Evaluating the Growth and Competitive Strategy of Coca Cola

Evaluating the Growth and Competitive Strategy of Coca Cola INTRODUCTION: The Coca-Cola Company is the worlds largest beverage company, largest manufacturer and marketer of non-alcoholic beverage concentrates and syrups in the world and in one of the largest corporations in the United States. The Company is best known for its flagship product Coca-Cola, invented by pharmacist John Stith Pemberton at Atlanta USA, in 1886. They used to make Coca-Cola syrup by melted sugar, water, and some other ingredients (especially coca leaf and the kola nut). Frank M. Robinson, Pembertons bookkeepers, was the person who suggested the name Coca-Cola. The company has 92,400 employees in 200+ countries. It refreshes the consumers nearly 1.6 billion per day. The companys portfolio includes 13 billion dollar brands. The Coca-Cola Company is a nonalcoholic beverage brands which is the worlds largest manufacturer, distributor. It is worlds most valuable brands where the company got license for more than 500 nonalcoholic beverage brands mostly sparkling beverages and a mixture of still beverages such as water, juices, teas and coffees, energy and sports drinks. Basically, the company produces beverage concentrates and syrups which are sold to authorized bottling and canning operations (which are called Bottlers) where they manufacture the concentrates and syrups to produce finished beverage products (The Coca-cola, 2009). It has worlds largest distribution networks through bottling partners, distributors, wholesalers, and retailers. FINANCIAL POSITION: Revenue US$ 31.0 Billion (FY 2009) Operating income US$ 8.23 Billion (FY 2009) Net Income US$ 5.82 Billion (FY 2009) Total Assets US$ 48.7 Billion (FY2009) Total Equity US$ 24.8 Billion (FY2009) One year Growth: 3.0% Income Growth: 17.5% Employee Growth 0.4% Coca-Cola, a $62 Bn Brand (The Coca-Cola, Annual Report, 2009) COMPETITIORS: PepsiCo Nestle S.A. Dr Pepper Snapple Group Cadbury Schweppes plc Group Danone Kraft Foods Inc. THE COCA-COLA COMPANYS GROWTH: 1886-1892: The Coca-Cola Company was acquired the complete ownership of its business by Asa Candler for $2300 in 1891. In 1898 the company entered the market of Canada and Mexico. 1893-1904: An invention into a business, introduced promotion, advertisement, building plants in Chicago, Dallas and Los Angeles, establishing first bottling franchises. 1905-1918: Cuba and Panama became the first two countries outside the U.S. to bottle the Coca-Cola. The company started delivering a unique bottle to ensure people are getting real Coca-Cola with free of cocaine, and introduced new shape of coke bottle. 1919-1940: The Company was sold for $25 million to Atlanta banker Ernest Woodruff and a group of investors in 1919. The Company established a manufacturing operation in France in 1923. The company became the public limited at $40 per share. It delivered 53 countries worldwide. 1940-1959: Expanding in 120 countries, promoting the word COKE, setting up new Coca-Cola plants in North America and Europe. 1960-1981: Expanding with new flavors, Fanta, Sprite, TAB, Fresca, acquiring the Minute Maid Company, promoting exciting and dynamic advertisement. In 1960, metal cans were introduced first time which are now available in the market. 1982-1989: 165 countries enjoyed Coca-Cola, introducing Diet coke, Cherry Coke. 1990-1999: 200 Countries enjoyed Coca-Cola, associated with Sports including the Olympic Games and FIFA World Cup. 2000-Now: More than 200 countries enjoy Coke, delivering global marketing platform. Ingredients and Packaging The Coca-Colas Manufacturing and Distribution Process: Ingredients and Bulk Packaging Concentrate Plants Transport Production and Sales Facilities Third-Party Transport by Rail/Road SalesMarketing Equipment Consumers Customers e.g.Tesco, Asda (Coca-cola Enterprise, 2009, Corporate Responsibility and Sustainability Report) THE COCA-COLA BUSINESS SYSTEM: The Coca-Cola Company and/or subsidiaries only produce syrup concentrate which is then sold to various bottlers throughout the world who hold a Coca-Cola franchise. The Coca-Cola bottlers, who hold territorially exclusive contracts with the company, produce finished product in cans and bottles from the concentrate in combination with filtered water and sweeteners. The bottlers then sell, distribute and merchandise the resulting Coca-Cola product to retail stores, vending machines, restaurants and food service distributors. The Coca-Cola Enterprise (CCE) is the largest bottler of Coca-Cola beverage who manufactures and distributes the most popular beverage brands in the world. The CCE is one of more than 300 bottling companies CCE delivered approximately 41 billion bottles and cans in 2009. It represents approximately 16 % of total Coca-Cola product volumes. It creates revenues of $21.6 billion, with free cash flow of $872 million (Coca-Cola Enterprise, 2009). In North America, it operates 46 U.S States and all 10provinces of Canada, composed of five business units. It has 59 production facilities and 314 principal distribution facilities. It also has 59000 employees in US Canada. In Europe, it has 16 beverage production facilities and 35 principal distributors facilities with approximately 11000 employees. (www.answer.com) THE COCA-COLAS USE OF STRATEGIC CHOICES: Strategic choices are concerned with decisions about an organizations future and the way in which it has to respond to the myriad of pressures and influences as a result of its immediate and macro environment. To this end there are three basic choices to be made as shown below. Strategic choices Strategic choices Methods for pursuing strategies The choices about how strategies are to be pursued Strategy directions The choices of products and markets available to an organization Bases of competitive Strategy The choices as how to an organization positions itself in relation to competitors Bases of competitive Strategy directions Methods for pursuing Strategy strategies Whittington (2008, p. 217) Bases of competitive strategy: This area has to do with how Coca-Cola has positioned itself in relation to its competitors. The Coca-Cola Company competes in the non-alcoholic beverages segment of the commercial beverages industry. The non-alcoholic beverages segment of the commercial beverages industry is highly competitive, consisting of numerous firms. These include firms that, like Coca-Cola, compete in multiple geographic areas, as well as firms that are primarily regional or local in operation. Competitive products include numerous non-alcoholic sparkling beverages; various water products, including packaged, flavored and enhanced waters; juices and nectars; fruit drinks and dilatable (including syrups and powdered drinks); coffees and teas; energy and sports and other performance-enhancing drinks; dairy-based drinks; functional beverages; and various other non-alcoholic beverages. These competitive beverages are sold to consumers in both ready-to-drink and other than ready-to-drink form. In many of the coun tries in which Coca-Cola does business, including the United States, PepsiCo. Inc. is one of its primary competitors. Other significant competitors include, Nestlà ©, Dr Pepper Snapple Group, Inc., Group DANONE, Kraft Foods Inc, and Unilever etc. In certain markets, its competition includes beer companies. Coca-Cola also competes against numerous regional and local firms and, in some markets, against retailers that have developed their own store or private label beverage brands. The strategy clock: competitive strategy option: High Differentiation 2 4 Hybrid Focused differentiation 5 3 Perceived Product/ Service 2 Low price 6 No frills 7 1 Strategies destined for ultimate failure 8 Low High Low Price Whittington (2008, pp. 225) The strategy clock above represents different positions in a market, where customers or potential customers have different requirement in terms of value for money. Coca-Cola has therefore taken the strategy option of hybrid, in which case it maintains its price but tries to differentiate itself from competitors. The Company has had a mix of pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, and brand and trademark development and protection. In this regard Coca-Cola has increased its annual marketing budget substantially, launched many new products, and developed a model to help its retail customers maximize their sales while it continue to plan for the future. The risk of this choice is that one could lose market share due to its low prices but then it can be tackled through economies of scale where the company produces in large quantities to cover cost and tries to penetrate different geographies as is the case of Coca-Cola. This choice has actually proved beneficial to Coca-Cola even though its market share has not grown tremendously as one would think over the last ten years but it definitely has a much higher market share than its competitors, especially Pepsi Co. This has been possible for Coca-Cola due to its recognized brand name and strong presence in so many geographies including Africa, Asia, Europe, Latin America, North America and the Pacific spanning across 200 countries. Strategy Direction: This has to do with the scope of a company in terms of its products. Over the last few years Coca-Cola has introduced a lot of products to its portfolio, including the recent Coca-Cola zero, which sold more than 600 million cases globally. Today Coca-Cola does not only deal in non-alcoholic soft drinks, but it also makes a lot of juices and juice drinks, still and carbonated products. As a matter of fact Coca-Cola has more than 3,300 products in more than 200 countries. In general one can rightly say that Coca-Cola has gone into diversification since it has not only shifted from soft drink to juices and even energy drinks but has also ventured and penetrated larger market over the years. Diversification is simply a strategy that takes the organization away from both its existing market and its existing products. We have therefore used the Ansoff matrix below to identify the strategy direction which Coca-Cola is taking Box D, which is diversification. The Ansoff matrix provides a simp lified way of generating four basic alternative directions for strategic development. Strategic directions (ansoff matrix) Products Existing New A B Market penetration Product development Consolidation C D Market development Diversification Existing Markets New Whittington, (2008, p.258) Diversification happened to be a good strategic option for Coca-Cola as it helped the Company to break new grounds in business. For instance a new product like the Coca-Cola zero did so well in terms of sales. This therefore impacted positively on the companys market share. Again shifting from soft drinks to energy and sports drinks also gave Coca-Cola an opportunity of a larger market share. However diversification can be capital intensive as not all organizations will be able to cope with the finances involved since a lot of finances will be needed to go into research and development for the new product. For instance Pepsi-cola once came up with a new product called Meca cola but it wasnt successful and the product was withdrawn later on. Surely there will be a lot of laboratory works and feasibility studies to go with a new product and this will equally require skilled people getting involved and consequently hiring more employees so if the organization does not have enough finances it may not be able to cope. Again the organization which decides to diversify will put in place an adequate amount of public awareness in terms of advertisements and trainings. This may involve using news papers, television, internet etc. All these can be very enormous for an organization so suffice it to say that diversification requires careful planning. Methods for pursuing strategies: Most of Coca-Cola products are manufactured and sold by its bottling partners. The Company typically sells concentrates and syrups to its bottling partners, who convert them into finished packaged products which they sell to distributors and other customers. Separate contracts (Bottlers Agreements) exist between the Company and each of its bottling partners regarding the manufacture and sale of Company products. Subject to specified terms and conditions and certain variations, the Bottlers Agreements generally authorize the bottlers to prepare specified Company Trademark Beverages, to package the same in authorized containers, and to distribute and sell the same in (but, subject to applicable local law, generally only in) an identified territory. The bottler is obligated to purchase its entire requirement of concentrates or syrups for the designated Company Trademark Beverages from the Company or Company-authorized suppliers. Coca-Cola agrees to refrain from selling or distributing, or from authorizing third parties to sell or distribute, the designated Company Trademark Beverages throughout the identified territory in the particular authorized containers. The Coca-Cola Company has created and achieved a strategic lock-in such that it has achieved dominance in the industry. For instance many people will think of Coke once they think of using or taking a soft drink. Strategic Implementation: International strategic management is divided by Strategies monitoring, goal setting, strategies formulation, strategic implementation. Mostly, companies is going to face challenges when they implement their strategies. There are following challenges such as; Resistance to change and inertia Insufficient attention to context Wrong choice of style for managing the change Education, participation, intervention, direction, coercion Insufficient understanding of power and political processes Lack of clarity Lack of stakeholder support Insufficient resources or capabilities Say in example coca cola Company decided to launch a new product in the market. So they consider with how do they decide what new product to sell? And who to sell them to? After that company has to do market research through the hypothesis test. They can do research two methods. Such as primary data and secondary data methods. According to coca cola company products they can do the following research such as; Desk research which is identify their gap in the market in particular product Detailed research which is using small groups like qualitative research such as survey. Quantitative research which is a large scale surveys to collect information. This method can identify which type of product and what design of product Trial test market which is a sample that mean company launch their product in the market after finishing and if consumers like the product they can increase their production and tracking success of product and in the other hand if consumers dont like the product they can stop their new product activities. People: People are a most valuable asset and greatest liability in any organization. If people dont perform well with productivity standards, provide good service business that will affect the organization business is doomed. Mostly organization select the people who can do get more jobs done, developed implement support program to the people and sell their goods and services. Employees are the best source of competitive advantage because cant copy by the customers. In case coca cola companys employees are sacrificing their competences within organization. They treated employees as good as well. They have to maintain their organizational structure to motivate their employees. As a reason that can do their work well done company needs to implementing compensation, performance management, training, reward and retention programs. Finally they may able to stave off competitors. They wanted caliber people for this century. They would use facts and the knowledge in order to add value to the organization. In any stage everyone should have the same information in order quickly put it to effective and profitable use. They believed having right people in right place can create competitive advantage. People participate all levels of product delivery from production workers to salespeople and corporate managers in Coca-Cola Company. Rebuilding the coke bubble is important issues of people within the coca cola company. Coca cola company is unable to control their people internally because poor handling of public relations. In globalization Coca-Cola Company will increase social pressure say as community friendly. Coca cola Companys future profitability depends on societal marketing with on ethics and corporate social responsibility. Cola Company has challenge with profitability and responsibility into stakeholders such as consumers, customers, employees, communities, governments and environment. Culture is effect on Cola Company with their managers and workers. If they dont have warm and genial culture they will face among staff and managers likely say staffs will not be motivated to work say in example staff may have to lose their rest days. This cause will effect with staff will be tired from their day to day working and also not have time to enjoy with their family. I think Coca Cola Company has warm culture because success of their company mainly depends on their employees. They sacrificed their skills and ability on their particular task. Company has friendly environment and they motivated themselves. Resources: Appropriate resources are time, money, talent and tools. Water is a main source of coca cola companys products. It is a limited resource. Which is availability, quality and sustainability nature resource? In addition principal raw materials are nutritive and non- nutritive sweeteners. Nutritive sweeteners are High Fructose corn syrup (HFCS) and Sucrose. Which is form of sugar? Which are available from numerous domestic sources? Those are fluctuation of market price. Coca Cola Company has no experience in difficulty in nutritive sweetener. Coca cola bottlers sales and services (CCBSS) is limited liability Company owned by coca cola bottlers. Non-nutritive sweeteners are aspartame, acesulfame, potassium, saccharin, cyclamate, sucrose. These raw materials are ready to available from numerous sources. Aspartame is a important non-nutritive sweetener. This is used alone or mixed with other sweeteners. According to coca cola company has above production factors such as people, system, raw materials, capital and brands etc. focus on the last ten years coca cola company has changed within the production factors to improve their business efficiency and competitive with other companies. Mostly start of their production people is most part of their business. Increase the cost of production is going to affect to decrease the marginal revenue and increase the marginal cost. Coca cola has Increasing completion which that they can develop their business in globally. In the economics most part is production factors which are limited resources and scarcity. With the limited resource Coca Cola Company has many choices. They consider with opportunity cost. I suggest that Coca Cola Company is using more with their production through water. Water is unlimited resources. So they cant use without control. Because geographical condition is going to affect in the environment, that is also affected to people. Finance: Coca Cola Company is doing their business with not only their money but also they have debt. Due to coca cola is a global presence and strong capital position now. They can increase their funds through low effective cost. In order to they could achieve mix of short term and long term debt and mix of fixed rate and variable rate debt. As a result is lower overall cost of borrowing. Basically funds are vital in order invest in new asset including people, machinery. The structure change would require more funds in order to move closer to the customer. It considered how the company has been raised the fund both internally (retain profits) and externally (capital markets sources: long term loans, share issues) over ten years. Lower interest rate is increase to consumer demand in economy. In this situation Coca Cola Company will increase their debt as result of low borrowing rates. It can use of debt on innovation of new products. In the point of view Coca Cola Company has spent less cost and also sell low price to the people. Due to this low price people get feel cheaper products in coca cola. Most of the non alcoholic beverage industry particularly coca cola company has high sales due to they have got major role in success and growing market in non-alcoholic beverage industry The non-alcoholic beverage industry has high sales in countries outside the U.S. According to the Standard and Poors Industry surveys, For major soft drink companies, 32 there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany. These markets will continue to play a major role in the success and stable growth for a majority of the non-alcoholic beverage industry. This analysis basically examines the local, national and world economy impact which includes issues of recession and inflation rates. Since the September 11 attack the world has been facing a rapid change with increase instability further more give to the period of recession there has been a cut in the interest rate by ten times due to which the companys can increase the use of debt as result of low borrowing rates. Cola company contracts with larger number of bottling partners in the world to increase their distribution of beverages. The Company has threatened of stability due to the dependent relationship that impact with bottling partners. GROWTH ACROSS ALL CATEGORIES: 2008-2020 Percentage of NARTD Industry Incremental Growth: Vol. Value Sparkling 17% 24% Juice Juice Drink 13% 19% RTD Tea / Coffee 18% 13% ENERGY 4% 12% Packaged Water 25% 10% Sports 5% 9% (The Coca-Cola, Annual Report, 2009) Winning with Coca-Cola TM + Core and New in Developed and Emerging Markets: COCA-COLA TM CORE AND NEW MEXICO 3% 12% TURKEY 5% 24% RUSSIA 7% 13% BRAZIL 8% 18% S AFRICA 4% 6% CHINA 11% 20% Volume CAGR 2005 2008 Coca-Cola TM Growth Potential Is Just Beginning To Be Unlocked: (2008 PER CAPITA) Delivering Through Unique Global System Capabilities: Consumer Consumer Marketing Shopper Coca-Cola Growth Franchise Leadership System Customer Commercial Leadership CONSUMER MARKETING: 1.6 Bn serving per day 1 MM per minute 206 Countries CUSTOMER LEADERSHIP: 20 MM customer per week 7 MM Coolers FRANCHISE LEADERSHIP: $64 Bn supply chain 900 + mfg operations 8500 sales centers and warehouses 500,000 vehicles KEY SUCCESS FACTORS: The Coca-Cola Company is one of the largest, most successful and most widely recognized corporations in existence. Coca-Cola is a dominating force in the beverage industry and sets a very high standard of competition. Research shows that its trademark is recognized by over 94% of the worlds population. There are many factors contributing to Coca-Colas success. It is believed that their key success factors are Marketing, Innovation, and Globalization. MARKETING: Coca- Cola is seen as one of the winning business model. They were among the pioneers of advertising techniques and styles used to capture the markets. Through its intense marketing campaigns, Coke has developed an image that is reflected in what we think of when we buy Coke and what we associate with drinking Coke. This image has been subconsciously installed in our brain by the advertising campaigns that show Coca-Cola associated with good times. Marketing Strategy of Coca-Cola: Speed up carbonated soft-drink growth, led by Coca-Cola. Selectively expand the family of beverage brands to oblige gainful growth. Develop system productivity and capability together with bottling partners. Provide customers with inspiration and consistency to generate growth across all channels. Direct investments to highest potential areas across markets. Drive efficiency and cost-effectiveness everywhere. Incorporated promotional activities. (Www. Scribd.com) INNOVATION: Coca-Cola has been able to continue to exist and develop in an ever-changing market because of its ability to steadily innovate and deliver new products. Coca-Cola began to a strategy referred to as play to win innovation. The company started operating in a decentralized environment that was unfeasible in few years ago. Now Coca-Cola offers nearly 500 different products in and is still dominating the beverage industry. This is made possible by the companys ability to innovate and adapt to changing markets. Innovation brings markets faster. To satisfy the needs of older consumers, the Company made sophisticated Soda for social occasion. The Coca-Cola Company develops innovative premium brands, such as; Burn Soft Drinks- now in 85 countries. New Burn Intense Soft Drinks- Now in 7 countries. Illy Coffee- Now in 18 countries. The Company is also acquiring and expanding premium brands, such as; Making Glaceau vitamin water will be next global brand. Investing in premium platforms, such as; Innocent, Juice Smoothies, Lunch pack Smoothies, 100% NFC Orange Juice. Now they are in 11 countries in Europe. GLOBALIZATION: Todays big business takes place on a global scale, and Coca-Cola is no exception. Technology is continually changing business, and these constant changes have been making it more feasible and profitable for business to expand their operations globally in order to serve all different types of diverse markets around the world. Coca-Cola is taking advantages of the large revenue opportunities made possible by participating in global market and now offers products in 200+ countries around the world. $ 20 TRILLION GDP GROWTH BY 2020: Global Real GDP ($T) $70 $50 2020 2008 INCRIMENTAL GLOBAL GDP GROWTH RATE: COUNTRY / REGION PERCENTAGE Rest of the World 21% China, India, Latin America 39% USA 21% Japan 3% Europe 16% THE COCA-COLAS CONFIDENCE IN THE BEVERAGE INDUSTRY LONG TERM OPPORTUNITIES: 5% CAGR 145 Bn Cases 4% CAGR $1,100 Bn 55 Bn Cases Incremental Growth $500 Bn Incremental Growth 90 Bn Cases $600 Bn 2008 2020 2008 2020 Industry Value Industry Volume TRACK RECORD OF PROFITABLE GROWTH: GROWTH SINCE 1977 22X 16X 13XXX 6X 9X 4XX Operating Income Net Revenue Operating Income Operating Income Net Revenue Net Revenue Total World Rest of World UNITED STATES HEALTHY SYSTEM INVESTING TO GROW: Higher Margin Reinvesting -Long term Improving Profitability Capital Expenditures Return on Invested Capital EBIT / Revenue 14.9% 14.6% 11.2% 13.8% $4 Bn $6 Bn 2005 2008 2005 2008 2005 20088 Comparison of Five Year Cumulative Among The Coca-Cola Company, The Peer Group Index and The SP 500 Index: Total Return Stock Price Plus Reinvested Dividends: KO Peer Group SP 31/12/04 $100 $100 $100 31/12/05 $99 $111 $105 31/12/06 $122 $132 $121 31/12/07 $160 $158 $128 31/12/08 $121 $120 $81 31/12/09 $158 $146 $102 The total return assumes that dividends were reinvested quarterly and is based on a $100 investment on December 31, 2004. PERFORMANCE AT-A-GLANCE: 2007 2008 2009 Unit Case Volume (in billions) 22.7 23.7 24.4 2007 2008 2009 Net Operating Revenues (in millions) $28,857 $31,944 $30,990 2007 2008 2009 Operating Income (in millions) $7,252 $8,446 $8,231 2007 2008 2009 Operating Cash Flow (in millions) $7,150 $7,571 $8,186 2006 2007 2008 2009 Total Assets (in millions) $29,963 $43,269 $40,519 $48,671 Long -Term Debt (in millions) $1,314 $3,277 $2,781 $5,059 The Comparison with PepsiCo: PepsiCo is the main competitors and threats to the Coca-Cola. (Year Ended December 31, 2009) (In Millions except per share data, and no.) DESCRIPTIONS The Coca-Cola The PepsiCo Total Assets