Who is the major competitor to Starbucks? That’s a question I like to ask to my final-year students at the University of Liverpool as they embark on a project analysing a business of their choice.
The students who have arrived from China correctly identify Luckin Coffee as the biggest challenger in that market, and others are quick to highlight Costa as the largest one in UK. The assumption is then that one of these must surely be a major competitor in the US, which continues to be Starbucks’s largest individual market.
The most recent Costa results show a £13m loss
In fact, in the US, Starbucks’s major competitors listed on most analyst databases are either McDonald’s or Dunkin’ Donuts. There isn’t another direct national chain of coffee shops to compete with Starbucks in the US.
This was expected to change in 2019 when Coca-Cola completed the acquisition of Costa in the UK for a net cash payment of US$4.9bn, with the multinational stating in its annual report that US$2.5bn of this purchase was allocated to goodwill and US$2.4bn was allocated to the Costa trademark.
Mission unaccomplished?
By its own admission in its annual report, Coca-Cola stated that the aim of the acquisition was to ‘allow us to increase our presence in the hot beverage market, as Costa has a scalable platform across multiple formats and channels, including opportunities to introduce ready-to-drink products’.
Regular readers may know I am married to an American and on a mission to tick off all 50 states on my travels – and, more importantly, a financial reporting nerd. With each of those hats on, I have kept my eyes open to see how many Costa stores are opening in the US. So far I am yet to see one, but in the interest of fairness I did a bit more research.
A quick visit to the US website shows that while there may be some restaurants and AMC cinemas selling Costa coffee, the grand total of physical stores stands at five. Each of these can be found in Atlanta, Georgia, where Coca-Cola has its headquarters. Recent estimates place the number of Starbucks stores in the US at around 17,000. It’s probably fair to say that that this increased presence in the hot beverage market has not gone as expected.
It is possible that Coca-Cola has pivoted to simply target the ready-to-drink market in supermarkets. Fear not, I have been keeping my eyes open for that as well. August 2025 was the first time I saw a Costa drink in a supermarket, making the reluctant Mrs Deller take a picture as a memento.
It isn’t all about the US, however. It could be that Costa is thriving globally elsewhere. Unfortunately, the most recent Costa results show a £13m loss so that doesn’t seem to be the case.
Impairment ignored
All of these factors have led to an increase in suggestions that Coca-Cola is looking to dispose of Costa for a hugely reduced sum of around US$2.5bn.
With five stores opened, recent losses and a projected loss on sale of at least US$1.5bn, it is interesting to see how much the US$2.5bn goodwill and US$2.4bn trademark have now been impaired.
Coca-Cola will have to sell Costa at a substantial loss but there is still no impairment recorded
After reviewing the financial statements from 2019 to 2024, I can confirm that the total impairment recorded since 2019 is zero.
Impairment is mentioned extensively in the annual report, with discussion of the impairment rules and the tests that are performed. The external auditor has identified that potential impairment is a crucial audit matter. Yet the curious situation exists where the market recognises that Coca-Cola will have to sell Costa at a substantial loss but there is still no impairment recorded to the Costa goodwill or trademark.
As a reminder, an asset is classed as impaired if its carrying amount exceeds its recoverable amount, which is the higher of the fair value less costs to sell and the value in use. All of the published information regarding the sale demonstrates that the fair value less costs to sell is below the asset value, which suggests that the estimates of value in use are assessed as being above the asset’s carrying amount. As these value-in-use estimates are based on estimated future cashflows, these are always forecasts that can veer on the optimistic side of things.
Too little, too late
This situation appears to encapsulate the problem the International Accounting Standards Board tried to address in the disclosure, goodwill and impairment project, recognising that goodwill is recognised too little, too late.
Attempts to improve the impairment test were unsuccessful, and the move to amortisation wasn’t deemed to be to giving useful information. I have previously written about the disappointment that the project didn’t go far enough, relying on enhanced disclosures about the acquisition.
While I may have been disappointed by the progress, the project does intend to make acquirers disclose information about acquisition-date key objectives and targets, with subsequent disclosure about the extent to which these are being met. The Coca-Cola intention to expand its presence in the hot-drinks market could then have been potentially quantified, with the five store openings giving a reasonable indication that things weren’t progressing as intended. With that in mind, maybe the proposals could have some merit. Anything that could make companies admit to poor performance before either selling off or closing down a business could surely help.
For now, the only admission from Coca-Cola that things didn’t go as it had hoped may be when Costa closes its entire US operations. While one district of Atlanta may notice, it’s unlikely that the rest of the world would.
Watch and learn
See the latest video in Adam Deller’s series, looking at how Spotify accounts for its intangible assets
