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With his purchase of Costa, Coca Cola (NYSE: KO) gets a leading brand in Europe, thousands of storefronts and vending machines, as well as the infrastructure needed to make coffee a substantial part of its revenue.
Become Home of the industry The team looks at the different ways in which Coke can take advantage of Costa's success and the challenges associated with setting up a physical distribution chain – something new for the beverage giant.
A full transcript follows the video.
This video was recorded on September 4, 2018.
Vincent Shen: Remember this, we've talked a bit about it so far, Coca-Cola operating the Costa Express vending machine network, distributing these roasted beans in restaurants and cafes where Coca-Cola products are sold . already, as you have mentioned and drinks ready to drink, there is more than that.
Dan Kline: It is almost necessary to look separately at the United States, the existing coastal markets and the markets that have a cost of knowledge. In the United States, Coke said: "We will not open a group of retail stores." There is a saturation point with Starbucks and other players out there. What Coke is able to do is go to every company with which they already sell Coca-Cola products and tell them, "Would you like our coffee too?" It will be cheaper for you and easier than the one you use now. . "It's an immediate benefit – it can also go to any convenience store where there is freestyle, or freestyle in a lot of restaurants – Blaze Pizza, for example, has free style." A coffee maker would be very They can go see them and say, "Hey, do you want that?" It becomes a very easy add-on sale.
Coke also has the ability to do it in a way that benefits your business. I ran a giant retail store. We carried polar soda instead of Coca-Cola because Polar gave me the cooler provided I signed a two-year contract. The big machine standing? The local Coca-Cola guy wanted $ 1,000 or whatever. I paid for it anyway, was it a question of, did I pay more than X orders at a slightly higher price? Or did I pay for it in advance? Coke has the ability to go into every Wawa, which has Freestyle coke machines, and say, "Hey, put our coffee machine." This part of the business in the United States can be a very fast growth.
In the rest of the world, where they already have some knowledge of the market, they could do this second part. They could also accelerate the expansion and addition of shops and kiosks, especially when the kiosk sector is included in Europe. In the United States, coffee kiosks are not yet a thing.
Shen: I know that management wanted people to see Costa not as a single brand, but as this platform, because of the four pillars you talked about. In the end, in the end, you essentially put Costa in the service of the scale and distribution expertise that Coca-Cola has.
With retail stores, in terms of what we were talking about before the show, new products, experimentation. You now have this direct feedback from customer windows.
Kline: This is the Starbucks model. Starbucks buys Teavana or their brand of juice, which escapes my memory. You go to a Starbucks. They understood which Teavana teas they would sell packed, which they sold fresh. They tested all of this generally starting in Seattle and moving to Chicago for the United States. There is no mystery for them, when they put a product in store, as for the quality of the sale. Coke will now be able to do it. They will also be able to gauge things like, if I give free samples of this, do people like them? This is a very useful market research, to be able to say: "The UK does not like iced tea with cherry", or anything, at the level of this market. They can now really have this consumer lab. That's important, they keep all the detail management. It's not Coca-Cola, "We've never done that! Let's do it!" No, they buy a ready-to-use business, and they will be involved, but they will let existing people take charge.
Shen: Yes, they point out that it's a coffee strategy, not a retail strategy. This allows the direction on Costa's side to continue to clear a path. Essentially, the management of Coca-Cola does not have to answer the following difficult questions: "You have zero retail experience, what are you going to do? It makes sense that they retain some of this property.
Kline: There is also a branding strategy here in the United States. Coke is not going to go to KrogerSand say: "Let's put Costa on the shelf next to Starbucks, Dunkin Donuts, McDonalds, all the coffee ready to drink. "You do not know what it is." What will probably happen first is, you'll see Costa in restaurants and other places where you have no choice, where Coke -Cola did When you start to know the brand, it makes sense to put it in a ready-to-drink packaging.You have tried it, you know it.You love the packaged Starbucks, which becomes a multi-year strategy multi-pronged
Shen: This is an excellent description of how they will approach. It's a gradual process. The company presents an idea, it gives you an idea of its plan of attack. First of all, they want to build the Costa brand. They think about it through retail outlets and also benefit from the broad base of loyalty programs. They have 5.4 million members. Start working with that. Then, they will begin to integrate Costa into Coca-Cola's vast distribution network. And again, they will offer more products, as you said, to restaurants, cafes, whatever they are. Third, once they've made progress, they want to start launching Costa in ready-to-drink form and then in home products.
Beyond that, the business can start with coffee ready to drink cold or hot. They can then access these other categories of home products. There are also related products, such as hot tea and cocoa. Many paths that the company can take. There is a lot of option.
Kline: In fact, I was really surprised at how much they were talking about hot-ready-to-drink. Hot ready to drink is not a category. This is a category in Japan and some places that have an innovative drink technology. But think about it. We do not have those boxes that you open and it's hot. It's actually something they talked about innovating, creating new ways. It's a category that knows what's the potential? The potential of self-heating coffee vending machines could be huge.
Shen: Sure. This option means that the company must ultimately adapt its approach to the market. We talked about how, in the United States, they do not need these Costa Coffee stores.
Kline: I think they've said a few.
Shen: Maybe, in a way, make the brand known as a flagship product. But while in Asia, where the coffee culture is still in full development, it is quite possible that they open more stores in this market. Then, in this context, more operationally, I will simply mention that Costa has a new roasting facility in the UK. It supplies almost all coffee sold by the company, with the exception of some Indian markets. There is the ability to extend this under the management of Coca-Cola.
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