Khazar University School of Economics and Management

Coca-Cola Company
Case Study STRATEGIC MANAGEMENT

Ayten Shadlinskaya

2012

COCA-COLA COMPANY CASE ANALYSIS Carefully reading the Coca-Cola case study, reviewing the financial data for given years, also studying its website helped me to systematize the facts and analyze the case according the given steps. Being the worlds largest beverage company, refreshing consumers with 3500 products including more than 500 sparkling and still brands, the companys portfolio features 15 billion dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitamin water, Powerade, Minute Maid, Simply and Georgia. It is No. 1 provider of sparkling beverages, juices and juice drinks and readyto-drink teas and coffees. Through the worlds largest beverage distribution system, consumers in more than 200 countries enjoy the Companys beverages at a rate of 1.7 billion servings a day. With an enduring commitment to building sustainable communities, the Company is focused on initiatives that reduce its environmental footprint, support active, healthy living, create a safe, inclusive work environment for our associates, and enhance the economic development of the communities where we operate. It would be helpful to look through the companys profile by checking the quick facts about it: Established: 1886 Name Coca-Cola was registered with the US Patent Office as an official trademark in 1893 Ranking: We own 4 of the worlds top 5 nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta Company Associates: 139,600 worldwide (as of December 31, 2010). Operational Reach: 200+ countries Consumer Servings (per day): 1.7 billion Beverage Variety: We offer more than 3,500 products including diet and regular sparkling beverages, and still beverages such as 100 percent juices, juice drinks, waters, sports and energy drinks, teas and coffees, and milk- and soy-based beverages. New York Stock Exchange Ticker Symbol: KO Mission: The companys comprehensive mission statements are enlisted below. It is apparent how the company pays attention to social responsibility as the most part of the statement consist of the items caring about environment and people (associates, consumers) To refresh the world... To inspire moments of optimism...

 To create value and make a difference. & Commitment to Sustainability 2009/2010 Highlights: Respecting People: We offered more than 1,720 training classes to Company associates. Protecting the Environment: In 2010 we introduced more than 2.5 billion PlantBottle packages. PlantBottle is a fully recyclable PET plastic bottle that is up to 30 percent made from plants. Offering Safe, Quality Products: We launched more than 150 low and no-calorie products in 2010, as well as more than 200 juice and juice drink products. In addition to our product and packaging innovations, we support more than 250 nutrition education and physical activity initiatives in more than 100 countries. Were committed to have a physical activity program in every country where we operate by 2015. Supporting Communities: In 2010, The Coca-Cola Company and The Coca-Cola Foundation made charitable contributions of $88 million to sustainable community initiatives worldwide. Vision As it is indicated in the Company website the vision serves as the framework for its Roadmap and guides every aspect of its business by describing what they need to accomplish in order to continue achieving sustainable, quality growth.
y y y y y y

People: Be a great place to work where people are inspired to be the best they can be. Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs. Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. Productivity: Be a highly effective, lean and fast-moving organization.

Strategy
Coca-Colas current strategy concentrates not only on just growth, but also sustainable growth -meeting its short-term commitments while investing to meet our long-term goals Here we may see a few point of its strategy.
y

With the world's most recognized family of brands, we deliver more than 3,500 beverages to over 200 countries around the world -- not just soft drinks, but juice and juice drinks, sports drinks, water, even coffee and milk. And every day we explore new ways to create and share beverages to energize, relax, nourish, hydrate and enjoy. As the world's largest distributor of non-alcoholic beverages, we maintain a trusted local presence in every community we serve. We are constantly looking ahead to anticipate what our communities may need and gathering resources to support them. y We've increased our annual marketing budget substantially, launched many new products, and developed a model to help our retail customers maximize their sales while we continue to plan for the next one, five and ten years in business.

We need highly skilled, ambitious, experienced professionals who think entrepreneurially and thrive on teamwork. Although the company underlines social responsibility beside its main missions it is hard understand that the mission is related with beverage business. It is too vague. Mission statement should posses the answer to its reason for existence and whom it serves. I provided some example mission statements for the company below that contain all essential components: To meet customer expectations using cutting edge technology to produce high quality beverage assuming that we serve to different tastes To be primary beverage company focused on consumers taste, need and healthi To provide better ambiance for growth, development for employees, business partners and community To keep our loyal customers content with the global brand we possess To attain healthy financial rewards for investors To act with honesty and integrity

y y y y y y

Despite Coca-Cola Company has quite comprehensive vision statement as its mission statement it is also not much clear and missing the most important factor-customer which is the most important target group it applies. Below is the vision statement that I suggest: Coca-Colas vision is to inspire its employees to produce the best beverages meeting customers needs. The aforementioned vision statement stress both customer needs and employee satisfaction and apparently indicates the industry the company belong. It also coincides with its mission statement.

Although Coke is not considered healthy beverage at all, but taking into consideration that the only beverage is not just coke and nowadays the company strives to produce different type healthier products, it is reasonable and important to stress healt in its primary mission

iiiiii

External Opportunities and Threats

External Oportunity and Threats analys is an important tool for developing the strategy. It is important to know external factors in order to use external opprtunities in favor of the business and to reduce the impact of external threats. While developing the strategy it is important to know that not all threats are dangerious, upside threats might be an opportunity as well. In general external forces are devided into 5 categories that further I will proceed accordingly by indicating each threat and opportunity per item: 1) economic forces: o Almost 72% of its net operating revenues volume were generated outside of North America.(Opportunity) o Declining Coke sales in East and South Asia and Pacific Rim division (threat) o Since Coke and Nestle are parting ways on selling tea in US, this may open doors for PepsiCo (consider that the bottled tea one of the fastest growing drinks in the industry). (threat) o Growing water bottled market (opportunity) 2) social, cultural, demographic, and environmental forces: o Trend for healthier lifestyle (Mainly in USA) and agitations agains obesity in USA (threat) o The limitation of water in some parts of the world causes systems to purify water and it results in increase of manufacturing costs per unit.(threat) o Opportunity to penetrate snack market in US (opportunity) o Consumers strive for helathier life consuming more healthier drinks (opportunity) 3) political, governmental, and legal forces: o Federal regulations may prohibit Coca-cola (also PepsiCo) from bidding for Cadburys carbonated soft drink business. (threat) 4) technological forces: o Innovative packaging, new products ( it was the success factor for EU division) (Opportunity) 5) competetive forces: o intense competetion with subsidiry companies(Pepsi.Co) (threat)

Competetive Profile Matrix

Competetive Profile Matrix identifies the companys major compatitors and its stength and weaknesses in relation with its current strategic position. Taking into consideratin the most important factors the matrix below was constructed. The rival companies are PepsiCo and Cadbury Schweppes PLC the worlds largest confectionery company.

Key Success Factors Financial Position Advertising Marketshare Brand Image Customer Loyalty Product Quality Product range Distribution Price Competition Geographical Expansion Total Score

Weight 0.08 0.12 0.12 0.10 0.10 0.12 0.06 0.12 0.08 0.10 1

Coca-Cola Rating Score 4 0.32 4 0.48 4 0.48 4 0.40 3 0.40 4 0.48 3 0.18 4 0.48 4 0.32 4 0.40 3.94

Pepsi Rating Score 3 0.24 3 0.36 3 0.36 4 0.4 3 0.3 4 0.48 3 0.18 4 0.48 4 0.32 3
0.3

Cadbury Schweppes Rating Score 3 0.24 3 0.36 2 0.24 3 0.3 2 0.2 4 0.48 3 0.18 3 0.36 3 0.24 2
0.2

3.42

2.8

We can interpret the companys position as: Coca-Cola dominates the market and its rivals posessing the highest score 3.94. The second is PepsiCo with 3.42 points and the Cadbury Schweppes is the weakest rival in the market according the figures on the matrix. It also shows Coca-Colas strength in all fields of competition.

External Factor Evaluation (EFE) Matrix

Opportunities Growing water bottled market Opportunity to penetrate snack market in US Innovative packaging, new products Almost 72% of its net operating revenues volume were generated outside of North America Consumers strive for helathier life consuming more healthier drinks Threats Declining Coke sales in East and South Asia and Pacific Rim division Since Coke and Nestle are parting ways on selling tea in US, this may open doors for PepsiCo (consider that the bottled tea one of the fastest growing drinks in the industry) The limitation of water in some parts of the world causes systems to purify water and it results in increase of manufacturing costs per unit Federal regulations may prohibit Coca-cola (also PepsiCo) from bidding for Cadburys carbonated soft drink business Intense competetion with subsidiry companies (Pepsi.Co) Total Weight 0.08 0.06 0.07 0.08 0.09 Rating 4 3 2 4 4
0.36

Score
0.32 0.18 0.14 0.32

0.07 0.15

2
0.14

0.45

0.10

2
0.2

0.10

0.3

0.20

4
0.8 3.21

As we see from the results of total weighted score (3.21) the responsiveness of the company to existing opportunities and threats is quite good. The company pursue the right startegy to minimize the impact of threats and take advantage of opportunities.

Internal Strength and Weaknesses

Below we will revieew strenghth and weaknesses of Coca-Cola for the given period.

Strength 1. Product line has over 500 brands consisting of over 2600 beverage products. Located in over 200 countries with strong global presence Long history has built excellent brand recognition. Partnership with established sporting events including the Olympics. Industry leader in market with $24 billion revenues in 2006. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their largest customer. Coke products comprise 70 percent of the sodas in Mexico Recent acquisition of two mineral water company Apollinaris (Germany) and Traficante (Italy) to add its excisting five-water brand

Weakness 1. Product line is limited to beverages. (PepsiCo has already penetrated snack business) 2. PepsiCo leads in tea bottled market 3. Coca-Colas abandoned its proposed $16 billion acquisition of Quaker Oats that hindered its growth 4. Negative publicity in India because of water issues created poor brand image 5. PepsiCo has earned more revenue ($35 billion) than Coke 6. Marketing deficiencies caused 16 percent decrease in advertising spending.

2. 3. 4.

5. 6.

7. 8.

Internal Factor Evaluation (IFE Matrix)

Key Internal Factors Strengths Product line has over 500 brands consisting of over 2600 beverage products. Located in over 200 countries with strong global presence Long history has built excellent brand recognition. Partnership with established sporting events including the Olympics. Industry leader in market with $24 billion revenues in 2006. Coca-Cola has formed a strong partnership with McDonalds Coke products comprise 70 percent of the sodas in Mexico 0.04 Recent acquisition of two mineral water company Apollinaris (Germany) and Traficante (Italy) to add its excisting five-water brand 3 0.16 Weight Rating Score

0.09 0.10 0.06 0.05 0.12 0.04

4 4 4 4 3 4

0.36 0.40 0.24 0.20 0.36 0.12

0.06

0.24

Weaknesses Product line is limited to beverages. (PepsiCo has already penetrated snack business) PepsiCo leads in tea bottled market Coca-Colas abandoned its proposed $16 billion acquisition of Quaker Oats that hindered its growth Negative publicity in India because of water issues created poor brand image. PepsiCo has earned more revenue ($35 billion) than Coke Marketing deficiencies caused 16 percent decrease in advertising spending. TOTAL 0.09 0.10 0.03 0.02 0.05 0.05 1.00 1 1 2 2 2 2 0.09 0.10 0.06 0.04 0.10 0.10 2.57

SWOT Matrix
Strengths (S)
y Product line has over 500 brands consisting of over 2600 beverage products. Located in over 200 countries with strong global presence Long history has built excellent brand recognition. Partnership with established sporting events including the Olympics. Industry leader in market with $24 billion revenues in 2006. Coca-Cola has formed a strong partnership with McDonalds Coke products comprise 70 percent of the sodas in Mexico Recent acquisition of two mineral water company Apollinaris (Germany) and Traficante (Italy) to add its excisting five-water brand

Weaknesses (W)
y Product line is limited to beverages. (PepsiCo has already penetrated snack business) y PepsiCo leads in tea bottled market y Coca-Colas abandoned its proposed $16 billion acquisition of Quaker Oats that hindered its growth y Negative publicity in India because of water issues created poor brand image. y PepsiCo has earned more revenue ($35 billion) than Coke y Marketing deficiencies caused 16 percent decrease in advertising spending.

y y

Opportunities (O)

SO Strategies

WO Strategies

y Growing water bottled market y Opportunity to penetrate snack market in US y Innovative packaging, new products y Almost 72% of its net operating revenues volume were generated outside of North America y Consumers strive for helathier life consuming more healthier drinks

y y Expand water bottled business in USA and in other countries Penetrate into snack market

To strength marketing activities especially in India concerning bottled water Engagement in social activities especially in health sphere would promote Cokes image in India

Threats (T)

ST Strategies

WT strategies

y Declining Coke sales in East and South Asia and Pacific Rim division y Since Coke and Nestle are parting ways on selling tea in US, this may open doors for PepsiCo (consider that the bottled tea one of the fastest growing drinks in the industry) y The limitation of water in some parts of the world causes systems to purify water and it results in increase of manufacturing costs per unit y Federal regulations may prohibit Coca-cola (also PepsiCo) from bidding for Cadburys carbonated soft drink business y Intense competetion with subsidiry companies (Pepsi.Co)

y y

To launch a new bottled tea brand in USA To increase the number of other Coke products in East and South Asia

To increase the number of healthier drinks in USA and in other countries

SWOT matrix is a very comprehensive tool to match the internal and external factors impact on the company. It is very useful to see the companys current picture and consequently to choose the appropriate strategy to pursue taking advantage of external and internal factors that influence the company somehow. It is important to note that the matrix does not show how to achieve competetive advantage. Thus it is just a starting point for discussions in startegic planning.

SPACE MATRIX
Financial Strength (FS) Return on Assets (ROA) Net Income Inventory Turnover Return on Assets Return on Investment Environmental Stability (ES) Rate of Inflation Technological changes -2 Barriers to enter into Market Competetive environment

5 5 3 4 4 __ 4,2

-3 -4 -6 __ -3.75

Competetive advantage(CA) Market Share Product Quality Customer Loyalty Brand Image Control over Suppliers

-1 -1 -1 -1 -2 __ -1.2

Industry Strength(IS) Growth Potential Financial stability Potential Profit Ease of Entry Technological know-how

5 5 4 5 4 __ 4.6

x-axis: -1.2 + 4.6 = 3.4 y-axis: 4.2 + -3.7 = 0.5 Coordinate: (3.4; 0.5)

FS Conservative Aggressive

CA

IS

Defensive

Competitive

ES

The Boston Consulting Group (BCG) Matrix

Relative Market Share Position

Stars s Industry Sales Growth Rate

Question marks

Cash cows

Dogs

As we see from the matrix the companys position in a fast growing industry is not bad. Coca-Cola may generate cash but as the market is to competetive it needs a huge investment to maintain its position. In case the business will be more successful a star position might be altered to cash cow by the time industry will grow as well. Here we need to underline also some disadvantages of the matrix. As the matrix evaluates businesses as low and high it lmits to reflect the real picture of the business. Also, high market share not always leads leads to high profits and growth rate or market share are not the only indicators of profitability.

Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong 3.0 to 4.0 High 3.0 to 3.99 I

Average 2.0 to 2.99 II Coca Cola

Weak 1.0 to 1.99 III

Medium The EFE Total Weighted Score 2.0 to 2.99

IV

VI

Low 1.0 to 1.99

VII

VIII

IX

Strategy to pursue: Grow and Build

(Scores: IFE 2.57; EFE 3.21)

Grand Strategy Matrix

Grand Strategy Matrix is a tool to formulate an alternative strategies using two indicators: competetive position and market growth. The matrix is used in matching stage. Here we see the company is in an excellent strategic position to: Concentration on current markets/products and take risks aggressively when necessary.

Quantitative Startegic Planning Matrix (QSPM)

Strategic Alternatives Key Internal Factors Weight Produce new diet drinks that are more healthier (bottled water)

Penetrate into snack market

Strengths 1. Product line has over 500 brands consisting of over 2600 beverage products. 2. Located in over 200 countries with strong global presence 3. Long history has built excellent brand recognition. 4. Partnership with established sporting events including the Olympics. 5. Industry leader in market with $24 billion revenues in 2006. 6. Coca-Cola has formed a strong partnership with McDonalds 7. Coke products comprise 70 percent of the sodas in Mexico 8. Recent acquisition of two mineral water company Apollinaris (Germany) and Traficante (Italy) to add its excisting five-water brand Weaknesses 1. Product line is limited to beverages. (PepsiCo has already penetrated snack business) 2. PepsiCo leads in tea bottled market 0.09

AS 2

TAS 0.18

AS 2

TAS 0.18

0.10 0.06 0.05 0.12 0.04

2 .3 --2 ---

0.20 0.18 --0.24 ---

2 2 --1 ---

0.20 0.12 --0.12 ---

0.04

---

---

---

---

0.06

0.18

0.06

0.09

0.09

0.27

0.10

---

---

---

---

3. Coca-Colas abandoned its proposed $16 billion acquisition of Quaker Oats that hindered its growth 4. Negative publicity in India because of water issues created poor brand image. 5. PepsiCo has earned more revenue ($35 billion) than Coke 6. Marketing deficiencies caused 16 percent decrease in advertising spending. SUBTOTAL

0.03 0.02

2 4

0.06 0.08

2 3

0.06 0.06

0.05 0.05

--4

--0.20

--1

--0.05

1.00

1.41
Produce new diet drinks that are more healthier (bottled water)

1.12 Penetrate into snack market

Key External Factors Weight

Opportunities 1. Growing water bottled market 2. Opportunity to penetrate snack market in US 3. Innovative packaging, new products 4. Almost 72% of its net operating revenues volume were generated outside of North America 5. Consumers strive for helathier life consuming more healthier drinks Threats 1. Declining Coke sales in East and South Asia and Pacific Rim division 2. Since Coke and Nestle are parting ways on selling tea in US, this may open doors for PepsiCo (consider that the bottled tea one of the fastest growing drinks in the industry) 0.08 0.06

AS 4

TAS 0.36

AS 1

TAS 0.08

1 0.07 0.08 2 3

0.06 0.14 0.24

4 1 3

0.32 0.07 0.24

0.09

0.36

0.09

0.07 2 0.15 --0.14 --2 --0.14 ---

3. The limitation of water in some parts of the world causes systems to purify water and it results in increase of manufacturing costs per unit 4. Federal regulations may prohibit Cocacola (also PepsiCo) from bidding for Cadburys carbonated soft drink business 5. Intense competetion with subsidiry companies (Pepsi.Co) SUB TOTAL SUM TOTAL ATTRACTIVENESS SCORE

0.10

0.30

0.10

0.10 2 0.20 3 0.20 0.60 1 3 0.10 0.60

2.4 3.81

1.74 2.86

Recommendations
The QSPM strategies assessed whether penetrating snack market was a better option than producing a new diet line. Scores on the QSPM shows that producing new diet line beverages is more advantageous rather than entering a new snack market.

Balance Sheet for the projected year 2008

December 31, 2008

ASSETS CURRENT ASSETS Cash and cash equivalents Marketable securities Trade accounts receivable, less allowances Inventories Prepaid expenses and other assets TOTAL CURRENT ASSETS EQUITY METHOD INVESTMENTS OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES OTHER ASSETS PROPERTY, PLANT AND EQUIPMENT net TRADEMARKS WITH INDEFINITE LIVES GOODWILL OTHER INTANGIBLE ASSETS $ 4,701 278 3,090 2,187 1,920 12,176 5,316 463 1,733 8,326 6,059 4,029 2,417 $ 40,519

TOTAL ASSETS LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses Loans and notes payable Current maturities of long-term debt Accrued income taxes TOTAL CURRENT LIABILITIES

$ 6,205 6,066 465 252 12,988

LONG-TERM DEBT OTHER LIABILITIES DEFERRED INCOME TAXES THE COCA-COLA COMPANY SHAREOWNERS' EQUITY Common stock, $0.25 par value; Authorized 5,600 shares Capital surplus Reinvested earnings Accumulated other comprehensive income (loss) Treasury stock, at cost EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS TOTAL EQUITY

2,781 3,011 877

880 7,966 38,513 (2,674) (24,213) 20,472 390 20,862 $ 40,519

TOTAL LIABILITIES AND EQUITY

Projected Income Statement for the year 2008

(In millions except per share data) Year Ended December 31, 2008 NET OPERATING REVENUES Cost of goods sold GROSS PROFIT Selling, general and administrative expenses Other operating charges OPERATING INCOME Interest income Interest expense Equity income (loss) net Other income (loss) net INCOME BEFORE INCOME TAXES Income taxes CONSOLIDATED NET INCOME Less: Net income attributable to noncontrolling interests $ 31,944 11,374 20,570 11,774 350 8,446 333 438 (874) 39 7,506 1,632 5,874 67

NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY BASIC NET INCOME PER SHARE DILUTED NET INCOME PER SHARE DIVIDENDS PER SHARE AVERAGE SHARES OUTSTANDING Effect of dilutive securities AVERAGE SHARES OUTSTANDING ASSUMING DILUTION

$ $ $ $

5,807 2.51 2.49 1.52 2,315 21 2,336

Strategies and Long Term objectives

The Coca Cola Company possesses a very rich history and spread over the world, the study of the case especially, SPACE matrix tells us that Coca Cola Company should pursue an aggressive strategy. Coca Cola Company has a strong compet itive position in the market with a rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. It needs to concentrate on Water and Diet products to serve health consciousness of people who are inclined caring their health day by day. Coca-Cola can do it through introduction of different coke flavor and introducing new healthier products. Further company should integrate with other companies, acquisit ion of potential competitor businesses, innovation in branding and aggressive marketing strategy can bring long term profitability. I would recommend producing new diet line and investing to its promotional activities, especially in the countries where the tendency to healthier living is getting increased. Bottling investment should be increased. Cokes popular brand name would play advantageous role in producing new diet line. Beside this it will enhance Cokes image becoming healthier trade mark in a competing market. Long term Goals: y y y y Build brands and customer relationships through outstanding marketplace execution; Creating image popular with health care beverages Continuing to establish world-class effectiveness Maintaining diligent cost management.

1) http://community.nasdaq.com/News/2011-04/pepsi-can-lift-market-by-reviving-oldcharm.aspx?storyid=70320#ixzz1keZXrCgi 2) http://www.nytimes.com/2000/11/24/business/another-suitor-walks-away-from-quaker.html 3) http://www.thecoca-colacompany.com 4) Strategic Management, Fred R. David, 2009 5)www.coca-cola.com 6) The Story of Coca-Cola, Lionne Bell