TL;DR
When Coca‑Cola ended talks in December to sell Costa Coffee, it brought to a halt a months-long auction that had attracted interest from some of private equity’s best-known firms.
Late-stage bidders included TDR Capital, owner of Asda, and Bain Capital’s special situations fund. Earlier in the process, Apollo, KKR and Centurium Capital had also examined the business. Lazard advised Coca-Cola on the sale.
None of the offers met Coca-Cola’s expectations. The Financial Times reported that the group had been seeking around £2bn, roughly half the £3.9bn it paid Whitbread for Costa in 2018, while Reuters said bids “came in below expectations”.
Talks with remaining bidders ended before the end of the year, though Coca-Cola has indicated it could revisit a sale “in the medium term”.
The aborted process raises a wider question: why a brand with national reach, more than 2,700 locations across the UK and Ireland, and near-universal recognition failed to command even a discounted valuation.
On paper, Costa remains a large business. UK filings show revenues of about £1.2bn in 2024. But profitability has proved elusive. Operating losses more than doubled to £13.5mn in the same year, as the company cited weak high-street footfall and intensifying competition from lower-priced rivals.
Cost pressures have compounded the challenge. Coffee prices have been volatile, while labour costs have risen, including following changes to employer national insurance that took effect in April last year. These pressures affect the entire sector, but weigh more heavily on chains with large, company-owned estates.
Coca-Cola has also begun to reassess the value of parts of the business. Costa took a £48.6mn impairment charge on its China operations in 2024, attributing it to weaker-than-expected demand in Shanghai. Its Costa Express self-service unit wrote down £51mn after discontinuing certain machine prototypes.
Taken together, the numbers help explain bidder caution: a large, labour-intensive retail estate with thin margins, ongoing reinvestment needs and limited pricing power presents a difficult case for leverage-driven returns.
There was a time, in the early 2000s, when Costa was the default stop for a commuter coffee or a weekend treat. That familiarity no longer carries the same weight.
Viewed through a consumer and brand lens, Costa’s problem looks less like a valuation mismatch and more like a relevance gap. Beyond the profitable self-service machines and motorway service-station locations, the sit-in café estate struggles to offer a compelling reason to stay.
This matters because pricing has converged. In many city centres, Costa’s standard drinks now cost roughly the same as those sold by nearby independent specialty cafés, but without a corresponding perception of differentiation. As expectations around provenance, roasting and ritual have risen, shaped in part by the mainstreaming of specialty coffee culture and figures such as James Hoffmann, the middle ground Costa occupies has become increasingly hard to defend.
At the same time, value-led food-to-go operators have trained consumers to treat coffee as a low-cost convenience purchase. Costa sits awkwardly between these poles: not cheap enough to be disposable, and not distinctive enough to be a destination. The middle ground, once lucrative, has become the loneliest place in coffee.
James Quincey, Coca-Cola’s outgoing chief executive, who led the purchase acknowledged the difficulty last year, telling analysts that Costa had “not delivered”.
Coca-Cola acquired Costa as part of a broader strategy to become a “total beverage company”, extending its reach into hot drinks and ready-to-drink coffee. While that logic has proved more compelling in packaged formats, Costa’s international café expansion has been restrained.
In the United States, Costa has not pursued a large-scale store rollout. Instead, Coca-Cola has focused primarily on deploying Costa Express machines, leveraging its existing distribution relationships. The company has previously described its approach to physical retail in the US as cautious and incremental, reflecting the dominance of entrenched competitors and high barriers to entry.
That restraint has limited losses, but it has also underlined the difficulty of exporting Costa’s café proposition into markets where brand familiarity is weaker and expectations are higher.
Running thousands of cafés demands expertise in real estate, staffing and experience design, capabilities far removed from Coca-Cola’s core strengths in bottling and distribution. Interest from bidders increasingly reflected this reality, with some exploring structures that would have left Coca-Cola with a minority stake rather than a full exit.
The Costa Express business works. The company-owned café network, as currently configured, does not.
Paradoxically, the failure to sell Costa may offer Coca-Cola greater strategic flexibility.
Rather than treating the estate purely as a retail chain, the group could reposition selected locations as experience-led formats and testing grounds for premiumisation and brand partnerships.
Portugal offers a useful reference point. Delta Cafés has, over the past decade, developed its Delta Coffee House concept, investing in design, hospitality and storytelling to move beyond the low-priced espresso model and justify higher pricing. It’s a model most recently exported to Paris alongside Manteigaria.
It is not about raising prices, but about earning permission through experience.
Whether Costa can be reshaped into something investors, and consumers, are willing to pay for remains a question for the incoming Coca-Cola CEO, Henrique Braun at the end of March 2026.
.png)
.png){kind=tracking}
