STRATEGIC MANAGEMENT CASE OF COCA COLA

1. Introduction. Coca-Cola, the product that has given the world its best-known taste was born in Atlanta, Georgia, on May 8, 1886. Coca-Cola Company is the world’s leading manufacturer, marketer and distributor of non-alcoholic beverage concentrates and syrups, used to produce nearly 400 beverage brands. It sells beverage to bottling and canning operators, distributors, fountain retailers and fountain wholesalers. Coca-Cola was first introduced by John Pemberton, a pharmacist, in the year 1886 in Atlanta, Georgia. Early growth was impressive, but it was only when a strong bottling system developed that Coca-Cola became the world-famous brand it is today.

2. Aim. The aim of this presentation is to give you an overview of Coca-Cola Company.

3. Sequence of Presentation.a.b.c.d.e.f.g.

4. Existing Vision, Mission, Objectives and Strategies. .

a. Vision. To achieve sustainable growth, the company has established a vision with clear goals.

(1) Profit. Maximizing return to shareowners while being mindful of our overall responsibilities.

(2) People. Being a great place to work where people are inspired to be the best they can be.

(3) Portfolio. Bringing to the world a portfolio of beverage brands that anticipate and satisfy peoples; desires and needs.

(4) Partners. Nurturing a winning network of partners and building mutual loyalty.

(5) Planet. Being a responsible global citizen that makes a difference.

b. Mission. The Roadmap starts with the mission, which is enduring. It declares the purpose as a company and serves as the standard against which the

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company weighs the actions and decisions. It is the foundation of company manifesto.

(1) To refresh the world in body, mind and spirit. (Market, Customer, Philosophy)

(2) To inspire moments of optimism through the brands and actions. (Products)

(3) To create value and make a difference. (Self concept)

d. Objectives.

(1) To engage Coca-Cola in exploring the viability and options for using their distribution networks in developing countries to distribute ‘social products’ such as oral rehydration salts (ORS) and related educational materials on health, hygiene and sanitation. (2) To support Coca-Cola and its partners in modeling different scenarios which combine Coca-Cola’s distribution network with local health initiatives in order to achieve the aim.

(3) To establish a core group of enablers and activists to lead on the different aspects of this campaign.

(4) To monitor the progress of the campaign and ensure that any trials and roll-outs are effectively monitored and evaluated.

e. Strategies. The strategic goals are decided by the top management. However, they are reviewed every year in the annual meeting to make sure that they are in line with the changing environment. These are:

(1) To continue to be an organization providing the quality products to the valuable customers.

(2) To select and retain the professional people for the organization.

(3) To project an outstanding corporate image.

(4) To satisfy the customer through extra ordinary service and an excellent service along with the complete tactical and operational support.

5. Analysis of Vision and Mission Statement of Coca- Cola.

a. Vision Analysis. While we talk about Vision statement of Coca-cola, it simply tells us that this company wants to achieve something new in future which will consist sustainability, Quality and growth. This is not an easy task to

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achieve but apart from this, we can see that statement is clear and having brief meanings which explains a lot, about what coca-cola wants accordingly. Moreover this statement tells us that, they are going to achieve these three things which are sustainability, Quality and growth by the help of six variables which are people, Portfolio partners, planet, profit and productivity. There people, partners, productivity and portfolio will give them to achieve better quality and growth in future where as there responsibility towards planet and partners will help them to achieve sustainability. So Vision of Coca-Cola is clear and good for future.

b. Mission Analysis. In Mission statement of Coca-Cola Company, it contains Philosophy, Self concept, customers, Products and services, market. The mission statement is satisfactory because it is containing five components out of nine. Vision is clear and mission statement of Coca-cola is also supporting its vision.

6. External Assessment.

a. Major Competitors.

(1) Pepsi. Caleb Brandhum, a North Caroline Pharmacist, structure Pepsi Cola in the 1890’s as cure of Dyspepsia (indigestion). In 1902, Bradhum applied for a trade mark, issued ninety seven share of stock and began selling Pepsi syrup in earnest. In his first year of business he spends $1900 on advertising a huge sum that he sold only 8000 gallons of syrup. In 1905 Bradhum built Pepsi’s bottling plant. By 1907 he was selling 10,000 gallons a year, two years later; he hired a New York advertising agency. After passing through many troubles for some period now Pepsi is a market leader in internationally and is available in 187 Nations throughout the world.

(2) Cadbury Schweppes PLC. Cadbury Schweppes are joined force of Cadbury found in 1824 of U.K. and Schweppes of Ireland founded in 1783. Cadbury Schweppes is unified bussing which manages the relations with over 240 franchised bottling operations on Zambia and Zimbabwe. Cadbury Schweppes has partnership operations in 14 countries around the world.

b. External Opportunities and Threat.

(1) Opportunities.

(a) Possible growing demand.(b) Expansion – Reaching all segments.(c) Globalization(d) Catering to Health Consciousness of People(e) Bottled water growth(f) Acquisitions of smaller players.

(2) Threats.

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(a) Health Drinks – Fruit Juice Companies(b) Key competitors (Pepsi, etc)(c) Commodity prices growth(d) Image perception in certain parts of the world.(e) Smaller, more nimble operators/players

c. External Factor Evaluation (EFE) Matrix.

(1) External factors evaluation (EFE) of Coke is as follows:

Factors Weight Rate Wt. ScoreOPPORTUNITIES      Nutritional offering 0.075 1 0.075Global expansion 0.1 4 0.4Innovation (R&D) 0.05 3 0.15Product diversification 0.05 3 0.15Explore new markets 0.05 3 0.15Digital programs 0.075 3 0.225Sensitivity marketing 0.0375 3 0.1125Develop customer relation 0.075 2 0.15Coffee/tea dispensing technology 0.0375 1 0.0375       THREATS      Changing trend of healthy eating and drinking 0.1 2 0.2Strong competitors 0.05 2 0.1Substitute products 0.05 2 0.1Bottled tea market of competitor 0.0375 1 0.0375High cost of production 0.05 2 0.1Unbranded products 0.05 2 0.1Rising price of inputs 0.0375 1 0.0375

Decreasing value of dollar 0.05 2 0.1Tailored brands 0.05 2 0.1Total 1.0   2.325

(2) Analysis of EFE Matrix of Coke. According to the analysis of EFE, the rating is 2.32, which is slightly below average. This shows that the threats being faced by Coca Cola are fierce, and it should take some actions to prevent the threats and utilize the upcoming opportunities.

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d. Competitive Profile Matrix (CPM).

(1) CPM is as follows:Coca-cola Pepsi Co

Key Success Factor

Weight Rating Score Rating Score

Growth of Cash Flow

0.08 4 0.32 3 0.24

Declines in the Material Cost

0.025 3 0.075 3 0.075

Marketing of Core Brands

0.04 4 0.16 5 0.20

Introduction of New Products

0.09 5 0.45 4 0.36

Advertising and PromotionalSpending

0.04 5 0.20 5 0.20

Penetration into Nontraditional Distribution Channels

0.04 4 0.16 4 0.16

Financial Strength 0.08 5 0.40 4 0.32Market Share 0.13 3 0.39 4 0.52International Prospects

0.09 4 0.56 4 0.56

Risk Assessment 0.03 3 0.09 2 0.06Credit Rating 0.03 5 0.15 3 0.09Product Portfolio 0.03 4 0.12 4 0.12Acquisitions in the Future

0.12 3 0.36 2 0.24

Volatility to Exchange Rates

0.12 4 0.48 3 0.36

Acquiring New Technologyof Bottling

0.08 2 0.16 1 0.08

Total 1.00 4.075 3.585

(2) It can be concluded from the above given Competitive Profile Matrix (CPM) that Coca- Cola Company is stronger in comparison with PepsiCo. PepsiCo is the major competitor of Coca-Cola given the particular success factors, the strategic position of Coke is better than that of PepsiCo as it is evident from the score of both the companies. It

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represents the overall comparison of the two companies is relation to the factors given and the importance of the weights to the industry.

7. Internal Assessment.

a. Existing Organizational Chart.

b. Marketing Strategy of the Company

c. Internal Strength and Weaknesses.

(1) Strengths.

(a) Brand equity/image & recognition(b) Product distribution and worldwide network(c) Solid financial performance(d) One of the world's most recognized brand.(e) Product diversification (water, juices, soft drinks, sport drinks, etc)(f) Co-operate identity.(g) Innovation

(2) Weaknesses.

(a) Strong & tough competition(b) Substitute products (c) Advertising & promotion(d) Non availability of all flavors/ products in every operating group.(e) Affordability of coke products in east and south Asia

d. Internal Factor Evaluation (IFE) Matrix.

(1) Internal factor evaluation (IFE) of Coke is as follows:

Factors Weight Rate Wt. ScoreStrengths      Brand equity/recognition 0.12 4 0.48Variety of products 0.1 3 0.3High market share 0.1 3 0.3Financial strength for acquisitions 0.1 4 0.4Strong global presence 0.1 3 0.3Product quality 0.05 3 0.15Geographic spread 0.05 4 0.2New products 0.05 4 0.2Innovative packing 0.05 3 0.15       

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Weaknesses      Strong & tough competition 0.1 1 0.1Substitute products 0.05 1 0.05Advertising & promotion 0.08 2 0.16Non availability of all flavors/products in every operating group 0.05 1 0.05Affordability of coke products in east and south Asia 0.075 2 0.15Total 1.0   2.99

(2) Analysis of IFE matrix of Coke. According to the analysis of IFE, the score of Coke is 2.99, which is above average. This shows that Coca-Cola is internally strong and good enough. So by using their strengths, the can overcome their weaknesses.

8. Strategy Formulation.

a. SWOT Analysis.

(1) Strength

(a) Strong Brand Name The world's most valuable brand. Its brand value at $70.45. It is the most recognizable word across the world after Ok is Coke. Extremely recognizable branding is one of Coca-Cola’s 35 greatest strengths. Coca-Cola’s brand name is known well throughout by 90% of the world today.

(b) Corporate Identity It has a very strong corporate identity as it is very recognized company in all the parts of the world and it is in existence since 1880’s.

(c) Global Distribution Coca cola is available in each and every part of the world as it is operating globally in more than 200 countries with its head office located in Atlanta, USA and daily more than 1.06 billion dollar are consumed around the world.

(d) Innovation It always launches innovative products like diet coke, vanilla coke and many other.(e) Local Approach It conducts business on a global scale while at the same time maintain a local approach which is purely visible from its advertisement.

(f) Brand Loyalty Coca cola enjoys the brand loyalty from the customers.

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(g) Financial Stability It is their in company as it is a very old and prestigious brand.

(2) Weakness.

(a) Strong & Tough Competition

(b) Substitute Products

(c) Advertising & Promotion

(d) Non Availability Of All Flavors/Products In Every Operating Group

(e) Affordability Of Coke Products In East And South Asia

(3) Opportunities.

(a) Possible Growing Demand In a country like Bangladesh the per capita consumption of coca cola per year is the lowest in the world that is only 6 per person.

(b) Developing A Global Brand

(c) Coca Cola’s Bottling System Also allows the company to take advantage. It can work on its price. Most of the bottling companies are under the control of coke which gives that much of flexibility for its modulations in the pricing strategy which cannot be exercised by the rival cola giant PepsiCo because it doesnot own its own bottling companies hence it does not 38 enjoy that much of flexibility in modulating the pricing strategy of PepsiCo.

(d) Sufficient Capital It gives a significant growth to opportunities.

(e) Potentiality Has a potential to innovate and differentiate the company's products to sustain a competitive advantage.

(f) Expansion Expansion into new market other than soft drink market. As coke is enjoying so good brand name, then if they enter in any other industry with same brand name it can also succeed in that industry.

4. Threats.

(a) Substitutes Coca-Cola can be substituted by other soft drink products made by its competitors.

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(b) Marrying Up The soft drink industry is very strong, but consumers are not necessarily married to it.

(c) Change of Taste Other threat which the companies possess is of change of taste of their consumers.

b. PESTLE Analysis. The PEST analysis of Coca-Cola Company is as follows.

(1) Political Variables and Analysis.

Politicalvariables

StronglyEffected

SomewhatEffected

NoEffect

SomewhatEffected

StronglyEffected

Effects ofgovernmentregulations &deregulations

NE

Effect ofenvironmental protectionlaws if any

YES

Import andexportregulations

NE

Effect ofpoliticalconditions incertaincountries ofCoke

NE

As far as the above table is concerned it could be seen that there are very little chances of “political variables” to effect the coke’s production and selling behavior. In the “political variables” most of the things are related to Governmental activities. So, they don’t leave any good or bad impact in the Industry of coke.

(2) Economic Variables and Analysis.

Economicvariables

StronglyEffected

++

SomewhatEffected

+

NoEffect

+ -

SomewhatEffected

_

StronglyEffected

_ _

Do soaringinterest rates

Yes

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make businesstask anyharderAny effect dueto inflation

Yes

Anything doneto reduceunemployment

Yes

Any effect of11th September2001, incidentat Coke inIndia

NE

It could be seen that “economical variables” highly affects the Coke’s resolution. Economic factors are those actors who effect the production of any industry. So, Coke is not the out of question. If the economic conditions of the country is not that strong and Coke increases its Price in this situation. Then it would impact highly negative. And inflation is also not a good position for any country’s production point of view. It also impacts highly negative in the Coke’s production.

(3) Social Variables and Analysis.

Socialvariables

StronglyEffected

++

SomewhatEffected

+

NoEffect

+ -

SomewhatEffected

_

StronglyEffected

_ _

Effects ofadvertisementof Coke onPublicpopularity

Yes

How will doCoke’scontributionaffect charityorganizations

Yes

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Has risingconsciousnesss of naturalresources inpeopleeffected your“saveenvironmentactivities.

Yes

(4) Technological Variables and Analysis

Technologicalvariables

StronglyEffected

++

SomewhatEffected

+

NoEffect

+ -

SomewhatEffected

_

StronglyEffected

_ _

Have businessinnovationseffectivelypromoted yourbusiness

Yes

Has thegovernment’sregulationsever hinderedin importingtechnicalequipment

Yes

Does Cokehelp inpromotingpaperlessenvironment

Yes

Of course business innovation leaves highly good impacts in the business of Coke. As coke use more advance technology in its production process. It will result in increment of their production through out the country. As far as the “governmental hindrances” are concerned the impacts highly bad on coke’s production. Ever year when budget in announced government taxes rates always shoot up. This approach of government decreases the profit margin of Coke. As the coke helping in promoting “paperless environment” .it impacts good, because computers are the basic need of any person now a days. And though it’s a big industry so it is promoting the trend of paperless environment. And it is giving the way of other industries to come to new technologies and into a new world of

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business. Through computers coke can increase the efficiency of its business and can have up –to-date data about their productions.

c. Porter’s Five Forces Model Analysis. Applying Porter’s 5 forces allows the potential attractiveness in terms of profitability of the company. The analysis below will concentrate on the industry from COCA COLA perspective:

(1) Bargaining Power of Supplier. Inputs, such as materials, labor, supplies, etc. are standard rather than unique or differentiated. This allows variable substitutes of inputs readily and resulted in numerous potential suppliers. Suppliers themselves will find it hard to enter business like COCA COLA and perform function in-house. Since COCA COLA is producing at large scale, to suppliers, this business is very important; however the cost of purchase has significant influence on overall costs. This requires COCA COLA to carefully choose its suppliers to suppress cost problem. Most of the suppliers in the industry are the strategic partners of different players in the industry and there are many suppliers available. Therefore the suppliers are not in a position to threaten the companies.

(2) Bargaining Power of Buyers. There are a large number of buyers and customer relative to the number of firms in the industry, each with relatively small purchases. However, there is no cost incurred in switching suppliers. COCA COLA’s product is very unique to some degree and has accepted branding. However, customers are very highly sensitive to price, therefore choosing the most cost efficient suppliers are very crucial to minimize cost, thus maximizing profit. The buyers are also not in a position to bargain the prices from the companies as there are a few dominant sellers in the industry who have the major market share of non-alcoholic drinks.(3) Threats of Substitute. Generally, substitutes have performance limitations that do not completely offset their lowest price or their performance is not justified by their high price. Obviously, it cost the customers nothing to switch to COCA COLA’s substitutes, such as coffee, tea and juice. Besides, there has been a high potential of customers to substitute COCA COLA products COCA COLA can further develop its competitive advantage against substitutes through takeovers to minimize the potential of decrease in sales.

(4) Rivalry among Competing Firms. COCA COLA’s main rival is Pepsi and the biggest threat that they pose is price. When prices change, the effect on beverage industry towards the consumption of soft drink is drastic. Although the product is not complex, which makes it easier for other companies to compete against COCA COLA; they do not own a share in the market as large as either COCA COLA or Pepsi are. This is because it is hard to commit into this industry, as it will be hard to get out of this business, involving specialized skills, facilities and long-term

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contract commitments. Capital needed to enter the business line is very large. This will result in less competition, thus enabling COCA COLA’s chance to gain more market share. The intensity of the rivalry in the industry is not very strong as the products are differentiated.

(5) Threats of New Entrants. Large companies like COCA COLA, have a cost or performance advantage in the beverage industry, because of established brand identities. Beside Pepsi, there are proprietary product differences in the industry. The capital needed to enter the industry and to be frontline in the industry like COCA COLA today is very expensive, for the reason to build production plant, managing the company, commercialization, etc. and also a long time frame to build the confidence and loyalty in the target market. Newcomers also face difficulty in accessing the distribution channels and it may be more costly compared to what COCA COLA has to pay, given their level of experience in the industry. Licenses, insurance and qualifications are difficult to obtain. However, upon entering the industry, newcomer can expect a strong retaliation in the market. When this happens, their position may pose a threat to COCA COLA and COCA COLA may find more challenges in implementing strategies to obtain more market share and maintain customer’s loyalty. Overall, COCA COLA are not competing mainly against Pepsi. The fight is against its substitutes. Their main goal is so that public should reach to Coke whenever one feels like drinking something. As a result, a strategic management to win the fight is to put up a large number of vending machines at every street corner, restaurants and cafes. Consequently, sales will take a quantum jump and COCA COLA have less to worry about competitor and substitutes. It is not easy for the new entrant to enter the industry and raise the level of competition for Coca-Cola right away. This is because high barriers of entry exist in the industry such as economies of scale, customer loyalty with the existing brands, requirement of high initial investment and the access of industry distribution channels. A new entrant is also not likely to be successful because of possible retaliation from the existing industry players. There are many substitutes available to non-alcoholic beverages therefore this lowers the attractiveness and profitability of the industry. But the relative pricing of the substitutes are higher therefore the industry does not suffer.

d. Strategic Position and Action Evaluation (SPACE) Matrix.

INTERNAL STRATEGIC POSITION

EXTERNAL STRATEGIC POSITION

COMPETITIVE ADVANTAGE

INDUSTRY STRENGTH

Market share -1Product quality -2Customer loyalty -3

Growth potential 5Profit potential 5Financial stability 6

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Control over suppliers and distribution -1

Ease of entry into market 1

AVERAGE -1.75 AVERAGE 4.25TOTAL X-AXIS SCORE 2.5FINANCIAL STRENGTH ENVIORMENTAL STABILITYReturn on investment 5Liquidity 5Working capital 5Cash flow from operations 6

Rate of inflation -6Demand variability -4Price range of competing products -2Barriers to entry -2Competitive pressure -1

AVERAGE 5 AVERAGE -3TOTAL Y-AXIS SCORE -2

SPACE MATRIX:

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9. Strategy Implementation.

a. Financial Statement of the Company.

Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Net Sales/Revenues 31.07 B 31.94 B 28.86 B 24.09 B 23.10 B

Cost of Goods Sold (Excluding Depreciation)

9.82 B 10.15 B 9.23 B 7.22 B 7.31 B

Depreciation, Depletion and Amortization

1.24 B 1.23 B 1.16 B 938.00 M

932.00 M

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Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Gross Income 20.02 B 20.57 B 18.46 B 15.93 B 14.86 B

Selling, General & Admin Expenses

11.38 B 11.77 B 10.94 B 9.43 B 8.74 B

Other Operating Expense 107.00 M

55.00 M 0.00 0.00 0.00

Operating Expenses - Total 3.65 B 3.68 B 4.13 B 3.05 B 1.29 B

Operating Income 8.53 B 8.74 B 7.52 B 6.50 B 6.12 B

Extraordinary Credit - Pretax 149.00 M

0.00 0.00 0.00 47.00 M

Extraordinary Charge - Pretax 253.00 M

1.98 B 268.00 M

189.00 M

89.00 M

Non-operating Interest Income 249.00 M

333.00 M 236.00 M

193.00 M

235.00 M

Other Income/Expenses - Net -166.00 M

53.00 M 173.00 M

195.00 M

-70.00 M

Earnings Before Interest & Taxes (EBIT)

8.51 B 7.15 B 7.66 B 6.70 B 6.25 B

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Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Interest Expenses On Debt 341.00 M

438.00 M 456.00 M

220.00 M

240.00 M

Pretax Income 8.16 B 6.71 B 7.20 B 6.48 B 6.01 B

Income Taxes 2.04 B 1.63 B 1.89 B 1.50 B 1.82 B

Current Domestic Income Tax 588.00 M

761.00 M 739.00 M

655.00 M

1.06 B

Current Foreign Income Tax 1.10 B 1.23 B 1.04 B 878.00 M

845.00 M

Deferred Domestic Income Tax 340.00 M

-386.00 M

85.00 M -42.00 M

-97.00 M

Deferred Foreign Income Tax 13.00 M 25.00 M 24.00 M 7.00 M 9.00 M

Minority Interest 82.00 M 0.00 0.00 0.00 0.00

Equity in Earnings 781.00 M

726.00 M 668.00 M

102.00 M

684.00 M

Net Income Before Extra Items/Preferred Div

6.82 B 5.81 B 5.98 B 5.08 B 4.87 B

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Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Net Income Before Preferred Dividends

6.82 B 5.81 B 5.98 B 5.08 B 4.87 B

Net Income Available to Common

6.82 B 5.81 B 5.98 B 5.08 B 4.87 B

b. Analysis of Financial Position. The financial position is very encouraging. Every year the net income of coca-cola is growing. This is because of their sound marketing strategy, fine human resource management etc.

10. Recommendations. Some recommendations are as follows:

(a) Coca- cola must use advertisement media extensively.

(b) Coca cola does not hire fresh graduates at middle level management; this creates bad Image of the organization. They should hire fresh graduates as it may give them new and fresh ideas.

(e) Proper motivational practices should be implementing to increase the moral of employees so they work more efficiently.

(f) The Coca-Cola Company has a high level of uncertainty when it comes tothe raw materials it uses. For a few of the ingredients, the company only hasone or two viable suppliers. This could be extremely problematic for a variety ofreasons. Another problem could arise if a supplier experiences an event thateconomically devastates them. If a supplier goes bankrupt, or is in some type ofnatural disaster, the Coca- Cola Company would suffer greatly as well.The Coca-Cola Company can improve and secure relationships with suppliers.The most optimal method would be to use backward vertical integration andpurchase a supply.

(g) Coca Cola Company should try to emphasis more on providing their infrastructure in the market to facilitate their customers.

(i) Marketing team should try to increase the availability of Coke in rural areas.

(j) They should also focus the old people.

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(k) Young generation has a trend to drink a coke 2 regular bottle at same time, so providing more satisfaction to them company should introduce ½ liter disposable bottle.

11. Conclusion. The Coca Cola Company has a very rich history and spread over the world, the study in this report specially the particular SPACE matrix tells us that Coca Cola Company should pursue an aggressive strategy. Coca Cola Company has a strong competitive position in the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. This includes focus on Water and Juices products, and catering to health consciousness of people through introduction of different coke flavor and maintaining basic coke flavor. Further company should integrate with other companies, acquisition of potential competitor businesses, innovation in branding and aggressive marketing strategy can bring long term profitability.

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