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Coke : Five Forces Analysis

1. Soft Drink Industry Five Forces Analysis:


SoIt drink industry is very proIitable, more so Ior the concentrate producers than the bottler`s. This is
surprising considering the Iact that product sold is a commodity which can even be produced easily.
There are several reasons Ior this, using the Iive Iorces analysis we can clearly demonstrate how each
Iorce contributes the proIitability oI the industry.
Barriers to Entry:
The several Iactors that make it very diIIicult Ior the competition to enter the soIt drink market include:
O Bottling Network: oth Coke and PepsiCo have Iranchisee agreements with their existing bottler`s who
have rights in a certain geographic area in perpetuity. These agreements prohibit bottler`s Irom taking on
new competing brands Ior similar products. Also with the recent consolidation among the bottler`s and
the backward integration with both Coke and Pepsi buying signiIicant percent oI bottling companies, it is
very diIIicult Ior a Iirm entering to Iind bottler`s willing to distribute their product.
The other approach to try and build their bottling plants would be very capital-intensive eIIort with new
eIIicient plant capital requirements in 1998 being $75 million.
O Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is in
2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and their
bottler`s. The average advertisement spending per point oI market share in 2000 was 8.3 million (Exhibit
2). This makes it extremely diIIicult Ior an entrant to compete with the incumbents and gain any visibility.
O Brand Image / Loyalty: Coke and Pepsi have a long history oI heavy advertising and this has earned
them huge amount oI brand equity and loyal customer`s all over the world. This makes it virtually
impossible Ior a new entrant to match this scale in this market place.
O #etailer Shelf Space (#etail Distribution): #etailers enjoy signiIicant margins oI 15-20 on these soIt
drinks Ior the shelI space they oIIer. These margins are quite signiIicant Ior their bottom-line. This
makes it tough Ior the new entrants to convince retailers to carry/substitute their new products Ior Coke
and Pepsi.
O Fear of #etaliation: To enter into a market with entrenched rival behemoths like Pepsi and Coke is not
easy as it could lead to price wars which aIIect the new comer.
Suppliers:
O ommodity Ingredients: ost oI the raw materials needed to produce concentrate are basic
commodities like Color, Ilavor, caIIeine or additives, sugar, packaging. Essentially these are basic
commodities. The producers oI these products have no power over the pricing hence the suppliers in this
industry are weak.
Buyers:
The major channels Ior the SoIt Drink industry (Exhibit 6) are Iood stores, Fast Iood Iountain, vending,
convenience stores and others in the order oI market share. The proIitability in each oI these segments
clearly illustrate the buyer power and how diIIerent buyers pay diIIerent prices based on their power to
negotiate.
O Food Stores: These buyers in this segment are some what consolidated with several chain stores and Iew
local supermarkets, since they oIIer premium shelI space they command lower prices, the net operating
proIit beIore tax (NOPT) Ior concentrate producer`s in this segment is $0.23/case
O onvenience Stores: This segment oI buyer`s is extremely Iragmented and hence have to pay higher
prices, NOPT here is $0.69 /case.
O Fountain: This segment oI buyer`s are the least proIitable because oI their large amount oI purchases
hey make, It allows them to have Ireedom to negotiate. Coke and Pepsi primarily consider this segment
'Paid Sampling with low margins. NOPT in this segment is $0.09 /case.
O 'ending: This channel serves the customer`s directly with absolutely no power with the buyer, hence
NOPT oI $0.97/case.
Substitutes: Large numbers oI substitutes like water, beer, coIIee, juices etc are available to the end
consumers but this countered by concentrate providers by huge advertising, brand equity, and making
their product easily available Ior consumers, which most substitutes cannot match. Also soIt drink
companies diversiIy business by oIIering substitutes themselves to shield themselves Irom
competition. #ivalry:
The Concentrate Producer industry can be classiIied as a Duopoly with Pepsi and Coke as the Iirms
competing. The market share oI the rest oI the competition is too small to cause any upheaval oI pricing
or industry structure. Pepsi and Coke mainly over the years competed on diIIerentiation and advertising
rather than on pricing except Ior a period in the 1990`s. This prevented a huge dent in proIits. Pricing
wars are however a Ieature in their international expansion strategies.
2. Economics of Bottling vs oncentrate Business
Factor

ottling usiness

Concentrate usiness

(Data Irom Exhibit 5)
As the above table indicates concentrate business is highly proIitable compared to the bottling business.
The reasons Ior this are:
O igher number oI bottler`s when compared to the concentrate producer`s which Iosters competition and
reduces margins in the bottling business
O uge capital costs to set up an eIIicient plant Ior the bottlers while the capital costs in concentrate
business are minimal
O Costs Ior distribution and production account Ior around 65 oI sales Ior bottler`s while in the
concentrate business its around 17
O ost oI the brand equity created in the business remains with concentrate producer`s
Possible #easons Ior Vertical Integration:

O ith the decrease in the number oI bottler`s Irom 2000 in 1970 to less than 300 in 2000, the concentrate
producers were concerned about the bottler`s clout and started acquiring stakes in the bottling business.
O They could oIIer attractive packaging to the end consumer.
O To preempt new competition Irom entering business iI they control the bottling.
3. Effect of competition between oke and Pepsi on industry profits:
During the 1960`s and 70`s Coke and Pepsi concentrated on a diIIerentiation and advertising strategy. The
'Pepsi Challenge in 1974 was a prime example oI this strategy where blind taste tests were hosted by
Pepsi in order to diIIerentiate itselI as a better tasting product Irom Coke.
owever during the early 1990`s bottler`s oI Coke and Pepsi employed low priced strategies in the
supermarket channel in order to compete with store brands, This had a negative eIIect on the proIitability
oI the bottlers. Net proIit as a percentage oI sales Ior bottlers during this period was in the low single
digits (-2.1-2.9 Exhibit 4) Pepsi and Coke were however able to maintain the proIitability through
sustained growth in Frito Lay and International sales respectively. The bottling companies however in the
late 90`s decided to abandon the price war, which was not doing industry any good by raising the prices.
Coke was more successIul internationally compared to Pepsi due to its early lead as Pepsi had Iailed to
concentrate on its international business aIter the world war and prior to the 70`s. Pepsi however sought to
correct this mistake by entering emerging markets where it was not at a competitive disadvantage with
respect to Coke as it Iailed to make any heady way in the European market.

4. an oke and Pepsi sustain their profits in the wake of flattening demand and growing
popularity of non-carbonated drinks?
Yes Coke can Pepsi can sustain their proIits in the industry because oI the Iollowing reasons:
O The industry structure Ior several decades has been kept intact with no new threats Irom new competition
and no major changes appear on the radar line
O This industry does not have a great deal oI threat Irom disruptive Iorces in technology.
O Coke and Pepsi have been in the business long enough to accumulate great amount oI brand equity which
can sustain them Ior a long time and allow them to use the brand equity when they diversiIy their business
more easily by leveraging the brand.
O lobalization has provided a boost to the people Irom the emerging economies to move up the economic
ladder. This opens up huge opportunity Ior these Iirms
O Per capita consumption in the emerging economies is very small compared to the US market so there is
huge potential Ior growth.
O Coke and Pepsi can diversiIy into noncarbonated drinks to counter the Ilattening demand in the
carbonated drinks. This will provide diversiIication options and provide an opportunity to grow.
5.Impact of globalization on Industry structure:
lobalization provides Coke and Pepsi with both unique challenges as well as opportunities at the same
time. To certain extent globalization has changed the industry structure because oI the Iollowing Iactors.
O #ivalry Intensity: Coke has been more dominant (53 oI market share in 1999). in the international
market compared to Pepsi (21 oI market share in 1999) This can be attributed to the Iact that it took
advantage oI Pepsi entering the markets late and has set up its bottler`s and distribution networks
especially in developed markets. This has put Pepsi at a signiIicant disadvantage compared to the US
arket.
Pepsi is however trying to counter this by competing more aggressively in the emerging
economies where the dominance oI Coke is not as pronounced, ith the growth in emerging
markets signiIicantly expected to exceed the developed markets the rivalry internationally is
going to be more pronounced.
O Barriers to Entry: arriers to entry are not as strong in emerging markets and it will be more
challenging to Coke and Pepsi, where they would have to deal with regulatory challenges, cultural and
any existing competition who have their distribution networks already setup. The will lack the clout that
have with the bottler`s in the US.
O Suppliers: Since the raw material`s are commodities there should be no problems on this Iront this is not
any diIIerent

O ustomers: Internationally retailers and Iountain sales are going to be weaker as they are not
consolidated, like in the US arket. This will provide Coke and Pepsi more clout and pricing power with
the buyers
O Substitutes: Since many oI the markets are culturally very diIIerent and vast numbers oI substitutes are
available, added to the Iact that carbonated products are not the Iirst choices to quench thirst in these
cultures present additional signiIicant challenges.
The consumption is very low in the emerging markets is miniscule compared to the US
market. A lot more money would have to be spent on advertising to get people used the
carbonated drinks

Market Share:
Coca-Cola ndia claimed to have captured 58.4 per cent share of the carbonated soft drink
market and announced appointment of 6 regional directors. The company also claimed that
following regional consolidation, Fanta grew by 30 per cent in Tamil Nadu, Limca grew by 28
per cent in Punjab, Maaza by 30 per cent in Mumbai and Thums Up became the leading brand
in Andhra Pradesh and Kolkata.
The company, which has in the recent past been plagued by high manpower turnover, said the
appointments complete regionalisation of ndian operations and would help it in improving
operational profitability
Slogan
O Thanda matlab Coca-Cola!" ("Cold means Coca-Cola!") (2000s)
|2|

O "Pio sar utha ke" ("Drink with pride")
O "Jo chaho ho jaye, Coca-Cola enjoy!" ("hatever you wish will come true, enjoy Coca-Cola!")
Coca Cola to hike hiring in ndia by 9 pc in 2011
!% Jun z, zo11, 1o.zum ST
%,8
O 3/,
O 73
MUMBA: TIe ndIu urm oI gIobuI beveruge muker Cocu CoIu pIuns Lo IIre uround 6oo
workIorce LIIs yeur, wIIcI uccounLs Ior uround nIne per cenL oI LIe exIsLIng empIoyees, u Lop
compuny execuLIve Ius suId.
"We ure IookIng uL recruILIng uround 6oo empIoyees In our ndIu operuLIons LIIs cuIender yeur,"
HIndusLun Cocu CoIu Beveruges VIce PresIdenL (HR) P V Rumunu MurLIy LoId PT Iere.
TIe recruILmenL wouId be mude ucross uII IeveIs, IncIudIng munugemenL LruInees, Ie suId.
TIe compuny's currenL Ieud-counL sLunds uL 6,oo, wIIcI wIII be Increused Lo uround ;,1oo LIIs
yeur, MurLIy suId.
HIndusLun Cocu CoIu Ius pIuns Lo gruduuIIy reduce LIe IIrIng oI IuLeruI LuIenL In ILs bId Lo groom
LruInees InLo mId munugemenL cudre, Ie suId

Coca-Cola India
On August 20, 2003 Sanjiv upta, President and CEO oI Coca-Cola India, sat in his oIIice
contemplating the events oI the last two weeks and debating his next move. Sales had
dropped by 30-40
1
in only two weeks on the heels oI a 75 Iive-year growth trajectory
and 25-30
2
year-to-date growth. any leading clubs, retailers, restaurants, and college
campuses across the country had stopped selling Coca-Cola
3
and only six weeks into his new
role as CEO, upta was embroiled in a crisis that threatened the momentum gained Irom a
highly successIul two-year marketing campaign that had given Coca-Cola market leadership
over Pepsi.
On August 5th, The Center Ior Science and Environment (CSE), an activist group in India
Iocused on environmental sustainability issues (speciIically the eIIects oI industrialization
and economic growth) issued a press release stating: "12 major cold drink brands sold in and
around Delhi contain a deadly cocktail oI pesticide residues" (See Exhibit 1). According to
tests conducted by the Pollution onitoring Laboratory (PL) oI the CSE Irom April to
August, three samples oI twelve PepsiCo and Coca-Cola brands Irom across the city were
Iound to contain pesticide residues surpassing global standards by 30-36 times including
lindane, DDT, malathion and chlorpyriIos (See Exhibit 2). These Iour pesticides were known
to cause cancer, damage to the nervous and reproductive systems, birth deIects, and severe
disruption oI the immune system.
4
In reaction to this report, the Indian government banned Coke and Pepsi products in
Parliament and state governments launched independent investigations, sending soIt drink
samples to labs Ior testing. The Coca-Cola ottling Company (Coke) stock dipped by Iive
dollars on the New York Stock Exchange Irom $55 to $50 in the six sessions Iollowing the
August 5 disclosure, as did shares oI Coca-Cola Enterprises (CCA).
5
Pepsi and Coca-Cola called the CSE allegations 'baseless and questioned the method oI
testing but the CSE claimed it had Iollowed standard procedures documented by the US
Environmental Protection Agency including as Chromatography and ass Spectrometry.
Pepsi`s own tests conducted at an independent laboratory showed no detectable pesticides
and led Pepsi to Iile a petition with the high court questioning the credibility oI the CSE`s
claims
6
while Coke`s upta commented: 'The allegation is serious and it has the potential to
tarnish the image oI our brands in the country. II this continues, we will consider legal
recourse.
7
Despite Coke and Pepsi`s early responses denying the validity oI the CSE`s claims and
threatening legal action, a survey conducted in Delhi a Iew days aIter the CSE
announcement Iound that a majority oI consumers believed the Iindings were correct and
agreed with parliament`s move to ban the sale oI soIt drinks.
8
It was clear that the $1 billion
Indian soIt drink market
9
was at stake and upta had to act.Coca-Cola India no. 1-0085
2
istory oI Coke
The Early Days
Coca-Cola was created in 1886 by John Pemberton, a pharmacist in Atlanta, eorgia, who
sold the syrup mixed with Iountain water as a potion Ior mental and physical disorders. The
Iormula changed hands three more times beIore Asa D. Candler added carbonation and by
2003, Coca-Cola was the world`s largest manuIacturer, marketer, and distributor oI
nonalcoholic beverage concentrates and syrups, with more than 400 widely recognized
beverage brands in its portIolio.
ith the bubbles making the diIIerence, Coca-Cola was registered as a trademark in 1887
and by 1895, was being sold in every state and territory in the United States. In 1899, it
Iranchised its bottling operations in the U.S., growing quickly to reach 370 Iranchisees by
1910.
10
eadquartered in Atlanta with divisions and local operations in over 200 countries
worldwide, Coca-Cola generated more than 70 oI its income outside the United States by
2003 (See Exhibit 3).
International expansion
Coke`s Iirst international bottling plants opened in 1906 in Canada, Cuba, and Panama.
11
y
the end oI the 1920`s Coca-Cola was bottled in twenty-seven countries throughout the world
and available in IiIty-one more. In spite oI this reach, volume was low, quality inconsistent,
and eIIective advertising a challenge with language, culture, and government regulation all
serving as barriers. Former CEO #obert oodruII`s insistence that Coca-Cola wouldn`t
'suIIer the stigma oI being an intrusive American product, and instead would use local
bottles, caps, machinery, trucks, and personnel contributed to Coke`s challenges as well with
a lack oI standard processes and training degrading quality.
12
Coca-Cola continued working Ior over 80 years on oodruII`s goal: to make Coke available
wherever and whenever consumers wanted it, 'in arm`s reach oI desire.
13
The Second
orld ar proved to be the stimulus Coca-Cola needed to build eIIective capabilities
around the world and achieve dominant global market share. oodruII`s patriotic
commitment 'that every man in uniIorm gets a bottle oI Coca-Cola Ior Iive cents, wherever
he is and at whatever cost to our company
14
was more than just great public relations. As a
result oI Coke`s status as a military supplier, Coca-Cola was exempt Irom sugar rationing
and also received government subsidies to build bottling plants around the world to serve
II troops.
15
Turn oI the Century rowth Imperative
The 1990`s brought a slowdown in sales growth Ior the Carbonated SoIt Drink (CSD)
industry in the United States, achieving only 0.2 growth by 2000 (just under 10 billion
cases) in contrast to the 5-7 annual growth experienced during the 1980`s. hile per capita
consumption throughout the world was a Iraction oI the United States`, major beverage
companies clearly had to look elsewhere Ior the growth their shareholders demanded. TheCoca-Cola
India no. 1-0085
3
looming opportunity Ior twenty-Iirst century was in the world`s developing markets with
their rapidly growing middle class populations.
The orld`s ost PowerIul rand
Interbrand`s lobal rand Scorecard Ior 2003 ranked Coca-Cola the #1 rand in the orld
and estimated its brand value at $70.45 billion (See Exhibit 4).
16
The ranking`s methodology
determined a brand`s valuation on the basis oI how much it was likely to earn in the Iuture,
distilling the percentage oI revenues that could be credited to the brand, and assessing the
brand`s strength to determine the risk oI Iuture earnings Iorecasts. Considerations included
market leadership, stability, and global reach, incorporating its ability to cross both
geographical and cultural borders.
17
From the beginning, Coke understood the importance oI branding and the creation oI a
distinct personality.
18
Its catchy, well-liked slogans
19
('It`s the real thing (1942, 1969),
'Things go better with Coke (1963), 'Coke is it (1982), 'Can`t beat the Feeling (1987),
and a 1992 return to 'Can`t beat the real thing)
20
linked that personality to the core values
oI each generation and established Coke as the authentic, relevant, and trusted reIreshment
oI choice across the decades and around the globe.
Indian istory
India is home to one oI the most ancient cultures in the world dating back over 5000 years.
At the beginning oI the twenty-Iirst century, twenty-six diIIerent languages were spoken
across India, 30 oI the population knew English, and greater than 40 were illiterate. At
this time, the nation was in the midst oI great transition and the dichotomy between the old
India and the new was stark. #emnants oI the caste system existed alongside the world`s top
engineering schools and growing metropolises as the historically agricultural economy
shiIted into the services sector. In the process, India had created the world`s largest middle
class, second only to China.
A ritish colony since 1769 when the East India Company gained control oI all European
trade in the nation, India gained its independence in 1947 under ahatma handi and his
principles oI non-violence and selI-reliance. In the decades that Iollowed, selI-reliance was
taken to the extreme as many Indians believed that economic independence was necessary to
be truly independent. As a result, the economy was increasingly regulated and many sectors
were restricted to the public sector. This movement reached its peak in 1977 when the Janta
party government came to power and Coca-Cola was thrown out oI the country. In 1991, the
Iirst generation oI economic reIorms was introduced and liberalization began.
Coke in India
Coca-Cola was the leading soIt drink brand in India until 1977 when it leIt rather than reveal
its Iormula to the government and reduce its equity stake as required under the ForeignCoca-Cola India
no. 1-0085
4
Exchange #egulation Act (FE#A) which governed the operations oI Ioreign companies in
India. AIter a 16-year absence, Coca-Cola returned to India in 1993, cementing its presence
with a deal that gave Coca-Cola ownership oI the nation's top soIt-drink brands and bottling
network. Coke`s acquisition oI local popular Indian brands including Thums Up (the most
trusted brand in India
21
), Limca, aaza, Citra and old Spot provided not only physical
manuIacturing, bottling, and distribution assets but also strong consumer preIerence. This
combination oI local and global brands enabled Coca-Cola to exploit the beneIits oI global
branding and global trends in tastes while also tapping into traditional domestic markets.
Leading Indian brands joined the Company's international Iamily oI brands, including CocaCola, diet
Coke, Sprite and Fanta, plus the Schweppes product range. In 2000, the company
launched the Kinley water brand and in 2001, Shock energy drink and the powdered
concentrate SunIill hit the market.
From 1993 to 2003, Coca-Cola invested more than US$1 billion in India, making it one oI
the country`s top international investors.
22
y 2003, Coca-Cola India had won the
prestigious oodruI Cup Irom among 22 divisions oI the Company based on three broad
parameters oI volume, proIitability, and quality. Coca-Cola India achieved 39 volume
growth in 2002 while the industry grew 23 nationally and the Company reached breakeven proIitability
in the region Ior the Iirst time.
23
Encouraged by its 2002 perIormance,
Coca-Cola India announced plans to double its capacity at an investment oI $125 million
(#s. 750 crore) between September 2002 and arch 2003.
24
Coca-Cola India produced its beverages with 7,000 local employees at its twenty-seven
wholly-owned bottling operations supplemented by seventeen Iranchisee-owned bottling
operations and a network oI twenty-nine contract-packers to manuIacture a range oI products
Ior the company. The complete manuIacturing process had a documented quality control and
assurance program including over 400 tests perIormed throughout the process (See Exhibit
5).
The complexity oI the consumer soIt drink market demanded a distribution process to
support 700,000 retail outlets serviced by a Ileet that includes 10-ton trucks, open-bay three
wheelers, and trademarked tricycles and pushcarts that were used to navigate the narrow
alleyways oI the cities.
25
In addition to its own employees, Coke indirectly created
employment Ior another 125,000 Indians through its procurement, supply, and distribution
networks.
Sanjiv upta, President and CEO oI Coca-Cola India, joined Coke in 1997 as Vice
President, arketing and was instrumental to the company`s success in developing a brand
relevant to the Indian consumer and in tapping India`s vast rural market potential. Following
his marketing responsibilities, upta served as ead oI Operations Ior Company-owned
bottling operations and then as Deputy President. Seen as the driving Iorce behind recent
successIul Iorays into packaged drinking water, powdered drinks, and ready-to-serve tea and
coIIee, upta and his marketing prowess were critical to the continued growth oI the
Company.
26Coca-Cola India no. 1-0085
5
The Indian everage arket
27
India`s one billion people, growing middle class, and low per capita consumption oI soIt
drinks made it a highly contested prize in the global CSD market in the early twenty-Iirst
century. Ten percent oI the country`s population lived in urban areas or large cities and
drank ten bottles oI soda per year while the vast remainder lived in rural areas, villages, and
small towns where annual per capita consumption was less than Iour bottles. Coke and
Pepsi dominated the market and together had a consolidated market share above 95. hile
soIt drinks were once considered products only Ior the aIIluent, by 2003 91 oI sales were
made to the lower, middle and upper middle classes. SoIt drink sales in India grew 76
between 1998 and 2002, Irom 5,670 million bottles to over 10,000 million (See Exhibit 6)
and were expected to grow at least 10 per year through 2012.
28
In spite oI this growth,
annual per capita consumption was only 6 bottles versus 17 in Pakistan, 73 in Thailand, 173
in the Philippines and 800 in the United States
29
.
ith its large population and low consumption, the rural market represented a signiIicant
opportunity Ior penetration and a critical battleground Ior market dominance. In 2001,
Coca-Cola recognized that to compete with traditional reIreshments including lemon water,
green coconut water, Iruit juices, tea, and lassi, competitive pricing was essential. In
response, Coke launched a smaller bottle priced at almost 50 oI the traditional package.
arketing Cola in India
The post-liberalization period in India saw the comeback oI cola but Pepsi had already
beaten Coca-Cola to the punch, creatively entering the market in the 1980`s in advance oI
liberalization by way oI a joint venture. As early as 1985, Pepsi tried to gain entry into India
and Iinally succeeded with the Pepsi Foods Limited Project in 1988, as a JV oI PepsiCo,
Punjab government-owned Punjab Agro Industrial Corporation (PAIC), and Voltas India
Limited. Pepsi was marketed and sold as Lehar Pepsi until 1991 when the use oI Ioreign
brands was allowed under the new economic policy and Pepsi ultimately bought out its
partners, becoming a Iully-owned subsidiary and ending the JV relationship in 1994.
30
hile the joint venture was only marginally successIul in its own right, it allowed Pepsi to
gain precious early experience with the Indian market and also served as an introduction oI
the Pepsi brand to the Indian consumer such that it was well-poised to reap the beneIits when
liberalization came. Though Coke beneIited Irom Pepsi creating demand and developing the
market, Pepsi`s head-start gave Coke a disadvantage in the mind oI the consumer. Pepsi`s
appeal Iocused on youth and when Coke entered India in 1993 and approached the market
selling an American way oI liIe, it Iailed to resonate as expected.
31
2001 arketing Strategy
Coca-Cola CEO Douglas DaIt set the direction Ior the next generation oI success Ior his
global brand with a 'Think local, act local mantra. #ecognizing that a single global strategyCoca-Cola
India no. 1-0085
6
or single global campaign wouldn`t work, locally relevant executions became an
increasingly important element oI supporting Coke`s global brand strategy.
In 2001, aIter almost a decade oI lagging rival Pepsi in the region, Coke India re-examined
its approach in an attempt to gain leadership in the Indian market and capitalize on
signiIicant growth potential, particularly in rural markets. The Ioundation oI the new strategy
grounded brand positioning and marketing communications in consumer insights,
acknowledging that urban versus rural India were two distinct markets on a variety oI
important dimensions. The soIt drink category`s role in people`s lives, the degree oI
diIIerentiation between consumer segments and their reasons Ior entering the category, and
the degree to which brands in the category projected diIIerent perceptions to consumers were
among the many important diIIerences between how urban and rural consumers approached
the market Ior reIreshment.
32
In rural markets, where both the soIt drink category and individual brands were
undeveloped, the task was to broaden the brand positioning while in urban markets, with
higher category and brand development, the task was to narrow the brand positioning,
Iocusing on diIIerentiation through oIIering unique and compelling value. This lens,
inIormed by consumer insights, gave Coke direction on the tradeoII between Iocus and
breadth a brand needed in a given market and made clear that to succeed in either segment,
unique marketing strategies were required in urban versus rural India.
rand Localization Strategy: The Two Indias
India A: 'LiIe ho to aisi
'India A, the designation Coca-Cola gave to the market segment including metropolitan
areas and large towns, represented 4 oI the country`s population.
33
This segment sought
social bonding as a need and responded to aspirational messages, celebrating the beneIits oI
their increasing social and economic Ireedoms. 'LiIe ho to aisi, (liIe as it should be) was
the successIul and relevant tagline Iound in Coca-Cola`s advertising to this audience.
India : 'Thanda atlab Coca-Cola
Coca-Cola India believed that the Iirst brand to oIIer communication targeted to the smaller
towns would own the rural market and went aIter that objective with a comprehensive
strategy. 'India included small towns and rural areas, comprising the other 96 oI the
nation`s population. This segment`s primary need was out-oI-home thirst-quenching and the
soIt drink category was undiIIerentiated in the minds oI rural consumers. Additionally, with
an average Coke costing #s. 10 and an average day`s wages around #s. 100, Coke was
perceived as a luxury that Iew could aIIord.
34
In an eIIort to make the price point oI Coke within reach oI this high-potential market, CocaCola
launched the Accessibility Campaign, introducing a new 200ml bottle, smaller than the
traditional 300ml bottle Iound in urban markets, and concurrently cutting the price in halI, toCoca-Cola
India no. 1-0085
7
#s. 5. This pricing strategy closed the gap between Coke and basic reIreshments like
lemonade and tea, making soIt drinks truly accessible Ior the Iirst time. At the same time,
Coke invested in distribution inIrastructure to eIIectively serve a disbursed population and
doubled the number oI retail outlets in rural areas Irom 80,000 in 2001 to 160,000 in 2003,
increasing market penetration Irom 13 to 25.
35
Coke`s advertising and promotion strategy pulled the marketing plan together using local
language and idiomatic expressions. 'Thanda, meaning cool/cold is also generic Ior cold
beverages and gave 'Thanda atlab Coca-Cola delicious multiple meanings. Literally
translated to 'Coke means reIreshment, the phrase directly addressed both the primary need
oI this segment Ior cold reIreshment while at the same time positioning Coke as a 'Thanda
or generic cold beverage just like tea, lassi, or lemonade. As a result oI the Thanda
campaign, Coca-Cola won Advertiser oI the Year and Campaign oI the Year in 2003 (See
Exhibit 7).
#ural Success
Comprising 74 oI the country's population, 41 oI its middle class, and 58 oI its
disposable income, the rural market was an attractive target and it delivered results. Coke
experienced 37 growth in 2003 in this segment versus the 24 growth seen in urban areas.
Driven by the launch oI the new #s. 5 product, per capita consumption doubled between
2001-2003. This market accounted Ior 80 oI India`s new Coke drinkers, 30 oI 2002
volume, and was expected to account Ior 50 oI the company`s sales in 2003.
36
Corporate Social #esponsibility
As one oI the largest and most global companies in the world, Coca-Cola took seriously its
ability and responsibility to positively aIIect the communities in which it operated. The
company`s mission statement, called the Coca-Cola Promise, stated: 'The Coca-Cola
Company exists to beneIit and reIresh everyone who is touched by our business. The
Company has made eIIorts towards good citizenship in the areas oI community, by
improving the quality oI liIe in the communities in which they operate, and the environment,
by addressing water, climate change and waste management initiatives. Their activities also
included The Coca-Cola AIrica Foundation created to combat the spread oI IV/AIDS
through partnership with governments, UNAIDS, and other NOs, and The Coca-Cola
Foundation, Iocused on higher education as a vehicle to build strong communities and
enhance individual opportunity (See Exhibit 8).
37
Coca-Cola`s Iootprint in India was signiIicant as well. The Company employed 7000
citizens and believed that Ior every direct job, 30-40 more were created in the supply chain.
38
Like its parent, Coke India`s Corporate Social #esponsibility (CS#) initiatives were both
community and environment-Iocused. Priorities included education, where primary
education projects had been set up to beneIit children in slums and villages, water
conservation, where the Company supported community-based rainwater harvesting projects
to restore water levels and promote conservation education, and health, where Coke India Coca-Cola
India no. 1-0085
8
partnered with NOs and governments to provide medical access to poor people through
regular health camps. In addition to outreach eIIorts, the company committed itselI to
environmental responsibility through its own business operations in India including
39
:
Environmental due diligence beIore acquiring land or starting projects
Environmental impact assessment beIore commencing operations
round water and environmental surveys beIore selecting sites
Compliance with all regulatory environmental requirements
an on purchasing CFC-containing reIrigeration equipment
aste water treatment Iacilities with trained personnel at all company-owned
bottling operations
Energy conservation programs
50 water savings in last seven years oI operations
Previous Coke Crises
Despite Coke`s reputation as a socially responsible corporate citizen, the Company has Iaced
its share oI controversy worldwide surrounding both its products and its policies in the years
preceding the Indian pesticide crisis.
Ingram, et al. v. The Coca-Cola Company- 1999
40
In the spring oI 1999, 4 current and Iormer Coca-Cola employees, led by InIormation
Analyst Linda Ingram, Iiled bias charges against Coca-Cola in Atlanta Federal Court. The
lawsuit charged the Company with racial discrimination and stated: 'This discrimination
represents a company-wide pattern and practice, rather than a series oI isolated incidents.
Although Coca-Cola has careIully craIted AIrican-American consumers oI its product by
public announcements, strategic alliances and speciIic marketing strategies, it has Iailed to
place the same importance on its AIrican-American employees.
41
In the decades leading up to the suit, both internal and external warnings surrounding Coke`s
diversity practices were issued. In 1981, the #everend Jesse Jackson, director oI the
#ainbow/ PUS coalition instigated a boycott against Coca-Cola challenging the company
to signiIicantly improve its business relationship with the AIrican American community.
42
The are report, written by Senior Vice President Carl are, an AIrican-American
executive at the Company, cited a lack oI diversity at the decision-making level, a basic lack
oI workplace diversity, a 'ghettoization among blacks who worked Ior Cola-Cola, and an
overt lack oI respect Ior cultural diIIerences as well as an implicit assumption that AIrican-Coca-Cola
India no. 1-0085
9
American employees lacked the intelligence to meet the challenges oI the highest executive
levels.
43
Cyrus ehri, one oI the most visible and successIul plaintiII advocates in the US,
represented the group and was skilled at leveraging the power oI the media, creating a true
crisis Ior the Coca-Cola Company and exerting tremendous pressure Ior settlement. In 2000,
the lawsuit was settled Ior $192.5 million aIter the company had sent mixed messages and
damaging statements regarding the merit oI the suit Ior over a year. Analysts identiIied the
bias suit as a prime reason Ior the $100 billion decrease in Coca-Cola`s stock price between
1998-2000.
44
elgium- 1999
45
On June 8, 1999, thirty-three elgian school children became ill aIter drinking Coke bottled
at a local Iacility in Antwerp. A Iew days later, more elgians complained oI similar
symptoms aIter drinking cans oI Coke that had been bottled at a plant in Dunkirk, France
and eighty people in northern France were allegedly stricken by intestinal problems and
nausea, bringing the total aIIlicted to over 250.
In the days Iollowing the Iirst outbreak, seventeen million cases oI Coke Irom Iive European
countries were recalled and destroyed. It was the largest product recall in Coke`s history and
elgian and French authorities banned the sale oI Coca-Cola products Ior ten days. ermany
placed a temporary import ban on Coca Cola produced in elgium and the Netherlands, and
Luxembourg banned all Coca Cola products. ealth ministers in Italy, Spain, and
Switzerland warned people about consuming Coke products.
Coca-Cola sources explained that the contamination was due to deIective carbon dioxide
used at the Antwerp plant and that a wood preservative used on shipping pallets had
concentrated the outside oI cans at the Dunkirk plant. The European Commission, however,
believed production Iaults and contaminated pipes were more likely to be the cause oI the
problem.
Though CEO Ivester was in Paris when the news broke, he Ilew home to Atlanta and kept
silent, waiting over a week to issue his Iirst public statement on the crisis, citing that 'Coke
would do whatever necessary to ensure the saIety oI its products. A Netherlands-based
toxicologist Coke had hired issued a report on June 29 exempting the company Irom blame
Ior the CO2 impurity in Antwerp and the Iungicide at Dunkirk. Though the product ban was
liIted, Coke had a tremendous amount oI work to do to win back consumer conIidence.
An aggressive P# campaign included vouchers and coupons Ior Iree product delivered to
each oI elgium`s 4.4 million homes, sponsored dances, beach parties, and summer Iairs Ior
teenagers, and signiIicant television advertising reinIorcing 'Today, more than ever, we
thank you Ior your loyalty.Coca-Cola India no. 1-0085
10
Kinley ottled ater
On February 4, 2003 the Center Ior Science and Environment (CSE) in India released
a report based on tests conducted by the Pollution onitoring Laboratory (PL)
titled 'Pure ater or Pure Peril? Analysis oI 17 packaged drinking water brands
sold across the country revealed evidence oI pesticide residues including lindane,
DDT, malathion, and chlorpyriIos. The CSE used European norms Ior maximum
permissible limits Ior pesticides in packaged water 'because the standards set Ior
pesticide residues by the ureau oI Indian Standards (IS) are vague and
undeIined.
46
Coca-Cola`s Kinley water brand had concentration levels 15 times
higher than stipulated limits, top-seller iserli had 79 times and Aquaplus topped the
list at 109 times.
47
In the wake oI this statement, Coca-Cola remained largely silent
and the buzz went away.
Corporate Communications at Coca-Cola
Corporate Communications was a critical Iunction at the Coca-Cola corporation given the
number oI constituencies both internal and external to the company. In addition, the
complexity and global reach oI the Company's operations could not be centrally managed
and instead demanded a matrixed team organization.
The senior communications position at the company, Senior Vice President, orldwide
Public AIIairs & Communication, sat on the company's executive committee and reported to
the Chairman & CEO at the time oI the crisis in India. Director-level corporate
communication Iunctions included: edia #elations, Nutrition Communications, Financial
Communications, and arketing Communications, but the geographic diversity oI the
company's businesses required regionally-based communication leaders in addition to the
corporate resources in place. As a result, Iive regional communications directors serviced
North America, Latin America, Asia, Europe, and AIrica with their own teams oI
communications proIessionals (See Exhibit 9).
NO Activism
48
NOs (Non-overnmental Organizations) evolved to inIluence governments but by the
early twenty-Iirst century many realized that targeting corporations and key corporate
constituents such as investors and customers could be an even more powerIul way to eIIect
change. Along with their ability to Iocus, gain attention, and act quickly was the high level
oI credibility NOs had cultivated with many constituencies. This credibility stemmed in
part Irom their emotional, rather than Iact-based, appeals and the impassioned nature oI their
arguments.
The most common tactic oI NOs was to develop campaigns against business through
which they garnered support Irom consumers and the media. These campaigns, such as
reenpeace`s attack on Shell Oil Iollowing the company`s decision to dump the rent Spar
oil rig in the ocean in the 1990s, typically Iocused on a single issue; targeted companies withCoca-Cola
India no. 1-0085
11
successIul and well-known brands such as cDonald`s and Nike; and were augmented by
market trends such as the homogenization created by chains like al-art and Starbucks.
NOs realized that anti-corporate campaigns could be Iar more powerIul than antigovernment
campaigns. lobal Exchange`s attack on Nike Ior sweatshop labor conditions in
the 1990s, Ior example, was one oI the most highly publicized and also one oI the most
successIul anti-business campaigns in recent years.
Center Ior Science and Environment
The CSE, an NO, was established in India in 1980 by a group oI engineers, scientists,
journalists and environmentalists to 'catalyze the growth oI public awareness on vital issues
in science, technology, environment, and development.
49
Led by Sumita Narain, a Iormer
schoolmate oI Coke India CEO upta, the CSE`s eIIorts included communication Ior
awareness, research and advocacy, education and training, documentation, and pollution
monitoring.
Spurred by the February 2003 report on bottled water and questions like 'iI what we Iound
in bottled water was correct, then what about soIt drinks? the CSE`s August 2003 report
claimed that soIt drinks were extremely dangerous to Indian citizens based on tests
conducted at the Pollution onitoring Laboratory (PL). All samples contained residues oI
lindane, DDT, malathion, and chlorpyriIos, toxic pesticides and insecticides known to cause
serious long term health issues. Total pesticides in all Coca-Cola brands averaged 0.0150
mg/l, 30 times higher than the European Economic Commission (EEC) limit. PL also
tested samples oI Coke and Pepsi products sold in the United States to see iI they contained
pesticides and they did not.
#egulations on soIt drinks were weak in India, even compared to bottled water, as neither
the Prevention oI Food Alteration Act (PFA) nor the Fruit Products Order (FPO), aimed at
regulating Iood standards in India, addressed pesticides in soIt drinks, and there were no
standards to deIine clean` or potable` water. The report called on the government to put in
place legally enIorceable water standards and chastised the multi-nationals Ior taking
advantage oI the situation at the expense oI consumer health and well-being.
Indian #egulatory Environment
50
The main law governing Iood saIety in India was the 1954 Prevention oI Food Alteration
Act (PFA) which contained a rule regulating pesticides in Ioods but did not include
beverages. The Food Processing Order (1955) required that the main ingredient used in soIt
drinks be 'potable water but the ureau oI Indian Standards (IS) had no prescribed
standards Ior pesticides in water. One IS directive stated that pesticides must be absent and
set a limit oI 0.001 parts per million but the ealth Secretary admitted, 'There are lapses in
PFA regarding carbonated drinks.
51
Indian law enIorcement was minimal with virtually no conviction under PFA. In the absence
oI national standards, NOs such as the CSE turned to the United States and the EuropeanCoca-Cola
India no. 1-0085
12
Union Ior 'international norms. The appropriateness and Ieasibility oI these standards Ior
developing nations however, remained a question Ior many. Under EU Iood laws Ior
example, milk, Iruit, and basic staples such as rice and wheat would need to be imported into
India to satisIy saIety standards.
The Initial #esponse
The day aIter the CSE`s announcement, Coke and Pepsi came together in a rare show
oI solidarity at a joint press conIerence. The companies attacked the credibility oI the
CSE and their lab results, citing regular testing at independent laboratories proving
the saIety oI their products. They promised to provide this data to the public,
threatened legal action against the CSE while seeking a gag order, and contacted the
United States Embassy in India Ior assistance. Coca-Cola India`s CEO Sanjiv upta
published the Iollowing statement Ior the Indian public:
52
You may have seen recently in the media some allegations about the quality
standards oI our products in India. e take these allegations extremely seriously.
I want to reassure you that our products in India are saIe and are tested regularly to
ensure that they meet the same rigorous standards we maintain across the world.
aintaining quality standards is the most important element oI our business and we
cannot stand by while misleading and unaccredited data is used to discredit trusted
and world-class brands. #ecent allegations have caused unnecessary panic among
consumers in India and, iI unchecked, would impair our business in India and impact
the livelihoods oI our thousands oI employees across the country.
This site is about the truth behind the headlines. It provides some context and Iacts
on these issues and we hope it helps you understand exactly why you can trust our
beverage brands and continue to enjoy them as millions oI Indians do each day.
Sanjiv upta, Division President, Coca-Cola India
In the Iollowing days, the Delhi igh Court asked the government to convene an
expert committee to test and report on the saIety oI soIt drinks within three weeks
and to revise existing standards to include pesticide norms. Coca-Cola and Pepsi
launched independent campaigns to reassure the public, taking out Iull-page
newspaper advertisements and directing consumers to their corporate eb sites to
review test results and saIety protocol in greater detail (See Exhibits 10 and 11). In
spite oI these actions, the public seemed to believe the CSE`s claims and the crisis was
Iar Irom over Ior the beverage giants. ith sales continuing to experience a
precipitous drop, one Delhi medical student`s sentiments appeared to be widespread:
'For a person drinking at least one bottle a day, the report came as a rude shock. I
haven`t picked up a bottle today and most deIinitely will not consume soIt drinks inCoca-Cola India no.
1-0085
13
the Iuture. The reports oI pesticides and other pollutants have made soIt drinks a
strict no-no and we will now stick to juices and plain drinking water.
53
upta`s Dilemma
As he contemplated the crisis at hand, Sanjiv upta questioned what action iI any was
necessary. Coke India was well within the country`s legal guidelines and the crisis had not
been widely reported outside oI India. upta knew that the Indian public had a short
attention span and had reason to think that it wouldn`t be long beIore the CSE`s report Iaded,
just as the Kinley water issue had earlier this year.
On the other hand, he wondered iI the situation might oIIer the company an opportunity to
display higher standards oI social responsibility at a time when it needed to diIIerentiate
itselI Irom the competition. ultinationals had slipped in numerous situations oI late and
were blamed Ior not adhering to the same standards in developing countries as in
industrialized nations. The additive eIIect oI this negative press meant that the potential
damage to Coke`s reputation was even greater. Finally, an ineIIective resolution would be a
devastating blow to the momentum Coke had gained aIter three long years oI work on the
marketing Iront.Coca-Cola India no. 1-0085
14
Exhibit 1: Center Ior Science and Environment Press #elease
ard Truths About SoIt Drinks
New Delhi, August 5, 2003: AIter bottled water, it`s aerated water that has plugged the
purity test. In another expose, Down To Earth has Iound that 12 major cold drink brands sold
in and around Delhi contain a deadly cocktail oI pesticide residues. The results are based on
tests conducted by the Pollution onitoring Laboratory (PL) oI the Centre Ior Science and
Environment (CSE). In February this year, CSE had blasted the bottled water industry`s
claims oI being pure` when its laboratory had Iound pesticide residues in bottled water sold
in Delhi and umbai.
This time, it analysed the contents oI 12 cold drink brands sold in and around the capital.
They were tested Ior organochlorine and organophosphorus pesticides and synthetic
pyrethroids all commonly used in India as insecticides.
The test results were as shocking as those oI bottled water.
All samples contained residues oI Iour extremely toxic pesticides and insecticides: lindane,
DDT, malathion and chlorpyriIos. In all samples, levels oI pesticide residues Iar exceeded
the maximum residue limit Ior pesticides in water used as Iood`, set down by the European
Economic Commission (EEC). Each sample had enough poison to cause in the long term
cancer, damage to the nervous and reproductive systems, birth deIects and severe
disruption oI the immune system.
hat we Iound
arket leaders Coca-Cola and Pepsi had almost similar concentrations oI pesticide
residues. Total pesticides in all PepsiCo brands on an average were 0.0180 mg/l
(milligramme per litre), 36 times higher than the EEC limit Ior total pesticides
(0.0005 mg/l). Total pesticides in all Coca-Cola brands on an average were 0.0150
mg/l, 30 times higher than the EEC limit.
hile contaminants in the Dil mange more` Pepsi were 37 times higher than the
EEC limit, they exceeded the norms by 45 times in the Thanda matlab Coca-Cola`
product.
irinda Lemon topped the chart among all the tested brand samples, with a total
pesticide concentration oI 0.0352 mg/l.
The cold drinks sector in India is a much bigger money-spinner than the bottled water
segment. In 2001, Indians consumed over 6,500 million bottles oI cold drinks. Its growing
popularity means that children and teenagers, who glug these bottles, are drinking a toxic
potion.
PL also tested two soIt drink brands sold in the US, to see iI they contained pesticides.
They didn`t.Coca-Cola India no. 1-0085
15
The question, thereIore, is: how can apparently quality-conscious multinationals market
products unIit Ior human consumption?
CSE Iound that the regulations Ior the powerIul and massive soIt drinks industry are much
weaker, indeed non-existent, as compared to those Ior the bottled water industry. The norms
that exist to regulate the quality oI cold drinks are a maze oI meaningless deIinitions. This
"Iood" sector is virtually unregulated.
The Prevention oI Food Adulteration (PFA) Act oI 1954, or the Fruit Products Order (FPO)
oI 1955 both mandatory acts aimed at regulating the quality oI contents in beverages such
as cold drinks do not even provide any scope Ior regulating pesticides in soIt drinks. The
FPO, under which the industry gets its licence to operate, has standards Ior lead and arsenic
that are 50 times higher than those allowed Ior the bottled water industry.
hat`s more, the sector is also exempted Irom the provisions oI industrial licensing under
the Industries (Development and #egulation) Act, 1951. It gets a one-time license to operate
Irom the ministry oI Iood processing industries; this license includes a no-objection
certiIicate Irom the local government as well as the state pollution control board, and a water
analysis report. There are no environmental impact assessments, or citing regulations. The
industry`s use oI water, thereIore, is not regulated.
Source: CSE Press #elease, 'ard Truths about SoIt Drinks, 8/5/03.Coca-Cola India no. 1-0085
16
Exhibit 2: Pesticide Content in Twelve Leading SoIt Drink rands
Source: CSE Press #elease, 'ard Truths about SoIt Drinks, 8/5/03.Coca-Cola India no. 1-0085
17
Exhibit 3: The Coca-Cola Company Income Statement
(in millions $ except per share data) 2002 2001 2000
Net Operating #evenues 19,564 17,545 17,354
Cost oI oods Sold 7,105 6,044 6,204
ross ProIit 12,459 11,501 11,150
Selling, general, and administrative expenses 7,001 6,149 6,016
Other operating changes 0 0 1,443
Operating Income 5,458 5,352 3,691
Interest Income 209 325 345
Interest Expense 199 289 447
Equity Income (loss) 384 152 (289)
Other Income (loss) --net (353) 39 99
ains on issuances oI stock by equity investee 0 91 0
Income beIore income taxes and cumulative eIIect
oI accounting change 5,499 5,670 3,399
Income Taxes 1,523 1,691 1,222
Net Income beIore cumulative eIIect oI accounting
change 3,976 3,979 2,177
Cumulative eIIect oI accounting change Ior SFAS No.
142 net oI income taxes:
Company operations (367) 0 0
Equity investments (559) 0 0
Cumulative eIIect oI accounting change Ior SFAS No.
133 net oI income taxes: 0 (10) 0
Net Income 3,050 3,969 2,177
asic Net Income per share
eIore accounting change 1.60 1.60 0.88
Cumulative eIIect oI accounting change (0.37) 0 0
1.23 1.60 0.88
Diluted net income per share
eIore accounting change 1.60 1.60 0.88
Cumulative eIIect oI accounting change (0.37) 0 0
1.23 1.60 0.88
Average shares outstanding 2478 2487 2477
EIIect oI dilutive securities 5 0 10
Average shares outstanding assuming dilution 2483 2487 2487Coca-Cola India no. 1-0085
18
Exhibit 4: Interbrand`s lobal rand Scoreboard 2003
#ank Company 2003 rand
Value ($illion)
2002 rand
Value ($illion)
Percent
Change
Country oI
Ownership
1 Coca-Cola 70.45 69.64 1 U.S.
2 icrosoIt 65.17 54.09 2 U.S.
3 I 51.77 51.19 1 U.S.
4 E 42.34 41.31 2 U.S.
5 Intel 31.11 30.86 1 U.S.
6 Nokia 29.44 29.97 -2 Finland
7 Disney 28.04 29.26 -4 U.S.
8 cDonald`s 24.70 26.38 -6 U.S.
9 arlboro 22.18 24.15 -8 U.S.
10 ercedes 21.37 21.01 2 ermany
Source: Interbrand`s lobal rand Scorecard, 2003. usiness eek, 8/4/03.Coca-Cola India no. 1-0085
19
Exhibit 5: #ountine tests carried out by bottling operations and external
laboratories
Process Parameter No. oI tests
1 ater 71
2 ater Treatment & Auxiliary Chemicals 68
3 CO2 50
4 Sugar 13
5 Syrup 17
6 Packaging aterial 25
7 Container ashing 17
8 Finished Product 18
9 arket Samples 15
10 External Lab 147
TOTAL 441
Source: The Coca-Cola Company; http://www.myenjoyzone.comCoca-Cola India no. 1-0085
20
Exhibit 6: SoIt Drink Sales in India
Fiscal Year illion ottles Sold
1998-1999 5670
1999-2000 6230
2000-2001 6450
2001-2002 6600
2002-2003 10000
Source: 'SoIt drink sales up 10.4, PTI, 9/29/04.Coca-Cola India no. 1-0085
21
Exhibit 7: Thanda atlab Coca-Cola Advertising Campaign, Print edia
Source: cCann-Erickson orldwide eb siteCoca-Cola India no. 1-0085
22
Exhibit 8: Coca-Cola Principles oI Corporate Citizenship
Our reputation is built on trust. Through good citizenship we will nurture our relationships
and continue to build that trust. That is the essence oI our
promise - The Coca-Cola Company exists to beneIit and reIresh everyone it touches.
herever Coca-Cola does business, we strive to be trusted partners and good citizens. e
are committed to managing our business around the world with a consistent set oI values that
represent the highest standards oI integrity and excellence. e share these values with our
bottlers, making our system stronger.
These core values are essential to our long-term business success and will be reIlected in all
oI our relationships and actions - in the marketplace, the workplace, the environment and the
community.
arketplace
e will adhere to the highest ethical standards, knowing that the quality oI our products, the
integrity oI our brands and the dedication oI our people build trust and strengthen
relationships. e will serve the people who enjoy our brands through innovation, superb
customer service, and respect Ior the unique customs and cultures in the communities where
we do business.
orkplace
e will treat each other with dignity, Iairness and respect. e will Ioster an inclusive
environment that encourages all employees to develop and perIorm to their Iullest potential,
consistent with a commitment to human rights in our workplace. The Coca-Cola workplace
will be a place where everyone's ideas and contributions are valued, and where responsibility
and accountability are encouraged and rewarded.
Environment
e will conduct our business in ways that protect and preserve the environment. e will
integrate principles oI environmental stewardship and sustainable development into our
business decisions and processes.
Community
e will contribute our time, expertise and resources to help develop sustainable
communities in partnership with local leaders. e will seek to improve the quality oI liIe
through locally-relevant initiatives wherever we do business.
#esponsible corporate citizenship is at the heart oI The Coca-Cola Promise. e believe that
what is best Ior our employees, Ior the community and Ior the environment is also best Ior
our business.
Source: Coca-Cola Company ebsiteCoca-Cola India no. 1-0085
23
Exhibit 9: Corporate Communications at Coca-Cola
Source: Case writer derived Irom Coca-Cola Company eb site
SVP Public
AIIairs &
Communications
orldwide
Public
AIIairs &
Communic
ations
Assistant VP &
Director, edia
#elations
Director, North
America
Communications
Director, Asia
Communications
Director,
arketing
Communications
Director, Financial
Communications
Director, ealth &
Nutrition
Communications
Senior anager,
Public AIIairs &
Comm, C-C IndiaCoca-Cola India no. 1-0085
24
Exhibit 10: yths and Facts Irom Coca-Cola India eb site
Since August 5, 2003 the quality and saIety oI Coca-Cola and PepsiCo products in India
have been called into question by a local NO, the Centre Ior Science and Environment
(CSE). The basis oI the allegations are tests conducted on products oI Coca-Cola and
PepsiCo by CSE`s internal unaccredited laboratory, the Pollution onitoring Laboratory.
In India, as in the rest oI the world, our plants use a multiple barrier system to remove
potential contaminants and unwanted natural substances including iron, sulIur, heavy metals
as well as pesticides. Our products in India are saIe and are tested regularly to ensure that
they meet the same rigorous standards we maintain across the world.
The result oI these allegations has been consumer conIusion, signiIicant impact on the sale
oI a saIe and high-quality product, and the erosion oI international investor conIidence in the
Indian business sector. This situation calls Ior the development oI national sampling and
testing protocols Ior soIt drinks, an end to sensationalizing unsubstantiated allegations, and
co-operation by all parties concerned in the interests oI both Indian consumers and
companies with signiIicant investments in the Indian economy.
The Iacts versus the Iiction False statements made in recent weeks have led to Ialse
perceptions by Indian consumers:
yth Coca-Cola products in India contain pesticide residues that are above EU norms.
Fact Throughout all oI our operations in India, stringent quality monitoring takes place
covering both the source water we use as well as our Iinished product. e test Ior
traces oI pesticide in groundwater to the level oI parts per billion. This is equivalent to
one drop in a billion drops. For comparison`s sake, this would also be equivalent to
measuring one second in 32 years, or less than one person in the entire population in
India. These tests require specialized equipment at accredited labs to have accurate
results. Even at these stringent miniscule levels we are well within the internationally
accepted saIety norms.
yth Coca-Cola products sold in India are "toxic" and unIit Ior human consumption.
Fact There is no contamination or toxicity in our beverage brands. Our high-quality
beverages are and have always been - saIe and reIreshing. In over 200 countries
across the globe, more than a billion times every day, consumers choose our brands Ior
reIreshment because Coca-Cola is a symbol oI quality.Coca-Cola India no. 1-0085
25
yth
Coca-Cola has dual standards in the production oI its products, one high standard Ior
western countries, another Ior India.
Fact The soIt drinks manuIactured in India conIorm to the same high standards oI quality
as in the USA and Europe. Through our globally accepted and validated
manuIacturing processes and Quality anagement systems, we ensure that our stateoI-the-art
manuIacturing Iacilities are equipped to provide the consumer the highest
quality beverage each time. e stringently test our soIt drinks in India at independent,
accredited and world-class laboratories both locally and internationally.
yth In India the soIt drinks industry is virtually unregulated.
Fact There are no standards Ior soIt drinks in the US, the EU, or India. In India, water used
Ior beverage manuIacture must conIorm to drinking water standards. The water used
by Coca-Cola conIorms to both IS and EU standards Ior drinking water and our
production protocols ensure this through a Iocus on process control and testing oI the
water used in our manuIacturing process and the Iinal product quality.
yth Coca-Cola has put out results Ior Kinley water only and not Ior their soIt drinks.
Fact The results oI product tests conducted by TNO Nutrition and Food #esearch
Laboratory in the Netherlands is conclusive and is available on The Science ehind
Our Quality web page.
yth International companies like Coca-Cola are 'colonizing India.
Fact The Coca-Cola business in India is a local business. Our beverages in India are
produced locally, we employ thousands oI Indian citizens, our product range and
marketing reIlect Indian tastes and liIestyles, and we are deeply involved in the liIe oI
the local communities in which we operate. The Coca-Cola business system directly
employs approximately 10,000 local people in India. In addition, independent studies
have documented that, by providing opportunities Ior local enterprises, the Coca-Cola
business also generates a signiIicant employment 'multiplier eIIect. In India, we
indirectly create employment Ior more than 125,000 people in related industries
through our vast procurement, supply and distribution system.
yth
Farmers in India are using Coca-Cola and other soIt drinks as pesticides by spraying
them on their crops.
Fact SoIt drinks do not act in a similar way to pesticides when applied to the ground or
crops. There is no scientiIic basis Ior this and the use oI soIt drinks Ior this purposeCoca-Cola India no. 1-
0085
26
would be totally ineIIective.
In India, as in the rest oI the world, our products are world class and saIe and the
treated water used to make our beverages there meets the highest international
standards.
Source: Coca-Cola Company ebsiteCoca-Cola India no. 1-0085
27
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Argenti, Paul A.. Collaborating with Activists: ow Starbucks orks with NOs.
CaliIornia anagement #eview, Vol. 47, No. 1, Fall 2004.
hatia, auri. ultinational Corporations: Pro or Con? Outlook India, October 29,
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usiness eek Online, Things Aren`t oing etter with Coke, June 28, 1999
Centre Ior Science and Environment (CSE): Analysis oI Pesticide #esidues in SoIt
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Coca-Cola India. arketing: Questioning Paradigms, Internal Company
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Coke, Pepsi challenge India pesticide claim:
http://www.ajc.com/business/content/business/coke/0803/06pesticide.html
Coke, Pepsi India deny pesticides in soIt drinks:
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Coca-Cola, Philips in arketing Awards: http://www.Iinancialexpress.com 10/7/04
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August 21, 2003.
Dey, Saikat. Interview on Indian history and economic liberalization. January 10,
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http://www.coca-cola.com/IlashIndex1.html
http://www2.coca-cola.com/presscenter/viewpointsindiasituation.html
http://www.coca-colaindia.com/
http://www.indiaresource.org/
http://www.killercoke.org
http://www.myenjoyzone.com/press1/truth.htm
'lobal rand Scorecard 2003: Special #eport. Interbrand, as seen in usiness
eek 8/04/03.
Kaul, Nymph. Interview oI Sanjiv upta, President and CEO oI Coca-Cola India,
June 2004.
Kaul, Nymph. #ai University, multiple interviews.Coca-Cola India no. 1-0085
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Kaul, Nymph. #ai University, 'Coca-Cola India.
Keller, Kevin Lane. Strategic rand anagement. Prentice all, 1998.
Kochan, Nicholas, editor. The orld`s reatest rands: an International #eview by
Interbrand. New York University Press, 1997.
'People`s Forum Against Coca-Cola, rochure.
Pendergrast, ark: For od, Country and Coca-Cola. Charles Scribners, 1993.
Sanghvi, #ish. Interviews on Cola in India beIore liberalization and
marketing/advertising oI Coke and Pepsi in India, November 2004.
Society Ior Environmental Communications: Colanisation`s Dirty Dozen: Deadly
pesticides Iound in 12 leading brands oI soIt drinks, 8/15/03.
'SoIt drink sales up 10.4, PTI, 9/29/04.
Srivastava, Amit: Coke with a New Twist: Toxic Cola, India #esource Center,
February 15, 2004.
The Corporate eb Site as an Image #estoration Tool: The Case oI Coca-Cola
YoIIie, David . and Yusi ang, Cola ars Continue: Coke versus Pepsi in the
Twenty-First Century. S Case, January 11, 2002.
YoIIie, David . and #ichard Seet, Internationalizing the Cola ars: The attle Ior
China and Asian arkets. S Case, ay 31, 1995.Coca-Cola India no. 1-0085
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Endnotes

1 'Toxic eIIect: Coke sales Iall by a sharp 30-40, The Economic Times, 8/13/03, p 1.
2 'Controversy-ridden year Ior soIt drinks. usiness Line, New Delhi, 12/30/03, p 6.
3 'Toxic eIIect.
4 'ard Truths About SoIt Drinks. Center Ior Science and Environment, Press #elease, 8/5/03.
5 'No standards Ior world-wide pesticide residues in soIt-drinks. usiness Line, New Delhi, 10/03/03 p
9.
6 'Coke & Pepsi in India: Pesticides in Carbonated everages.
http://www.vedpuriswar.org/articles/Indiancases retrieved 12/7/04
7 'Tests show pesticides in soIt drinks, claims CSE, Economic Times, 8/6/03, p 1.
8 'Coke & Pepsi in India: Pesticides in Carbonated everages
9 http://www.indiastat.com
10 'Coca-Cola India. Nymph Kaul, 2004. and Coca-Cola Company ebsite:
http://www2.cocacola.com/heritage/ and Pendergrast, For od, Country and Coca-Cola. Charles
Scribner`s, 1993.
11 http://www2.coca-cola.com/ourcompany/aroundworld.html
12 Pendergrast, 172.
13 Ibid
14 Ibid, 199
15 Ibid, 200-201.
16 'The Top 100 rands: Interbrand rand Scorecard 2003. Interbrand Special #eport, as seen in
usiness
eek 8/4/03.
17 Ibid
18 The orld`s reatest rands, A #eview by Interbrand. Edited by Nicholas Kochan.
19 Strategic rand anagement. Kevin Lane Keller, page 153.
20 http://www.portobello.com.au/portobello/reading/memorabiliacocacola.htm
21 'rands oI Coca-Cola in India, #ai University, 11/04.
22 http://www.coca-colaindia.com
23 Sanjiv upta iography, #ai University.
24 'Coca-Cola India to Double Capacity, Kolkata, 3/8/03.
25 http://www.coca-colaindia.com
26 upta io
27 http://www.indiastat.com
28 Ibid
29 Ibid
30 'roken commitments: The case oI Pepsi in India. Kavaljit Singh, PI# Update, ay 1997.
31 Interview with Nymph Kaul, 9/20/04.
32 Coca-Cola India Internal arketing Presentation
33 IbidCoca-Cola India no. 1-0085
30

34 Kaul
35 Kaul
36 Ibid
37 http://www.coca-colaindia.com
38 Ibid
39 Ibid
40 'The Corporate eb site as an Image #estoration Tool. Nicola K. raves and #andall L. aller,
2004.
41 'Coca-Cola accused oI a companywide pattern.` Unger, , The Atlanta Journal-Constitution, p 1,
(1999a, April 24).
42 'The real thing: Truth and power at the Coca-Cola Company. ays, C.L., New York: #andom ouse
2004.
43 Ibid
44 'Coke crisis: Equity erodes as brand troubles mount. acArthur, K., & Linnett, #., Advertising Age,
p. 3,
4/24/00.
45 'Coke & Pepsi in India: Pesticides in Carbonated everages, p. 8
46 'Pure ater or Pure Peril, CSE press release 2/03.
47 Ibid
48 'Collaborating with Activists: ow Starbucks orks with NOs. Argenti, Paul A., C#, Fall 2004.
49 http://www.cseindia.org
50 'Coke & Pepsi in India: Pesticides in Carbonated everages, p. 3.
51 'The ulp ar, Supriya ezbaruat and alini oyal, India Today, 8/25/03, pp 50-53.
52 http://www.coca-colaindia.com
53 'Shocked Dehlites Stay Away Irom SoIt Drinks, The indu, New Dehli, 8/07/03 p. 1


SWOT ANALYSIS
The Coca-Cola Company (Coca-Cola) is a leading manufacturer, distributor and marketer of
Non-alcoholic beverage concentrates and syrups, in the world. Coca-Cola has a strong brand
name and brand portfolio. Business-Week and nterbrand, a branding consultancy, recognize
Coca-Cola as one of the leading brands in their top 100 global brands ranking in 2006. The
Business Week-nterbred valued Coca-Cola at $67,000 million in 2006. Coca-Cola ranks well
ahead of its close competitor Pepsi which has a ranking of 22 having a brand value of $12,690
million The Company's strong brand value facilitates customer recall and allows Coca-Cola to
penetrate markets. However, the company is threatened by intense competition which could
have
an adverse impact on the company's market share.
Strengths
Weaknesses
World's leading brand
Large scale of operations
Robust revenue growth in three segment
Negative publicity
Sluggish performance in North America
Decline in cash from operating activities
Opportunities
Threats
Acquisitions ntense competition
Growing bottled water market
Growing Hispanic population in US
ntense competition
Dependence on bottling partners
Sluggish growth of carbonated beverages
Strengths
WorId's Ieading brand
Coca-Cola has strong brand recognition across the globe. The company has a leading brand
value and a strong brand portfolio. Business-Week and nterbrand, a branding consultancy,
recognize. Coca-Cola as one of the leading brands in their top 100 global brands ranking in
2006.The Business Week-nterbrand valued Coca-Cola at $67,000 million in 2006. Coca-Cola
ranks well ahead of its close competitor Pepsi which has a ranking of 22 having a brand value of
$12,690 million Furthermore, Coca-Cola owns a large portfolio of product brands. The company
owns four of the top five soft drink brands in the world: Coca-Cola, Diet Coke, Sprite and Fanta.
Strong brands allow the company to introduce brand extensions such as Vanilla Coke, Cherry
Coke and Coke with Lemon. Over the years, the company has made large investments in brand
promotions. Consequently, Coca-cola is one of the best recognized global brands. The
company's strong brand value facilitates customer recall and allows Coca-Cola to penetrate
new
markets and consolidate existing ones.

Large scaIe of operations
With revenues in excess of $24 billion Coca-Cola has a large scale of operation. Coca-Cola is
thelargest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and
syrupsin the world. Coco-Cola is selling trademarked beverage products since the year 1886 in
the US.The company currently sells its products in more than 200 countries. Of the
approximately 52billion beverage servings of all types consumed worldwide every day,
beverages bearingtrademarks owned by or licensed to Coca-Cola account for more than 1.4
billion.
The company's operations are supported by a strong infrastructure across the world. Coca-
Colaowns and operates 32 principal beverage concentrates and/or syrup manufacturing
plants located
throughout the world. n addition, it owns or has interest in 37 operations with 95
principalbeverage bottling and canning plants located outside the US. The company also owns
bottledwater production and still beverage facilities as well as a facility that manufactures
juiceconcentrates. The company's large scale of operation allows it to feed upcoming markets
withrelative ease and enhances its revenue generation capacity.
Robust revenue growth in three segments
Coca-cola's revenues recorded a double digit growth, in three operating segments. These three
segments are Latin America, 'East, South Asia, and Pacific Rim' and Bottling investments.
Revenues from Latin America grew by 20.4% during fiscal 2006, over 2005. During the same
period, revenues from 'East, South Asia, and Pacific Rim' grew by 10.6% while revenues from
the
bottling investments segment by 19.9%. Together, the three segments of Latin America, 'East,
South Asia, and Pacific Rim' and bottling investments, accounted for 34.8% of total revenues
during fiscal 2006. Robust revenues growth rates in these segments contributed to top-line
growth for Coca-Cola during 2006.
Weaknesses
Negative pubIicity
The company received negative publicity in ndia during September 2006.The company
wasaccused by the Center for Science and Environment (CSE) of selling products
containingpesticide residues. Coca-Cola products sold in and around the ndian national capital
regioncontained a hazardous pesticide residue. These pesticides included chemicals which
couldcause cancers, damage the nervous and reproductive systems and reduce bone mineral
density.Such negative publicity could adversely impact the company's brand image and the
demand forCoca-Cola products. This could also have an adverse impact on the company's
growth prospectsin the international markets.
SIuggish performance in North America
Coca-Cola's performance in North America was far from robust. North America is Coca-
Cola'score market generating about 30% of total revenues during fiscal 2006. Therefore, a
strongperformance in North America is important for the company.
n North America the sale of unit cases did not record any growth. Unit case retail volume
inNorth America decreased 1% primarily due to weak sparkling beverage trends in the second
halfof 2006 and decline in the warehouse-delivered water and juice businesses. Moreover,
thecompany also expects performance in North America to be weak during 2007.
Sluggish performance in North America could impact the company's future growth prospects
and
prevent Coca-Cola from recording a more robust top-line growth.
ecIine in cash from operating activities
The company's cash flow from operating activities declined during fiscal 2006. Cash flows from
operating activities decreased 7% in 2006 compared to 2005. Net cash provided by operating
activities reached $5,957 million in 2006, from $6,423 million in 2005. Coca-Cola's cash
flowsfrom operating activities in 2006 also decreased compared with 2005 as a result of a
contributionof approximately $216 million to a tax-qualified trust to fund retiree medical benefits.
Thedecrease was also the result of certain marketing accruals recorded in 2005.
Decline in cash from operating activities reduces availability of funds for the company's
investing
and financing activities, which, in turn, increases the company's exposure to debt markets and
fluctuating interest rates.
Opportunities
Acquisitions
For the last one year, Coca-Cola has been aggressively adopting the inorganic growth
path.During 2006, its acquisitions included Kerry Beverages, (KBL), which was
subsequently,reappointed Coca-Cola China ndustries (CCCL). Coca-Cola acquired a
controlling shareholdingin KBL, its bottling joint venture with the Kerry Group, in Hong Kong.
The acquisition extendedCoca-Cola's control over manufacturing and distribution joint ventures
in nine Chinese provinces.n Germany the company acquired Apollinaris which sells sparkling
and still mineral water inGermany. Coca-Cola has also acquired a 100% interest in TJC
Holdings, a bottling company inSouth Africa. Coca-Cola also made acquisitions in Australia and
New Zealand during 2006.These acquisitions strengthened Coca-Cola's international
operations. These also give Coca-Cola an opportunity for growth, through new product launch
or greater penetration of existingmarkets.
Stronger international operations increase the company's capacity to penetrate international
markets and also gives it an opportunity to diversity its revenue stream
Growing bottIed water market
Bottled water is one of the fastest-growing segments in the world's food and beverage
marketowing to increasing health concerns. The market for bottled water in the US generated
revenuesof about $15.6 billion in 2006. Market consumption volumes were estimated to be 30
billion litersin 2006. The market's consumption volume is expected to rise to 38.6 billion units by
the end of2010. This represents a CAGR of 6.9% during 2005-2010. n terms of value, the
bottled watermarket is forecast to reach $19.3 billion by the end of 2010. n the bottled water
market, therevenue of flavored water (water-based, slightly sweetened refreshment drink)
segment isgrowing by about $10 billion annually. The company's Dasani brand water is the third
best-sellingbottled water in the US.
Coca-Cola could leverage its strong position in the bottled water segment to take advantage of
growing demand for flavored water.
Growing Hispanic popuIation in US
Hispanics are growing rapidly both in number and economic power. As a result, they
havebecome more important to marketers than ever before. n 2006, about 11.6 million
UShouseholds were estimated to be Hispanic. This translates into a Hispanic population of
about 42million. The US Census estimates that by 2020, the Hispanic population will reach 60
million oralmost 18% of the total US population. The economic influence of Hispanics is growing
evenfaster than their population. Nielsen Media Research estimates that the buying power
ofHispanics will exceed $1 trillion by 2008- a 55% increase over 2003 levels. Coca-Cola
hasextensive operations and an extensive product portfolio in the US.
The company can benefit from an expanding Hispanic population in the US, which would
translate into higher consumption of Coca-Cola products and higher revenues for the company.
Threats
ntense competition Coca-Cola competes in the nonalcoholic beverages segment of
thecommercial beverages industry. The company faces intense competition in various markets
fromregional as well as global players. Also, the company faces competition from
variousnonalcoholic sparkling beverages including juices and nectars and fruit drinks. n many
of thecountries in which Coca-Cola operates, including the US, PepsiCo is one of the
company'sprimary competitors. Other significant competitors include Nestle, Cadbury
Schweppes, GroupeDANONE and Kraft Foods. Competitive factors impacting the company's
business includepricing, advertising, sales promotion programs, product innovation, and brand
and trademarkdevelopment and protection. ntense competition could impact Coca-Cola's
market share andrevenue growth rates
ependence on bottIing partners
Coca-Cola generates most of its revenues by selling concentrates and syrups to bottlers in
whomit doesn't have any ownership interest or in which it has no controlling ownership interest.
n2006, approximately 83% of its worldwide unit case volumes were produced and distributed
bybottling partners in which the company did not have any controlling interests. As
independentcompanies, its bottling partners, some of whom are publicly traded companies,
make their ownbusiness decisions that may not always be in line with the company's interests.
n addition, manyof its bottling partners have the right to manufacture or distribute their own
products or certainproducts of other beverage companies.
f Coca-Cola is unable to provide an appropriate mix of incentives to its bottling partners, then
thepartners may take actions that, while maximizing their own short-term profits, may be
detrimentalto Coca-Cola. These bottlers may devote more resources to business opportunities
or productsother than those beneficial for Coca-Cola. Such actions could, in the long run, have
an adverseeffect on Coca-Cola's profitability. n addition, loss of one or more of its major
customers by anyone of its major bottling partners could indirectly affect Coca-Cola's business
results. Suchdependence on third parties is a weak link in Coca-Cola's operations and
increases thecompany's business risks.
SIuggish growth of carbonated beverages
US consumers have started to look for greater variety in their drinks and are
becomingincreasingly health conscious. This has led to a decrease in the consumption of
carbonated andother sweetened beverages in the US. The US carbonated soft drinks market
generated totalrevenues of $63.9 billion in 2005, this representing a compound annual growth
rate (CAGR) ofonly 0.2% for the five-year period spanning 2001-2005. The performance of the
market isforecast to decelerate, with an anticipated compound annual rate of change (CAGR) of
-0.3% forthe five-year period 2005-2010 expected to drive the market to a value of $62.9 billion
by the endof 2010.
Moreover in the recent years, beverage companies such as Coca-Cola have been criticized for
selling carbonated beverages with high amounts of sugar and unacceptable levels of
dangerouschemical content, and have been implicated for facilitating poor diet and increasing
childhoodobesity. Moreover, the US is the company's core market. Coca-Cola already expects
itsperformance in the region to be sluggish during 2007. Coca-Cola's revenues could be
adverselyaffected by a slowdown in the US carbonated beverage market
a