Coca-Cola opens the first outlet of Costa Coffee in South Africa

Coca-Cola Beverages South Africa (CCBSA) opened South Africa’s first Costa Coffee outlet. The new outlet is in the Frontline Hyper supermarket in Hillfox, Johannesburg. The move follows a successful trial opening of a Costa outlet on the ground floor of CCBSA’s headquarters in March.

The Coca-Cola Company completed its $4.9bn acquisition of Costa Coffee from Whitbread Plc in early 2019, following approvals from regulatory authorities in the EU and China.

Costa Coffee is the second largest coffee chain globally after Starbucks. Like Starbucks, it has a small footprint in Africa. Costa Coffee has 38 outlets in Egypt, its main market in Africa, and three outlets in Morocco. In Egypt Costa Coffee partners with Americana. Americana holds the master franchises for a number of fast food brands including KFC, Pizza Hut, Krispy Kreme, Baskin Robbins and Olive Garden.

The new Costa Coffee outlet soft launched in October. It is located is in the flagship store of the Devland cash and carry chain, which has 24 supermarket and wholesale outlets in South Africa. It is not clear whether future store might also be located with Devland-owned branches.

Certainly, the positioning of this Costa Coffee outlet is in marked contrast to Starbucks, whose franchisee Rand Capital Coffee is expanding the chain into upscale malls. We think Coca-Cola will seek to use Costa Coffee more innovatively to avoid directly taking on well established local chains such as Mugg & Bean.

Rather, we think Costa Coffee will opt for smaller outlets within high traffic areas such as supermarkets and service station forecourts, primarily targeting takeaway customers rather than the more full service “cafe” experience many South African consumers are used to. We also expect to see Coca-Cola try to launch the Costa Express format in South Africa.

South Africa is a high growth coffee market, with both national chains and some smaller artisanal chains. Costa Coffee’s expertise in building grow channels from the “Starbucks” style coffee shop experience that drove growth in the UK arguably gives it valuable experience in South Africa, where the dominant model is still sit down cafes offering a broad menu of food items alongside their coffees.