Coca-Cola Halts Sale of Costa Coffee After Private Equity Bids Fall Short
Coca-Cola has reportedly shelved plans to sell its Costa Coffee business after months of negotiations with private equity firms failed to produce offers that met the company’s expectations. The decision brings an abrupt pause to what had been a closely watched auction process, raising fresh questions about the future of one of the UK’s largest high-street coffee chains.
According to reports citing sources familiar with the matter, the US soft drinks giant ended discussions with remaining bidders in December, effectively halting the sale process. While Coca-Cola has not publicly confirmed the move, the development signals a strategic rethink as the company prepares for a leadership transition at the top.
A Sale Process That Never Reached the Finish Line
Speculation surrounding a potential sale of Costa Coffee first emerged in August, when it became known that Coca-Cola had appointed bankers to review strategic options for the business. At the time, the review was widely interpreted as a precursor to a full or partial divestment.
The process attracted interest from several high-profile private equity firms. In the later stages of negotiations, bidders reportedly included TDR Capital, the owner of supermarket chain Asda, and Bain Capital’s special situations fund, which has investments in brands such as Gail’s Bakery and PizzaExpress. Earlier rounds of the auction also saw involvement from Apollo Global Management, KKR, and Centurium Capital, the Chinese private equity group that backs fast-growing coffee chain Luckin Coffee.
Despite the breadth of interest, none of the bids ultimately matched Coca-Cola’s valuation expectations. As a result, talks were discontinued before a final deal could be reached.
The Price Gap and a Potential Multibillion-Pound Loss
When Coca-Cola acquired Costa Coffee from Whitbread in 2018 for £3.9 billion, the deal was framed as a major strategic push into the global hot beverages market. At the time, then-chief executive James Quincey spoke confidently about the “significant opportunities for value creation” that Costa would bring to the group.
However, less than a decade later, Coca-Cola was reportedly seeking around £2 billion for the chain—roughly half of what it paid. Such a valuation would have locked in a multibillion-pound loss, underscoring how challenging the investment has proven to be.
Sources indicate that private equity offers fell even below this level, widening the valuation gap and making a transaction unattractive for Coca-Cola at this stage.
Costa’s Financial Performance Under Pressure
Costa Coffee’s recent financial performance provides context for the subdued bidding interest. According to its most recent annual accounts filed at Companies House, Costa generated revenues of approximately £1.2 billion in its 2024 financial year. While this marked a marginal increase of around 1% compared to the previous year, profitability continued to deteriorate.
Operating losses widened to £13.5 million, more than double the loss recorded a year earlier. The company attributed this decline to a combination of soft footfall on UK high streets, rising input costs, and intensified competition from both premium and value-focused rivals.
Coffee bean prices have risen sharply in recent years due to supply disruptions and adverse weather conditions in major producing regions. At the same time, labour, energy, and rental costs have remained elevated, squeezing margins across the hospitality sector.
A Crowded and Changing Coffee Market
Costa’s struggles are emblematic of broader pressures facing the UK coffee market. Once dominated by a handful of large chains, the sector has become increasingly fragmented.
On the premium end, brands such as Gail’s and a growing number of independent coffee shops have attracted customers seeking higher-quality products and more distinctive experiences. Meanwhile, value-oriented competitors like Greggs and McDonald’s have expanded their coffee offerings, appealing to price-sensitive consumers amid a prolonged cost-of-living crisis.
With approximately 2,700 outlets across the UK and Ireland, Costa has found itself squeezed between these two ends of the market, making it harder to differentiate and protect margins.
Leadership Change Adds Another Layer of Uncertainty
The timing of the halted sale is notable, coming just months before a major leadership change at Coca-Cola. James Quincey, who has led the company since 2017, is set to step down as chief executive at the end of March and transition into the role of executive chair.
He will be succeeded by Henrique Braun, currently Coca-Cola’s chief operating officer. The incoming CEO is expected to take a fresh look at the group’s portfolio, including whether Costa Coffee still fits within Coca-Cola’s long-term strategic priorities.
Quincey has previously acknowledged that Costa had “not quite delivered” and was “not where we wanted it to be from an investment hypothesis point of view,” remarks that helped fuel earlier speculation about a potential sale.
Why Coca-Cola May Be Holding On—for Now
Despite the challenges, Coca-Cola has reportedly not ruled out selling Costa Coffee in the future. For now, however, the company appears to believe that holding onto the asset may offer better long-term value than accepting a heavily discounted price.
One option previously discussed during negotiations involved Coca-Cola retaining a minority stake in Costa while selling a controlling interest. While talks on such structures ultimately fell through, they highlight the company’s willingness to explore flexible arrangements rather than a full exit.
There is also the possibility that operational improvements, cost stabilisation, or a recovery in consumer spending could improve Costa’s performance—and valuation—over time.
Competitive Signals from the Market
Recent results from rival chains underline how uneven the recovery has been across the sector. Independently owned competitor Caffè Nero reported a 5% increase in sales at established UK stores and a 7% rise in total revenues to £185.4 million in the six months to the end of November, despite ongoing high-street challenges.
Such figures suggest that while the market remains difficult, well-positioned brands can still achieve growth, adding pressure on Costa to demonstrate a clearer turnaround path.
From Family Business to Corporate Asset
Costa Coffee’s journey has been a long one. Founded in 1971 by Italian brothers Sergio and Bruno Costa, the business was sold to Whitbread in 1995 for just £19 million. Under Whitbread’s ownership, Costa expanded aggressively across the UK and internationally, becoming Britain’s largest coffee chain.
Coca-Cola’s 2018 acquisition marked a dramatic shift, bringing the brand under the umbrella of one of the world’s largest beverage companies. While the strategic logic of diversification into hot drinks was clear, execution has proven far more complex.
What Lies Ahead for Costa Coffee?
For now, Costa Coffee remains firmly part of Coca-Cola’s portfolio. Whether the company revisits a sale under new leadership, restructures the business, or doubles down on efforts to revive growth will be closely watched by investors and industry observers alike.
As inflationary pressures ease and consumer behaviour continues to evolve, the coming years may prove decisive for Costa’s future—either as a long-term pillar within Coca-Cola’s strategy or as an asset eventually spun off under more favourable conditions.