Pepsi bottler keen to run Costa Coffee even after Coke buy

Ravi Jaipuria, the Indian operator of Costa Coffee, said he was keen to run the coffee chain in India even after its acquisition by beverages giant Coca Cola, if there was no conflict of interest. Ravi Jaipuria’s RJ Corp is the largest bottler for Pepsi-Co in India.

Coca-Cola bought the UK-based coffee chain for $5.1 billion on Friday last week.

“We haven’t got details of the transaction yet. We are excepting to hold talks with Costa Coffee early next week,” Jaipuria told ET from Nairobi.

However, beverage industry officials involved with the companies said the conflict of interest is apparent. Jaipuria-owned RJ Corp is one of the largest bottling partners of Pepsi-Co, arch-rival of Coca-Cola.

“There is a clear case of conflict. Sooner than later, DIL operated Costa Coffee outlets could stock and sell Coca-Cola beverages. It’s not unusual for large franchise companies to deal with competing partners, but on clearly separated categories. Creating a firewall of separation would be required,” said Lloyd Mathias, former senior PepsiCo official, and business consultant.

While PepsiCo and Costa Coffee businesses are run by two separate companies — Varun Beverages and Devyani International (DIL) — both are owned by RJ Corp.

“Jaipuria has the option of exiting the Costa Coffee deal, which will depend on the valuation between RJ Corp and Costa. Even though Costa has remained a very small business for RJ Corp, it has leveraged back-end synergies with Pepsi-Co at the stores, in addition to a distribution franchise for the beverage and snacks maker, and serving its products at the stores,” one official said.

DIL’s bigger India businesses are Yum! Brands owned KFC and Pizza Hut quick service chains, stores at airports and its own restaurant chain Vaango.

“Since Costa Coffee follows a franchise model in India and if RJ Corp exits because of conflicting interests, a new franchisee will have to be brought in to run the chain. Coca-Cola’s business model is not structured to operate a brick-and-mortar model,” another official said.

Whitbread-owned Costa Coffee entered India with DIL in 2005 through an exclusive franchise agreement. The number of Costa Coffee stores has come down from 100 outlets in 2013 to 46 last year. Globally, Costa Coffee operates close to 4,000 stores and 8,000-plus Costa Express vending machines.

For Cola-Cola ownership of Costa Coffee stores provides the expertise in coffee, a platform to further grow its non-aerated drinks portfolio and the opportunity to cross-leverage its soft drinks, juices and water at Costa Coffee stores.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/pepsi-bottler-keen-to-run-costa-coffee-even-after-coke-buy/65650971

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