Campaign | What will Coke bring to Costa’s coffee table? | Manish Bhan

The news that Coca-Cola is to buy Costa for £3.9bn is as positive for the world of retail innovation as it is for both companies, writes Manish Bhan, head of retail transformation at Cheil UK.

“Win-win” is an overused phrase in business but there are some situations where it’s an accurate summary. Coca-Cola’s bid to buy Costa for a whopping £3.9bn is one of them.

Coke’s international distribution network, its ability to strike deals with manufacturers and producers, and its knowledge of the overall beverage market is likely to mean good things for our coffee beans.

Coke is really good at creating drinks that “do” something in your mind. And as we move into new territories of coffee, whether it be cold brew, sparkling coffee, or just your traditional Americano, it’s that understanding and behaviour of the human mind that will be key.

To consider the implications for retail, we can look at Starbucks’ 30,000 square foot Reserve Roastery store in Shanghai, which opened in December 2017. Here, in partnership with Alibaba, another of the world’s leading coffee chains has already delivered an interactive retail space, featuring touchscreens, augmented reality, a roasting facility, and an innovation centre.

Customers aren’t here just for a caffeine fix. They find a high-end experience in an impressive building which even features an in-house map, akin to one you might find in a theme park.

Brands like Coke and Starbucks recognise that customer behaviour is changing. Increasingly, the on- and offline experience is merging, with expectations growing all the time.

The expected new level of service requires data and data scientists — and herein lies one of Coke’s key strengths. Coke has survived thanks to its ability to innovate, to mine data, and to release new value as well as fizz.

And retail is offering drinks giants plenty of new models already. Take CafeX, a new automated store in San Francisco that relies on robots to make your coffee. This is just one player in a burgeoning automated eatery scene that is also gaining traction in the US more broadly. Expectations of speed, efficiency and customised ordering are only set to increase a result of these first forays with new-fangled technology.

Coke and Costa will need to remember, however, that coffee creates conversations that lead to relationships and loyalty. And being regarded as an affordable luxury, coffee drinkers won’t always want to lose the human touch.

More “robotic” coffee stores ought not to lose that focus on fun and liveliness, along the lines of Coke’s own value proposition of “sharing happiness”.

Our tastes are changing, and increasingly rapidly. Coke understands that the new wave of coffee drinking will be about selling direct, one-to-one.

Interestingly, too, the biggest coffee drinkers are to be found in Gen Y & Millennials drinking coffee on the go. They might be 18 or 24-years-old, busy with schools, colleges, exams, and jobs. Bringing a joyful experience that is frictionless and personalised to their taste will be the key to success in this industry.

Students may have canteens in their colleges, and they are likely to be some of the first to experience the new world of digital vending machines, AI enabled. The British Coffee Association has revealed that the “UK’s coffee consumption has soared to 95 Million cups a day in 2018, up from 70 million in 2008.”

We will see plenty of other new distribution channels opening up, too. Coke knows that direct to consumer is everything right now. We may see Costa subscription services, via mobile app, with Uber drivers delivering coffee to your door.

Perhaps a Coke app, with which you can order food and drinks on the go. The most recent Starbucks and Alibaba tie up in China, earlier this summer, was around the creation of a food delivery service and it’s this type of innovation that meant Starbucks managed to become one of the few successful American businesses in China.

Like Starbucks, Coke can now take the lead in a burgeoning out-of-home coffee sector, one which, according to consumer analysts Kantar Worldpanel, is worth £6.3bn a year in the UK alone.

It will also be interesting to see how Coke chooses to leverage the popular Costa loyalty programme as an engine to drive customer value. Speed of go-to-market, innovation, and reach, will more than triple for Costa with Coke on board. Expect more data-driven, personalised promotions, more cross-selling and entirely new types of coffee as well as coffee shops. Expect some magic.

Costa looks set to move further beyond its traditional reliance on brick-and-mortar transactions. With a company like Coke at the helm, which has survived for decades thanks to its ability to innovate, there is little to be negative about here, beyond the likelihood of increased caffeine consumption.

Manish Bhan is head of retail transformation at Cheil UK.