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Coca-Cola Company Analysis
The Coca-Cola Company is not distinctive or unique in the aspect of maximization of profits and maintenance of sustainable growth in the beverage industry. For example, Pepsi also is aimed at the same result. The mission of the company represents the attempts to make the experience of customers memorable and exciting. Thus, Coca-Cola wants to refresh the world, inspire moments of happiness, and offer looking at the world differently. However, from a particular perspective, one can notice the approach, which distinguishes the organization from its competitors. Coca-Cola does not invoke to direct marketing programs as many other beverage firms. The organization cooperates with a range of bottling partners, thus centering on the creation of drinks. Therefore, the company rather bears the name of The Coca-Cola system. It manufactures concentrates, syrups, and beverage bases; and it distributes them to partners. Nevertheless, the ownership of the brands remains in the Coca-Cola system. In other words, the company focuses on manufacturing and developing of advertising campaigns, package design, and retail store displays. On the other hand, the bottling partners are also responsible for packaging and distribution of products. Along with it, they comprise of other entities, including international and publicly traded enterprises. On the contrary, Pepsi states its mission as providing customers with delicious and affordable foods and beverages. The company also focuses on investing in people, society, and the organization to ensure the long-term growth. It is a well-known fact that two beverage giants are in a permanent rivalry. However, Coca-Cola and Pepsi have the common issues in their strategies and positioning in the market. Furthermore, they offer a large variety of their products to a wide audience all over the world. The difference lies in the fact that Pepsi produces snacks in addition to its drinks.
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Strategic Issues
The Coca-Cola Company’s strategic issues can be summarized in several statements reflecting the scope of its activity. Firstly, the organization focuses on increasing profits, as it has been mentioned above, and driving revenue. The company uses segmented revenue growth strategies in a flexible manner to comply with the constantly changeable market and increasing consumption of carbonated soft drinks (CSD) by 3% annually (Yoffie & Kim, 2011). Moreover, the approach of Coca-Cola helps to strengthen the basis of future efficiency in emerging markets. The organization stresses the increasing volumes of products and keeps the beverages affordable. As to developing markets, the corporation tries to balance the volume and prices. Alternatively stated, the improvement of profitability is achieved by offering smaller packaging formats along with premium ones. Importantly, Coca-Cola works on a different look of products, dependently on a country (Yoffie & Kim, 2011). Secondly, the company invests in its business and brand continuously. It means that Coca-Cola contributes much to the quality and quantity of advertising, making them more catching and impactful. Therewith, the firm always expands its beverage portfolio through creating the partnership with other beverage corporations worldwide. Thus, Coca-Cola does not only mean carbonated soft drinks but includes energy drinks, protein beverages, and ultra-filtered milk. Moreover, the company launches global marketing campaigns to support and strengthen the perception of the trademark. In addition to that, one can emphasize the constant refocusing of Coca-Cola’s core business model. One of the advantages is building partnerships with various independent bottling enterprises along with the creation value for different types of customers, including retail networks and restaurants. It is achieved through the means of internal competencies, resources, and capabilities, i.e. beginning with encouragement and stimulation of employees to manufacturing optimization and improvement of distribution. Therefore, the main question from the analysis will be stated as follows: “Is it possible for Coca-Cola to keep leading positions in the beverage market, regarding the conditions of the external environment and limit of resources?”
External Analysis
The beverage industry becomes globalized due to the presence of such players as Coca-Cola and Pepsi. It is difficult to assert that the market of drinks has no competition; however, much of attention is attracted by two beverage giants. There are many issues and challenges in the industry. It takes considerable costs and resources. Fundamentally, the impact of external factors depends on the company. The more it is unknown, the less it is successful.
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The success of such a huge company consists of different internal and external factors. They impact the overall performance of Coca-Cola, more or less. Porter’s Five Forces Analysis will help to identify the core factors of the present situation in the micro-environment and the industry. The first is a threat of new entrants. New competitors join the beverage industry causing Coca-Cola to gain a competitive advantage over its rivals and maintain the market share. The competition becomes stronger, especially, when Pepsi takes some efforts to prove its positions. Interestingly, Roger Enrico, a former CEO of Pepsi, has noticed that the competition between two companies is vital for them. The reason is that Coke as well as Pepsi always tries to improve its products if one of them launches a promising marketing campaign or another activity boosting sales (Yoffie & Kim, 2011). Generally, the threat of new entrants is a weak force. Coca-Cola has been having a strong brand image for many years. Therefore, the majority of consumers would choose the products of the company with a greater likelihood. Other players within the beverage industry do not have such well-developed networks and partnerships as Coke does. Moreover, the constant war between the most famous soft drink brands contributes to weakening the force of threat of new entrants.
The second power, the rivalry among existing competitor, is also weak due to several reasons. Before, it is important to mention the so-called law of business that the competitive pressure impacts pricing. The number and diversity of rivals, industry growth rate, products, and services quality, the volume of fixed costs, capacity, and other issues shape the intensity of competition. Despite the huge amount of competitors in the beverage industry, they are relatively equal regarding their size and ability to compete with the Coca-Cola Company. As it has been described earlier, the major rival of the organization is Pepsi. In fact, Coke has no need to reduce the competition because there is nothing to decrease. The superior marketing strategy of Coca-Cola does not leave chances for other players in the industry, except Pepsi (Yoffie & Kim, 2011). However, financial statements show the continuous dominance of the organization (Yoffie & Kim, 2011). Moreover, compared to Pepsi, Coke’s market share has been always higher in the cola segment.
The bargaining power of buyers represents a weak force. The buyers of Coca-Cola purchase a huge proportion. With its strategy and advertisements, the company manages to avoid making the consumers price-sensitive. There is a large variety of products, which are affordable to almost all potential customers (Yoffie & Kim, 2011). Another situation is the industrial clients. This category tends to be price-sensitive. However, Coke does not seem to have mighty intermediaries, which would hinder the reducing of buyer’s bargaining power.
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The bargaining power of suppliers has from a moderate to strong impact in the beverage industry. It plays a significant role when several suppliers are dominative in the market. In the case of Coca-Cola, its suppliers provide the company with the competitive force (Yoffie & Kim, 2011). Coke has stood over many suppliers, meaning bottling partners, but they operate independently. Still, the company has managed to reduce the long-term production cost. However, the organization still has to buy some commodities for its production such as sugar. In turn, its price also varies due to the availability and a particular period as for many other products. Furthermore, sugarcane harvests depend on the natural conditions. Therefore, the raw materials cost of Coke can fluctuate due to the reasons described above. Nevertheless, the effect is minimal due to the contracts between the organization and its suppliers.
The threat of the substitute product also varies from a moderate to strong level. On the one hand, the challenge is high due to the competitiveness rate within the soft drink industry. Substitution of the products of the particular company occurs when its goods do not provide any benefits, are not able to gain customer loyalty, the cost of replacing them is low, and the item offered by competitors is more attractive in the aspect of price and quality (Yoffie & Kim, 2011). The possible erosion in the Coke’s market share could indicate that other firms have managed to suggest the product of better-perceived quality (Yoffie & Kim, 2011). The assortment of soft beverages is large in the sphere. A part of consumers argues that Coca-Cola does not have a unique flavor, and they cannot find a difference between Coke and Pepsi. However, the difference exists and can be felt.
Key Success Factors
The key success factors correlate with the strengths of the Coca-Cola Company, which will be described in the subsection of SWOT analysis. Firstly, it is a strong global presence, which has made the organization dominating in the world beverage market. Then, licensed bottles help to operate in the many countries of the globe. In turn, it provides the corporation with immeasurable opportunities in the market. Moreover, high utilization of assets allows Coca-Cola to serve at the global scale while preserving local approaches. Advertising and differentiation are another success factors and two main items to concentrate. The company spends much money on marketing and advertising; however, it plays a role of the so-called contribution to the future revenue and increased brand recognition and loyalty, which, in its turn, also poses the sufficiency factor. Not only the advertising has made the Coke brand famous, it is a well-constructed distribution network (Yoffie & Kim, 2011). The company permanently provides significant margins to retailers. It helps to keep the product in different food stores as well as fast food and other restaurants across the world. Additionally, the Coca-Cola Corporation constantly develops new flavors of its beverages, thus catching the attention of customers.
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Industry Profile and Attractiveness
Flowing from the analysis displayed above, the beverage industry can be moderately attractive for new entrants and for those brands being experienced in this area. The sphere is characterized by the sharp separation between producers, bottlers, distributors, and sellers. Two main competitors of the market, Coca-Cola and Pepsi, conduct their operations in this way. Both manufacture the concentrated syrup and sell it to their partner-bottlers (Yoffie & Kim, 2011). The level of competition within the beverage market is relatively strong. Notably, two soda giants spend a large part of their financial resources on the high-quality advertising; thus, one should conclude that marketing and promotion play a vital role in the drink market (Yoffie & Kim, 2011). Additionally, the distinctive item of the industry is the fact that products are being similar. Therefore, many companies take many efforts to differentiate their goods or change the perception of customers to gain the loyalty. Then, increasing costs of transportation poses an obstacle to successful cooperation. Without taking Coke and Pepsi into consideration, smaller beverage factories should expand across the globe to reach their target audiences. The future of the beverage sector seems to be increasingly globalized. On the other hand, such statement can give a rise to many questions because Coca-Cola as well as Pepsi has been operating globally for a long period. It will be difficult for new entrants to conquer leading positions in those companies. Moreover, the globalization and operating internationally means facing the legal challenges in the form of licenses, permissions, and so further. Finally, the drink area is promising for those ones that have entered it, meaning Coca-Cola the new entrants can hardly find success here.
Company Situation
The Coca-Cola Company remains in leading positions in the beverage market. The competition between Pepsi and Coke serves as a great mover for the development of both organizations and contribution to the revenues and profits (Yoffie & Kim, 2011). Coca-Cola is in the stage of constant growth. However, regarding the period of its existence, one can think it is maturity. The profits of Coke are growing annually.
Financial Analysis
To evaluate the profitability more precisely the return on capital ratio is given in Appendix 1. According to it, one can conclude that Pepsi appears to be more efficient due to using the money from share capital. Additionally, the loans are higher than those of Coke. As Pepsi becomes more consistent, the sufficiency of the Coca-Cola Company declines.
As to the liquidity, one can see that both organizations have the almost equal amount of assets to pay the current liabilities. Pepsi ran out of current assets in 2011. However, Coke and Pepsi have enough profits to manage their dues.
The leverage of the company can be defined by the debt-to-equity ratio (Appendix 2). In general, it shows, that Coca-Cola maintained the normal 1:1 debt-to-equity ratio. The share capital of the company is more than expected, thus is enough to cover the debts. To compare, the Pepsi Corporation had a more difficult situation in 2014 because the debts exceeded the amount of share capital. It would be useful for the organization to use the current assets for the debts purchase.
The activity of the company can be identified by different indicators. The institutional ownership is equal to 66.59%. The total value of holding consists of $129,084 million. The total amount of institutional shares is 2,837,001,536 with the holders’ amount of 1,861.
The strengths of Coca-Cola help the company to keep the leading marketing positions. Firstly, it is high brand equity. Taking into consideration the global presence of the brand, it appears that it is the costliest trademark in the world. Then, the company valuation reaches several dozens of billions dollars, which makes Coke the most valuable business globally. This valuation consists of assets and factories locating across the world, brand value, and the proportion of costs and profits. As it has been said earlier, the global presence of the Coca-Cola brand contributes much to its success. The products of the company are spread in most countries of the globe. Wherever the consumer goes, they will find Coca-Cola. Unarguably, such expansion impacted the brand recognition. Furthermore, Coke has the largest market share. Regarding the scale of competition between Coca-Cola and Pepsi in the beverage industry, the first organization remains an unchangeable and irreplaceable leader due to different product lines such as Fanta, Sprite, and so further representing the strong drivers of its growth (Yoffie & Kim, 2011). Then, overwhelming marketing strategies represent a powerful benefit of the company. Unlike Pepsi, Coca-Cola tries to impact feelings of its consumers (Yoffie & Kim, 2011). Moreover, Pepsi targets at the younger generation, while Coke strives to attract people of all ages. Both organizations invite celebrities to advertise the products. In this way, the Coca-Cola Company gains customer loyalty. Additionally, the quality of products plays an important role in the directing of consumer’s choice. The beverages such as Coca-Cola, Fanta, and Sprite have a large number of fans (Yoffie & Kim, 2011). The customers buy Coca-Cola because they cannot find another analogue with the same quality or taste. Demand for the products of the organization is huge and continues to grow. The same situation is with the distribution network. Moreover, it provides an opportunity to command due to its wide market presence.
In spite of the mightiness of the Coke Company, it has a few weaknesses. The first one is the competition with Pepsi. The question does not lie in the creating obstacles but rather in serving as movers to each other. A part of people asserts that Coke would have been an incontestable leader had it not been for the blue adversary. However, none of them would surrender. Finally, the rivalry is a weakness of Coca-Cola but it can hardly pose a serious issue. The second drawback is the product diversification, which also needs comparing two drink giants. Pepsi’s position is more beneficial due to having the product diversification. While Coke takes all efforts to the development and production of beverages, its competitor successfully enters the snacks segment with the products such as Lays, Doritos, Ruffles, Sun Chips, and so further (Yoffie & Kim, 2011). Coca-Cola is not going to takes positions in the snacks’ market and puts stress on its drinks. However, the goods of the company can hardly be called as healthy beverages; and this fact poses a weakness. Obesity represents a major problem of people in many countries. Moreover, CSDs are one of the main reasons for this health concern. Taking into consideration the fact that the consumption of carbonated beverages grows, the company is not threatened by the loss of consumers. Moreover, Coke has launched the line of sugar-free drinks containing zero calories (Yoffie & Kim, 2011). Fundamentally, there is no significant difference in the beverages, but it has played the role of an effective marketing trick. The last weakness of the company is water management. It has appeared that the organization consumes too much water even in the regions lacking enough water.
The opportunities for Coca-Cola flow from strengths and weaknesses as well. Firstly, the company can implement the diversification strategy and repeat the experience of its opponent, Pepsi. Unlikely the competitor, Coke could offer healthy or organic snacks showing that the corporation appreciates and encourages healthy food habits and preferences of its clients. Moreover, the supply chain distributing drinks would also divide snacks, thus sharing the volume of supply chain costs. Then, Coca-Cola can contribute to the development of nations due to its global presence. Most countries do not tend to consume healthy beverages. In the countries with a warm climate, the consumption of drinks increases in several times. Therefore, it is a promising opportunity to promote healthy products and avoid health problems in populations. Supply chain improvement would be also effective in practice. Taking into account rising transportation costs, the supply chain can highly affect the performance of the Coke Corporation (Yoffie & Kim, 2011). In this view, the supply chain improvement poses an opportunity combined with a necessity. Finally, the management of lesser selling products could be advantageous for Coca-Cola (Yoffie & Kim, 2011). The organization’s product portfolio contains several items, which do not enjoy as much popularity as other ones. Thus, the company has two ways: to focus on more efficient marketing campaigns for those goods or discontinue the lines. It is understood that their launching took a part of costs. Therefore, the choice of one of the variants will depend on the circumstances.
There are only two serious threats of Coca-Cola. The first one is raw material sourcing. As it has been mentioned above, the major problem is the extremely vast consumption of water. The water resources require a more cautious approach due to climate changes and scarcity of drinking water. The absence of this resource could be fatal not only for the Coke company but for its competitors, Pepsi, in particular (Yoffie & Kim, 2011). This situation proves the necessity to launch the snacks’ product line, which would not take such amount of water resources. Another threat is indirect competitors specializing in other beverages such as coffee. The serious element of this issue is coffee being a healthier alternative to CSDs. Along with it, health and energy drinks indirectly take the market share of Coca-Cola.
Recommendations
Strategic Issues
Is it possible for Coca-Cola to keep leading positions in the beverage market, regarding the conditions of the external environment and limit of resources?
Strategy Recommendations
The generic strategy to choose for Coca-Cola in the market is to implement the differentiation strategy. It means that the company has to launch new product lines. There are two options to produce snacks or healthier beverages. As it has been described in the SWOT Analysis, the water resources are not limitless. Therefore, the Coke organization has to overcome this problem. Despite the fact that Pepsi, the major competitor of the firm, already produces snacks, Coca-Cola can put the stress on manufacturing healthier or organic foods, thus caring about the health of its consumers. Additionally, the differentiation will renew the interest to the famous brand and allow looking at it from the other point. The grand strategy, in this case, would be the product development and market growth, as the supporting one. The product evolution has to be basic for Coca-Cola because it should let complete with Pepsi’s snacks. The advantage of Coke should be targeted at people of different ages and encouragement of healthier food habits. The market growth strategy can serve as a lifeline in the case of the ineffectiveness of the first strategy. It is low-risk and ensuring the development of the wider market area for newly-produced products.
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Objectives
According to the generic strategy, the first objective is the creation of a new product line or lines, which would emphasize the uniqueness of its potential buyers. Then, it is necessary to design the packaging that would reflect the purposes of the product line. For instance, it could be the promotion of a healthy diet, being fit and active, etc. In such a way, the advertising campaign should be developed. Since it is the strength of Coca-Cola, the advertisement will be impactful and oriented to positive feelings. Then, it would be necessary to determine the period and desirable amount of sales. It will show the effectiveness of the product line. The measurement of success will be the sales volume, which would exceed the expected one. After that, the evaluation of results should be performed. After the assessment, the company has to develop the future objectives to achieve. If the primary strategy will not satisfy the expectations, it would be needed to implement the market growth strategy for the launched product line and evaluate results in the way described above.
Strategic Justification
Differentiation as well as the product and market development is the best strategies for the Coke Company because they allow following strategic objectives. They are directed to gaining profits and attracting more customers. Moreover, these strategies ensure the holistic approach to marketing. Furthermore, they will help to obtain a competitive advantage. However, the launch of the healthy product line can arise many questions and even perplexity. On the one hand, the organization manufactures and distributes the beverages acknowledged as tasty but not healthy. On the other hand, Coca-Cola decides to save the health of its customers by the promotion of a healthy diet. However, the production of the Diet Coke is taken for granted. Additionally, differentiation and their results may be negative in the particular aspect because the new product line can be unacceptable. Again, it depends on the marketing strategy. Returning to strategies, the turnaround one could not be utilized in the case of Coca-Cola. The reason is it is suitable for the period of profit stagnation. The analyzed company is unlikely to experience such challenge in the nearest future. Furthermore, there is no need for the adaptation to the changing market. Due to the Coke’s dominance, it would rather dictate the own conditions than comply with others.
