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Coca-Cola is launching a full-scale attack on Starbucks

Brian Sozzi
Editor-at-Large

Starbucks who?

Coca-Cola (KO) closed on its $5 billion acquisition of overseas based Costa Coffee — the second largest coffee brand behind Starbucks — in the first quarter of this year. And Coca-Cola CEO James Quincey is wasting no time in ramping up Coke’s involvement in the lucrative global coffee industry.

Coke gets a coffee kick

Quincey revealed several details on Coke’s attack plan for the coffee market on a first quarter earnings call with analysts Tuesday. First, Coke is expanding its test of coffee-infused soda to 25 markets this year. The company debuted Coke ‘Plus Cafe Espresso’ in Southeast Asia in 2018.

A Coke spokesman told Yahoo Finance there are no plans to debut Coke Coffee in the U.S. at this time. It will likely be here before you know it though.

Coke is also poised to release ready-to-drink coffee products under the Costa brand shortly. No launch markets were shared.

Quincey said these more caffeinated products — along with expanded distribution for new Coke Energy — take aim at people looking for a “pick me up” in the afternoon. Count this millennial writer among those always in search of the next caffeine jolt — if Coke could deliver its trademark soda taste, no sugar and coffee in one can, count yours truly in.

The new products just plain make sense. It gets the Coke brand into new use cases with a higher margin product.

“So the opportunity to have a Coke and a coffee variant of Coca-Cola is really at that juncture of what are the benefits that people see in Coke versus what are the benefits they look for in coffee, especially perhaps in some of the markets where the occasions are less well developed,” Quincey explained.

There is a downside to pursuing coffee, however. That is consumers choose coffee-based Coke as opposed to classic Coke.

“Now things like coffee, that's at the beginning, we'll see how that develops,” said Quincey. “Clearly, that's a product variant that's crossing over into another category with coffee. And obviously there is a danger there as you say that it becomes — it starts to change the nature of Coke itself.”

Why investors should care

Quincey has made it no secret to transition Coke to a “total beverage” company. That not only includes coffee-infused soda, but also straight up ready-made coffee drinks via Costa and new better-for-you sports drinks through a minority stake in the hard-charging BodyArmor.

Investors should reward that pursuit for growth, notably in the higher margin coffee category.

But specifically on coffee, Coke’s more aggressive posture should worry Starbucks — especially as it has had trouble driving afternoon traffic to its stores. Figure it this way: Each can of Coke Coffee purchased in the afternoon is one less cold foam cold brew bought at Starbucks.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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