Coca-Cola CEO on coffee strategy: We're not going head to head with Starbucks

November 16, 2018

Coca-Cola's $5.1 billion acquisition of U.K. coffee chain Costa was less of an effort to take on giants like Starbucks than a move to create a new type of coffee experience, Coca-Cola President and CEO James Quincey tells CNBC.

To Quincey, who joined Jim Cramer for an exclusive interview Friday, the coffee industry has split into three overarching parts: the "ready-to-drink piece," the "at-home" segment and immediate consumption at coffee shops.

"The biggest piece is in immediate consumption channels. And, actually, while coffee shops exist, the biggest piece is the rest," Quincey said on "Mad Money." "Helping other customers have a store in a store and executing coffee within other people's outlets is a big opportunity for them, and I think there's a lot of white space to do a lot better around the world."

Coca-Cola, a $213 billion beverage maker, was criticized by some for paying too much for Costa, a former Whitbread subsidiary with nearly 4,000 international locations, most of them in the United Kingdom.

But the U.K.-born Quincey, who pegged coffee's total addressable market at roughly $500 billion, sees a yet-unlocked opportunity to deliver quality coffee quickly at existing locations like gas stations and convenience stores.

"Our idea is not to go head to head" with companies like Starbucks and Nestle, which made a $7 billion licensing deal with Starbucks in May, the CEO said.

"Whether you want to call it food service or partnering with customers to get stores on, the express is like the top-end vending machine for coffee that gets a barista experience, whether it's in a petrol station, a convenience store, at work," Quincey said. "We have store in stores in cinemas. So there's a massive opportunity to partner with customers to sell more coffee, really high-quality barista coffee, in someone else's store."

But where coffee provides opportunities, cannabis seems laden with obstacles, Quincey said, addressing Coca-Cola's likelihood to break into the rapidly expanding marijuana market.

While some alcohol brands are already exploring ways to create drinks infused with THC, the psychoactive ingredient in cannabis, Coca-Cola would only consider incorporating CBD, the plant's non-active, medically inclined component, in its products, the CEO said.

"The way I think about ingredients is the following: Is it legal? Is it safe? And is it consumable?" Quincey said. "Is it legal? It's not legal in the U.S. It's not even legal for beverages in Canada yet. Is it safe? Science is out. We believe our consumers want to trust us that our beverages are indisputably safe, and therefore, we want to see consensus science behind any ingredient, whichever one it is."

"We want to sell drinks that people can drink each day. So it's not like you have something once," the CEO continued. "You have one a day. And if you can't cross [off] those three things of legal, safe and consumable, it's not an ingredient that's going to work for us."

Coca-Cola's stock hit a new 52-week high in Friday's trading session, ultimately closing up 0.86 percent at $50.17 a share. The company third-quarter earnings report in late October impressed Wall Street, with 30-percent profit growth and a double-digit sales jump in the company's Coke Zero Sugar brand.

Watch James Quincey's full interview here:

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