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Coca-Cola (KO) Chalks Out Plan For Coffee Business, Cannabis

By Zacks Investment ResearchStock MarketsNov 18, 2018 08:44PM ET
Coca-Cola (KO) Chalks Out Plan For Coffee Business, Cannabis
By Zacks Investment Research   |  Nov 18, 2018 08:44PM ET
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The Coca-Cola Company’s (NYSE:KO) CEO James Quincey in an interview with CNBC, on Nov 16, cleared the air regarding the company’s global strategy — particularly the recently acquired coffee chain Costa — and its reservations on entering the fast-growing cannabis market.

Coca-Cola’s Coffee Strategy

James revealed that the company intends to craft a fresh coffee experience, with its latest $5.1-billion buyout of the London-based coffee chain that has nearly 4,000 retail outlets worldwide. The company’s CEO also cleared that the acquisition was not made to compete head to head with leaders in the coffee business, including Starbucks (NASDAQ:SBUX) .

With the company’s intentions made clear, James pointed out that Coca-Cola targets exploring opportunities in the $500-billion coffee market. The company sees most of this potential in the “ready-to-drink” and “at-home” segments. Coca-Cola looks to partnerships to sell its high-quality barista coffee through store within others’ stores. The company’s leading vending machine — the express — provides a barista-like coffee experience, which can be easily installed at gas or petrol stations, convenience stores, in cinemas or at work.

Notably, Costa’s high-quality baristas — a coffee-vending operation, for-home coffee formats and a state-of-the-art roaster — fully complements Coca-Cola’s existing hot beverage portfolio, which currently lacks a global brand. Coca-Cola’s existing coffee portfolio mainly comprises the leading Georgia brand in Japan alongside other coffee products in many countries.

Expanding the ready-to-drink coffee business has been on Coca-Cola’s strategy for quite a while due to the increasing demand for on-the-go coffee as Americans are moving away from purchasing the sugary sodas.

Is Cannabis on the Cards?

While the coffee business provides a solid opportunity, James sees cannabis as a business with many obstacles. The CEO reiterated that some alcohol brands like Heinekein (OTC:HEINY) and Molson Coors (NYSE:TAP) have already started producing cannabis-infused drinks with THC or tetrahydrocannabinol, a psychoactive ingredient in cannabis. However, Coca-Cola is still keen on only incorporating cannabidiol (“CBD”) — a non-psychoactive component of the plant — in its drinks.

The company also remains wary of its entry in this fast-growing space due to concerns regarding the legitimacy, safety and the consumable quotient of these ingredients, whether THC or CBD, on an everyday basis. Coca-Cola notes that the use of cannabis in beverages is not legal in the United States as well as in Canada yet. Further, there is an ongoing research to ascertain whether these ingredients are safe for everyday consumption.

To conclude, Coca-Cola’s entry in the marijuana space depends on the satisfaction of the aforementioned criteria’s of being legal, safe and consumable.

The Coca-Cola stock did not show much impetus to the CEO’s comments. However, this Zacks Rank #3 (Hold) stock has gained 7.4% in the past three months against the industry’s decline of 4.4%. This outperformance is attributed to the company’s robust earnings and sales surprise trend. Notably, the company reported earnings beat for the last six quarters. The company’s sales have topped estimates consecutively for the past five quarters.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Zacks Investment Research
Coca-Cola (KO) Chalks Out Plan For Coffee Business, Cannabis
Coca-Cola (KO) Chalks Out Plan For Coffee Business, Cannabis

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