This week the most powerful global soft drinks conglomerate acquired the second largest chain of coffee shops in the world. A perfect match?
The announcement has been met with near-universal enthusiasm from business and financial commentators.
According to The Guardian, Alison Brittain, the chief executive of Costa Coffee’s owner Whitbread, said the coffee chain had been approached by a number of potential buyers but Coke’s desire to snap up the 4,000-store chain was a “dream deal” for investors.
“The other suitors weren’t wearing the right suit or driving the right car,” explained Brittain of the other approaches it received. “It’s Coke we decided to go up the aisle with, with a very large ring on our finger.”
There is an easy-to-understand logic in the move. There is growing movement against sugary drinks as a contributing factor in the growing problem of obesity (bad pun intended). Coffee, while still suspect for its caffeine, is successful in decaf versions with only a few pedants frothing at the mouth about oxymorons. Overall, Coca Cola is investing in a healthier future.
It avoids the years of denial required of the cigarette manufacturers over links between its product and assorted life-shortening impact on consumers.
Coca Cola Innocent
The logic adds to an earlier case studied in LWD and at the Alliance Business School’s Executive MBA programmes. Coca Cola revealed its longer-term acquisition policy when it snapped up Innocent, the environmentally fragrant smoothies business.
How to screw up a good deal
Superficially, then, it’s a good deal. Onward and upward. Whitbreads are making reassuring noises that they will spend the cash responsibly and not just in helping fat cats get fatter. Shareholders will benefit. Some money will go to plugging a hole in the pension funds. So at least employees will get some benefit (even if they were already entitled to negotiated pension rights.)
Leaders we deserve has examined similar acquisitions in which a larger organisation introduces a strategically promising unit to strengthen or diversify. The process is much loved in Business Schools for providing yet another case for the Mergers and Acquisitions component of its courses. Kraft/ Cadbury; Pfizer/Astra Xenica are two important heavyweight examples.
The received wisdom is to avoid messing with the brand assets of the acquisition. This is easier said than achieved, as some of the anticipated gains call for re-organisations, consolidation of back office staff and computer systems. It helps, if there is a rationale beyond rescuing an ailing brand by liberating its potential. In this, I leave readers to decide whether project Brexit might be an example.