NEW DELHI:Beverage giant Coca-Cola’s global $5.1-billion buyout of Whitbread Plc-owned UK café chain Costa Coffee has set the world’s biggest soda maker in direct competition with coffee giants such as Starbucks and Nestle, as it looks to hedge its risks in a sluggish soft drinks market and broaden its portfolio beyond sugary drinks.The deal also puts the India business in a piquant situation. Costa Coffee in India is operated by rival PepsiCo’s biggest and long-standing, exclusive bottling partner RJ Corp, which operates about 70 outlets. That makes India among the few markets in which Costa Coffee is aligned directly with a PepsiCo bottling partner.RJ Corp group company Devyani International Ltd (DIL), which runs its foods franchise business, may exit the Costa Coffee relationship and sell the India rights, said two executives aware of the development. On the other hand, RJ Corp may consider buying brand rights just for the India market, although Coca-Cola may be reluctant to sell.India Opportunity for Coca-Cola“RJ Corp could exit the franchise deal with Costa Coffee in India, which means Costa Coffee will have to make an offer in agreement with both entities. Any potential deal will depend on the valuation Costa Coffee offers to RJ Corp. The other option is to buy the rights of Costa Coffee in India,” said one of the executives. “It will also depend on how keen Coca-Cola is to get the Costa business in India. Though small now, cafes are on an early upward growth curve in India.”

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Costa Coffee entered India in 2005 through RJ Corp. While Costa Coffee is the UK’s biggest coffee chain with more than 3,800 stores globally and more than 8,000 Costa Express vending machines, in India it remains a small business. Unlike rivals Starbucks and Cafe Coffee Day, Costa Coffee doesn’t yet have bandwidth in India.“For RJ Corp, Costa Coffee contributes only about 5% to DIL. RJ Corp could exit the deal, which would free it up to align with any other bigger café chain,” said the executive quoted above. Much of DIL’s business comes from its franchises for Yum Restaurantsowned KFC and Pizza Hut besides stores it runs at airports. DIL said it was too early to comment.“We do not have full details of the transaction yet,” a spokesperson said. “Once we have all details, we will evaluate all options in line with our strategy.” Jaspal Sabharwal, private equity veteran and cofounder of online food industry platform TagTaste, said the development could mark an opening for DIL.“This is a great opportunity for the RJ Group to reset the execution machine and make up on lost ground,” he said. “For Coca-Cola, India is where they can get early advantage, because rest of Asia minus Australia has seen brutal domination by Starbucks.” Coca-Cola said Costa would help plug a gap.“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” Coca-Cola president James Quincey said in a statement. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.”Analysts said the deal will give Coca-Cola a scalable coffee platform across parts of Europe, the Asia-Pacific, the Middle East and Africa, with the opportunity for additional expansion, besides expertise in coffee supply chain, sourcing, vending and distribution. Coca-Cola’s own coffee brand, Georgia, remains small. Coca-Cola is urgently broadbasing its portfolio beyond its core sugary drinks to retain consumers switching to healthier drinks.The acquisition is to close in the first half of 2019 once all approvals are received. Whitbread said Friday that it would focus on its hospitality businesses under the Premier Inn franchise in the UK and Germany. It acquired Costa Coffee for £19 million in 1995.