costa’s presence in those markets) is said to have less calories, with 30% less sugar than other RTDs in the UK.
Coca-Cola has had three major launches since early this year – from Coca-Cola Energy drink to Signature Mixers and Aquarius, further signifying a broadening of its portfolio.

The company announced the $5.1bn acquisition of Costa Coffee in August with the deal finalized in January this year. Costa was founded in London in 1971 and has grown with footprints in 30 countries in Europe, Asia Pacific, the Middle East and Africa.
The acquisition of Costa Coffee by Coca-Cola will help it become a major player in the global coffee category which is growing at around 6% a year and is valued at around $0.5 trillion.

By choosing to enter the ready-to-drink category, Coca-Cola is combining its enormous global distribution system with the growing popularity of on-the-go gourmet coffee. Consumers crave convenience and this easy, on-the-go canned coffee line could satisfy that. Mordor Intelligence reports that in 2018, the North American RTD coffee industry was valued at $2.5 billion and is expected to grow at a CAGR of 2.7% to about $2.65 billion by 2023.

However, this growth has come with fragmentation. With demand for single-serve, ready-to-drink, premium and a whole host of other experimental coffees like butter coffee, probiotic and protein-infused CPG coffee products, growth in this industry is difficult to tap into.

More brands are launching ready-to-drink coffee, so Costa will have a fair share of competition. Nestlé purchased Starbucks' retail products for $7.15 billion last May, which offers a variety of different RTD coffee beverages. And previously, Nestlé acquired Chameleon Cold-Brew and a majority stake in Blue Bottle Coffee. But it's not only Big Food taking advantage of this trend. More startups are also launching these ready-to-drink products. Data from CB Insights shows that coffee startups were on pace to raise more than $1 billion by the end of 2018.

While generally promoting products with familiar labels gives Big Food acquirers built-in product branding, Coca-Cola will not be able to take advantage the lesser known coffee brand if it brings Costa to the U.S. Instead, the Atlanta company may need to rely on the quality of the product to tempt customers, which is becoming more difficult as small startup coffee labels pull in consumers with their innovative takes on coffee, like cold brew.

Coca-Cola and Costa opted for a traditional, chilled double espresso shot format, akin to what Starbucks already has on shelves. That format has, however, proved successful. In the first quarter of 2019, Nestlé saw its biggest jump from the Americas segment, where it reported 11.1% growth. A large portion of that gain came from the previous year’s acquisition of the license to sell branded Starbucks products.

So while Coca-Cola knows the format of launching flavored, chilled espresso shots from a beloved chain could work well for sales, the company will likely still test out the product for several quarters in a market that is familiar with the brand before it brings it to unfamiliar territory.

June 13, 2019