The coffee’s gone cold and the milk has soured for the once dominant high street staple Costa, as owner Coca-Cola struggles to find a buyer to take the chain off its hands.
The US beverage giant suspended talks with remaining bidders earlier this week, blaming the decision on low offers, bringing the months-long auction process to a halt, according to people familiar with the matter.
Asda owner TDR Capital and Bain Capital’s special situations fund, which owns bakery chain Gail’s and Pizza Express, were involved in the latter rounds of negotiations.
Private equity firms involved in the early stages of proceedings included Wagamama owner Apollo, KKR, which purchased Spectris for £4.7bn last year, and China’s Luckin Coffee chain owner Centurium Capital.
Despite the number of private equity firms looking to add the chain to their portfolio, talks fell through after bids from suitors reportedly fell short of Coke’s expectations.
The company had reportedly been seeking roughly £2bn, half what it paid to acquire the world’s second largest coffee shop chain from Premier Inn owner Whitbread in 2018.
The choice to end buyer efforts comes as Coke’s chief executive Henrique Braun prepares to replace James Quincey, who admitted that Costa had “not delivered” for the business.
Dan Coatsworth, head of markets at AJ Bell, said: “How the mighty have fallen. Once a dominant name on the high street, Costa Coffee has gone off the boil, and its sale process has gone down the drain.
“We’re in an era where companies are focusing on what they do best, and for Coca-Cola that means fizzy drinks rather than lattes.
“It always felt like Costa was low down the priority list for Coca-Cola, left to go cold like an undrunk cappuccino. It will now have to give the brand more love if it is to stand any chance of getting a more reasonable takeover offer.”
But why did Costa Coffee’s sale turn insipid?
Trouble brewing for Costa
Despite owning 2,700 branches across the UK and Ireland, the chain’s losses widened significantly in its latest financial results, keeping the business firmly in the red.
The company’s losses grew to nearly £13.5m in 2024, a 132 per cent increase from the prior year’s loss of £5.8m.
The losses came despite the chain reporting £67m profit after tax due to an £85m dividend income tax receipt and £2m tax credit.
Shareholder equity also decreased year on year, due to an £80m dividend paid to its parent company, European Refreshments Unlimited, an Irish-based subsidiary of Coca Cola.
Bean counters at company blamed the loss on “challenging conditions” caused by “soft footfall and value-led competitors”, leading some analysts to believe the UK has reached ‘peak Costa’.
Cheap chains and monetary value
Under Coke’s ownership, the chain has found itself stuck in the squeezed middle, losing well-heeled punters to premium chains like Gail’s and Blank Street Coffee, at the top end, and at the bottom, haemorrhaging cost-conscious customers to cheaper alternatives such as Greggs.
Coatsworth noted that customers “have become wary” about spending money on casual items such as coffee, leading to cheaper chains luring in customers, while those who are looking to pay more are opting for independent shops over established chains.
UK coffee shops have also been grappling with higher coffee bean prices, due to extreme weather hitting major producers such as Brazil and Vietnam, soaring global shipping costs and an increasing consumer demand for quality beans.
Staffing costs have also risen, as businesses find themselves grappling with the increase to employers’ national insurance and the minimum wage, which came into effect last April.
Costa’s Express business, which owns and operates several vending machines in locations such as convenience stores and petrol stations, also wrote down the value of its by £51m last year after choosing to discontinue the use of “certain prototypes”.