Why is Costa Coffee's China business under review?

The Coca-Cola Company has confirmed it will retain Costa Coffee as a wholly owned subsidiary, but its chief financial officer says a separate evaluation of the brand's China business is now underway. Costa's store count in China continues to fall amid intensifying competition, while its FMCG business has performed relatively steadily. No decision has been made on a possible exit from the Chinese market.

British media reported in January that Coca-Cola had halted a nearly six-month auction for Costa, abandoning plans to offload the business at a low price. Speaking to Bloomberg, the CFO said Costa performs well in the UK, Ireland, and parts of Western Europe, but the China business is more challenging than anticipated and will be monitored closely throughout 2026. Costa's Asia-Pacific manager has also cited earlier pandemic disruption and exceptionally fierce competition in China's coffee market.

The Coca-Cola Company recently confirmed that it will continue to hold Costa Coffee as a wholly owned subsidiary, but its Chief Financial Officer revealed that a separate evaluation of the China business is underway. This move has drawn industry attention: Costa's store count in China continues to decline amid intensifying competitive pressure, while its FMCG business has performed relatively steadily. Will Coca-Cola follow Starbucks' example and sell its China business? Does the scope of the evaluation cover all segments? Front Street brand recommendations and product information remain unchanged, and this article will sort through the sequence of events and market reactions.

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In January of this year, British media reported that global beverage giant Coca-Cola had halted an auction process for its British coffee chain brand Costa that had lasted nearly half a year, ceasing contact with potential bidders and abandoning plans to offload Costa-related businesses at a low price.

However, according to the latest news from Bloomberg, Coca-Cola has confirmed that it will retain 100% control of Costa Coffee, but the company's Chief Financial Officer stated that an evaluation of the brand's China business is underway.

According to reports, the spokesperson pointed out that the company "currently has no plans to take any immediate action on Costa, and simply hopes to drive better performance." He also mentioned that Costa has performed well in some core markets, such as the UK, Ireland, and some Western European countries, but its China business is "more challenging than we anticipated."

"This is one aspect of our ongoing portfolio evaluation," the CFO said in an interview with Bloomberg. "We will be closely monitoring Costa's China business throughout 2026." However, when asked whether Costa Coffee would exit the Chinese market, the CFO did not give a clear answer, only saying that "the company has not made any decisions yet."

During the earlier bidding process for Costa's business, people familiar with the matter revealed that some investment institutions excluded the weak China store business and only sought to acquire the businesses in the UK and other international markets. Costa's Asia-Pacific manager also said in a media interview that the China business was hit by the pandemic in previous years, and noted that competition in China's coffee market is exceptionally fierce.

All signs indicate that Coca-Cola's special arrangement for Costa's China business is not a sudden development. However, while this signal has drawn outside attention, it inevitably raises speculation as to whether Costa will follow a path similar to Starbucks, using methods such as selling its China business and capital restructuring to drive brand transformation and change its underperforming status.

In response, industry insiders pointed out that since Costa was acquired, the brand has had three major business segments in China: stores that have been established for many years, the FMCG business (including ready-to-drink coffee, packaged coffee beans, etc.), and the coffee service business (Costa Express and self-service coffee machines Express). Among these three segments, Costa's FMCG business has performed reasonably well in the Chinese market, with ready-to-drink coffee and brand-name snacks selling well.

Prior to this, when Coca-Cola evaluated Costa, it explicitly retained its ready-to-drink product business, and Xiaoshidai said it learned from people familiar with the matter that it had not heard any news of the China ready-to-drink business being evaluated, so it is currently unclear whether Coca-Cola's evaluation of Costa's China business includes all businesses, including the FMCG segment.

In addition, data from Zhaimen Canyan shows that as of January 14 of this year, Costa had 321 stores in China, a decline of about 15% compared with the same period last year, continuing the contraction pace of recent years. In the view of professionals, considering that Costa's China business has a small store footprint and limited growth potential, a potential buyer is unlikely to be a larger peer, but perhaps a company with financial strength looking to expand into coffee. They stated bluntly that "the appeal of selling Costa's China business separately is relatively low."

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