- Coca-Cola’s $5.1bn Costa gamble is faltering, with CEO James Quincey now “rethinking” the company’s coffee strategy
- Other companies are posting losses despite flat sales, joining a growing list of legacy coffee brands under pressure
- Global coffee demand is forecast to fall 0.5% in 2025, showing scale offers no immunity in a shifting market
SIGNS of strain are emerging even in the most established corners of the global coffee industry.
Coca-Cola, having splashed out $5.1 billion to acquire Costa Coffee in 2019, is now signalling hesitation. CEO James Quincey recently admitted that the company is “rethinking” its approach to Costa, hinting at deeper unease within the conglomerate’s coffee ambitions.
James Hoffmann noted in a video six years ago that Costa Coffee sold for 16.4 times its EBITDA (earnings before interest, tax, depreciation, and amortisation) – a strikingly high valuation, especially given Costa’s underwhelming performance at the time.
So why was Coca-Cola interested? According to Hoffmann, it was a strategic gap-filler: Coca-Cola lacked a strong coffee brand, while Costa, largely focused on its café operations, hadn’t yet developed a ready-to-drink (RTD) product at a time when RTD coffee was booming. “They’re very good at putting stuff in bottles,” says James in his video, “and even better at distribution – and that’s Coca-Cola’s great strength.”
Since then, despite extracting more than a quarter of a billion pounds from Costa Coffee since buying the chain, Costa’s performance has lagged, plagued by soaring green coffee prices, rising operating costs, and flagging consumer footfall in key markets. Coca-Cola’s broader financial pressures – including “weakening consumer sentiment” and the recent losses tied to consumer boycotts like the “Latino Freeze Movement” and Boycott, Divestment, and Sanctions – have likely only sharpened scrutiny around underperforming divisions like coffee.
“Coca-Cola has lost money in the coffee business before, does anyone remember Maryland Club?” says an anonymous coffee consultant. “I believe that executives with Coca-Cola feel as a beverage company they have to be involved with coffee, but what segment? In the US they are way behind the curve in retail and the only way to catch up is by throwing a lot of money at it.”
Coca-Cola’s history with coffee appears to be coming full circle. In 1989, as US coffee consumption hit historic lows and consumer interest waned, the company divested its coffee assets – selling its Maryland Club and Butter-Nut brands to Parkview Investment Management Co., effectively exiting the category. Now, more than three decades later, it may arguably be considering a similar move.
With global coffee consumption stagnating in mature markets and competition intensifying in ready-to-drink and specialty formats, Coca-Cola’s renewed uncertainty around its coffee strategy suggests that even the beverage giant may be losing faith in a once-promising category.
The soft drink giant is not alone. In the United States, Farmer Brothers – one of the country’s well-established coffee roasters – has begun exploring sale or merger options after unsatisfactory results. Following a US$100 million asset sale to TreeHouse Foods in June 2023, the company still faces losses driven by high input costs and weak out-of-home consumption. Farmer Brothers saw flat sales of $257.1m in the nine months to 31 March this year, up only slightly from the previous year.
“There’s always going to be room for a well run legacy business with brand loyalty,” says Anonymous. “Farmer Brothers doesn’t fit this category. The challenges of the unpredictable C-market and now tariffs put them at risk.”
Green coffee prices remain historically volatile, and with consumer sentiment dampened by economic uncertainty, demand has softened according to Rabobank, just when operating costs are hardest to control.
Both examples point to a broader malaise across coffee, a sector once seen as recession-resilient because of the perception of coffee being a daily global necessity. The very traits that once made it stable – predictable demand, strong brand loyalty, and global reach – are now under pressure.
Inflation has made coffee more expensive to produce and serve. Shifting consumer habits have made footfall less reliable. And increased competition from functional beverages and cheaper alternatives has taken a toll on both value and volume.
Not just a specialty problem
It’s tempting to attribute coffee’s current turbulence to the woes of specialty startups, which have long wrestled with slim margins and scale pressures.
But the strain is increasingly visible among big brands too, from multinational conglomerates to established mass-market players. As consolidation ramps up, so too does the sense that this is a sector-wide reckoning, not a boutique bubble.
Starbucks – long considered the gold standard in global coffee retail – recently reported net earnings plummeting by nearly 50% year-on-year, according to the firm’s Q2 2025 earnings report. They attributed part of the slump to changing preferences among younger consumers and “macro pressures” reducing discretionary spending.
M&A is becoming a default response. In Europe, Lavazza has quietly scooped up struggling brands to consolidate its position, while Nestlé continues to acquire smaller operators to expand its premium capsule and ready-to-drink offerings.
The logic is clear: diversify revenue, gain market share, and acquire innovation when in-house efforts stall. Yet even these strategic moves carry risk, particularly in a crowded, inflationary marketplace where differentiation is hard and loyalty fleeting.
It’s not just Western firms feeling the crunch. Even China – where coffee is still a growth category – is showing signs of saturation in urban markets, with local chains such as Luckin Coffee raising prices slightly, ending the coffee wars, in the face of rising input costs that are squeezing profit margins across the industry.
Not all are struggling though. In March, JDE Peet’s, the world’s second-largest coffee company after Nestlé, announced a €250 million share buyback programme – for many a sign of confidence, but for some a reflection of uncertainty. Its latest reported half-year results for 2025 suggest the reason was the former, with sales and profits up, and already 38% of the buyback completed.
What comes next is not necessarily the demise of coffee, but the future still looks unclear.
The next chapter
What has gone wrong, and can anything be salvaged? First, average green coffee prices have remained above historical norms since 2021, due to climate shocks in Brazil, currency volatility, and tightening supply chains. During 1992-2019, the average price of coffee was $3.74/kg($1.70/lb) (measured in 2019 dollars). This squeezes margins at every level, from producers – who might be making more money, but are selling less coffee – to roasters to retailers.
Second, consumption is no longer as predictable as it once was. In the EU27, coffee volumes have stagnated at 1.74 million tonnes annually since 2021, according to the European Coffee Federation. In the UK, green coffee imports fell 9.1% in 2023. According to Rabobank, global coffee demand will fall 0,5% in 2025.
While global consumption is still expected to rise modestly in the long term, growth is being driven by new markets like China and India, and existing markets like Australia, Japan, and South Korea – markets that require long-term investment and different strategies. Contributing 31% to global growth, the Asia-Pacific region’s booming middle class and increasing coffee culture adoption are key factors.
Third, the meaning of coffee is changing. Once a social ritual or morning necessity, coffee is now often just one option among many in the competitive beverage landscape. Matcha, energy drinks, nootropics, and functional beverages are fragmenting loyalty. A younger generation may still drink coffee – but they are also chasing performance, aesthetics, and novelty.
What remains is a sector in flux. For large companies, the challenge is to reconnect with consumers without relying solely on scale. That might mean offering more transparent sourcing, leaning into health and wellness trends, or rethinking format and delivery. It may also mean accepting that growth will look different – more dispersed, more digital, and less rooted in bricks-and-mortar expansion.
“There will almost certainly be more consolidation ahead,” says Anonymous. “No one could have predicted that, coming out of Covid, we’d face a volatile C-market, new tariffs, and the high cost of capital.”
“In this environment, the winners are the companies with cash. I expect we’ll see more asset purchases as struggling businesses look for ways to avoid their unsecured creditors. Meanwhile, those same creditors – having been burned before – are tightening credit lines, making survival even harder for vulnerable firms.”
For the coffee industry, the lesson is clear: size offers no immunity. The volatility of global trade, the complexity of consumer sentiment, and the rising expectations of younger drinkers all demand agility, not just capital. Even the biggest players must now ask the questions that smaller ones have grappled with for years: Who are we for? What makes us different? And how do we stay relevant when taste – and the times – are changing?
Coffee Intelligence
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