University of Jordan

Faculty of Business
Strategic Management
Coca-Cola Company
Case Study
STRATEGIC MANAGEMENT

Prepared By
Fathi Salem Mohammed Abdullah

2009

History analysis

In May, 1886, Coca Cola was invented by Doctor John Pemberton a

pharmacist from Atlanta, Georgia. John Pemberton concocted the Coca
Cola formula in a three legged brass kettle in his backyard.
Being a bookkeeper, Frank Robinson also had excellent penmanship. It
was he who first scripted "Coca Cola" into the flowing letters which has
become the famous logo of today.
The soft drink was first sold to the public at the soda fountain in
Jacob's Pharmacy in Atlanta on May 8, 1886.
Until 1905, the soft drink, marketed as a tonic, contained extracts of
cocaine as well as the caffeine-rich kola nut.
Until the 1960s, both small town and big city dwellers enjoyed
carbonated beverages at the local soda fountain or ice cream saloon.
Often housed in the drug store, the soda fountain counter served as a
meeting place for people of all ages. Often combined with lunch
counters, the soda fountain declined in popularity as commercial ice
cream, bottled soft drinks, and fast food restaurants became popular.
On April 23, 1985, the trade secret "New Coke" formula was released.
Today, products of the Coca Cola Company are consumed at the rate of
more than one billion drinks per day.

Vision Statement (actual)

To maintain our reputation as the leading cola company in the world.

Mission Statement (actual)

Everything we do is inspired by our enduring mission:

To Refresh the World... in body, mind, and spirit.

To Inspire Moments of Optimism... through our brands and our actions.
To Create Value and Make a Difference... everywhere we engage.

(proposed)
At Coca Cola we believe our main responsibility is providing customers (1) with
refreshing beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit
any occasion in their day to day lives (6). Our signature product, Coke (7), is a favorite
around the world and a wide variety of our products are sold in over 200 nations (3). We
use the only the most sophisticated equipment (4) to process and make our products to
ensure each glass of Coke product is as good as the last (5). Our employees (9) are fairly

compensated and we practice fair trade in all markets we compete. We value our
responsibility to all communities we serve and support many educational and leadership
programs (8).
1.
2.
3.
4.
5.
6.
7.
8.
9.

Customer
Products or services
Markets
Technology
Concern for survival, profitability, growth
Philosophy
Self-concept
Concern for public image
Concern for employees

The Five Forces Framework

Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market
include:

Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing
bottlers who have rights in a certain geographic area in perpetuity. These agreements
prohibit bottlers from taking on new competing brands for similar products. Also with
the recent consolidation among the bottlers and the backward integration with both Coke
and Pepsi buying significant percent of bottling companies, it is very difficult for a firm
entering to find bottlers willing to distribute their product.

The other approach to try and build their bottling plants would be very capital-intensive effort
with new efficient plant capital requirements in 1998 being $75 million.

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 bottlers. The average advertisement spending per point of market
share in 2000 was 8.3 million (Exhibit 2). This makes it extremely difficult for an entrant
to compete with the incumbents and gain any visibility.

Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this
has earned them huge amount of brand equity and loyal customers all over the world.
This makes it virtually impossible for a new entrant to match this scale in this market
place.

Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 15-20%
on these soft drinks for the shelf space they offer. These margins are quite significant for

their bottom-line. This makes it tough for the new entrants to convince retailers to
carry/substitute their new products for Coke and Pepsi.

Fear of Retaliation: To enter into a market with entrenched rival behemoths like Pepsi
and Coke is not easy as it could lead to price wars which affect the new comer.

Suppliers:

Commodity Ingredients: Most of the raw materials needed to produce concentrate are
basic commodities like Color, flavor, caffeine or additives, sugar, packaging. Essentially
these are basic commodities. The producers of these products have no power over the
pricing hence the suppliers in this industry are weak.

Buyers:
The major channels for the Soft Drink industry (Exhibit 6) are food stores, Fast food fountain,
vending, convenience stores and others in the order of market share. The profitability in each of
these segments clearly illustrate the buyer power and how different buyers pay different prices
based on their power to negotiate.

Food Stores: These buyers in this segment are some what consolidated with several chain
stores and few local supermarkets, since they offer premium shelf space they command
lower prices, the net operating profit before tax (NOPBT) for concentrate producers in
this segment is $0.23/case

Convenience Stores: This segment of buyers is extremely fragmented and hence have to
pay higher prices, NOPBT here is $0.69 /case.

Fountain: This segment of buyers are the least profitable because of their large amount
of purchases hey make, It allows them to have freedom to negotiate. Coke and Pepsi
primarily consider this segment Paid Sampling with low margins. NOPBT in this
segment is $0.09 /case.

Vending: This channel serves the customers directly with absolutely no power with the
buyer, hence NOPBT of $0.97/case.

Substitutes: Large numbers of substitutes like water, beer, coffee, 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 for consumers, which most substitutes cannot match.
Also soft drink companies diversify business by offering substitutes themselves to shield
themselves from competition. Rivalry:
The Concentrate Producer industry can be classified as a Duopoly with Pepsi and Coke as the
firms competing. The market share of the rest of the competition is too small to cause any
upheaval of pricing or industry structure. Pepsi and Coke mainly over the years competed on
differentiation and advertising rather than on pricing except for a period in the 1990s. This
prevented a huge dent in profits. Pricing wars are however a feature in their international
expansion strategies.

PEST Analysis
The PEST Analysis is an analysis to examine the macro-environment of CocaColas operations (Johnson, Scholes and Whittington, 2008).
Political
Like most companies, Coca-Cola is monitoring the policies and regulations set by
the government. There are no political issues in this instance.
Economic
There is low growth in the market for carbonated drinks, especially in Coca-Colas
main market, North America. The market growth recorded at only 1% for North
America in 2004.
Social
There are changes in consumers lifestyles. Consumers are more health conscious.
This affects the Coca-Colas sales of the carbonated drinks as consumers prefer
non-carbonated drinks such as tea, juices and bottled drinks. Demand for
carbonated drinks decreases and this leads to a decrease in Coca-Colas revenues.
Technological
As the technology advances, new products are introduced into the market. The
advance in technology has led to the creation of cherry coke in 1985 but consumers
still prefers the traditional taste of the original coke.

External Audit
Opportunities
1.
2.

3.

4.

5.

6.
7.

8.

Threats

Bottled water consumption has

increased 11 percent.
According to the S&P Industry
Survey, consumers are drawn
to new smaller beverage
brands that are not sold on a
mass scale.
Word Economic Forums
annual Davos, Switzerland
gathering grants international
voice.
Less developed countries are
in desperate need to improve
community water supplies.
Energy drink sales are
expected to increase 7 to 8
percent in 2007.
Disposable income has
increased 6.2 percent.
Consumers are striving to drink
and eat their way to better
health than pervious
generations.
EPS is expected to rise 7 to 8
percent in 2007.

1. Consumption of American
beverages is denounced by
foreign officials in areas where
conflicting interest exist.
2. Multiple lawsuits against the
new Enviga beverage for
calorie burning claims in
advertising
3. Smaller, lesser known brands
are turning to major beer
distributors for bottling.
4. Overall carbonated drink sales
have been flat due to links of
sugar to obesity and high
fructose corn syrup to heart
disease.
5. Pepsi is more diversified
offering beverage and food
products.
6. High cost of commodities such
as sugar, and metals used in
production of cans.
7. Many smaller companies are
fierce competitors around the
world in their local markets.

CPM Competitive Profile Matrix

Critical Success
Factors
Market Share
Price Comp
Financial Position
Product Quality

Weight
0.15
0.10
0.12
0.15

Coca-Cola
Rating
Weighted
Score
4
0.60
3
0.30
4
0.48
3
0.45

Rating
3
3
4
3

Pepsi
Weighted
Score
0.45
0.30
0.48
0.45

Cadbury Schweppes
Rating
Weighted
Score
2
0.30
3
0.30
3
0.36
3
0.45

Product Lines
Customer Loyalty
Employees
Marketing
Total

0.15
0.15
0.11
0.07
1.00

4
4
3
3

0.60
0.60
0.33
0.21
3.71

4
4
3
3

0.60
0.60
0.33
0.21
3.56

3
3
3
3

0.45
0.45
0.33
0.21
2.85

External Factor Evaluation (EFE) Matrix

Key External Factors
Opportunities
1. Bottled water consumption has increased 11
percent.
2. According to the S&P Industry Survey,
consumers are drawn to new smaller beverage
brands that are not sold on a mass scale.
3. Word Economic Forums annual Davos,
Switzerland gathering grants international voice.
4. Less developed countries are in desperate need
to improve community water supplies.
5. Energy drink sales are expected to increase 7 to
8 percent in 2007.
6. Disposable income has increased 6.2 percent.
7. Consumers are striving to drink and eat their
way to better health than pervious generations.
8. EPS is expected to rise 7 to 8 percent in 2007.
Threats
1. Consumption of American beverages is
denounced by foreign officials in areas where
conflicting interest exist.
2. Multiple lawsuits against the new Enviga
beverage for calorie burning claims in
advertising
3. Smaller, lesser known brands are turning to
major beer distributors for bottling.
4. Overall carbonated drink sales have been flat
due to links of sugar to obesity and high fructose
corn syrup to heart disease.
5. Pepsi is more diversified offering beverage and
food products.
6. High cost of commodities such as sugar, and
metals used in production of cans.
7. Many smaller companies are fierce competitors
around the world in their local markets.
TOTAL

Weight

Rating

Weighted Score

0.06

0.24

0.05

0.10

0.02

0.04

0.02

0.04

0.06

0.18

0.05
0.07

3
3

0.15
0.21

0.07

0.28

0.02

0.06

0.04

0.08

0.06

0.12

0.10

0.20

0.20

0.60

0.10

0.30

0.08

0.24

1.00

2.84

Internal Audit
Strength

Weakness

1. Product line has over 400 brands.

2. Strong global presence, located in
over 200 countries.
3. Long history has built excellent
brand recognition.
4. Partnership longevity with
established sporting events
including the Olympics.
5. Industry leader in market
capitalization with $112 billion.
6. Return on Equity yielded 30
percent in 2006.
7. Leader of dividend yields of 2.6
percent. The company has had 43
consecutive years of an annual
dividend increase.
8. Joint venture between The Coca
Cola Company and Nestle has
resulted in the establishment of
Beverage Partners Worldwide
(BPW).
9. Coca-Cola has formed a strong
partnership with McDonalds, with
McDonalds becoming their largest
customer.

1. Product line is limited to

beverages.
2. A failed $16 billion acquisition
of Quaker Oats hinders longterm growth.
3. Negative publicity in India
because of water issues, has
led to poor brand image and
hindered growth there.
4. Lack of management
willingness to place foreign
products into American
markets.
5. Marketing deficiencies due to
turnover in leadership and a 16
percent decrease in advertising
spending.
6. Coca Colas inventory
turnover is only 5.4 compared
to Pepsi Co.s 8.0.

Financial Ratio Analysis (December 2007)

Growth Rates %
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)

Coca Cola
19.20
8.30
13.30
6.54

Industry
22.20
25.70
30.00
8.45

SP-500
11.60
17.10
9.30
13.09

Net Income (5-Year Annual Avg.)

Dividends (5-Year Annual Avg.)
Price Ratios
Current P/E Ratio
P/E Ratio 5-Year High
P/E Ratio 5-Year Low
Price/Sales Ratio
Price/Book Value
Price/Cash Flow Ratio
Profit Margins
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
5Yr PreTax Margin (5-Year Avg.)
5Yr Net Profit Margin (5-Year Avg.)
Financial Condition
Debt/Equity Ratio
Current Ratio
Quick Ratio
Interest Coverage
Leverage Ratio
Book Value/Share
Investment Returns %
Return On Equity
Return On Assets
Return On Capital
Return On Equity (5-Year Avg.)
Return On Assets (5-Year Avg.)
Return On Capital (5-Year Avg.)
Management Efficiency
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
Adapted from www.moneycentral.msn.com

Date
12/06
12/05
12/04
12/03
12/02

Avg. P/E
20.30
21.00
23.30
25.00
31.10

5.01
11.49

9.38
12.61

19.82
10.00

25.4
NA
NA
5.00
6.97
21.10

26.2
49.9
20.7
3.96
5.71
19.60

20.3
26.8
6.8
2.37
3.45
10.70

64.2
26.0
19.8
64.4
27.9
21.1

52.7
17.5
14.2
59.1
20.1
14.9

34.5
17.8
12.6
34.3
16.4
11.4

0.49
0.8
0.6
55.1
2.1
8.52

0.69
1.0
0.7
41.0
2.5
10.25

1.06
1.1
0.9
31.8
3.7
18.53

28.9
14.9
22.6
32.0
16.7
24.6

22.0
11.2
16.9
25.4
12.6
18.2

24.9
7.6
10.2
18.5
6.4
8.6

76,690
386,732
9.8
5.4
0.8

56,327
360,922
10.1
6.8
0.8

92,892
806,706
14.3
7.8
0.8

Price/Sales
4.71
4.18
4.65
5.99
5.56

Price/Book
6.61
5.84
6.29
8.79
9.18

Net Profit Margin (%)

21.1
21.1
22.3
20.8
20.3

Date
Book Value/ Share
Debt/Equity
12/06
$7.30
0.27
12/05
$6.90
0.35
12/04
$6.61
0.45
12/03
$5.77
0.38
12/02
$4.78
0.45
Adapted from www.moneycentral.msn.com

ROE (%)
30.0
29.8
30.4
30.9
33.7

ROA (%)
17.0
16.6
15.4
15.9
16.3

Interest Coverage
28.7
25.4
29.1
29.3
27.4

Net Worth Analysis (December 2007 in millions)

1. Stockholders Equity + Goodwill = 17,000 + 1,400
2. Net income x 5 = $5,000 x 5=
3. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000=
4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 =
Method Average

$ 18,400
$ 25,000
$ 123,931
$ 92,800
$65,032

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors
Strengths
1. Product line has over 400 brands.
2. Strong global presence, located in over 200 countries.
3. Long history has built excellent brand recognition.

Weight

Rating

Weighted
Score

0.09
0.10
0.06

4
4
4

0.36
0.40
0.24

4.

Partnership longevity with established sporting events

including the Olympics.
5. Industry leader in market capitalization with $112
billion.
6. Return on Equity yielded 30 percent in 2006.
7. Leader of dividend yields of 2.6 percent. The company
has had 43 consecutive years of an annual dividend
increase.
8. Joint venture between The Coca Cola Company and
Nestle has resulted in the establishment of Beverage
Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with
McDonalds, with McDonalds becoming their largest
customer.
Weaknesses
1. Product line is limited to beverages.
2. A failed $16 billion acquisition of Quaker Oats hinders
long-term growth.
3. Negative publicity in India because of water issues, has
led to poor brand image and hindered growth there.
4. Lack of management willingness to place foreign
products into American markets.
5. Marketing deficiencies due to turnover in leadership and
a 16 percent decrease in advertising spending.
6. Coca Colas inventory turnover is only 5.4 compared to
Pepsi Co.s 8.0.
TOTAL

0.05

0.20

0.12

0.48

0.04

0.12

0.04

0.16

0.06

0.24

0.10

0.40

0.09
0.10

1
1

0.09
0.10

0.03

0.06

0.02

0.04

0.05

0.10

0.05

0.10

1.00

3.09

SWOT Strategies
Opportunities (O)

Strengths (S)

Weaknesses (W)

SO Strategies

WO Strategies

1. Improve environmental
awareness with

1. Market
international

2.

Threats (T)

community
involvement (S2, S4,
O2, O3).
Market new diet drinks
that have healthier
sugar substitutes (S5,
O7).

ST Strategies
1. Acquire Krispy
Kreme (KKD) to
help diversify the
product line (S5,
T5).
2. Acquire Golden
Enterprises
(GLDC) to help
diversify the
product line (S5,
T5).

SPACE Matrix
Coordinate: (3.6, 2.2)

beverages to
American
consumers (W4,
O2, O6, O7).
2. Increase marketing
efforts for bottled
water (W5, W6,
O1).
WT Strategies
1.

A
cquire Krispy Kreme
(KKD) to help diversify
the product line (W1, T5).

2.

A
cquire Golden Enterprises
(GLDC) to help diversify
the product line (W1, T5).

FS
Aggressive

Conservative

CA

IS

Defensive

Competitive

ES

x-axis: -1.4 + 5.0 = 3.6

y-axis: 5.4 + -3.2 = 2.2
Coordinate: (3.6, 2.2)

Grand Strategy Matrix

Rapid Market Growth

Quadrant II

Quadrant I

Weak
Competitive
Position

Strong
Competitive
Position

Quadrant III

Quadrant IV

Slow Market Growth

The Boston Consulting Group (BCG) Matrix

Relative Market Share Position

Industry
Sales
Growth
Rate

Coke

Stars

Question Marks

Cash Cows

The Internal-External (IE) Matrix

The IFE Total Weighted Score

Dogs

High
3.0 to 3.99

Medium
The EFE Total 2.0 to 2.99
Weighted Score

Strong
3.0 to 4.0

Average
2.0 to 2.99

Weak
1.0 to 1.99

II

III

IV

VI

VIII

IX

Coca Cola

Low
1.0 to 1.99

VII

Grow and Build

Divisions
North America
Bottling Investments
North Asia, Eurasia & Middle East
European Union
Latin America
Africa
East, South Asia & Pacific Rim
Corporate

QSPM
Strategic Alternatives

Percent Revenue 2006

29.1
21.2
16.5
14.6
10.3
4.6
3.3
0.4

Acquire KKD and

GLDC
Key Internal Factors
Strengths
1. Product line has over 400 brands.
2. Strong global presence, located in over 200
countries.
3. Long history has built excellent brand recognition.
4. Partnership longevity with established sporting
events including the Olympics.
5. Industry leader in market capitalization with $112
billion.
6. Return on Equity yielded 30 percent in 2006.
7. Leader of dividend yields of 2.6 percent. The
company has had 43 consecutive years of an
annual dividend increase.
8. Joint venture between The Coca Cola Company
and Nestle has resulted in the establishment of
Beverage Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with
McDonalds, with McDonalds becoming their
largest customer.
Weaknesses
1. Product line is limited to beverages.
2. A failed $16 billion acquisition of Quaker Oats
hinders long-term growth.
3. Negative publicity in India because of water issues,
has led to poor brand image and hindered growth
there.
4. Lack of management willingness to place foreign
products into American markets.
5. Marketing deficiencies due to turnover in
leadership and a 16 percent decrease in advertising
spending.
6. Coca Colas inventory turnover is only 5.4
compared to Pepsi Co.s 8.0.
SUBTOTAL

Key External Factors

Weight

Produce new diet

drinks that have
healthier sugar
substitutes
AS
TAS
4
0.36
-----

0.09
0.10

AS
2
---

TAS
0.18
---

0.06
0.05

2
---

0.12
---

4
---

0.24
---

0.12

0.48

0.36

0.04

0.16

0.12

0.04

---

---

---

---

0.06

---

---

---

---

0.10

---

---

---

---

0.09
0.10

4
---

0.36
---

1
---

0.09
---

0.03

---

---

---

---

0.02

---

---

---

---

0.05

---

---

---

---

0.05

0.20

0.05

1.00

Weight

1.50

1.22

Acquire KKD and

GLDC

Produce new diet

drinks that have
healthier sugar

Opportunities
1. Bottled water consumption has increased 11 percent.
2. According to the S&P Industry Survey, consumers
are drawn to new smaller beverage brands that are
not sold on a mass scale.
3. Word Economic Forums annual Davos, Switzerland
gathering grants international voice.
4. Less developed countries are in desperate need to
improve community water supplies.
5. Energy drink sales are expected to increase 7 to 8
percent in 2007.
6. Disposable income has increased 6.2 percent.
7. Consumers are striving to drink and eat their way to
better health than pervious generations.
8. EPS is expected to rise 7 to 8 percent in 2007.
Threats
1. Consumption of American beverages is denounced
by foreign officials in areas where conflicting interest
exist.
2. Multiple lawsuits against the new Enviga beverage
for calorie burning claims in advertising
3. Smaller, lesser known brands are turning to major
beer distributors for bottling.
4. Overall carbonated drink sales have been flat due to
links of sugar to obesity and high fructose corn syrup
to heart disease.
5. Pepsi is more diversified offering beverage and food
products.
6. High cost of commodities such as sugar, and metals
used in production of cans.
7. Many smaller companies are fierce competitors
around the world in their local markets.
SUB TOTAL
SUM TOTAL ATTRACTIVENESS SCORE

Recommendations

substitutes
AS
TAS
-----

0.06

AS
---

TAS
---

0.05

0.05

0.15

0.02

---

---

---

---

0.02

---

---

---

---

0.06

---

---

---

---

0.05
0.07

--2

--0.14

--4

--0.28

0.07

0.28

0.21

0.02

---

---

---

---

0.04

---

---

---

---

0.06

---

---

---

---

0.10

0.20

0.40

0.20

0.80

0.40

0.10

---

---

---

---

0.08

---

---

---

---

1.47
2.97

1.44
2.66

The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and
snack food company) was a better option than producing a new diet soda line made form
more healthy sugar alternatives. Both scores on the QSPM are relatively close and given
the financial condition of KKD and GLDC, it is recommended Coca Cola undertake both
strategic alternatives. The Net Worth of both companies is provided below. It is
estimated it would cost $200 million to research, produce and market the new diet drinks.
Krispy Kreme (KKD) Net Worth January 2008 (in millions).
1. Stockholders Equity + Goodwill = 79 + 28
2. Net income x 5 = $-42 x 5=
3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42=
4. Number of Shares Outstanding x Share Price = 65 x $2.73 =
Method Average

$ 107
$ NA
$ NA
$ 177
$142

Golden Enterprises (GLDC) Net Worth January 2008 (in millions).

1. Stockholders Equity + Goodwill = 19.4 + 0
2. Net income x 5 = $1.2 x 5=
3. Share price = $2.95/EPS 0.19 =$15.52 x Net Income $1.2=
4. Number of Shares Outstanding x Share Price = 11.2 x $2.95 =
Method Average

EPS/EBIT Analysis
$ Amount Needed: 360M
Stock Price: $58

$ 19.4
$ 6.0
$ 18.6
$ 33.0
$19.3

Tax Rate: 35%

Interest Rate: 5%
# Shares Outstanding: 1,600M

References
1. www.moneycentral.msn.com
2. www.coca-cola.com

3. Strategic Management concepts and cases by Fred David 12 edition

4. Exploring Corporate Strategy text & cases 8th edition