How Coca-Cola got burned with a $5bn bet on Costa Coffee

Coca-Cola Co took a $5 billion swing at the coffee market and whiffed.

The acquisition of Costa Coffee, often referred to as the “Starbucks of the UK,” was former Coke chief executive officer James Quincey’s major bet on breaking into the half-a-trillion-dollar global coffee and tea market. The plan was for Coca-Cola, which is competitive in pretty much every category of cold beverages, to use its expertise to expand the Costa brand with “barista-in-a-box” espresso vending machines and bottled coffee nearly everywhere Coke products are sold.

Instead, Coke has been burned by a series of miscalculations, leaving it largely to miss out on the coffee market.

“It’s almost a rounding error for Coca-Cola, but it’s a very public rounding error,” said Chris Clowes, a former operations manager at Costa Coffee who is now a supply chain consultant. “I think they’ll be a lot more cautious on future acquisitions.”

Costa’s vending machines proved more expensive and more complicated for Coke bottlers to place in stores than traditional cold beverage dispensers. And rather than grab a significant cut of the nearly $23 billion ready-to-drink coffee market, Coke was outdone by its biggest rival. Frappuccino, a joint venture between PepsiCo Inc. and Starbucks Corp., is the top-selling brand in the US, where Costa has remained relatively unknown. Coke has largely been left running more than 2,700 Costa coffee shops concentrated in the UK and Ireland.

“There was a view that you could — because of Coke’s own global vending machine network, which is global and hugely successful — you could marry the two things together and get this huge placement of Costa Express machines,” said Jason Cotta, a former managing director at Costa, who left six months after the acquisition by Coke. “That turned out to not be true.”

Late last year, Coke unsuccessfully tried to sell Costa. Since then, revenue is trending up, and the company has been trimming costs, which some former employees said they take as a sign that Coke’s new CEO, Henrique Braun, may try to sell it again in the coming months.

In a statement, Coca-Cola said it’s not in the market to sell Costa.

“Costa Coffee is a business we believe in. Coffee is an important part of our total beverage company strategy, and the actions Costa has taken are delivering positive results,” Coke said. “We’re focusing on driving long-term growth and success.”

To find out more about Coke’s bet on Costa, particularly in the US, I wanted to sample the coffee myself. From my home base in Washington, it wasn’t easy. It was certainly tougher than the 5 minutes it takes to buy a Diet Coke from the CVS in my office building.

I first tried to track down the sophisticated espresso-based vending machines that helped make Costa Coffee so ubiquitous in the UK. I met up with a friend at Georgetown University, where we waited for 45 minutes while a worker tried to fix the machine in a corner of the second-floor food court. But after several attempts, an employee slid an “out of order” cloth sign over it.

Next, I bought a movie ticket at an AMC theatre that has long served Coca-Cola products. After I paid $4.99 for 12 ounces on a touch screen, an employee popped a Costa-branded coffee pod into a small Hamilton Beach machine next to a rotating hot dog grill. The Friday afternoon moviegoers seemed surprised coffee was even available.

Finally, on a business trip to Pennsylvania, I booked a Holiday Inn Express so I could try drip coffee from one of the smaller, countertop Costa machines. I drank a second cup. No one else eating the free hotel breakfast seemed either excited or troubled by it.

Clockwise from top left: The quest to try Costa Coffee in the US led to a broken vending machine at Georgetown University, a single-serve maker at an AMC movie theater and a countertop coffee maker at a Holiday Inn Express in Pennsylvania. Image: Kristina Peterson/Bloomberg

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Big ambitions

This was not the plan when Coke first announced it was buying Costa Coffee for $5.1 billion in August 2018.

Costa was founded in 1971, the same year as Starbucks, by Sergio and Bruno Costa in London. The brothers blind-tested 112 variations of coffee before settling on its signature “Mocha Italia” blend. British hotelier Whitbread Plc bought Costa in 1995 for £19 million ($30 million at the time) and expanded it from 39 shops into a beloved British brand.

After buying the chain from Whitbread, Quincey was focused on growing Costa vending machines and ready-to-drink canned coffee globally through Coca-Cola’s vast network of bottlers. Coca-Cola said it had been competing so far in only the smallest segment of a global coffee and tea market it estimated was worth $570 billion.

“What we get with Costa is more than just a brand,” Quincey told analysts at the time. “It’s a platform that will give us the ability to scale.”

This account of Coke’s purchase of Costa Coffee and efforts to manage the brand is based on regulatory filings, earnings calls and interviews with current and former employees who asked not to be identified discussing internal business decisions.

The timing for the deal proved less than ideal. The Covid-19 pandemic shut down the UK coffee shops in 2020 and Costa’s main source of income disappeared overnight. Stuck at home, people upgraded their coffee makers. When the world started to reopen, Express vending machines did well with people starting to travel again, but workers didn’t visit coffeehouses as often. Costa had also fallen behind on refurbishing its shops.

“The recovery from Covid and the pandemic has not been great for Costa,” said Cotta. “You have an owner that has no expertise in running coffee shops and little interest. It needed revitalizing.”

Atlanta-based Coca-Cola is primarily a marketing company for its many sodas, juices and sports drinks, which are bottled and distributed by independent partners. It’s one of the biggest differences between Coca-Cola and PepsiCo, which still bottles most of its own beverages.

When Coca-Cola acquired the coffee company, executives told Costa employees, still largely based in the UK, that they would be “connected, but not integrated” into Coke.

By 2021, Costa had more than 15,000 employees working in coffee shops, accounting for nearly one out of every five Coke employees globally. To help offload the daily expense of running the stores, executives launched a confidential operation, code-named Project Decaf, to get franchisees to buy more of the coffee shops, roughly half of which were owned by Costa.

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But franchisees felt Coke was asking too much money for shops that had recently been shuttered and needed refurbishment.

When matcha started gaining popularity, Costa employees pitched a matcha drink to their coffee chain’s executives. They were told no; it was too much of a stretch for Costa’s older customer base, and the brand should stick to more familiar flavours. In early 2026, roughly four years later and long after competitors, Costa fully launched a matcha latte. Costa acknowledged that it wasn’t the first to offer matcha but said it’s now the biggest seller of the drink among UK speciality coffee shops.

Barista in a box

Coke had little appetite for opening a bunch of coffee shops across the Atlantic, worried in part that doing so would raise issues with McDonald’s, one of its most valued customers, which serves its own coffee.

For Coke, the more interesting expansion was with Costa Express, the touchscreen vending machines that make espresso-based drinks to order. Coke hoped to add tens of thousands of Costa machines, an expansion that was seen internally as wildly unrealistic. Costa now has more than 15,000 machines, up from 8,237 when Coke acquired it.

Costa had already signed a deal with Shell gas stations in the UK that made Costa Express widespread. Customers knew the brand from UK coffee shops and were willing to spend more on cups of its espresso-based drinks made with fresh beans and fresh milk.

Costa Coffee was late on the matcha drink trend. Image: Elijah Nouvelage/Bloomberg

Without cafes in the US, the Costa brand had virtually no name recognition stateside. American customers were used to buying cheap, voluminous drip coffee at places like gas stations. Vending machines in the US had often relied on powdered milk rather than fresh milk, which meant US consumers weren’t expecting high-quality espresso-based coffee from them — or paying coffee-shop prices.

“It’s a big ask to put in a machine with branding that you’ve never seen before in a new country,” said Jim Watson, a beverage industry adviser. “That requires an amazing first experience. I’m not sure any coffee machine quite frankly could live up to that.”

The machines were complex and expensive. From its head office, Costa could track whether any machine was running low on beans or milk. Bottlers accustomed to the relatively low maintenance required for soda vending machines were far less familiar with the daily upkeep required to run the Costa Express machines.

“They just went about it completely the wrong way,” said Clowes, who left Costa in 2021. “They looked at what Costa was good at in the UK and said, ‘How do we take that around the world?’ They should have gone: ‘What are the bottlers good at?’”

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Under Coke, Costa was instead investing in new frontiers such as developing a “BaristaBot.” In 2020, it acquired Austin, Texas-based coffee robotics company Briggo, which had been working on bringing down the cost and complexity of a larger automated coffee vending machine designed for high-traffic spots like airports, according to people familiar with the company. But the new BaristaBot machine it was developing under Costa proved to be too costly and was shut down in May 2025.

Cost cutting

In the summer of 2025, Coke’s then-CEO Quincey said on an earnings call that the investment in Costa was “not where we wanted it to be.”

“It’s still a lot of money we put down and we want that money to work as hard as possible,” said Quincey, before he handed the reins to Braun in March.

Late last year, Coke tried to sell Costa, which needed more investment. UK buyout firm TDR Capital, which controls British supermarket chain Asda, was among the interested buyers, said people with knowledge of the matter. Private-equity suitors were evaluating offers in the £1 billion ($1.3 billion) range, but talks fell apart over price, they said. There was also debate over whether Coke was willing to include Costa’s bottled drinks in the sale. TDR declined to comment.

In February, Coke’s finance chief, John Murphy, said in an interview that the company decided to retain Costa.

Costa has steadily reduced its corporate employees, slimming down its ranks by 18% from 2021 to 2025. Beginning in January, employees will be required to go to work in person at least three days a week at the new headquarters in St. Albans, about 20 miles north of London. For some people who were hired to work remotely or who live closer to the old office, it’s seen as a way to further reduce headcount. Costa says the move is about collaboration and innovation, not shrinking its workforce.

A Costa rival in vending machines, Lavazza Professional, recently won a contract with Motor Fuel Group for more than 600 of its coffee machines to be installed at gas stations.

Atlanta is home to some of the few Costa Coffee stores in the US. Image: Elijah Nouvelage/Bloomberg

These days, Costa leaders are touting that things are looking up. In September, Costa CEO Philippe Schaillee told the Times of London that efforts to spruce up stores were paying off and revenue was growing. Costa said it has renovated 1,063 stores in the UK and Ireland since 2023. The brand is now in about 50 countries, up from 32 when Coke bought it.

Costa generated revenue of £1.29 billion ($1.74 billion) in 2025, up 5% from a year earlier, according to company filings posted in the UK in late September. It swung to an operating profit of £20.4 million, from a loss of £13.5 million in 2024. Costa said its growth accelerated in the first half of 2026.

Costa’s performance is only a blip for investors. Coca-Cola has a market capitalisation of more than $400 billion, with the stock up 34% this year. The shares were down 0.4% on Wednesday morning in New York.

Soda sales are trending down over the last two decades, so it makes sense for Coke to diversify, said veteran beverage consultant John Sicher. But the purchase of premium milk brand Fairlife, for instance, has been much more successful.

“Going into the restaurant business was a challenge for Coke and it simply, at least to this point, has not worked out all that well,” Sicher said. Coke “needs to diversify, but going into Costa was probably a step just too far.”

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