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Coca-Cola Company 2011

Forest David

A.

Case Abstract
Coca-Cola is a comprehensive strategic management case that includes the companys year -end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Cokes common stock is publicly traded under the ticker symbol KO. Coca-Cola is the world's largest nonalcoholic beverage company, owning four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Founded in 1886 by Atlanta pharmacist John Pemberton, Coca-Cola brands today include Minute Maid, Powerade, and Dasani water. In North America the company sells Groupe Danone's Evian and also sells brands owned by rival Dr Pepper Snapple Group (Crush, Dr Pepper, and Schweppes) outside Australia, Europe, and North America. Coca-Cola today produces or licenses more than 3,500 drinks for sale in 200-plus countries. In late 2010, Coca-Cola Company bought out its leading bottler, Coca-Cola Enterprises (CCE), and renamed it Coca-Cola Refreshments USA. The company continues to buy out its bottlers worldwide. Some of Coca-Colas $15 billion brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply and Georgia. Coca-Cola is the No. 1 provider of sparkling beverages, juices and juice drinks and ready-to-drink teas and coffees. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the company's beverages at a rate of 1.7 billion servings a day.

B.

Vision Statement (proposed)


To maintain our status as the number one beverage company in the world.

C.

Mission Statement (proposed)


At Coca Cola we aspire to stay the worlds (3) leader focused on producing and selling superior quality (7) carbonated beverages in the soft drink industry (2). We strive to treat our employees (9), customers (1), and our communities with respect (8). We also seek to provide healthy financial rewards to our shareholders and business partners (5) by using the latest technology (4) and hiring the most skill employees. We always use ethical practices that assist in displaying Coca Colas public image as being trustworthy, loyal, and honest (6). 1. 2. 3. 4. 5. Customers Products or services Markets Technology Concern for survival, growth, and profitability

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6. 7. 8. 9.

Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit
Opportunities 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers currently prefer favored soft drinks over colas such as Powerade, Sprite, and Fanta. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively. Customers are becoming more health minded in their food and drink choices. Brazil, India, and Eastern Europe should offer good long term opportunities. China's food and beverage consumption is forecasted to increase by 54.1% by 2014. 25% of Americans eat fast food everyday. Energy drinks hold 62% of the functional beverages market. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade. Weaker US Dollar.

Threats 1. 2. 3. 4. 5. 6. 7. 8. High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power. Pepsi has a large food stuff business along with beverages. Store brand and private label products still have great appeal among cost conscious customers. Governments are looking to tax sugary drinks.

Competitive Profile Matrix


Dr. Pepper Critical Success Factors Advertising Market Penetration Customer Service Vending Locations R&D Employee Dedication Financial Profit Customer Loyalty Market Share Product Quality Top Management Price Competitiveness Totals Weight 0.12 0.06 0.09 0.10 0.06 0.07 0.10 0.09 0.08 0.09 0.04 0.10 1.00 Rating 3 1 4 2 4 2 2 1 1 4 2 4 Score 0.36 0.06 0.36 0.20 0.24 0.14 0.20 0.09 0.08 0.36 0.08 0.40 2.57 Pepsi Rating 2 3 2 4 3 3 4 3 3 3 3 3 Score 0.24 0.18 0.18 0.40 0.18 0.21 0.40 0.27 0.24 0.27 0.12 0.30 2.99 Coke Rating 4 2 3 3 2 4 3 4 4 2 4 2 Score 0.48 0.12 0.27 0.30 0.12 0.28 0.30 0.36 0.32 0.18 0.16 0.20 3.09

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EFE Matrix
Weight Rating Weighted Score Opportunities 1. Customers currently prefer favored soft drinks over colas such 0.07 4 0.28 as Powerade, Sprite, and Fanta. 2. Flavored teas, and bottled water are expected to grow 24 percent 0.07 4 0.28 and 9 percent respectively. 3. Customers are becoming more health minded in their food and 0.07 4 0.28 drink choices. 4. Brazil, India, and Eastern Europe should offer good long term 0.10 4 0.40 opportunities. 5. China's food and beverage consumption is forecasted to 0.10 4 0.40 increase by 54.1% by 2014. 6. 25% of Americans eat fast food everyday. 0.03 4 0.12 7. Energy drinks hold 62% of the functional beverages market. 0.03 2 0.06 8. Coconut water is becoming a popular alternative to sports drinks 0.03 1 0.03 such as Gatorade and Powerade. 9. Weaker US Dollar. 0.03 4 0.12

1. 2. 3. 4. 5.

Threats High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power.

Weight Rating Weighted Score 0.10 2 0.20 0.04 0.06 0.02 0.03 0.12 0.08 0.02 1.00 2 4 4 2 1 2 3 0.08 0.24 0.08 0.06 0.12 0.16 0.06 2.97

6. Pepsi has a large food stuff business along with beverages. 7. Store brand and private label products still have great appeal among cost conscious customers. 8. Governments are looking to tax sugary drinks. TOTALS

E.

Internal Audit
Strengths 1. 2. 3. 4. 5. 6. 7. 8. Coke is the largest manufacturer, distributer and marketer of nonalcoholic beverage concentrates and syrups in the world. New micro-dosing technology to dispense over 120 beverages from one machine. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, soft drinks, and others. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every day. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010. Cokes Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies. Coke Zero has yielded double-digit volume growth for four consecutive years.

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9.

Coke employees half the people of Pepsi, yet has higher net income.

Weaknesses 1. 2. 3. 4. 5. 6. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010. Coke continues to struggle in North America experiencing zero percent growth since 2009. Coke is focused solely on the beverage business. 45% of sales and revenue rely solely on Coca Cola and Diet Coke. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5. Goodwill increased from $4 billion to over $11 billion in 2010 with Cokes recent bottling acquisitions and goodwill and intangibles accounts for 87% of all equity.

Financial Ratio Analysis Growth Rate Percent Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Profit Margin Percent Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio Profitability Ratios Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Efficiency Ratios Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Coke 45.40 NA 8.10 8.74 19.37 9.46 Industry 30.50 NA 7.90 9.85 14.68 9.67 S&P 500 14.50 NA 47.50 8.27 8.68 5.68

60.7 33.6 27.7 64.4

56.1 23.2 19.3 58.2

39.9 18.1 13.2 39.8

0.88 1.1 1.0

0.94 1.2 1.1

1.01 1.4 0.9

41.5 18.8 27.6 33.0 16.7 23.9

34.6 14.3 20.3 32.0 15.2 20.9

26.0 8.9 11.8 23.8 8.0 10.8

91,289 329,484 10.4 6.7

67,398 338,900 9.7 7.5

126,213 1 Mil 15.7 12.4

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Net Worth Analysis (in millions)


Stockholders Equity Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $31,003 $59,045 $147,884 $154,360 $98,073

IFE Matrix
Weight Rating Weighted Score Strengths Coke is the largest manufacturer, distributer and marketer of 0.10 4 0.40 nonalcoholic beverage concentrates and syrups in the world. New micro-dosing technology to dispense over 120 beverages 0.02 4 0.08 from one machine. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, 0.08 4 0.32 soft drinks, and others. Products are sold in over 200 countries and people consume 1.4 0.10 4 0.40 billion Coke product servings every day. Net income increased from $6.8 billion in 2009 to $11.8 billion in 0.07 4 0.28 2010. Cokes Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the 0.08 4 0.32 top 5 soft drink brands In the world. Coke has 5 water brands and just acquired Apollinaris and 0.06 3 0.18 Traficante two European companies. Coke Zero has yielded double-digit volume growth for four 0.06 4 0.24 consecutive years. Coke employees half the people of Pepsi, yet has higher net 0.07 4 0.28 income.

1. 2. 3.

4. 5. 6. 7. 8. 9.

Weight Rating Weighted Score Weaknesses 1. Coke continues to struggle in Europe as a whole; experiencing 0.05 1 0.05 zero percent growth in 2010. 2. Coke continues to struggle in North America experiencing zero 0.08 1 0.08 percent growth since 2009. 3. Coke is focused solely on the beverage business. 0.04 2 0.08 4. 45% of sales and revenue rely solely on Coca Cola and Diet 0.05 2 0.10 Coke. 5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry 0.04 2 0.08 average is 7.5. 6. Goodwill increased from $4 billion to over $11 billion in 2010 with Cokes recent bottling acquisitions and goodwill and intangibles 0.10 1 0.10 accounts for 87% of all equity. TOTALS 1.00 2.99

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F.

SWOT
SO Strategies 1. 2. Build 5 new bottling plants in Eastern Europe and China for $100M each (S1, O4). Form agreements to get Coke products into every major fast food chain in the world (S1, S4, O6).

WO Strategies 1. 2. Invest $50M to develop a line of coconut water (W4, O8). Increase presence in Europe by 20% (W1, O9).

ST Strategies 1. Market new water acquisitions in the US (S7, T1, T3).

WT Strategies 1. Invest $200M to start production of a snack division (W3, T6).

G.

SPACE Matrix
FP 7 6 5 4 3 2 1

Conservative

Aggressive

CP

-7

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6 -7

IP

Defensive

SP

Competitive

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Internal Analysis: Financial Position (FP) Sales Debt/Equity Current Ratio ROE ROA Financial Position (FP) Average
Internal Analysis: Competitive Position (CP) Market Share Product Quality Customer Loyalty Product Variety Control over Suppliers and Distributors Competitive Position (CP) Average

5 5 5 6 5 5.2

External Analysis: Stability Position (SP) Rate of Inflation Technological Changes Healthy Options Competitive Pressure Barriers to Entry into Market Stability Position (SP) Average
External Analysis: Industry Position (IP) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential Industry Position (IP) Average

-2 -2 -4 -6 -3 -3.4

-2 -1 -1 -1 -2 -1.4

4 5 5 5 5 4.8

H.

Grand Strategy Matrix


Rapid Market Growth Quadrant II Quadrant I

Coke

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

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I.

The Internal-External (IE) Matrix


The Total IFE Weighted Scores
Strong 4.0 to 3.0 4.0 I Average 2.99 to 2.0 II Weak 1.99 to 1.0 III

High

3.0

IV

VI

The EFE Total Medium Weighted Scores

Coke

2.0

VII

VIII

IX

Low

1.0

Segment North America Bottling Investments Pacific Europe Latin America Eurasia & Africa

2010 Revenues 31.7% 23.4 14.1 12.6 11.0 6.9

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J.

QSPM
Build new bottling plants Aquire a snack company
AS 0 0 3 3 4 0 0 0 0 TAS 0.00 0.00 0.21 0.30 0.40 0.00 0.00 0.00 0.00

1. 2. 3. 4. 5. 6. 7. 8. 9.

Weight Opportunities Customers currently prefer favored soft drinks over colas such 0.07 as Powerade, Sprite, and Fanta. Flavored teas, and bottled water are expected to grow 24 percent 0.07 and 9 percent respectively. Customers are becoming more health minded in their food and 0.07 drink choices. Brazil, India, and Eastern Europe should offer good long term 0.10 opportunities. China's food and beverage consumption is forecasted to 0.10 25% of Americans eat fast food everyday. 0.03 Energy drinks hold 62% of the functional beverages market. 0.03 Coconut water is becoming a popular alternative to sports drinks 0.03 such as Gatorade and Powerade. Weaker US Dollar. 0.03

AS 0 0 1 4 2 0 0 0 0

TAS 0.00 0.00 0.07 0.40 0.20 0.00 0.00 0.00 0.00

1. 2. 3. 4. 5. 6. 7. 8.

Threats High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power. Pepsi has a large food stuff business along with beverages. Store brand and private label products still have great appeal among cost conscious customers. Governments are looking to tax sugary drinks.

Weight 0.10 0.04 0.06 0.02 0.03 0.12 0.08 0.02

AS 1 1 0 2 0 1 0 2

TAS 0.10 0.04 0.00 0.04 0.00 0.12 0.00 0.04

AS 2 3 0 4 0 4 0 3

TAS 0.20 0.12 0.00 0.08 0.00 0.48 0.00 0.06

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Build new bottling plants


Weight Strengths 1. Coke is the largest manufacturer, distributer and marketer of 0.10 nonalcoholic beverage concentrates and syrups in the world. 2. New micro-dosing technology to dispense over 120 beverages 0.02 from one machine. 3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, 0.08 soft drinks, and others. 4. Products are sold in over 200 countries and people consume 1.4 0.10 billion Coke product servings every day. 5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 0.07 2010. 6. Cokes Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the 0.08 top 5 soft drink brands In the world. 7. Coke has 5 water brands and just acquired Apollinaris and 0.06 Traficante two European companies. 8. Coke Zero has yielded double-digit volume growth for four 0.06 consecutive years. 9. Coke employees half the people of Pepsi, yet has higher net 0.07 income.
Weight Weaknesses 1. Coke continues to struggle in Europe as a whole; experiencing 0.05 zero percent growth in 2010. 2. Coke continues to struggle in North America experiencing zero 0.08 percent growth since 2009. 3. Coke is focused solely on the beverage business. 0.04 4. 45% of sales and revenue rely solely on Coca Cola and Diet 0.05 Coke. 5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry 0.04 average is 7.5. 6. Goodwill increased from $4 billion to over $11 billion in 2010 with Cokes recent bottling acquisitions and goodwill and intangibles 0.10 accounts for 87% of all equity.

Aquire a snack company


AS 3 0 2 0 0 2 2 2 3
AS 3 4 4 4 4 0

AS 4 0 4 0 0 4 4 4 2
AS 4 2 1 1 2 0

TAS 0.40 0.00 0.32 0.00 0.00 0.32 0.24 0.24 0.14
TAS 0.20 0.16 0.04 0.05 0.08 0.00

TAS 0.30 0.00 0.16 0.00 0.00 0.16 0.12 0.12 0.21
TAS 0.15 0.32 0.16 0.20 0.16 0.00

TOTALS

3.20

3.91

K.

Recommendations
1. 2. 3. Build 5 new bottling plants in Eastern Europe and China for $100M each. Form agreements to get Coke products into every major fast food chain in the world. Invest $400M to start production of a snack division (W3, T6).

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L.

EPS/EBIT Analysis (in millions)


Amount Needed: $900M Stock Price: $66.38 Shares Outstanding: 2,270 Interest Rate: 5% Tax Rate: 20%

EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal Boom $6,000 $9,000 $10,000 0 0 0 6,000 9,000 10,000 1,200 1,800 2,000 4,800 7,200 8,000 2,284 2,284 2,284 2.10 3.15 3.50

Recession $6,000 45 5,955 1,191 4,764 2,270 2.10

Debt Financing Normal $9,000 45 8,955 1,791 7,164 2,270 3.16

Boom $10,000 45 9,955 1,991 7,964 2,270 3.51

EBIT Interest EBT Taxes EAT # Shares EPS

20 Percent Stock Recession Normal $6,000 $9,000 36 36 5,964 8,964 1,193 1,793 4,771 7,171 2,273 2,273 2.10 3.16

Boom $10,000 36 9,964 1,993 7,971 2,273 3.51

80 Percent Stock Recession Normal $6,000 $9,000 9 9 5,991 8,991 1,198 1,798 4,793 7,193 2,281 2,281 2.10 3.15

Boom $10,000 9 9,991 1,998 7,993 2,281 3.50

M.

Epilogue
In November 2011, Muhtar Kent, Chairman and CEO of Coca-Cola Company, pledged $500,000 to the Atlanta Womens Foundation (AWF) to support economic empowerment initiatives impacting Atlantas women and girls. Kent made the announcement during his keynote address at Numbers Too Big To Ignore, an annual fundraising luncheon hosted by the Atlanta Womens Foundation. As we look ahead, women will play a transformative role in shaping our global economy and society over the next decade, said Kent. The real drivers of the 21st century will be women. They are already the most dy namic and fastest-growing economic force in the world. When we look locally at the very real needs for womens economic empowerment and growth in our own community, our goal is to build on previous work with the Atlanta Womens Foundation in a way that inspires others, said Kent. In November 2011, Coca-Cola announced that it will acquire its Oklahoma City-based Great Plains CocaCola Bottling Co. for $360 million. The deal is expected to close by the end of the 2011. Great Plains is the fifth-largest independent Coca-Cola bottler in the United States, with territories in Oklahoma and Arkansas. Great Plains currently runs nine facilities and employs more than 1,200 people. Great Plains will become an operating unit within Coca-Cola Refreshments, a subsidiary of Coca-Cola Company.

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As part of a marketing campaign aimed at protecting polar bears and their habitat, Coca-Cola Company recently teamed up with the World Wildlife Fund for the campaign. The special Coke can will be largely white in color, unlike Coke's traditional red and white can, to promote the cause, according to people familiar with . For Q3 of 2011, Coca-Cola Company reported that worldwide volume growth of 5 percent, 6 percent volume growth year-to-date and volume growth across all five geographic operating groups. North America organic volume grew 1 percent in Q3 and Q3 EPS was $0.95, up 8 percent, with year-to-date EPS of $2.97, up 15 percent. Also for Q3 of 2011, the companys international volume growth was 5 percent and 6 percent year-to-date. Worldwide volume growth was led by brand Coca-Cola, up 3 percent in both the quarter and year-to-date. The companys Q3 revenues were $12.2 billion, up 45 percent, reflecting solid growth in concentrate sales, a 5% currency benefit, positive price/mix and the acquisition of Coca-Cola Enterprises' (CCE) former North America operations in the fourth quarter of 2010. Year-to-date revenues were $35.5 billion, up 44 percent. The companys Q3 operating income was $2.7 billion, up 17 percent. The company s year-to-date reported operating income was $8.2 billion, up 13 percent.

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