The Whitbread demerger has been foretold, discussed and talked about (until recently, often in hushed tones) for many years. The merits and risks of splitting the hospitality industry behemoth have been endlessly discussed. And the reaction of the FTSE when it finally happened left no doubt as to the attitude of investors to the plan. Indeed, the pressure for a sale has come largely from the stock market, and the investment looks like a good one for the buyer, Coca Cola.
Costa did more to bring ‘posh coffee’ to the British High Street than almost any other brand, bringing a slightly more restrained take on the Starbucks ‘lifestyle coffee’ to UK town centres, and paving the way for Starbucks itself, and a host of other competitors. Before Costa, coffee was largely either filter or instant, came with milk or without, and cost 50p – after Costa, coffee had an Italian name, a choice of milky froths, and cost £2.50. Most of the difference is clear margin, which is why the business has been such an attractive one. And the product itself is one that a huge slice of the addressable market find real value in. A market that was relatively embryonic 20 years ago is now fully mature, as the ubiquity of the Costa brand demonstrates.
The fate of the hotel and pub and restaurant business that will comprise Whitbread after the sale of Costa is also worth examining – clearly investors see Costa as being the most valuable part of the group, with the other lower margin businesses facing tough competition in their sectors. But Whitbread is one of the most disciplined and best run organisations in the UK – the talent and expertise in managing property, people and product runs deep through the group, and only a proportion of that will depart with the Costa sale. Competitors in the sectors in which Whitbread remains involved can only write off the group’s remaining brands at their peril.