One of the World’s largest beverage company, Coca-Cola, has already commenced its first round of talks for a substantial stake buy in India’s Leading Coffee Retail Chain Cafe Coffee Day, just 10 months after it made a surprising take over the United Kingdom based Costa Coffee for a deal of $5.1 billion. The negotiations with the Bengaluru-based company, promoted by VG Siddhartha has just started, who recently exited information technology firm Mindtree earlier this year by selling his stake Larsen & Toubro, is being led by the Atlanta office of the beverage giant, persons in the know said.
Coke getting serious about coffee retail business. After Costa (the largest UK coffee shop chain), now Café Coffee Day, the largest coffee chain in India?
T Krishnakumar, president and chief executive officer, Coca-Cola India and South West Asia, is currently in Atlanta and is involved in the negotiation, it is learnt. A Coca-Cola India spokesperson said the news about a possible acquisition was speculative in nature and that the company had no comment to offer at this point of time. And also management of Cafe Coffee Day too declined to comment.
Coca #Cola is accelerating on coffee aiming to expand in fast-growing developing markets
Coca-Cola is betting big on Huge Indian market potential and is trying its every effort to make entry into the Rs 2,500-crore domestic coffee retail market in line with its global strategy of diversifying and foraying into non-carbonated drinks. Even the Costa Coffee acquisition last year was targeted to help the company do just that, an impediment has been the franchise agreement that Costa’s previous owner Whitbread had with billionaire-bottler Ravi Jaipuria in India.
Jaipuria’s Devyani International still manages and continues to operate around 50 stores of Costa Coffee in India, because they were not successful to click a deal with Coca-Cola for his exit out of the franchise agreement. However, Jaipuria was not immediately available for comments on the matter.
For Cafe Coffee Day, an acquisition by Coca-Cola will give boost in terms of huge liquidity which will help in more expansion and will also reduce the debt on the books of parent Coffee Day Enterprises. Cafe Coffee Day is owned by Coffee Day Global, a subsidiary of Coffee Day Enterprises.
Acquiring 1 750 locations (on top of currently owned 46 Costa Coffee outlets) will allow it to compete locally with Starbucks (#2 on the market) as well as position it for securing a large part of the ‘pie’ that should at least double within the next 3-5 years
As on March 31, 2019, Coffee Day Enterprises’ total debt stood at Rs 6,547 crore, two-and-a-half times its net worth of Rs 2,529 crore. Its market capitalization after Wednesday’s closing price stood at Rs 4,732 crore.
The survival strategy adopted by 2 fierce Global competitors to deleverage from their main business is interesting.. while Pepsi went into packaged foods and cereals, Coke perhaps wants to stick to its core which is Beverages. Let’s see how this pans out in the future.