EXTERNAL FORCES

1.
1 External Assessment
1.2 External Environment Forces
Table 1.1.1 Economic Forces
Case Issues Opportunities Threats
Rising costs Rising aluminium and sweetener costs leads to price increases and cut into demand in North America X
Rising costs The rising cost of raw materials such as corn, oranges, and fuel/ electricity has hurt the beverage X
industry.
Rising costs The price of orange juice increased by more than 60% in 2006 on the New York Board of Trade due to X
hurricane damage in the state of Florida.
Money market The low value of the dollar is also a problematic in a global environment. X
rates
Limitation of Limitation of water in some parts of the world causes systems to purify water to be utilized, resulting in X
water an increase in manufacturing costs per unit.
Table 1.1.2 Social Forces

Consumption The trend toward more healthy eating and drinking will hurt sales of traditional sugar and sugar- X
patterns substitute-based drinks.
Obesity issues The U.S. is a leader among countries experiencing problems with obesity. X
New products Bottled tea is one of the fastest growing drinks in the industry X
Table 1.1.3 Political Forces

Government Federal regulations may prohibit PepsiCo and Coke from bidding for Carbury’s carbonated soft drink X
regulations business.
Government Many states now ban the selling of some soft drink brands in public schools due to obesity issues among X
regulations youth.
Government The use of some ingredients in Coke products may be hazardous to one’s health and regulations may X
regulations soon require warning labels.
MRB 3012 STRATECIC MANAGEMENT TAKE HOME EXAM: COCA-COLA COMPANY - 2007
Table 1.1.4 Technological Forces

Forces Case Issues Opportunities Threats
The significance of IT No information available
The pace of technology change No information available

The Introduction of new technology No information available
Table 1.1.5 Competitive Forces

Forces Case Issues Opportunities Threats
Major PepsiCo has more than double the employees as Coca-Cola. X
competitor’s Carbury Scheweppes PLC is a diversified company that produces and markets beverages, chocolate X
strengths and chewing gum.
PepsiCo is a fierce competitor in the beverage industry’s two fastest growing categories: water and X
sport drinks.
PepsiCo’s portfolio contains the number one water brand, Aquafina and the leading sports drink brand X
Gatorade.
PepsiCo doubled its Gatorade sales in the past five years. X
PepsiCo consists of approximately 168,000 employees and had 2006 of more than £35 billion. X
PepsiCo brands are available in about 200 markets, which generate sales of about $92 billion. X
Cadbury Schweppes PLC is the world’s largest confectionery company and has a strong regional X
beverage presence in the Americas and Australia.
Cadbury dates back over 200 years with brands such as Cadbury, Schweppes, Halls, Trident, Dr X
Pepper, Snapple, Trebor, Dentyne, 7Up, Bubblicious and Bassett.
Cadbury employing approximately 60,000 associates. X
Cadbury was the winner of Britain’s most admired award company in 2004. X
Groupe Danone in 2005 shared first place worldwide in bottled water (volume) selling nearly 20 X
billion litres and 70% of its sales was in emerging markets.
Danone’s brand of Levita is a big success in Mexico. X
Danone’s zero-calorie soda that has achieved a number two rankimg in the French low-calorie X
segment.
Major Groupe Danone competes to a lesser degree with Coke. X
competitor’s
weaknesses
The competitors’ PepsiCo leads in the bottled tea market with Brisk, co-marketed with Lipton. X
Objectives and PepsiCo has its own coffee product, Frappuccino, marketed in a joint-venture with Starbucks. X
Prepared & Submitted by: MR091082 Page | 2

Strategies PepsiCo obtains 60% of its revenues from its snack division. X
PepsiCo has tailored brands that have been very successful in different countries, such as crab and X
duck flavoured chips available in China and lentil-based snacks available in India.
The creative marketing strategies stem from the company's home grown managers. X
Emerging markets, such as Mexico, China, Russia and Brazil are targeted by PepsiCo to provide X
affordable snacks financially.
Tropicana was added in 1998, when PepsiCo merged with the Quaker Oats Company.
Gatorade is also an important product in PepsiCo’s portfolio. X
PepsiCo’s domestic sales declined. X
PepsiCo’s overseas revenues have been strong particularly in the Middle East, Argentina, China and X
Brazil.
Frito-Lay is the largest profit source of late for PepsiCo. X
The international market for PepsiCo has served the snack division well with operating profit rising X
26% and snack volume up 9% in 2006.
Danone’s primary brand in bottled water is Evian. X
Donone sells flavoured waters and focuses on health-conscious consumers. X
Danone continues to add new drinks in different markets, such as Taillefine Fiz in France, which is a X
zero-calorie soda that has achieved a number two ranking in the French low-calorie segment.
Entry and Exit of Cadbury plans to divest its beverage division in 2007. X
firms in the The brand Snapple, which Cadbury sells, would be a good fit for Coke. X
industry PepsiCo would likely benefit most from acquiring Cadbury’s Mexican assets with such strong brands X
such as Squirt, Crush, and Canada Dry.
Hershey Foods has expressed interest as well as various private-equity firms on Cadbury’s beverage X
division.
The threat of PepsiCo’s portfolio contains the number one water brand, Aquafina, and the leading sports drink X
substitute brand Gatorade.
products/ services PepsiCo’s snack division has succeeded in these health-conscious times with a campaign called Smart X
Spot that emphasizes “better for you” products.
PepsiCo’s snack products meet the Food and Drug Administration and the National Academy of X
Sciences nutritional criteria.
Danone sells flavoured waters and focuses on health-conscious consumers. X
Bottled tea is one of the fastest growing drinks in the industry. X
Groupe Danone continues to add new drinks in different markets, such as Taillefine Fiz in France, X
which is a zero-calorie soda that has achieved a number two ranking in the French low-calorie
segment/

1.3 Industry Analysis (Porter’s 5 forces)

1.2.1 Description of the industry
 The soft drink industry primarily consists of PepsiCo, Coca Cola Company and Cadbury Schweppes PLC.
 Bottled tea is one of the fastest growing drinks in the industry.
 The rising cost of raw materials such as corn, oranges, and fuel/ electricity has hurt the beverage industry.
 Water is the main substance in the manufacturing of soft drinks. The limitation of water in some parts of the world causes systems to purify water
to be utilized, resulting in an increase in manufacturing costs per unit.
1.2.2 Competitive Pressure among Rivalry

No Key Variables Case Issues Opportunities Threats Competitive Forces
Strong Moderate Weak
1 Competitors are PepsiCo is a fierce competitor in the beverage industry’s X Y
launching two fastest growing categories: water and sport drinks.
marketing PepsiCo’s snack division has succeeded in these health- X Y
strategies conscious times with a campaign called Smart Spot that
emphasizes “better for you” products.
The creative marketing strategies stem from PepsiCo’s X Y
home-grown managers.
Danone sells flavoured waters and focuses on health- X Y
conscious consumers.
2 Industry members PepsiCo obtains 60% of its revenue from its snack division. X Y
are racing to have
PepsiCo doubled its Gatorade sales in the past five years. X Y
a better
Emerging markets, such as Mexico, China, Russia and X Y
performance Brazil, are targeted by PepsiCo to provide affordable snacks
financially.
Groupe Danone in 2005 shared first place worldwide in X Y
bottled water (volume) selling nearly 20 billion litres and
70% of its sales were in emerging markets.
3 Industry members PepsiCo has tailored brands that have been very successful X Y
are proactive to in different countries, such as crab and duck flavoured chips

develop valuable available in China and lentil-based snacks available in

expertise and India.
capabilities
1.2.3 Competitive Pressure Associated with New Entrant

1 Strong Brand The soft drink industry primarily consists of PepsiCo, Coca X Y
Preferences and Cola Company, and Cadbury Schweppes PLC.
customer loyalty Groupe Danone competes to a lesser degree with Coke. X Y
PepsiCo’s brands are available in about 200 markets, which X Y
generate sales of about $92 billion.
1.2.4 Competitive Pressure from the Substitute Products

1 Substitute PepsiCo’s portfolio contains the number one water brand, X Y
Products are Aquafina, and the leading sports drink brand Gatorade.
readily available International market has served PepsiCo’s snack division X Y
and attractive well with operating profit rising 26% and snack volume up
priced 9% in 2006.
PepsiCo’s snack division has succeeded in these health- X Y
conscious times with a campaign called Smart Spot that
emphasizes “better for you” products.
PepsiCo’s snack products meet the Food and Drug X Y
Administration and the National Academy of Sciences
nutritional criteria.
Danone sells flavoured waters and focuses on health- X Y
conscious consumers.
Bottled tea is one of the fastest growing drinks in the X Y
industry.
Groupe Danone continues to add new drinks in different X Y
markets, such as Taillefine Fiz in France, which is a zero-
calorie soda that has achieved a number two ranking in the
French low-calorie segment/

1.2.5 Competitive Pressure from the Suppliers’ Bargaining Power

1 Few large The rising cost of raw materials such as corn, oranges, and X Y
suppliers are the fuel/ electricity has hurt the beverage industry.
primary source of
particular items
2 Certain needed The price of corn increased 57% from December 2005 to X Y
input are in short December 2006 as a result of the growing demand for
supply ethanol and other pressures.
The price of orange juice increased by more than 60% in X Y
2006 on the New York Board of trade due to hurricane
damage in the state of Florida.
The limitation of water in some parts of the world causes X Y
systems to purify water to be utilised, resulting in an
increase in manufacturing costs per unit.
1.2.6 Competitive Pressure from the Buyers’ Bargaining Power

1 Buyers’ cost of The trend toward more healthy eating and drinking will hurt X Y
switching to sales of their traditional sugar and sugar-substitute-based
competing brands drinks.
or substitute is
low
2 Buyers have Danone sells flavoured waters and focuses on health- X Y
discretion in conscious consumers.
whether or when
to buy the
products
3 Buyers are well Many states now ban the selling of some soft drink brands X Y
informed about in public schools due to obesity issues among youth.

the sellers’ The use of some ingredients in Coke products may be X Y

products hazardous to one’s health and regulations may soon require
warning labels.
1.2.7 The Industry Analysis – Porter’s 5 Forces

No Key Variables Competitive Forces
1 Competitive pressure among rivalry 3 5 1
2 Competitive pressure associated with new entrant 2 0 1
3 Competitive pressure from the substitute products 2 4 1
4 Competitive pressure from suppliers’ bargaining power 3 1 0
5 Competitive pressure from buyers’ bargaining power 1 2 1
Total SUM 11 12 4
1.4 Key Success Factors of the Industry

 SALES
 MERGE AND ACQUISITION
 DIVERSIFICATION
 EMPLOYEES:
 FINANCIAL POSITION
 PRODUCT:
 MANAGEMENT:
 GLOBAL EXPANSION
1.5

1.6 Opportunities and Threats

OPPORTUNITIES
1 Bottled tea is one of the fastest growing drinks in the industry
2 Cadbury employing approximately 60,000 associates.
3 Groupe Danone competes to a lesser degree with Coke.
4 PepsiCo’s domestic sales declined.
5 Cadbury plans to divest its beverage division in 2007.
6 The brand Snapple, which Cadbury sells, would be a good fit for Coke.
THREATS
1 The rising cost of raw materials such as corn, oranges, and fuel/ electricity has hurt the beverage industry.
2 The low value of the dollar is also a problematic in a global environment.
3 Limitation of water in some parts of the world causes systems to purify water to be utilized, resulting in an increase in manufacturing costs per unit.
4 The trend toward more healthy eating and drinking will hurt sales of traditional sugar and sugar-substitute-based drinks.
5 The U.S. is a leader among countries experiencing problems with obesity.
6 Many states now ban the selling of some soft drink brands in public schools due to obesity issues among youth.
7 PepsiCo is a fierce competitor in the beverage industry’s two fastest growing categories: water and sport drinks.
8 Carbury Schweppes PLC is a diversified company that produces and markets beverages, chocolate and chewing gum.
9 Danone in 2005 shared first place worldwide in bottled water (volume) selling nearly 20 billion litres and 70% of its sales was in emerging markets.
1 PepsiCo leads in the bottled tea market with Brisk, co-marketed with Lipton.
0
11 PepsiCo has its own coffee product, Frappuccino, marketed in a joint-venture with Starbucks.
1 PepsiCo obtains 60% of its revenues from its snack division.
2
1 PepsiCo has tailored brands that have been very successful in different countries, such as crab and duck flavoured chips available in China and lentil-
3 based snacks available in India.
1 PepsiCo’s overseas revenues have been strong particularly in the Middle East, Argentina, China and Brazil.
4
1 The international market for PepsiCo has served the snack division well with operating profit rising 26% and snack volume up 9% in 2006.
5
1 Donone sells flavoured waters and focuses on health-conscious consumers.
6
1 PepsiCo would likely benefit most from acquiring Cadbury’s Mexican assets with such strong brands such as Squirt, Crush, and Canada Dry.
7

1.7

1.8 External Factor Evaluation (EFE) Matrix

OPPORTUNITY Weigh Rating Weighted
t Score
1 Bottled tea is one of the fastest growing drinks in the industry 0.06 3 0.18
2 Cadbury employing approximately 60,000 associates. 0.03 4 0.12
3 Groupe Danone competes to a lesser degree with Coke. 0.04 4 0.16
4 PepsiCo’s domestic sales declined. 0.03 4 0.12
5 Cadbury plans to divest its beverage division in 2007. 0.05 4 0.20
6 The brand Snapple, which Cadbury sells, would be a good fit for Coke. 0.04 4 0.16
THREATS Weigh Rating Weighted
t Score
1 The rising cost of raw materials such as corn, oranges, and fuel/ electricity has hurt the beverage industry. 0.06 2 0.12
2 The low value of the dollar is also a problematic in a global environment. 0.05 2 0.10
3 Limitation of water in some parts of the world causes systems to purify water to be utilized, resulting in an 0.04 2 0.08
increase in manufacturing costs per unit.
4 The trend toward more healthy eating and drinking will hurt sales of traditional sugar and sugar-substitute-based 0.05 2 0.10
drinks.
5 The U.S. is a leader among countries experiencing problems with obesity. 0.05 2 0.10
6 Many states now ban the selling of some soft drink brands in public schools due to obesity issues among youth. 0.06 1 0.06
7 PepsiCo is a fierce competitor in the beverage industry’s two fastest growing categories: water and sport drinks. 0.05 2 0.10
8 Carbury Schweppes PLC is a diversified company that produces and markets beverages, chocolate and chewing 0.02 2 0.04
gum.
9 Groupe Danone in 2005 shared first place worldwide in bottled water (volume) selling nearly 20 billion litres and 0.02 2 0.04
70% of its sales was in emerging markets.
1 PepsiCo leads in the bottled tea market with Brisk, co-marketed with Lipton. 0.04 2 0.10
0
11 PepsiCo has its own coffee product, Frappuccino, marketed in a joint-venture with Starbucks. 0.03 2 0.06
1 PepsiCo obtains 60% of its revenues from its snack division. 0.04 2 0.08
2
1 PepsiCo has tailored brands that have been very successful in different countries, such as crab and duck flavoured 0.05 1 0.05
3 chips available in China and lentil-based snacks available in India.
1 PepsiCo’s overseas revenues have been strong particularly in the Middle East, Argentina, China and Brazil. 0.05 2 0.10
4
1 The international market for PepsiCo has served the snack division well with operating profit rising 26% and 0.05 2 0.10
5 snack volume up 9% in 2006.
1 Donone sells flavoured waters and focuses on health-conscious consumers. 0.04 2 0.08

6
1 PepsiCo would likely benefit most from acquiring Cadbury’s Mexican assets with such strong brands such as 0.05 2 0.10
7 Squirt, Crush, and Canada Dry.
TOTAL 1.00 2.35
1.9 Competitive Profile Matrix (CPM)

Coke PepsiCo Cadbury Schweppes PLC Groupe Danone
Weighted Weighted Weighted Weighted
Critical Success Factors Weight Rating Rating Rating Rating
Score Score Score Score
Sales 0.13 4 0.52 3 0.39 2 0.26 2 0.26
Merger and Acquisition 0.15 3 0.45 4 0.60 2 0.30 2 0.30
Diversification 0.12 2 0.24 4 0.48 3 0.36 2 0.24
Employees 0.09 3 0.27 4 0.36 2 0.18 2 0.18
Financial Position 0.10 4 0.40 3 0.30 2 0.20 2 0.20
Product Variety 0.15 3 0.45 4 0.60 3 0.45 2 0.30
Management 0.10 3 0.30 3 0.30 3 0.30 2 0.20
Global Expansion 0.16 4 0.64 3 0.48 3 0.48 1 0.16
Total 1.00 3.27 3.51 2.53 1.84
2.0

2.1 VISION AND MISSION ASSESSMENT
There is no information available in the case.
3.0 INTERNAL ASSESSMENT

3.1 Cultural Factors
Companies within the industry Strengths Weaknesses
Cultural Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Factors No information available No information No information available No information
available available
3.2 Management Functions

Management Companies Within the Industry Strengths Weaknesses
Functions Coca-Cola PepsiCo Cadbury Schweppes Groupe Danone
PLC
Planning Coke of late had focused on Cadbury is a X
more nutritional offerings, diversified company
such as Minute Maid Forte in that produces and
Mexico, flavored water in markets beverages,
Columbia and 100% Cepita chocolate and chewing
Juice in Argentina. gum.
Coke is increasing Cadbury plans to X

investments in its bottling divest its beverage
investments, front-end division in 2007.
capability, equipment and
people/ training.
Coke’s long term strategy is
to reduce ownership interests
in bottlers and / or sell the
company’s interests to invest
bottlers.
Organizing Coke has a strong leadership PepsiCo recently X

team headed by CEO Isadell. ranked #19 among

America’s most
admired companies
while ranking #10 as
the world’s most
admired company.
Motivating No information available No information No information No information
available available available
Staffing Employing about 71,000 PepsiCo has more Cadbury has 70,000 X
people worldwide in over than double the employees.
200 countries, Coca-Cola employees as Coca-
Company is the world’s Cola, with 168,000
largest beverage company. employees.
Coca-Cola is Africa’s largest
private-sector employer with
55,000 employees.
There are approximately
10,000 Coke employees in
Russia, which is one of the
country’s largest foreign-
based firms.
Controlling No information available No information No information No information
available available available
3.3 Marketing Strategy

Marketing Companies Within the Industry Strength Weakness
Strategy Coca-Cola PepsiCo Cadbury Schweppes Groupe
PLC Danone
Marketing The success factors of Coke in
Strategy European Union division were the
combination of new products,
innovative packaging and
collaborating with customers.
In Africa, Coca-Cola receives PepsiCo has tailored X
annual awards as the favorite brands that have been
drink in South Africa. very successful in

different countries.
Coke launched a calorie-burning Danone sells X
beverage called Enviga and flavored
nationally launched Vault in 2006 waters and
which is an energy soda. focuses on
health-
conscious
consumers.
Coke’s focus on Latin America is
on adding more water, juice and
juice / sport drinks.
Promotion The 2006 FIFA World Cup in
Program Germany was a success for Coke
with the “It’s Your Heimspiel –
Make It Real!” campaign.
In collaboration with Apple
iTunes, Coke is involved in a
digital program that focuses on
youth.
In Latin America, Coke is relying
on its digital marketing platform
in Latin America to build and
strengthen its relationship with
customers which has registered
more than 5 million visitors in
Mexico and Brazil.
In North America, Coke has been
successfully in its implementation
of “MyCokeRewards” which
involved about 3.5 million
participating subjects and where
greater than 1.5 million rewards
were claimed.
The “MyCokeRewards” program
was bilingual and Internet-based.
Products Coke is the largest beverage PepsiCo obtains 60% of X
Planning company with products that its revenues from its

include Coca-Cola, Diet Coke, snack division.

Sprite and Fanta
Coke produces about 400 brands PepsiCo’s brands are Cadbury produces X
consisting of over 2,600 beverage available in about 200 brands such as
products, such as water, juice, markets, which generate Cadbury, Schweppes,
sport drinks, energy drinks, teas sales of about $92 Halls, Trident, Dr
and coffees. billion, Pepper, Snapple,
Trebor, Dentyne, 7Up,
Bubblicious and
Basset
A few Coke’s powerful brands in PepsiCo’s portfolio Danone X
Europe include Aquarius, Nestea, contains the number continues to
Traficante (Italy) to add to its one water brand, add new
existing five water-brand lineup Aquafina, and the drinks in
of Ciel, Valser, Toppur, Kropla leading sports drink different
Beskidu and Dasani. brand Gatorade. markets, such
as Tailefine
Fiz in France,
which is a
zero-calorie
soda.
Coke products comprise 70% of PepsiCo is a fierce One brand of X
the sodas drunk in Mexico. competitor in the Danone is
beverage industry’s two Levite, which
fastest growing is a big
categories: water and success in
sports drinks. Mexico.
Pricing No information available No information No information No
available available information
available
Distribution Coke products are distributed
through restaurants, grocery
markets, street vendors and
others, all of which sells to the
end users.
Coke’s operating segments PepsiCo conducts its Cadbury has strong Danone in X
include (1) Africa, (2) East and business in North regional beverage 2005 shared

South East Asia and Pacific Rim, America, Latin presence in the first place
(3) European Union, (4) Latin America, Europe, the Americas and worldwide in
America, (5) North America, (6) Middle East, Africa and Australia. bottled water
North Asia, Eurasia and the Asia Pacific. selling nearly
Middle East and (7) Bottling 20 billion
investment. litres.
Coke’s top three markets include Mexico and Russia 70% of X
United States, Mexico and Brazil. were two strong Danone’s
contributing market for sales were in
PepsiCo emerging
markets.
Coke is the top seller of PepsiCo’s beverage X
nonalcoholic beverages in Russia volume increased 7% in
with a 22% unit case volume the Middle East,
growth in 2006. Argentina, China &
Brazil in 2006.
China is a huge Coke customer as
well and yielded a 15% unit case
volume growth in 2006.
The Turkish market was also
strong for Coke in 2006.
Marketing Coke is test marketing coffee/ tea
Research – dispensing technology via the
Far Coast Brand, which is a
concept store that first opened in
Toronto, Canada in 2006.
3.4 Financial Analysis

Key Financial Companies Within the Industry Strengths Weaknesses
Ratio Coca-Cola PepsiCo Cadbury Schweppes Groupe Danone
PLC
Liquidity The current ratio of Coke is
Ratio declining when it decreased
about 14% in 2004 - 2006 and
critical part of its current ratio in
year 2006 when current liability

is more than current assets.

Coke’s quick ratio dropped about
15% in year 2006 as compared to
year 2005.
Asset Inventory turnover ratio of Coke
Management dropped about 9.5% in year 2006
Ratio as compared to year 2005.
Coke’s DSO is increasing and its
take more than a month to collect
its debt between years 2004 to
2006.
Coke’s fixed asset turnover ratio
dropped about 12.6% in year
2006 as compared to year 2005.
Coke’s total asset turnover ratio
is increasing by 14.7% between
years 2004-2006.
Debt Improvement in Coke’s debt
Management ratio at 11.4% between years
Ratio 2004 -2006.
Coke’s TIE ratio declined 6.5%
between years 2004 - 2006.
Profitability Coke’s profit margin on sales
Ratio increased about 0.2% for years
2004 – 2006.
Coke’s gross margin recorded at PepsiCo gross Cadbury’s gross margin X
66.12% and is the highest as margin recorded at is 14% and it is lowest
compared to PepsiCo and 55.14% and it is among three major
Cadbury and it is about 63% lower than Coke’s market players in soft
higher than the industry gross gross margin. drink segment.
margin.
Coke’s operating margin is PepsiCo’s operating Cadbury has the lowest X
26.97% which is higher than the margin is 18.33% operating margin at
industry’s operating margin of and it is second 13.24%.
5.26%. highest in the
industry.
Coke’s basic earning power

increased 10.74% between years

2004 and 2006.
Coke’s return on asset increased
about 9.6% between years 2004
and 2006.
Coke’s earning per share at PepsiCo’s EPS is at Cadbury’s EPS is at X
$2.162 is higher than the industry $3.344 and it is $4.39 which is the
EPS at $0.63. However, Coke’s higher than Coke. highest among three
EPS is the lowest among three major soft drink
soft drink producers. producers.
Growth Ratio Coke’s posted sales revenue at PepsiCo posted Cadbury posted X
$24 billion in 2006, increased by revenues at $35.14 revenues of $14.57
4.2% from 2005. It is the second billion in 2006 is the billion in 2006 as the
highest behind PepsiCo. highest among three lowest among three soft
soft drink producers. drink producers.
Coke’s net income was at $5.08 PepsiCo has the Cadbury’s net income X
billion and increased by 4.2% highest net income was $1.03 billion which
from 2005. Coke is lower than among three is the lowest among
PepsiCo. producers at $5.63 three producers.
billion.
Coke’s net income rose 25.8%
for its largest bottler.
Coke’s posted net income of
$268 million (55% share) for the
third quarter compared with $213
million (44%) a year earlier.
Coke’s net operating income rose
3.6% to $5.41 billion.
Coke’s operating revenue
dropped from 4.8% to 4.6% on
2006 from Africa Division.
Finance / International revenues are critical Sales have declined X
Accounting for Coke as its North America for PepsiCo
Audit revenues amount to only 28% of domestically but
Checklist total revenues. overseas revenues
have been strong
particularly in the

Middle East,
Argentina, China and
Brazil.
Coke’s market capital recorded PepsiCo’s market Cadbury’s market X
at $111.18 billion and is the capital is posted at capital is the lowest
highest among three major soft $103.10 billion. among the three
drink producers. producers at $26.33 bil.
Financial Ratio Analysis

Coca-Cola
Year
2004 2005 2006
Liquidity Ratio
Current Ratio 1.10 1.04 0.95
Quick Ratio 0.97 0.90 0.76

Asset Management Ratio
Inventory Turnover Ratio 15.47 16.22 14.68
Days Sales Outstanding 36.08 36.04 40.97
Fixed Asset Turnover Ratio 3.61 3.99 3.49
Total Asset Turnover Ratio 0.70 0.79 0.80
0.73 0.81 0.84
Debt Management Ratio
Debt Ratio 0.49 0.44 0.44
TIE Ratio 33.07 28.88 30.90

Profitability Ratio
Profit Margin On Sales 0.22 0.21 0.21
BEP 0.20 0.24 0.23
ROA 0.15 0.17 0.17

3.5 Production / Operation Strategies

Production/ Companies Within the Industry Strengths Weaknesses
Operation Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Process Coke has focused on route-to
market design and
optimization of the
infrastructure in its bottling
operation in India.
Coke’s earning from
operation fell as shipment
volume weakened in both
North America and Europe.
Coke shipped 2.5% fewer
cases during the quarter,
compared with a year earlier
while costs rose 6% and price
per case rose 4%.
Capacity Coke derives approximately
72% of their revenues from
outside the United States.
Majority Coke’s revenue PepsiCo’s international X
comes from its international revenue is strong
division. particularly in the Middle
East, Argentina, China
and Brazil.
Inventory No information available No information available No information available No information
available
Workforce There are approximately
10,000 Coke employees in
Russia which is one of the
country’s largest foreign-
based firms.
Quality Coke receives annual awards

as the favorite drink in South

Africa.
3.6 Research and Development

Companies Within the Industry Strengths Weaknesses
Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Research and Coke of late had focused on Danone sells flavored X
Development more nutritional offerings, waters and focuses on
such as Minute Maid Forte health-conscious
in Mexico, flavored water consumers.
in Columbia and 100%
Cepita Juice in Argentina.
3.7 Management Information Systems

Companies Within the Industry Strengths Weaknesses
Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Management No information available No information available No information available No information
Information available
Systems

3.8 Value Chain Analysis

3.8.1 Main Activities in Value Chain
Main Companies Within the Industry Strengths Weaknesses
Activities Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Input Affordability and availability

of Coke products is what hurt
the business in the
Philippines.
Process Coke recently acquired
Coca-Cola Bottlers
Philippines, Inc. to address
challenge of affordability and
availability of Coke Products
In the summer of 2007, Coke
acquired Energy Brands, Inc.
which produces Glaceau –
vitamin water ranked second
behind PepsiCo’s propel in
the fitness market
Coke recently acquired PepsiCo contains the X
mineral water company number one water
Apollinaris (Germany) and brand, Aquafina.
Traficante (Italy) to add to its
existing five water-brand
which is available in four
flavor.
Coke recently acquired Jugos
del Valle, S.A.B de C.V to
strengthen their presence in
Latin America region with
more juice beverages.

Coke acquired the Multon

juice operation to expand
their Russian beverage
portfolio.
Coke recently acquired Kerry
Beverages Limited which
was one of the largest
bottlers in China and
Apollianaris GmBH.
Coke recently purchased
Odwalla at a price that is
considered a bargain: $186
million.
Coke also just purchased
Fuze for $250 million which
supported their non-
carbonated portfolio.
Outcome Coke produces about 400 PepsiCo’s brands are Cadbury produces brands X
brands consisting of over available in about 200 such as Cadbury,
2,600 beverage products, markets, which generate Schweppes, Halls,
such as water, juice, sport sales of about $92 Trident, Dr Pepper,
drinks, energy drinks, teas billion, Snapple, Trebor, Dentyne,
and coffees. 7Up, Bubblicious and
Basset
A few Coke’s powerful PepsiCo’s portfolio Danone X
brands in Europe include contains the number one continues to add
Aquarius, Nestea, Traficante water brand, Aquafina, new drinks in
(Italy) to add to its existing and the leading sports different
five water-brand lineup of drink brand Gatorade. markets, such as
Ciel, Valser, Toppur, Kropla Tailefine Fiz in
Beskidu and Dasani. France, which is
a zero-calorie
soda.
Coke experience 5% unit

case volume decrease in

2006 in East and South Asia
and Pacific Rim division.
Declining Coke sales in India
and the Philippines were a
problem in 2006.
East and South Asia and
Pacific Rim benefited from
the success 2006 launch of
Coca-Cola Zero in Australia
and Thailand.
European Union division had
a 6% unit case volume
growth in 2006 versus 2005.
North Asia, Eurasia and the 7% increase of beverage X
Middle East division in 2006 volume in 2006
produced an 11% unit case
volume increase for Coke.
Coke is the top seller of Russia was strong X
nonalcoholic beverages in contributing market for
Russia with a 22% unit case PepsiCo.
volume growth in 2006.
China yielded a 15% unit 7% increase of beverage X
case volume growth in 2006. volume in 2006
Coke products comprise 70% PepsiCo is a fierce One brand of X
of the sodas drunk in competitor in the Danone is
Mexico. beverage industry’s two Levite, which is
fastest growing a big success in
categories: water and Mexico.
sports drinks.
Distribution Coke’s operating segments PepsiCo conducts its Cadbury has strong Danone in 2005 X
include (1) Africa, (2) East business in North regional beverage shared first
and South East Asia and America, Latin presence in the Americas place worldwide

Pacific Rim, (3) European America, Europe, the and Australia. in bottled water
Union, (4) Latin America, (5) Middle East, Africa and selling nearly 20
North America, (6) North Asia Pacific. billion litres.
Asia, Eurasia and the Middle
East and (7) Bottling
investment.
Coke’s top three markets Mexico and Russia were 70% of X
include United States, two strong contributing Danone’s sales
Mexico and Brazil. market for PepsiCo were in
emerging
markets.
Coke is the top seller of PepsiCo’s beverage X
nonalcoholic beverages in volume increased 7% in
Russia with a 22% unit case the Middle East,
volume growth in 2006. Argentina, China &
Brazil in 2006.
3.8.2 Supporting Activities in Value Chain

Supporting Companies Within the Industry Strengths Weaknesses
Activities Coca-Cola PepsiCo Cadbury Schweppes PLC Groupe Danone
Management Coke of late had focused on Cadbury is a diversified X
more nutritional offerings, company that produces
such as Minute Maid Forte and markets beverages,
in Mexico, flavored water in chocolate and chewing
Columbia and 100% Cepita gum.
Juice in Argentina.
Coke is increasing Cadbury plans to divest X
investments in its bottling its beverage division in
investments, front-end 2007.
capability, equipment and
people/ training.
Coke has a strong leadership PepsiCo recently X
team headed by CEO Isadell. ranked #19 among

America’s most
admired companies
while ranking #10 as
the world’s most
admired company.
Employing about 71,000 PepsiCo has more than Cadbury has 70,000 X
people worldwide in over double the employees employees.
200 countries, Coca-Cola as Coca-Cola, with Cadbury employed
Company is the world’s 168,000 employees. 60,000 associates.
largest beverage company.
Financial Coke’s gross margin PepsiCo gross margin Cadbury’s gross margin X
recorded at 66.12% and is recorded at 55.14% and is 14% and it is lowest
the highest as compared to it is lower than Coke’s among three major
PepsiCo and Cadbury and it gross margin. market players in soft
is about 63% higher than the drink segment.
industry gross margin.
Coke’s operating margin is PepsiCo’s operating Cadbury has the lowest X
26.97% which is higher than margin is 18.33% and it operating margin at
the industry’s operating is second highest in the 13.24%.
margin of 5.26%. industry.
Coke’s earning per share at PepsiCo’s EPS is at Cadbury’s EPS is at X
$2.162 is higher than the $3.344 and it is higher $4.39 which is the
industry EPS at $0.63. than Coke. highest among three
However, Coke’s EPS is the major soft drink
lowest among three soft producers.
drink producers.
Coke posted sales revenue of PepsiCo posted Cadbury posted revenues X
$24 billion in 2006, revenues of $35.14 of $14.57 billion in 2006
increased by 4.2% from billion in 2006 is the as the lowest among
2005. It is the second highest highest among three three soft drink
behind PepsiCo. soft drink producers. producers.
Coke’s net income was at PepsiCo has the highest Cadbury’s net income X
$5.08 billion and increased net income among was $1.03 billion which
by 4.2% from 2005. Coke is three producers at is the lowest among three

lower than PepsiCo. $5.63 billion. producers.

Coke’s market capital PepsiCo’s market Cadbury’s market capital X
recorded at $111.18 billion capital is posted at is the lowest among the
and is the highest among $103.10 billion. three producers at $26.33
three major soft drink billion.
producers.
Research and Coke of late had focused on Danone sells flavored X
Development more nutritional offerings, waters and focuses on
such as Minute Maid Forte health-conscious
in Mexico, flavored water in consumers.
Columbia and 100% Cepita
Juice in Argentina.
Procurement No information available No information No information available No information
available available
Marketing In Africa, Coca-Cola PepsiCo has tailored X
receives annual awards as brands that have been
the favorite drink in South very successful in
Africa. different countries.
Coke launched a calorie- Danone sells X
burning beverage called flavored waters
Enviga and nationally and focuses on
launched Vault in 2006 health-
which is an energy soda. conscious
consumers.
Coke is the largest beverage PepsiCo obtains 60% X
company with products that of its revenues from its
include Coca-Cola, Diet snack division.
Coke, Sprite and Fanta
Coke produces about 400 PepsiCo’s brands are Cadbury produces brands X
brands consisting of over available in about 200 such as Cadbury,
2,600 beverage products, markets, which Schweppes, Halls,
such as water, juice, sport generate sales of about Trident, Dr Pepper,
drinks, energy drinks, teas $92 billion, Snapple, Trebor,

and coffees. Dentyne, 7Up,

Bubblicious and Basset
A few Coke’s powerful PepsiCo’s portfolio Danone X
brands in Europe include contains the number continues to add
Aquarius, Nestea, Traficante one water brand, new drinks in
(Italy) to add to its existing Aquafina, and the different
five water-brand lineup of leading sports drink markets, such as
Ciel, Valser, Toppur, Kropla brand Gatorade. Tailefine Fiz in
Beskidu and Dasani. France, which is
a zero-calorie
soda.
Coke products comprise PepsiCo is a fierce One brand of X
70% of the sodas drunk in competitor in the Danone is
Mexico. beverage industry’s two Levite, which is
fastest growing a big success in
categories: water and Mexico.
sports drinks.
3.9

3.9 Strengths and Weakness
STRENGTHS
1 Coke is increasing investments in its bottling investments, front-end capability, equipment and people/ training.
2 Coke is the largest beverage company with products that include Coca-Cola, Diet Coke, Sprite and Fanta
3 Coke produces about 400 brands consisting of over 2,600 beverage products, such as water, juice, sport drinks, energy drinks, teas and coffees.
4 Coke’s operating segments include (1) Africa, (2) East and South East Asia and Pacific Rim, (3) European Union, (4) Latin America, (5) North
America, (6) North Asia, Eurasia and the Middle East and (7) Bottling investment.
5 Coke’s top three markets include United States, Mexico and Brazil.
6 Coke is the top seller of nonalcoholic beverages in Russia with a 22% unit case volume growth in 2006.
7 China yielded a 15% unit case volume growth of Coke in 2006.
8 Coke of late had focused on more nutritional offerings, such as Minute Maid Forte in Mexico, flavored water in Columbia and 100% Cepita Juice
in Argentina.
9 Coke’s gross margin recorded at 66.12% and is the highest as compared to PepsiCo and Cadbury and it is about 63% higher than the industry gross
margin.
10 Coke’s operating margin is 26.97% which is higher than the industry’s operating margin of 5.26%.
11 Coke’s market capital recorded at $111.18 billion and is the highest among three major soft drink producers.
12 A few Coke’s powerful brands in Europe include Aquarius, Nestea, Traficante (Italy) to add to its existing five water-brand lineup of Ciel, Valser,
Toppur, Kropla Beskidu and Dasani.
WEAKNESSES
1 PepsiCo has more than double the employees as Coca-Cola, with 168,000 employees.
2 Coke was left behind PepsiCo in marketing where PepsiCo has tailored brands that have been very successful in different countries and these
creative marketing strategies were stem from the company’s home grown managers.
3 Coke was behind PepsiCo in the beverage industry’s two fastest growing categories: water and sports drinks.
4 Coke’s earning per share at $2.162 is higher than the industry EPS at $0.63. However, Coke’s EPS is the lowest among three soft drink producers.
5 Coke’s posted sales revenue at $24 billion was behind PepsiCo’s posted revenues at $35.14 billion.
6 Coke’s net income was at $5.08 billion in 2006 was slightly behind PepsiCo’s $5.63 billion.
7 Coke’s international revenue is critical where PepsiCo’s international revenue is strong particularly in the Middle East, Argentina, China and Brazil.
8 Coke’s net income was at $5.08 billion is lesser than PepsiCo’s net income at $5.63 billion.
9 Coke was behind Danone in water segment where Danone sells flavored waters and focuses on health-conscious consumers.
10 Coke was left behind PepsiCo in snack market segment where 60% of PepsiCo’s revenue was generated from snack division.

3.10 Internal Factor Evaluation (IFE) Matrix

STRENGTHS Weight Rating Weighted Score
1 Coke is increasing investments in its bottling investments, front-end capability, equipment and 0.05 3 0.15
people/ training.
2 Coke is the largest beverage company with products that include Coca-Cola, Diet Coke, Sprite 0.05 4 0.20
and Fanta
3 Coke produces about 400 brands consisting of over 2,600 beverage products, such as water, 0.07 4 0.28
juice, sport drinks, energy drinks, teas and coffees.
4 Coke’s operating segments include (1) Africa, (2) East and South East Asia and Pacific Rim, 0.04 4 0.16
(3) European Union, (4) Latin America, (5) North America, (6) North Asia, Eurasia and the
Middle East and (7) Bottling investment.
5 Coke’s top three markets include United States, Mexico and Brazil. 0.04 4 0.16
6 Coke is the top seller of nonalcoholic beverages in Russia with a 22% unit case volume 0.05 3 0.15
growth in 2006.
7 China yielded a 15% unit case volume growth of Coke in 2006. 0.05 4 0.20
8 Coke of late had focused on more nutritional offerings, such as Minute Maid Forte in Mexico, 0.04 3 0.12
flavored water in Columbia and 100% Cepita Juice in Argentina.
9 Coke’s gross margin recorded at 66.12% and is the highest as compared to PepsiCo and 0.04 4 0.16
Cadbury and it is about 63% higher than the industry gross margin.
10 Coke’s operating margin is 26.97% which is higher than the industry’s operating margin of 0.04 3 0.12
5.26%.
11 Coke’s market capital recorded at $111.18 billion and is the highest among three major soft 0.04 4 0.16
drink producers.
12 A few Coke’s powerful brands in Europe include Aquarius, Nestea, Traficante (Italy) to add to 0.04 3 0.12
its existing five water-brand lineup of Ciel, Valser, Toppur, Kropla Beskidu and Dasani.
WEAKNESSES Weight Rating Weighted Score
1 PepsiCo has more than double the employees as Coca-Cola, with 168,000 employees. 0.05 2 0.10
2 Coke was left behind PepsiCo in marketing where PepsiCo has tailored brands that have been 0.06 1 0.06
very successful in different countries and these creative marketing strategies were stem from
the company’s home grown managers.
3 Coke was behind PepsiCo in the beverage industry’s two fastest growing categories: water and 0.04 2 0.08
sports drinks.
4 Coke’s earning per share at $2.162 is higher than the industry EPS at $0.63. However, Coke’s 0.03 2 0.06

EPS is the lowest among three soft drink producers.

5 Coke’s posted sales revenue at $24 billion was behind PepsiCo’s posted revenues at $35.14 0.04 2 0.08
billion.
6 Coke’s net income was at $5.08 billion in 2006 was slightly behind PepsiCo’s $5.63 billion. 0.05 2 0.10
7 Coke’s international revenue is critical where PepsiCo’s international revenue is strong 0.05 1 0.05
particularly in the Middle East, Argentina, China and Brazil.
8 Coke’s net income was at $5.08 billion is lesser than PepsiCo’s net income at $5.63 billion. 0.04 1 0.04
9 Coke was behind Danone in water segment where Danone sells flavored waters and focuses 0.03 2 0.06
on health-conscious consumers.
10 Coke was left behind PepsiCo in snack market segment where 60% of PepsiCo’s revenue was 0.05 2 0.10
generated from snack division.
TOTAL 1.00 2.71
4.0 STRATEGIES IN ACTION

4.1 Establishing Long Term Objectives
Famous soft drink brands – Pepsi and Coke are ofter used interchangeably by many consumers expressing their interest in a soft drink. The market
trend now is moving towards more healthy drinking and eating products which will hurt the sales of traditional sugar and sugar-substitute-based drinks.
Besides that, Coke was left behind PepsiCo particularly in snack, water and sports drinks divisions. Hence, it is necessary to study these market segments and
to develop appropriate strategies in order to compete in intense competitive soft drinks industry.
4.2

4.2 STRATEGIES ANALYSIS AND CHOICE

EXTERNAL FORCES

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EXTERNAL FORCES

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1.

Table 1.1.2 Social Forces

Table 1.1.3 Political Forces

Table 1.1.4 Technological Forces

The pace of technology change No information available

Table 1.1.5 Competitive Forces

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1.3 Industry Analysis (Porter’s 5 forces)

1.2.2 Competitive Pressure among Rivalry

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develop valuable available in China and lentil-based snacks available in

1.2.3 Competitive Pressure Associated with New Entrant

1.2.4 Competitive Pressure from the Substitute Products

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1.2.5 Competitive Pressure from the Suppliers’ Bargaining Power

1.2.6 Competitive Pressure from the Buyers’ Bargaining Power

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the sellers’ The use of some ingredients in Coke products may be X Y

1.2.7 The Industry Analysis – Porter’s 5 Forces

1.4 Key Success Factors of the Industry

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1.6 Opportunities and Threats

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1.8 External Factor Evaluation (EFE) Matrix

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1.9 Competitive Profile Matrix (CPM)

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2.1 VISION AND MISSION ASSESSMENT

There is no information available in the case.

3.0 INTERNAL ASSESSMENT

3.2 Management Functions

Coke is increasing Cadbury plans to X

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team headed by CEO Isadell. ranked #19 among

3.3 Marketing Strategy

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include Coca-Cola, Diet Coke, snack division.

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3.4 Financial Analysis

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is more than current assets.

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increased 10.74% between years

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Financial Ratio Analysis

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3.5 Production / Operation Strategies

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as the favorite drink in South

3.6 Research and Development

3.7 Management Information Systems

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3.8 Value Chain Analysis

Input Affordability and availability

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Coke acquired the Multon

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case volume decrease in

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3.8.2 Supporting Activities in Value Chain