Cold and Hot: Coca-Cola and Coffee

While we in the U.S. might not be familiar with U.K.-based coffee company Costa, it has almost 4,000 stores, including several hundred in China, and is the third largest coffee brand in the industry (behind Starbucks and McDonalds). Costa was recently acquired by Coca-Cola for $5.1 billion. Why? Simply stated: because purchases of soft drinks are down, and coffee consumption is up. Coca-Cola’s earnings have gone from $14 billion in 2013 to under $9 billion in 2017. According to Euromonitor, coffee sales are forecast to grow 15.6% by 2022.

To date, Coca-Cola’s products have included soft drinks and water products including Coca-Cola, Sprite, Fanta, Diet Coke, Coca-Cola Zero, Coca-Cola Life, Dasani, Minute Maid, Ciel, PowerAde, Simply juice beverages, Coca-Cola Light, Fresca, Smart Water, Fuze, Honest Tea, and more, including several alcohol products in Asia. However, the company has not had a hot-drink in its product mix, nor has it had a significant retail footprint.

Competition will be fierce. In addition to Starbucks, McDonalds, and others, there is Nestle which owns Nescafe instant coffee and Blue Bottle (which has exclusive rights to Starbucks packaged coffee and tea. Another competitor is JAB (European conglomerate) which owns Peet’s Coffee and Keurig. For Costa, the deal will help strengthen the brand and expand into new geographies.

The coffee battle has begun.

Group Activities and Discussion Questions:

  1. Discuss the four primary marketing strategies: market penetration, market development, product development, and diversification.
  2. Have students view Coca-Cola’s products: https://www.coca-colacompany.com/brands/product-description
  3. Show video about purchase: http://fortune.com/2018/08/31/coca-cola-costa-coffee-whitbread-hot-drinks/
  4. Show Costa Coffee Web site: https://www.costa.co.uk/
  5. Which strategy is Coca-Cola using for Costa Coffee? Why?
  6. Divide students into teams. Have each team select one of the four different strategies and explain why that strategy could be used to market Costa Coffee.
  7. Have each team determine the marketing mix (4Ps) to support their strategy choice.
  8. Debrief the exercise.

Source:  New York Times, Fortune, CNN, Telegraph, and other news outlets

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