- Soda consumption in the West has plummeted in recent years
- Coca-Cola acquired UK coffee chain Costa Coffee for around $5 billion in 2019
- Its range of RTD coffee products could fund traditional soda sales in low-to-middle income countries
OVER THE last few years, Coca-Cola has done little to hide its advance on the coffee industry.
If its various cafe chain acquisitions and coffee-based products weren’t evidence enough, then it was a recent interview with the company’s vice president for Group Hot Beverages, Etienne Gossart, that put to rest any doubts.
“A significant focus for us,” he said, “is building a platform for growth in coffee. We will continue to expand into the coffee category by working with all of our partners on key coffee solutions and innovations, which will drive revenue and margin growth for our business.”
And who can blame them? The global coffee market is worth more than $100 billion and rising. Thanks to rapid growth in emerging markets such as China it is thought that it could reach $145 billion within the next three years.
The market for carbonated soda drinks, meanwhile, has floundered. Soda consumption in the US recently fell to a 30-year low, dropping from 50 gallons to 37.5 gallons per capita between 2000 and 2017.
Coca-Cola’s advance on the coffee sector, then, should come as little surprise. After all, it’s not the first time it’s dipped its toes in the industry. In 1975, the Atlanta-based beverage giant controlled a 6% share of US domestic coffee consumption as the holding company of brands such as Paxton & Gallagher and Huggins Young.
However, the latest move looks different, with considerable resources directed towards chain outlets and a burgeoning ready-to-drink (RTD) market. And this time it has a lot more to play for.
Why coffee?
The carbonated soda drinks market in Western countries has been stagnating for a while.
In 2015, a New York Times article titled, ‘The Decline of Big Soda’, reported that sales of full-calorie soda in the US had plummeted by more than 25% over the last 20 years. This, the article says, represents the single largest change in the American diet in a decade.
The key driver is health. Many consumers have grown increasingly aware of the negative effects that highly processed sugar can have on everything from obesity to heart disease. In a recent poll of UK consumers, 81% said they were worried about the sugar content of soft drinks, a 10% rise compared to the year before.
The coffee industry, on the other hand, has experienced consistent worldwide growth. Between 2020 and 2021, consumption grew from 164 million to 166 million 60kg bags. This is in spite of challenges from Covid-19 and climate-related shocks that continue to affect global trade flows.
Coca-Cola HBC, the consumer packaged goods arm of Coca-Cola, responded in June last year by snapping up a 30% share in premium Italian retail coffee and café chain Caffè Vergnano.
However, the company’s biggest statement of intent came before the outbreak of a global pandemic, when it acquired UK coffee chain Costa Coffee for $4.8 billion in 2019.
With this acquisition, Coca-Cola sought to capitalise on the brand recognition that Costa had built over the years, while merging and expanding its line of RTD beverages into the extensive catalogue of other health and lifestyle-driven brands. These include Vitamin Water and Fuze Tea, both of which Coca-Cola acquired in 2007.
This is without forgetting the company’s own signature coffee mixes, which seem to be a key part of its coffee strategy. Early last year, for example, Coca-Cola replaced its failed Blak range with Coca-Cola Plus Coffee, a blend of traditional Cola with Brazilian coffee claimed to “sip like a Coke and finish like a coffee”.
Propping up its empire
While soda may have started to lose its appeal among Western consumers, the situation in the African, Asian, and Latin American markets tells a different story.
Between 2009 and 2014, soda consumption in Cameroon, Vietnam, and Bolivia jumped by 123%, 106%, and 49.5% respectively. This is in line with Coca-Cola’s open ambition to dramatically increase spending in these regions.
“The rate of growth in Africa is higher than that of Western markets and other areas,” said the company’s CEO, Muhtar Kent, in 2016,” so it’ll continue to become a larger and larger part of our revenue.”
This means Coca-Cola can refocus some of its efforts in Europe and the US on coffee, while reorienting soda production that exceeds market demand in the West.
Then, with its mammoth distribution networks, galactic marketing reach, bottomless bank account, and terracotta army of vending machines, it can capitalise on the coffee boom and continue to prop up its soda empire. But what does all this mean for the coffee industry?
Coffee in recent decades has, in many ways, been the “light on the hill” for pushing consumer behaviour towards more fair, equitable, and well-understood products. However, a lot of this has taken place on the fringes of the broader industry and needs input from the market’s biggest players if it is to truly benefit those who need it most.
Therefore, if global behemoths like Coca-Cola are going to stand up and be a part of that movement and are willing to be held accountable, then they can be welcomed with open arms. After all, it is no secret that what Coca-Cola choses to do will move the needle for all commercial beverage operations.
If, on the other hand, its modus operandi is simply to carve away further profits from its involvement in coffee, while sending vending machines – instead of a share of that profit – to the developing world, the industry can and must issue an inexorable rebuke. Only time will tell.
