Running Head: COCA-COLA CASE

Coca-Cola Case Analyses

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Coca-Cola Case

Coca-Cola Case Analyses

This paper is about the company Coca-Cola Company which is one of the major bottled
beverage sellers in the US.

The parent company of Coca-Cola is KO and its strategy is to fully utilize its numerous
brands, financial strengths and the distribution system.

The Coca-Cola Company is the largest producer of juice related products, soft drink
concentrates and syrups.

The vision of Coca-Cola is to refresh the world, inspire moments of optimism and create
value for the brands of Coca-Cola continue growth.

The objective of Coca-Cola Company is to bring to the world an assortment of quality

beverage brands that satisfy the peoples needs and create delight in customers.

The secondary objective is also to maximize long-term return to shareholders while being
responsible for the overall activities.

An objective of Coca-Cola Company is also to increase the sales and expand business of
non-carbonated beverages of the company in the future and be the industry leader int eh
business.

Another goal of the company is to increase the net operating revenues, operating income
and Earnings per Share (EPS) over the next few years by 3 to 4 per cent.

Current strategy also includes exchange contracts and purchases of other foreign currency
options. This is done to reduce the risk of the impact on revenue for the sales outside US
when there are changes in the exchange rates.

External Audit

Coca-Cola Case

Industry Analysis

The beverage industry is a part of Consumer Staples sector which accounts for 12.6 per
cent of the S&P 1500 and is increasing. The price/earnings ratio of the Consumer Staple
industry is almost 14 times and the PEG ratio of the industry has been 2.2.

The beverage industry has been highly competitive now because of the many brands that
have been introduced. The primary competitor of Coca-Cola Company is PepsiCo, which
is the global leader in the beverages industry.

Segments for the sales of the industry are North America, Bottling investments, European
Union, Pacific, Latin America, Eurasia and Africa and Corporate.

There has been economic weakness in the US and sluggishness in the Europe which will
negatively impact the performance of the industry.

Certain markets like India, Japan and South Africa are facing economic problems
because of which the marketplace has been challenging for some time.

There has been an increase in the demand of non-alcoholic beverages from the growing
consumer base and per capita consumption levels of non-alcoholic beverages is expected
to rise continually.

There has been a rise of customer traffic in the non-traditional distribution channels
which will allow the company to reach them easily.

There has been a slowdown in the consumer spending in the recent economic downturn
as a result of inflation in the commodity products.

Competitive Profile Matrix (CPM)

Coca-Cole

PepsiCo

Coca-Cola Case

Company
Key Success Factor

Weight

Rating

Score

Rating

Score

Growth of Cash Flow

0.08

0.32

0.24

Declines in the Material Cost

0.025

0.075

0.075

Marketing of Core Brands

0.04

0.16

0.20

Introduction of New Products

Advertising and Promotional
Spending
Penetration into Nontraditional Distribution
Channels
Financial Strength

0.09

0.45

0.36

0.04

0.20

0.20

0.04

0.16

0.16

0.08

0.40

0.32

Market Share

0.13

0.39

0.52

International Prospects

0.09

0.56

0.56

Risk Assessment

0.03

0.09

0.06

Credit Rating

0.03

0.15

0.09

Product Portfolio

0.03

0.12

0.12

Acquisitions in the Future

0.12

0.36

0.24

Volatility to Exchange Rates

Acquiring New Technology
of Bottling
Total

0.12

0.48

0.36

0.08

0.16

0.08

1.00

4.075

3.585

It can be concluded from the above given Competitive Profile Matrix (CPM) that CocaCola Company is stronger in comparison with PepsiCo. PepsiCo is the major competitor of
Coca-Cola given the particular success factors, the strategic position of Coke is better than that
of PepsiCo as it is evident from the score of both the companies. It represents the overall
comparison of the two companies is relation to the factors given and the importance of the
weights to the industry.

Coca-Cola Case
External Factor Evaluation Matrix (EFE)
Key External Factor
Opportunities
Increasing weight of the S&P 1500
index for industry
Growing consumer demand of
non-alcoholic beverages
Rise in the traffic in the nontraditional distribution channels
Higher retail pricing in the US
Consumption growth in
developing and emerging markets

Weight

Ratings

Weighted Score

0.05

0.20

0.10

0.30

0.05

0.15

0.06

0.12

0.09

0.27

0.10

0.30

0.05

0.10

0.10

0.30

0.20

0.60

Inflation of commodity cost

0.10

0.30

High fluctuation of exchange rates

0.10

0.20

Total

1.00

Threats
Economic weakness in US and
Europe
Competitors are increasing in
industry
Challenging international
marketplace
Slowdown of consumer spending

2.94

The total weighted score has come up to 2.94 which indicate that Coca-Cola Company
has an average ability to respond to the changes in external factors. This is the representation of
the current business conditions and Coca-Cola is pretty comfortable in facing these external
factors. It can be seen in the External Factor Evaluation matrix that the industry is facing more
threats than the opportunities and the priority of the threats are also more than the opportunities.
This means that the industry is more vulnerable to the effects of threats than opportunities.

Coca-Cola Case

Porters 5-Forces Model

Porters five forces framework is used by the strategic consultants when making a
qualitative evaluation of the firms strategic position in the industry.

The three horizontal forces from the competition are threat of substitute products, threat
of established rivals and the threat of new entrants into the industry.

The other two forces from the vertical competition include the bargaining power of
suppliers and the bargaining power of customers.

It is not easy for the new entrant to enter the industry and raise the level of competition
for Coca-Cola right away. This is because high barriers of entry exist in the industry such
as economies of scale, customer loyalty with the existing brands, requirement of high
initial investment and the access of industry distribution channels.

A new entrant is also not likely to be successful because of possible retaliation from the
existing industry players. There are many substitutes available to non-alcoholic beverages
therefore this lowers the attractiveness and profitability of the industry. But the relative
pricing of the substitutes are higher therefore the industry does not suffer.

Most of the suppliers in the industry are the strategic partners of different players in the
industry and there are many suppliers available. Therefore the suppliers are not in a
position to threaten the companies.

The buyers are also not in a position to bargain the prices from the companies as there are
a few dominant sellers in the industry who have the major market share of non-alcoholic
drinks.

The intensity of the rivalry in the industry is not very strong as the products are
differentiated.

Coca-Cola Case
Therefore it can be concluded that the industry is attractive enough for the investors who
want to invest in Consumer Staple industry. The industry will be profitable in comparison to
other industries even in the times of economic downturn as these products are observed to be
price inelastic.

Strategic Group Map

Coca-Cola Case

A Strategic Group Map is used to compare companies within an industry that have
similar business model. These companies are compared on the basis of two variables. In the
comparison of the companies in the non-alcoholic industry the two variables chosen are the
percentage volume change since the last year and the current market share.
The diagram identifies the two direct competitors in the industry which are PepsiCo and
Coca-Cola Company. The diagram also shows that they compete on the basis of the market share
of the industry and volume of sales. The two groups that can be easily interpreted from the map
are of Pepsi and Coke and the other group being Dr Pepper the other one. Pepsi and Coke should
be on high alert as the volume a change of the other group is gaining. It is not likely for any of

Coca-Cola Case

the competitors Pepsi or Coke to move to the other strategic group neither the other group
member has a chance of moving to the group of Pepsi and Coke.
It can also be concluded from the map that Pepsi gained more volume of sales in
comparison with Pepsi. The other group was able to make a rapid increase in the sales volume
than Pepsi and Coke. The map also shows that the Coca-Cola Company is the market leader with
the most market share in the industry, Pepsi being in the second number in the market leadership.

Internal Audit
Internal Factor Evaluation (IFM) matrix
Key External Factor
Internal Strengths
Increasing weight of the S&P 1500
index Coca-Cola Company
Largest producer of soft drink
concentrates and syrups
Sold in more than 200 countries
Owns license to almost 500 brands
Owner of the trademark CocaCola, the best selling soft-drink in
the world
Foreign currency exposures are
managed on a consolidated basis
Highest stock market capital in the
industry
Annual growth of operating
revenues at 10%
Volumes up by 3% in the
international market
Internal Weaknesses
Sales have fallen down 3% in Q1,
2009

Weight

Ratings

Weighted Score

0.08

0.16

0.025

0.10

0.04

0.16

0.09

0.36

0.04

0.16

0.04

0.08

0.08

0.24

0.13

0.26

0.09

0.36

0.03

0.09

Coca-Cola Case

The SBUs are not diverse

Launch of new vending machines
is being delayed
Higher retail pricing in the US,
which can drive down the volumes
Weak sales data

0.12

0.24

0.08

0.32

0.08

0.08

0.025

0.10

Total

1.00

10

2.71

The Coca-Cola Companys internal weighted score is well above 2.5 which means that is
in a strong internal position. It can also be observed that there are much more internal strengths
than the weakness which is why also the company has a strong internal position. In regard to the
provided internal factors, the company can perform better as these are less number of
weaknesses than strengths.

External/Internal Evaluation and Recommended Strategies

SO Strategy: the Company has over 500 brands of soft-drinks and there is an opportunity
in the market which is high demand for non-alcoholic drinks. Therefore the company
should concentrate on reaching out to the customers demanding the soft-drinks and
should not try to make its portfolio diverse. The popular brands of soft-drinks should be
introduced in the countries where they are not present.

WO Strategy: the launch of new vending machines has been delayed many times and the
industry is witnessing growing demand of non-alcoholic drinks which is an opportunity
for Coca-Cola to install vending machines in the appropriate countries and increase its
sales volume and revenue.

ST Strategy: there is economic downturn in the global economy which is making difficult
for Coca-Cola to increase its sales in the international marketplace. The strategy it should

Coca-Cola Case

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follow is to reduce the prices on some of its brands such as Coca-Cola Classic and Fanta
brands. This can be achieved by identifying the best suppliers and retailers and make
them strategic partners to share profits and losses with them.

WT Strategy: there is a slowdown of consumer spending and as a result the sales of CocaCola have been pushed down by three percent. This should be improved and the
slowdown in the sales should be made minimum by promoting the products and ensuring
that the existing customers do not shift to the competitors products. This can be done
through improving the distribution system of the company.

Financial Analysis

The overall financial condition of the company KO the parent company of Coca-Cola, is
pretty good and the company can be said to be in good financial health.

The company was able to increase its cash flow and reduce its debt. The debt/capital ratio
has been down 4.7 per cent since the year ended 2007 till the year ended 2008.

The interest coverage ratio has been 19 times up from 16 times in 2007. This means that
the company is generating enough net income to cover its interest payments and the
company is in a good position to pay its debts in the future.

The cash at hand has also risen to 4.7 billion US$ by 0.6 billion US$.

The return on assets and the return on equity have decreased considerably if the data of
last 4 to 5 years is compared. The reason behind this could be decrease in the total assets
and total equity of the company.

The P/E ratio of the company is higher than the industry which is not a good indicator
and means that the prices per earning unit are low than the industry.

Coca-Cola Case

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Although there is a recession in the global economy but the revenue and operating
income both have increased for the company.

The company pays an annual dividend of 1.52 US$ per share which is quite better than
the industry. Therefore the company seems to be in an overall good financial position.

Long Term Strategy

The three key issues that Coca-Cola Company faces are:

The economic slump in the world which has a negative impact on the sales and
performance of the company. Some particular markets such as India, South Africa
and Japan have poor infrastructure and struggling local economy.

Sales are dominated with different currencies across the globe because of which
Coca-Cola faces issues related to exchange rates. It has not hedged exchange rates
for the markets with very volatile exchange rate of currencies.10-12% of
operating income is deducted off from the total as a result of currency translation.

The key growth rate indicators of the company are falling down since the last 3
years including the net income which has decreased as compared to the last 3
years.

The long term strategy of the company is to sustain the lead in the market share and
divest the brands which are increasing costs and not contributing much to the operating income.
The company should try to improve its financial ratios which are showing declining performance
of the company in recent years. This would attract more investment from the stockholders and
they will place more trust in the organization. The consumer base of non-alcoholic drinks in
growing, therefore we can expect it to grow more in the next years. To provide these increasing

Coca-Cola Case

13

customers what they want, the company should understand the market and should try to provide
more and more variety to the market to instill consumer loyalty.

Implementation and Results

The recommendations given in the previous sections can be implemented if the external
environment is favorable to the company. The economy of the world is expected to recover in a
couple of years and therefore the inflation on the commodities will reduce, allowing the
consumers to raise the spending. Infiltration in other markets can be possible through
introduction of other brands in the markets such as South East Asia and Japan. This can be done
with the help of integrating their cultural drinks with the ones already existing.
Availability of drinks is another factor that needs to be improved. Vending machines with
new technologies should be used which are more secure and have storage space better than the
ones existing. With vending machines in each and every shopping mall and streets where there
are many pedestrians, the sales are destined to rise. This will also surpass the retailers and the
revenue from the vending machines will be directly received by the company. Better tools and
technology should be used to ensure that the shelves in the retail shops are always filled and the
customers never have to switch to the competitors drinks.
The plants of the bottling, syrup and concentrate production facilities should be place in
the countries where the labor is cheap but skilled. This will cut on a lot of cost for the
production. Another way of cutting costs is to build strategic partnerships with the suppliers and
making them their key suppliers. In this way the revenues, net income and the financial ratios
will become better.

Coca-Cola Case

References
Standard & Poors. (2009, May 30). Coca-Cola Co (The). Retrieved June 12, 2009, from
www.standardandpoors.com

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Coca-Cola Case
Standard & Poors. (2009, May 30). PepsiCo Inc. Retrieved June 12, 2009, from
www.standardandpoors.com
Argus. (2009, June 1). The Coca-Cola Co. Retrieved June 12, 2009, from
www.argusresearch.com
Argus. (2009, June 1). PepsiCo Inc. Retrieved June 12, 2009, from www.argusresearch.com

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