This article was originally published on ETFTrends.com.
The Coca-Cola Company decided to take a deep dive into the global coffee business with a $5.1 billion purchase of UK coffee chain Costa. Coca-Cola hopes to leverage its expansive distribution network to take on the likes of Starbucks.
ETFs with the heaviest weighting of Coca-Cola were up slightly despite shares of the beverage company inching lower by a dime as of 10:45 a.m. ET-- Consumer Staples Select Sector SPDR ETF (XLP) gained 0.12%, Fidelity MSCI Consumer Staples ETF (FSTA) was up 0.14% and Vanguard Consumer Staples ETF (VDC) rose 0.21%.
Coca-Cola CEO James Quincey said Costa would be an important growth driver for products, such as beans to bottled drinks in what is considered the world's fastest-growing areas for beverages.
"Coca-Cola doesn't have a broad, global portfolio in this growing category," said Quincey. "This is very consistent in our strategy, diversifying the total beverage portfolio. Clearly coffee is an area where we didn't have a play. There's a lot of coffee stores in the U.S. There's more room for growth in Europe and Asia. This is a coffee strategy, not a retail strategy or a food strategy."
Coca-Cola will not only face stiff competition from Starbucks, but also Swiss drink company Nestle, completed a a $7 billion licensing deal for Starbucks' retail business. Coca-Cola's purchase of Costa highlights the beverage company's shift from carbonated drinks and focus more on health-conscious consumers.
Shares of Costa's parent company Whitbread were up as much as 19% following the buyout news.
"Coca-Cola are one of the few companies in the world that could justify the valuation," said Nicholas Hyett, equity analyst at Hargreaves Lansdown. "Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesnt have a killer brand. Costa will get lots of care and attention."
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