The Coca-Cola Co.’s KO, -1.01% decision to buy U.K. coffee house chain Costa is a paradigm shift, but also a bold and sensible move, Susquehanna said Friday. The deal allows Coca-Cola to expand the definition of its non-alcoholic beverage strategy to include hot drinks. Until now, its coffee offering has been cold coffee via licensing agreements in the U.S., Europe and Japan. “Coca-Cola emphasized this deal is about a coffee strategy and not about a retail strategy, but something must have (forced?) led the company to decide a long-term coffee strategy in hot/cold coffee would not be viable without KO owning a (some) “hot coffee” brand(s); see moves by JAB, 3G, the PepsiCo/Starbucks and Starbucks/Nestle relationships,” analysts wrote in a note. The company said it has global ambitions for Costa, but Susquehanna would not be surprised if it were to buy a U.S. coffee chain too. as Costa has little brand recognition there. “Separately, but just as relevant, as per p5 of the slide deck, KO’s definition of “total beverages” now also includes “not-ready to drink cold” (powders, capsules for at home systems), which makes us think long term KO remains committed/interested in at home solutions (although we would not expect a counter bid for SodaStream),” they wrote. Coca-Cola shares were down 0.8% Friday, and are down 2.8% in 2018, while the S&P 500 SPX, -0.19% has gained 8% and the Dow Jones Industrial Average DJIA, -0.28% which counts it as a member, has gained 5%.
Have breaking news sent to your inbox. Subscribe to MarketWatch’s free Bulletin emails. Sign up here.