Strategic Analysis of the Coca-Cola Company

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Introduction

The Coca-Cola Company is the largest firm in the global non-alcoholic beverage industry. It was incorporated in Delaware in 1919, and is currently listed at the New York Stock Exchange (Coca-Cola Company 2011). The core business activities of the firm are production and distribution of soft drinks and concentrates.

The Coca-Cola Company has achieved organic growth since its inception, thereby joining overseas markets in Asia, Latin America, Africa, and China among other regions.

Overall, the company operates in 200 countries in the world. Despite these achievements, the company has also faced challenges in terms of negative publicity due to the quality of its products and its operations in various markets. The objective of this paper is to analyze the Coca-Cola Company.

Mission Statement

The Coca-Cola Company has to identify and to understand the market trends and industry forces that will influence its future operations in order to remain competitive in the next ten years. The firm’s management believes in early preparation for future growth and market changes.

Thus, it has formulated a growth blueprint, which is to be achieved by 2020. This blueprint is the roadmap to the desired vision for the company.

Achieving this vision involves implementing the firm’s mission. In this regard, the firm’s mission statement is “to refresh the world; to inspire moments of optimism and happiness; and to create value and make a difference” (Coca-Cola Company 2011).

The firm intends to refresh the world by selling high quality non-alcoholic beverages in every continent. Additionally, it intends to create value by meeting the needs of the shareholders, the customers, and the communities in which it operates.

Products

The Coca-Cola Company sells more than 500 non-alcoholic beverage brands. These brands include products such as enhanced water, sparkling beverages, and various types of juices. Additionally, the company produces and sells energy and sports drinks, as well as, ready-to-drink tea and coffee.

The company sells “four of the world’s top five non-alcoholic sparkling beverage brands, which include Coca-Cola, Diet Coke, Fanta and Sprite” (Coca-Cola Company 2011). This implies that the firm’s products are very competitive and visible in both local and overseas markets.

One factor that improves the competitiveness and the visibility of the firm’s brands is utilization of a strong distribution network. This network consists of multiple distribution channels, which include wholesalers, retailers, independent bottling partners, and company-owned bottling establishments.

Apart from beverages, the company also sells concentrates and syrups to bottling and canning companies. Overall, the company manufactures and sells more than 3,500 products (Coca-Cola Company 2011). In 2011, the company launched new brands and products in response to emerging market needs and high competition in most markets. Some of the new products include Nada and Del Valle Limon.

The Growth of the Company

The Coca-Cola Company is one of the fastest growing firms in the global beverage industry. Its products are available in nearly all countries in the world. In the last three years, the firm’s sales increased by 9.4% (Coca-Cola Company 2011). The company measures the sales volume of its products in terms of unit cases.

In 2009, the firm sold 24.4 billion unit cases (Coca-Cola Company 2011). However, the sales increased to 25.5 billion and 26.7 billion unit cases in 2010 and 2011 respectively. Figure 1in the appendix indicates the increase in the company’s revenue in the last five years.

The figure indicates that the company’s revenue increased by 61.3% in the last five years. This rapid growth is attributed to the implementation of effective marketing strategies and the introduction of new products. The increase in revenue has contributed significantly to the expansion of the firm’s asset base.

In 2011, the firm’s assets were worth $79,974 million up from $72,921 million in 2010 (Coca-Cola Company 2011). This represents a 9.6% increase in assets. The factors that underpin this growth include acquisition of other firms, construction of new production plants, and improvements in the value of the firm’s goodwill.

The Competitors of the Company

The global non-alcoholic beverage industry is associated with high competition because it consists of a large number of firms. Most of the firms in the industry compete in both local and international markets (Manuel 2011, pp. 45-67). The competitive products in the industry include sparkling beverages, water products, juices, and fruit drinks.

Other products include coffee, tea, functional beverages, and dairy-based drinks among others. PepsiCo is the main competitor of the Coca-Cola Company in most markets. Other significant competitors of the firm include Unilever, Nestle, Groupe Danone, and Kraft Foods among others (Coca-Cola Company 2011).

The company also competes with retailers who have developed their own beverage brands. The competition focuses on the 4Ps of marketing. Concisely, price, sales promotion, distribution channels, and product quality determine the success of the competitors.

Most companies focus on innovation in order to differentiate their products. Moreover, most firms spend a lot of their resources on sales promotion programs in order to defend their market shares.

The competitive strengths of the Coca-Cola Company include a strong brand image, an effective distribution network, and a team of talented employees who are able to develop products that meet customers’ expectations (Coca-Cola Company 2011).

These factors enable the firm to overcome competition in the industry. One threat that is likely to reduce the competitiveness of the firm is the high competitive rivalry in major markets.

In addition, the buyers (consumers) are associated with a high bargaining power since they have low switching costs (Nikpartow, Danyliw & Whiting 2011, pp. 43-48). In this regard, consumers can easily switch to alternative brands, thereby reducing the firm’s sales and profits.

The Suppliers

Water is the main ingredient that the Coca-Cola Company uses to manufacture nearly all its products. Municipal councils are the main suppliers of water in most markets. Historically, the firm has never experienced significant water shortages.

Nonetheless, availability of high quality water remains one of the company’s major future challenges. This is because, rapid population growth and industrialization is likely to increase demand for water, thereby reducing its availability.

The primary non-nutritive sweeteners that the firm uses to manufacture its beverages include potassium, acesulfame, cyclamate, and sucralose. The main suppliers of these materials include the NutraSweet Company, as well as, Ajinomoto Company (Coca-Cola Company 2011).

The main supplier of acesulfame potassium is Nurtinova Nutrition Specialties and Food Ingredients. Generally, these sweeteners are readily available in most markets. Thus, the Coca-Cola Company has never had trouble in obtaining them.

Tate & Lyle PLC is the main supplier of sucralose, whereas Cargill mainly supplies Truvia. These companies have been able to meet the Coca-Cola Company’s requirements for the sweeteners. Citrus fruit is the main ingredient for the manufacture of juice drink products and concentrates.

Famers from Florida and their counterparts from the Southern Hemisphere are the main suppliers of citrus fruits. The supply of these fruits depends on the variability of weather patterns. For example, very cold weather conditions and hurricanes often lower the production of citric fruits in Florida.

The resulting increase in the price of this fruit leads to a rise in the price of orange juice and concentrates. Numerous firms supply packaging materials such as bottles, cartons, steel cans, and cases. Generally, buyers (beverage manufacturers) have a high bargaining power because they have low switching costs.

In addition, the industry has very many suppliers who are competing for the few non-alcoholic beverage companies. Thus, the Coca-Cola Company can easily negotiate for low prices and high quality for its supplies.

Profitability and Change in Share Price

The Coca-Cola Company has remained profitable in the last five years as shown in figure 1. In 2009, the firm’s profit was $6.8 billion, whereas in 2010 its profit was $11.9 billion (Coca-Cola Company 2011).

This represents a 72% increase in net profit. However, in 2011, the firm’s profit declined by 27%. Consequently, its profit was $8.6 billion. Figure 2 in the appendix illustrates the increase in the firm’s profit margins for each operating segment.

In the last three years, the European subsidiary recorded the highest increase in profit margins (66.8%). The Latin American subsidiary had the second highest average increase in profit margins (63.4%). The bottling investment segment had the lowest increase in profit margin (2.55).

The decline in the firm’s profit in the 2011 financial year is attributed to the increase in its operating costs. Selling costs, as well as, general and administrative expenses rose by $4.3 billion or 33% (Coca-Cola Company 2011). Exchange rate fluctuations accounted for 3% of the increase in operating costs.

Advertising costs also increased in 2011 due to the firm’s commitment to build strong brands. The acquisition of CCE’s North American business and increased investments in other bottling companies accounts for the sharp rise in bottling and distribution costs. In 2012, the firm’s operating costs are expected to decline, thereby increasing its profit. For example, staff benefit expenses is expected to reduce by $50 million.

The excellent financial performance has had a positive impact on the firm’s share price in the New York Stock Exchange. Figure 3 shows the variations in the firm’s share price in 2011. The third quarter had the highest variation in which the highest price was $71.77, whereas the lowest price was $63.59 (Coca-Cola Company 2011).

The second quarter of the year had the lowest variation. In this quarter, the highest price was $68.77, whereas the lowest price was $64.43.

Figure 4 compares the variation of the company’s share price with those of its peer group index and the S&P 500 Index. It shows that the return on investment in the Coca-Cola Company’s shares was higher than that of its peers in the last five years.

Timeline of Major News Events

The Coca-Cola Company has had both negative and positive publicity in the print and electronic media due to its operations. In November 2012, the company launched an ambitious corporate social responsibility program that involves empowering five million women entrepreneurs by 2020 (Bloomberg 2012).

The objective of the program is to provide its beneficiaries with access to business skills, peer networks, and financial services. In July 2012, the London Assembly voted in favor of disqualifying the Coca-Cola Company from participating in the Olympic Games (Huff 2012).

This decision was based on the fact that most of the firm’s products contain ingredients that increase the risk of childhood obesity and other lifestyle-related illnesses. Nonetheless, the company still participated in the 2012 Olympics as one of the main sponsors.

In May 2012, the company was accused of false advertisement (Hayes 2012). In particular, it had labeled one of its soft drinks as pomegranate blueberry. However, 99.7% of the ingredients used to manufacture the product were apple and grape juices.

In November 2011, executives from the company influenced officials from the Grand Canyon National Park to lift the ban on plastic bottles (Huff 2011).

The ban was lifted after officials of the company held a meeting with the park’s officials and donated $13 million. In August 2010, the company’s lawyers admitted that the firm’s vitamin water products were not healthy (Adams 2010).

This revelation was made in a lawsuit in which the Coca-Cola Company was accused of misleading the public by advertising its vitamin water as a healthy product. Finally, in May 2010, the company was accused of engaging in anti-union activities in Colombia (Huff 2010).

Concisely, the firm had hired thugs to kill its employees’ union leaders in Colombia. Negative publicity has contributed in part to the decline of the firm’s share prices, especially, in 2011.

Strengths of the Coca-Cola Company

The company has the following strengths. First, it focuses on implementing consumer-oriented marketing strategies. It develops marketing strategies for its brands by conducting adequate market research. Moreover, it solicits consumer feedback through effective market communication channels. The marketing strategy of the company focuses on increasing sales in emerging markets, improving brand value in developing markets and increasing profits in developed markets (Coca-Cola Company 2011). This strength has enabled the firm to penetrate new markets and to defend its existing market share.

Second, the firm is known for commercial leadership in most markets. It has millions of customers who sell its products directly to consumers. The firm supports its customers by developing solutions that promote the growth of their beverage businesses (Coca-Cola Company 2011).

This involves providing the customers with the right products, and promotional tools. These initiatives help the firm to increase the sale of its products at the retail level. Third, the company has a very effective franchise system that enables it to achieve flexibility in production.

By collaborating with independent bottling companies, the firm has been able to achieve scale and efficiency in production; to increase its sales volume and profit margins; and to differentiate its products. Fourth, the firm has remained financially stable in the last decade.

Its financial resources have enabled it to fund expansion plans, product development projects, and marketing strategies. Finally, the company has a strong brand image that is known for high quality. It produces a variety of products that satisfy the tastes and preferences of its customers around the world.

The resulting increase in brand loyalty has enabled the firm to dominate the market. The firm has consistently paid dividends since 1987 and its shares are associated with little volatility (a Beta of 0.51).

The Weaknesses of the Coca-Cola Company

The firm has the following weaknesses. First, it produces drinks that are associated with high health risks such as cancer and obesity. Consequently, the demand for its products is likely to reduce as customers become more cautious about their health (Wycislak 2010, pp. 13-19).

This risk is likely to be exacerbated by the fact that the firm is doing very little to address the negative publicity of its products. Second, the firm produces over 500 brands. Approximately 20% of these brands are extremely popular, whereas the remaining 80% are unpopular and are not available in most markets (Wolburg 2003, pp. 23-34).

Most of the brands are unpopular due to insufficient advertising budget allocations. Finally, the company is involved in numerous lawsuits due to the quality of its products and breach of patent agreements. These ligations not only increase the firm’s expenses, but also tarnish its image.

Problem Faced in the Press

In June 2012, the press published a report, which indicated that the 4-MI chemical that gives Coca Cola a distinctive color is a major cause of cancer (Poulter 2012). This revelation led to intense anti-Coca-Cola campaigns around the world.

Consumer health activists and public health agencies who believed that the firm’s products should be banned led the campaigns. These campaigns resulted into a sudden reduction in the firm’s sales in nearly all markets. The company could have used information systems to solve this problem as follows.

First, it could have used information systems to clarify the level of the health risks associated with its products. Concisely, social media such as twitter could have helped the firm to convince consumers that its products are safe. Emails could have been an effective means of informing distributers about the products’ quality.

Both email and social media are effective in addressing urgent public relation problems because they facilitate real time and direct communication with the audience.

Second, the firm could have used information systems to access feedback from the public in order to make the right decisions concerning the ingredients to use in its products (Sadler 2003, pp. 121).

For instance, online surveys and social media discussions could have helped the firm to understand the consumers’ concerns about the products. By incorporating these concerns in its production decisions, the firm could have developed products that meet the expectations of its customers.

Finally, information systems could have been used to enhance research and development initiatives in order to develop new production technologies. Information systems facilitate quick sharing of research findings, as well as, controlling and coordinating the research process.

The resulting increase in efficiency could have enabled the firm to develop an alternative production process in time.

Stock Purchase Decision

I would purchase the company’s shares due to the following reasons. First, the company has been able to maintain its financial stability in the last ten years. Besides, it has remained profitable in the last five years.

This trend is likely to be maintained because the firm’s marketing strategy focuses on market penetration, as well as, increasing sales and profit margins. Financial stability is likely to have a positive impact on the performance of the firm’s stock (Witcher & Chau 2010, pp. 78).

Second, the price of the firm’s shares is less volatile. Hence, the risk of losing returns on investment is low. Third, the company has a strong brand image and high customer loyalty.

Thus, negative publicity concerning the quality of its products is not likely to have significant impacts on its sales and the price of its shares (Winer & Dhar 2010, pp. 324).

Finally, the firm has a lot of financial resources that enables it to fund expansion and corporate social responsibility programs. The news about the launch of such programs normally leads to an increase in the value of stocks. In this regard, high returns can be realized by investing in the firm’s shares.

Working for the Company

The Coca-Cola Company is one of the best employers in the world. This is because its financial strength enables it to offer high compensation packages to its employees. It has established an effective diversification program that enables employees from different cultures to tolerate each other (Coca-Cola Company 2011).

Additionally, the company empowers its employees through training and development programs. Nonetheless, I have two reasons that discourage me from working for the company. First, the firm discourages union activities among its employees.

In the absence of a strong union, the firm can use its influence and financial resources to implement human resource policies that benefit it at the expense of the employees. Second, most of the company’s products are associated with serious health risks such as cancer and diabetes.

The company continues to produce these products despite being aware of their health implications. This is a form of unethical behavior that contravenes the principles that guide my professional conduct.

References

Adams, M 2010, Vitamin Water Revealed as Non-healthy Beverage by Coca-Cola’s Own Lawyers. Web.

Bloomberg 2012, The Coca-Cola Company Expands 5by20 Women’s Economic Empowerment Initiative.

Coca-Cola Company 2011, Annual Financial Report: FY 2011. Web.

Heyes, J 2012, Coca-Cola Dodges Federal False Advertising Claim on its so-called ‘Pomegranate’ Juice. Web.

Huff, E 2012, London Assembly Trying to Ban McDonald’s and Coca-Cola from 2012 Olympics. Web.

Huff, E 2011, Coca-Cola Influences Grand Canyon Officials to Scrap Plastic Bottle Ban. Web.

Huff, E 2010, Coca-Cola’s Murderous Record of Anti-union Activity in Colombia Exposed. Web.

Manuel, E 2011, ‘The Analysis of Five Competitive Forces of Non-alcoholic Beverage Industry and E-commerce Industry Cases at the Global Level’, International Journal of Marketing Management, vol. 6 no. 3, pp. 45-67.

Nikpartow, N, Danyliw A & Whiting S 2011, ‘Beverage Consumption Patterns of Canadian Adults Aged 19 to 65 Years’, Public Health Nutrition, vol. 2 no. 17, pp. 43-48.

Poulter, S 2012, Calls to Ban Coca-Cola Coloration Linked to Cancer that is Still Available in Britain despite U.S Health Alert. Web.

Sadler, P 2003, Strategic Management, McGraw-Hill, New York.

Winer, R & Dhar, R 2010, Marketing Management, Palgrave, London.

Wolburg, M 2003, ‘Misplaced Marketing Colas Big and Little: Anti-Trust Laws, Non-regulation and the Disabled Marketing of Small Brands’, Business Strategy Series, 20 no. 3, pp. 23-34.

Witcher, B & Chau, V 2010, Strategic Management: Principles and Practice, Wiley and Sons, New York.

Wycislak, S 2010, ‘Multinationals’ Sins Pave the Way to the Expansion of Domestic Companies’, Business Strategy series, vol. 11 no. 1, pp. 13-19.

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