Beverage giant The Coca-Cola Company's (NYSE:KO) purchase of the Costa Coffee Chain will allow the company to gain a foothold in the Chinese market where Starbucks Corp (NASDAQ:SBUX) is a dominant player, an analyst said on Friday.
"The chain might be the biggest in the UK, but it lags well behind Starbucks globally. Coca-Cola's distribution muscle will no doubt help close the gap and boost sales significantly in the long run," said GlobalData beverage analyst Jonathan Davison.
"Of particular value will be the chain's 449 stores in China, where hot drinks volumes across all channels have more than doubled in the last five years," he added.
Costa operates 1,280 stores in 31 countries around the world. It is the only coffee chain in the UK which uses sustainably grown beans, according to the Rainforest Alliance.
READ: Whitbread shares froth higher as it agrees to sell Costa coffee to Coca-Cola for £3.9bn
The company will be playing catch-up to Starbucks in China though. The Seattle-based coffee chain already has 3,300 stores in China and plans to nearly double that to 6,000 before the end of 2022, a report by CNN Money said.
That means Stabucks will open 600 new stores a year in China or one every 15 hours, the report said. Starbucks plans to triple its revenue and double its operating profit in the country between 2017 and 2022.
GlobalData estimated retail sales of hot drinks in China will hit US$34.2bn by 2022.
Davison said another factor in the deal is the ready-to-drink coffee (RTD) business.
"This is a sector in which chief rival PepsiCo (NASDAQ:PEP) has already partnered with Starbucks, so this acquisition offers a potential platform to boost Coca-Cola RTD brands such as Honest Coffee," said Davison.