BY PATHFINDER CONSULTING

D A N I E L G E L E R M A N R AY M O N D M H I C K S

A B U D O U H A I PA E R M A I M A I T I A M Y WA N G

Coca Cola Company

History of Coca Cola

World's largest soft-drink companyFirst invented by John Pemberton, a

pharmacist, in Atlanta, Georgia in 1886Combined syrup with carbonated water and

sold the drink at a soda fountain in a local drug store

Selling 1.7 billion servings of beverages everyday to consumers in over 200 countries through more than 300 bottling partners

Most recognized and powerful brand valued at $70 billion in 2010

Mission/Vision

Mission: To refresh the world…Inspire moments of optimism and happiness…Create value and make a difference

2020 Vision: Double Revenues by the year 2020Profit- Double revenue/ increasing system margins

            People- Great place to workPortfolio- Double servings to over 3 billion a dayPartners- Preferred and trusted beverage partnerPlanet- Global leadershipProductivity- Effectiveness

Stakeholders

Publicly traded companyShares held by insiders, different institutional

and mutual fund owners, and individual investors

Largest shareholder is Berkshire Hathaway

Issues Identification

1997- Asian financial crisis dropped overseas sales

1999- Belgium alleged contamination fearsConsumers' taste preferences started to shift

to healthier optionsSodas were blamed for contributing to

obesityExisting bottlers' franchise agreements2008 recession sent consumers to purchase

cheaper, private-label water, causing a 15% market share drop

Missed several big opportunities to expand

Issues Identification (Cont.)

CompetitorsPepsi- Quaker Oats, GatoradeDPS- Dr. Pepper, Sunkist, A&W, Canada Dry, Snapple

Issues/challenges that the firm may face:Threat of competitorsDuopoly

Strategic direction firm has chosen:Cost leadership – lower cost to gain a competitive

advantage

Internal Analysis

Resources (Tangible)

Property, Plant and Equipment Buildings and facilities constructed all over the world

Strong Financial Position Large positive cash flows

Human Resources Training and development result in competent and

motivated workforce

Resources (Intangible)

Technical Expertise Constant innovation, R&D, new iterations of products

to keep up with market

Intellectual Property Rights Stymie intense competition with patents and

trademarks

Goodwill High level of brand loyalty and brand visibility

Core Competencies

Brand Name and Loyalty

Distribution and Manufacturing Networks

Value Chain (Primary)

Supplies of ComponentsPurchasingInventoryResearch and DevelopmentQuality ControlSales and MarketingDistributionService Support

External Analysis

General

Demographic& Global: The soft drink industry reaches the global market , anywhere in the world. Coca Cola, Pepsi,Red bull are selling beverages in over 200 countries, and still are becoming more global.

Physical Environment: Ecological, social, economic systems interactively influence the soft drink industry to have potential or actual changes.

Economic: Coca Cola reaches the most powerful brand in the world valued at $70 billion in 2010, and the global economy is expanding significantly after the recession. Because of the challegnes, it is trying to go more environmental friendly economy. There was low growth in the market for carbonated drinks, especially in Coca-Cola’s main market, North America.

General(Continued)

Political: The FDA controlled Non- Alcoholic Beverages with the help of government. Government keeps track of the manufacturing procedure of these products in terms of regulations. Changes in Laws and Regulations(like accounting, tax), changes in Non-Alcoholic business era(competitor pricing policy), and Political Conditions( especially in international market) will effect the operation.

Sociocultural: Society’s attitude and cultural values change with anti-obesity campaigns.( healthier, Demand for carbonated drinks decreases)

Technological: As new tech comes in, new products comes into the market, such as cherry new Coke in 1985, but consumers prefer the original coke.

Industry

The soft-drink business model involved four primary participants

1.Concentrate producers: Blend common ingredients and flavors, and ship the mixture in the containers to bottlers.( Marketing ,research, maintain relations, negotiating with supplier).

2.Bottlers: Buy the syrup, add carbonated water, then package the drinks into bottles.( specialized production line, have right to operate in exclusive territory)

3.Retailers: Supermarkets, restaurants, cafeterias, convenience stores( fountain or vending).

4.Suppliers: Key suppliers-caramel coloring, citric acid, and caffeine.

Porter’s 5 forces

Porter’s 5 forces

1/5:Threat of New Entrants (Low threat) The cost of entry is very prohibitive; very high capital required;

brand loyalty is strong; difficult to provide significant enough margins to retailers.

2/5: Bargaining Power of Suppliers (Low threat) large number of suppliers for the ingredients; commodities are

inexpensive; Coloring, sugar, high-fructose corn syrup easily achieved.

3/5: Bargaining power of Buyer ( Medium threat) Divided supermarkets(low) national mass merchandising

chains(high), fountain sales, vending machines and gas stations(low); consumer’s lifestyle changes in the long run( high).

Porter’s 5 forces(cont.)

4/5 Threat of substitute products( High threat) Large number of substitute products; Competitors offer

similar price.

5/5 Intensity of rivalry among competitors(Very high) Competitors such as Pepsi, Dr Pepper have international

presence and have competitive market share in every line. As the world market and information becomes more accessible, the rival continuously grows.

Competitors

Pepsi As a main rival in soft drink industry against coke, Pepsi

expanded through a franchise bottling network but with a greater focus on retail sales over fountain( fast foods like taco bell). Pepsi is second to coke in sales.

DPS Included Dr pepper, Sunkist, A&W, is the third largest play

North America with about 16% of the market, products like RC cola is also world widely available.

Others Around the World, usually local brands compete with Coke,

such as Big Cola in Mexico, Qibla Cola in England, Cola Turka in Middle East and so on.

Recommendation

Options for the Future

Acquire, Repair, and Refranchise

o Take over management of the various facets of the Coca-Cola supply chain, primarily the bottling distilleries.

o Revamp and update the current model utilized by the line of production.

o After “fixing” the problematic stages of product creation, refranchise the organization to further cut future costs associated with owning an entire supply chain.

o Refocus on core competency.

Options for the Future (Cont.)

Absolute Control over Production

o Acquire each part of the Coca-Cola supply chain from raw material to distribution.

o Vertically integrate the product towards a streamlined model to minimize the total cost of goods sold.

o Utilize the lower cost of goods sold to lower price of product in an effort to drive competitors, especially Pepsi, out of their larger market share.

Benefits and Drawbacks

1. Acquire, Repair, Refranchise• Maximizes profits.• Solves supply chain problem.• Cost-effective option.• Accounts for Coca Cola’s core competency• Does not account for future supply chain problems due to lack of oversight.• Is short-sighted in scope, and may lead to the same problems down the line.

2. Absolute Control over Production• Vertical integration leads to more efficient production, a better product, and

lower costs.• Allows Coca-Cola to ensure quality across the board for each facet of its

product.• Extremely Expensive option• Overlooks profit maximization in an effort to better production• Strays away from core competency

Projected Outcomes of Options

1. Acquire, Repair, Refranchise• Solves immediate issue faced Coca Cola.• Capital investiture will lead to a lowering of cost.• Best option for maximization of profits for any foreseeable projection.

2. Absolute Control over Production• Will lead to higher immediate costs.• Vertical integration is a tried and true method for expanding profit

margins.• Efficiency in production will lead to lower of COGS, permitting lower retail

prices of product.• Strong buyer power will lead to capturing a greater share of the soft drink

market, increasing long-term revenue.

Recommendation

Option 2, Absolute Control over Production

• Best method for achieving 2020 goal of doubled revenue over a ten year period.

• Coca Cola’s high product standard will streamline the entire process of production and avoid future inefficiency.

• Control over the supply chain will allow greater ability to adapt in the face of a changing consumer attitude towards soft drinks.

• Capital investiture in supply-chain efficiency will provide a long lasting competitive advantage that should not be refranchised to avoid risk of repeat of issue.

Questions?