Diversifying into RTD coffee and self-serve Costa Express machines has helped diversify the business: but the pandemic has put Coca-Cola a couple of years back in its plans for Costa, James Quincey, CEO, The Coca-Cola Company, said in the company’s FY2021 earnings call last week.
He acknowledges the pandemic has impacted the company's plans for Costa: but remains positive the strategy remains the right one.
Diversifying the coffee platform
Costa was founded in London in 1971 and has around 4,000 retail outlets across the UK and in 30 other countries. When Coca-Cola bought the company from Whitbread PLC for £3.9bn, this also included coffee vending operations, at-home formats and self-serve Costa Express machines.
While the aim of the acquisition was to develop a ‘scalable coffee platform’ across multiple formats and channels, the base of the business remains on the on-trade. This was naturally hit by the pandemic, and while Costa continued to recover through 2021 it continued to be impacted due to COVID-19 related restrictions.
In the company’s FY2021 earnings call last week, Quincey was clear that Costa has taken a hit from COVID-19.
“Clearly, COVID impacted not just our total business, but it impacted the Costa business, which is an almost entirely away-from-home business, and so it was very much a bit like our fountain business in the US,” he said.
“It was very much in the crosshairs of the COVID impact, particularly in 2020 at the beginning when the lockdowns were very severe, and in fact, most of those coffee shops are all closed in 2020, so it was very hard on the Costa business.”
“But 2021 made a lot of progress, reopenings... So the coffee stores are bouncing back, but not back to where they were yet.”
Coca-Cola’s vision for coffee includes a number of components, continued Quincey: and those outside the key on-trade area have managed to make inroads during the pandemic.
New ranges of Costa Coffee products for at-home consumption have been launched and rolled out.
In China, the Costa ready-to-drink expansion continued in 2021 with availability now in more than 300,000 outlets.
And Costa Express – a self-serve machine with barista-style coffee – has been a success story for the company, said Quincey.
“Obviously, 2020 was hard to install new machines, but the performance of the existing machines was extraordinary and very positive.
"And then last year, we began to install thousands of new machines. And then we've partnered with our bottlers to have Proud to Serve, where they provide the beans, the machines to the HORECA channel and we've launched ready-to-drink where it's done really well in certain parts of the world.”
Ultimately, Quincey says the company’s plans for Costa have been pushed back: but he remains positive the strategy remains the right one.
“The vision is still there. Clearly, we've lost a couple of years. I mean, there's no beating around the bush, and we're going to have to bounce back from it.
“But the learnings we had and the experiences where we were able to do things give us some confidence and belief that we have an opportunity to execute against the vision, which, of course, we still need to do.”