Coca-Cola Porter's five forces analysis

and diverse value-chain activities in

different areas
The impact of the Research Councils on
the Coca-Cola value chain by creating
absolute effective position.

Presented to: Prof. Amal El Kurdi

Presented by: Roula Jannoun

Spring 2011
 Introduction
Coca-Cola Company is the world's largest nonalcoholic beverage
company.

It offers a portfolio of world class quality sparkling and still

beverages, starting with Coca-Cola and extending through over 400
soft drinks, juices, teas, coffees, waters, sports and energy drinks that
refresh, hydrate, nourish, relax and energize.

Coca-Cola has more than 400 brands are nearly 2,400 beverage
products. Four of the world's top-five soft-drink brands are : Coca-
Cola, Diet Coke, Sprite and Fanta. Thums Up and Limca, which
are formulated to appeal to local cultures and lifestyles.
With operations in more than 200 countries, we have a diverse
workforce of approximately 55,000 Company employees.
Coca Cola family of beverages accounts for approximately 1.3 billion
servings worldwide of the 50 billion beverage servings consumed
every day-a figure that indicates both strength and growth opportunity
of the company.
SOME BRANDS OF COCA COLA
 PRODUCTS DESCRIPTION
The Rejuvenation division offers a range of drinks designed to
improve how people feel physically and mentally. Products include
ready-to-drink coffees, teas and herbal beverages.

The Health & Nutrition division produces a range of products to

promote health and well being. In the US, its products encompass
Minute Maid Premium 100% juices, Hi-C fruit drinks and Minute
Maid Coolers.

The Replenishment division offers a range of water products around

the world. The division also produces a range of energy drinks, such
as PowerAde.
Elsewhere in the world, the company has created other products
designed to meet the needs of local consumers and communities. For
example, in Chile, it developed Bibo (Kapo) because mothers wanted
a healthy, noncarbonated drink for their children.
Coca-Cola System - Production
The Coca-Cola formula is The Coca-Cola Company's secret
recipe for Coca-Cola. As a publicity marketing strategy
started by David W. Woodruff, the company presents the
formula as a closely held trade secret known only to a few
employees.
The actual production and distribution of Coca-Cola follows
a franchising model. The Coca-Cola Company only produces
a syrup concentrate, which it sells to various bottlers
throughout the world who hold Coca-Cola franchises for one
or more geographical areas. The bottlers produce the final
drink by mixing the syrup with filtered water and sugar (or
artificial sweeteners) and then carbonate it before filling it
into cans and bottles, which the bottlers then sell and
distribute to retail stores, vending machines, restaurants and
food service distributors
 The Coca-Cola Company and bottling partners are not one
and the same from a legal or managerial perspective. The
Company's business is focused on creating and marketing brands
and trademarks, while Coca-Cola bottling companies produce
and package the finished beverage products and then sell and
distribute them to retail and wholesale customers.
These bottling partners range from international and publicly
traded businesses to small, family-owned operations. Their
governance and management structures are separate from those
of The Coca-Cola Company.
 The companys bottling relationships
can be divided into three types:

1.Bottlers in which coca cola company have invested

and have a non-controlling ownership interest;
2.Independently owned bottlers in which the company
have no ownership interest;
3.Bottlers in which the company has invested and has
a controlling ownership interest.
The Coca-Cola Company owns minority shares in some of its
largest franchisees, like:
Coca-Cola Enterprises,
Coca-Cola Amatil,
Coca-Cola Hellenic Bottling Company (CCHBC)
Coca-Cola FEMSA,
While fully independent bottlers produce almost half of the
volume sold in the world. Since independent bottlers add sugar
and sweeteners, the sweetness of the drink differs in various parts
of the world, to cater for local tastes.
 Coca- Cola Suppliers

Suppliers include those business partners who

supply system with materials, including
ingredients, packaging and machinery as well as
goods and services. At a minimum, all authorized
and direct suppliers must comply with all
applicable laws and regulations, including those
concerning child labor, forced labor, abuse of
labor, freedom of association and collective
bargaining, discrimination, wages and benefits,
working hours and overtime, health and safety,
and environmental practices.
 Coca- Cola Customers

Customers include large, international

chains of retailers and restaurants, as well as
small, independent businesses. Some of our
customers are major corporations as globally
familiar as the name Coca-Cola; others are
the corner market or the local pushcart
vendor.
Departments of Coca Cola
Every organization is made up of different departments,
each of these departments help Coca Cola achieve their
objectives.
As Coca Cola is a large International company, the amounts
of departments are huge. Each country has their own Head
Office and departments.
Coca Cola is geographically split into five geographic
operating segments, also known as strategic business units
(SBU's). The five SBU's are North America, Africa, Asia,
Europe, Eurasia and Middle East and finally Latin America.
If all these departments perform in the correct way then that
will continue the success of Coca Cola.
 Coca- Cola In India
Coca-Cola was the leading soft drink brand in India until 1977
when it left rather than reveal its formula to the government
and reduce its equity stake as required under the Foreign
Exchange Regulation Act (FERA) which governed the
operations of foreign companies in India
After a 16-years absence, Coca-Cola returned to India in 1993
Coca-Cola India started business, including new production
facilities, wastewater treatment plants, distribution systems and
marketing equipment.
Coca-Cola system has invested more than US$ 1 billion in
India
Coca-Cola is one of the country's top international investors
It employs approximately 6,000 people, and indirectly creates employment
for more than 125,000 people in related industries through vast
procurement, supply and distribution system
The Coca-Cola system in India comprises 27 wholly-owned company-
owned bottling operations and another 17 franchisee-owned bottling
operations
The complexity of the Indian market is reflected in the distribution fleet,
which includes 10-tonne trucks, open-bay three-wheelers that can navigate
the narrow alleyways of Indian cities, and trademarked tricycles and
pushcarts.
Coca-Cola serves in India some of the most recalled brands across the
world, which include names such as Coca-Cola, Diet Coke, Sprite, Fanta,
along with the Schweppes product range.
In 2002, Coca-Cola India (CCI) launched a new advertisement campaign
featuring leading bollywood actor - Aamir Khan. The advertisement with
the tag line - 'Thanda Matlab Coca-Cola ' was targeted at rural and semi-
urban consumers.
Executive Summary
A company that fully understands the importance of value
chain in business is the Coca-Cola Company. A global leader
in the beverage industry, the Coca-Cola Company further
indulges in enhancing their value propositions as an
instrument to create virtuous cycles of geographic expansion'
and thus greater advantage. Coca-Cola owns the most
important elements of the value chain such as the brand, the
technology, the management, the marketing expertise and the
relationships
This search includes Coca-Cola SWOT Analysis, Porter's five
forces analysis and diverse value-chain activities in different
areas. In addition, the search presented the interplay between
the Research Councils and how it impacts Coke's value chain
as well as creating the absolute effective position.
 COCA- COLA SWOT ANALYSIS
STRENGTHS
Strong brand name
Co-operate identity
Global distribution
Innovative capabilities: Coca-Cola Increases Marketing and
Innovation Spending to $400M Globally
Coke Brands Enjoy a High-Profile Global Presence
Broad-based bottling strategy
47% of global volume sales in carbonates

WEAKNESSES
Carbonates Market is in Decline
Over-complexity of relationship with bottlers in North America
The existing distribution system is not so efficient for non carbonates
OPPURTUNITIES
Expansion Reaching all segments
Catering to Health Consciousness of People
Soft drinks volumes in the Asia- Pacific region forecast to increase by
over 45%
Use distribution strengths in Eastern Europe and Latin America
Increased Consumer Concerns with Regard to Drinking Water

THREATS
Health Drinks Fruit Juice Companies
Competition-Pepsi
Boycott in the Middle East
Porters 5 forces model

The five forces model of Porter is and outside-in business unit

strategy tool that is used to make an analysis of the
attractiveness (value) of an industry structure

Allows the development of a competitive strategy

Suggests 5 main forces may be decisive in helping shape the

outcome:

Suppliers

New entrants

Substitutes

Buyers

Rivalry (Industrial competitors)

Coca-Cola : Porters Five Forces
Rivalry ( Condition Substitutes (Wilde and Thick
concentrated on 2 main causing a significant decline in
Coca-Cola profits . To reduce the
Coca-Cola
threats it embraced bottling and
Pepsi concentrated on diversification
Teas
Milk
Coffee
Juice
Alcoholic drinks
Bottled water
Energetic drinks
Other refreshments
Coca-Cola : Porters Five Forces (Cont.)
Barriers to Entry (Penetrating the soft
drink industry is hard because of the
established name of Coca-Cola,
Exclusive Territories
Direct-store-delivery (DSD)
Substantial Investment
Current Market Presence of Coca-
Cola
Coca-Cola has long-term relationships
with their retailers and distributors
making possible the defense of the
position by means of discounts and
other tactics, and regulation make it
impossible for new bottlers to enter
areas where an existing bottler operates.
Power of Suppliers
Sugar
Packaging
Bargaining power of suppliers is low
due to two reasons.
First, the main inputs are sugar and
packaging. Sources of sugar are on the
open market which subsequently makes
the creation power of suppliers at low
levels. There are several suppliers for
packaging as well as the abundance in
supply of inexpensive aluminum.
Second, direct negotiations from
concentrate producers to suppliers are
present; an initiative to encourage reliable
supply, faster delivery and lower prices.
Coca-Cola : Porters Five Forces (Cont.)
Bargaining Power of Buyers depends on the marketing channel used.
For Coca-Cola, there are six core channels such as:
Super Markets
Convenience Stores
Mass Merchandisers
Fountain
vending machine
Restaurants and Food stores

Bargaining power of buyer is high for fountain supermarkets and

mass merchandising because of the low profitability and strong
negotiation power of retail channels but for vending bargaining
power is non-existing caused by high profitability.
 Porters value chain: Overview
Understanding Where To Explore

Infrastructure
Support Activities

Financial
Human Resources
Management
Primary Activities

Sales
Inbound Outbound
Process & Aftercare
logistics Logistics
Marketing

Source: Porter,1985
Coca-Cola Value Chain
The purpose of Coca-Cola 's value chain is divided into four areas
namely shareholder, consumer, business operation and key processes.

1. To deliver superior returns to its shareholders is the mission of the Coca-

Cola value chain. The key elements to achieve this end are a strong brand
equity and revenue management that is comprised of sales, volume,
pricing and costs
2. Consumers and customers are the focal points of the value chain driven by
brand preference, pervasive market penetration and superior price/value
ratio.
3. Operational drivers are identified as the strategic metrics, process
excellence and organizational excellence.
4. Key processes are further divided into five key functions: Consumer and
Customer Service Systems, Demand and Operations Planning,
Warehousing and Logistics, Manufacturing, and Infrastructure Planning
and Development
Coca-Cola Value Chain (Cont.)
There are four enablers in Coca-Cola's value chain. These :
1. Coca-Cola's suppliers include business partners that provide the company with raw
materials such as ingredients, packaging, machinery and services. Authorized and direct
suppliers are subjected to comply with all applicable laws and regulations specially which
tackles just employment practices. In addition, these suppliers must comply with the
company's Supplier Guiding Principles.
2. Coca-Cola 's customers range from far-reaching, international chains of retailers and
restaurants to major corporations to small and independent businesses to corner markets
down to local pushcart vendors. Coca-Cola works with these people for the purpose of
creating mutual benefits alongside their bottling partners. To assist them in their initiative,
serving the customers are assisted by account management teams that provides service and
support tailored to the need of the customers.
3. Coca-Cola Retailing Research Councils provide research concerning issues that have
significant impacts on the food retailing industry. Within the company, there exists
collaborative customer relationship process. The purpose of this collaboration is to improve
shopper marketing and supply chain collaboration. Acceleration of innovation in order to
provide superior beverage selections to every customer is another aim of the collaboration.
4. Coca-Cola Customer Development and Training provide support to smaller customers in
terms of making their business more efficient and profitable. In different areas of operation,
Coca-Cola had established customer development training centers. Through this, the
exchange of information about broadening the range of beverages offered, providing
nutritional information and ensuring beverages are marketed responsibly
.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:

1. Supplies of Components and Materials : Coke has a relatively wide range of

cooperation among its suppliers. The company has generally not experienced
difficulties obtaining raw materials. Through the assistance of Coca-Cola Bottlers' Sales
and Service, Coke purchase materials like nutritive sweeteners and non-nutritive
sweeteners and bottling requirements with different companies like The NutraSweet
Company, Ajinomoto Co., Inc., Nutrinova Nutrition Specialties & Food Ingredients and
Tate & Lyle.
2. Purchasing: Order sizes depended on customers or sales volume per person, frequency
of visit based history and order collection based on customer attributes, made possible
through order collection personnel. Variables are geography, density and logistics.
Moreover, total value of purchase is highly-reliant on the purchase agreement between
Coke and suppliers. In general, the total value of purchase over time per supplier is 43%
in terms of value and 36 % by volume on just-in-time basis.
3. Inventory Holding: Coke has 68 days inventory on hand and has 5.7927 inventory
turns. The figures mean that Coke sells its entire inventory 5.79 times each year.
4. R&D/Design/Engineering: Coca-Cola has a patent portfolio inside and outside the US,
800 and 1800, respectively; relating to various beverages with related technologies.
Apart from product formulation as the trade secret, technologies complementary to
these are packaging, vending equipment, fountain equipment and water treatment.
Driven by the consumer value proposition, R&D is the core commitment.
Implementation of strategies has been modified in efforts to allow more freedom to
local operating divisions. R&D is not outsourced but works jointly with development
partners.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:

5. Component Manufacture: The three largest components within the

system are manufacturing, fleet/transport and sales/marketing equipment.
There are nearly 850 plants in the manufacturing process, with system's
fleet of approximately 200, 000 vehicles to transport ingredients,
packaging and finished beverages.
Beverage concentrates are shipped to bottling operations by sea while
finished beverages are mostly transported by road into distributors and
retail customers.
There are 9 million vending machine and coolers that keep products cold.
These components are placed in 200+ countries of operation.

5. Testing/Quality Control: Coke uses different technology to control

product quality like the Chemunex. Coca-Cola invested in real-
time microbiology analyzer or the D-count. Such technology is
adapted because of: quantitative analysis with satisfying detection
limit, automated analysis with reduction of the analytical time,
reliability of the results and robustness of the system for an
intensive routing use.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:

7. Inventories of Final Goods: The selling numbers of Coca-Cola ranges from 9

glasses per day to over six trillion from the period of 1886 to 2003. Getting from
this, we can determine that the unpredictability of sales follow a logical pattern
that serves as indicators of the amount Coke produced and sold.
Given the lack of cyclicality in different segments, the company invested in
raising advertising budget into 38%.

8. Sales and Marketing: Coca-Cola is getting their products advertised more

frequently by means of own advertising as well as through sponsorships and other
organizations. For example, Coca-Cola products appear in McDonald's
advertisements, appearing on side boards of basketball arenas and other sporting
events and also appearing on social events as sponsors in effort to be a household
product and to demonstrate goodwill.
Marketing also depended on the targeting of Coca-Cola products at individuals
and groups of all ages and demographics. Marketing, in addition, comes in
different styles and forms such as network television, radio and print media. To
achieve brand visibility and become well-known to widest possible markets and
most consumers reach, a number of new commercials are introduced each year.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:

9. Distribution: In the distribution of products, the wholesalers have no

involvement; but rather conform to agent network. The company divides
a country into various regions and established a franchisee within these
regions. Franchisees have own bottling plants and has the autonomy to
manage daily operations

10. Service/Dealer Support: Within each region are different dealers that
orders through three primary categories: bulk, side load and full service.
Coca-Cola system ensures that dealerships are assisted upon. So the
company opened their distribution system and embraced the DSD system
or the direct-to-store concept. The movement is from wholesalers
channels into Direct-store-delivery DSD channels.
 Coca-Cola Retailing Research Councils Impact on
Innovation and Products
Research Councils conduct different studies on issues that could possible assist
retailers to respond to the ever-changing marketplace. According to the company,
the unique value of these activities is vested on the fact that retailers define the
objective, the scope of each project and own the process after it was released and
disseminated to the broader retail community .

There are five council members: Asia, Europe, Latin and North America and
National Association of Convenience Stores (NACS). Such councils are cashing
in on research to innovations of product portfolio by means of introducing new
concepts and ideas about merchandising and store formats as well as idea
generation for connecting store performance and the actions of store management
teams as examples of retail innovations.

Products-wise, the Council aimed at ensuring sustainable products and

responsibly-sourced and traceable products as well as eco-friendly packaging, and
this product must be accessible at reasonable prices. Ensuring product assortment
is also under the Council's scrutiny to further guarantee innovative health goods.
Assortment for Coca-Cola means small/fractionable, to consume right after at
affordable prices
 Coca-Cola Retailing Research Councils
Interconnection with the Value Chain
Research Council removes unnecessary costs that could be incurred from distribution
and supply systems; increase consumer choice and reduces overall costs of inventories
and physical assets. Apart from this, the Research Councils are the key towards
achieving Class A standards as part of the CPE program. CPE stands for Constant
Pursuit of Excellence. Such program is initiated within the Coca-Cola system in order
to support growth, to improve customer service and to increase market responsiveness.
These are evidenced by the following:

1. Inventory levels are down: Each of the facilities and components such as the concentrate
manufacturing facilities and canning plant that received Class A rates obtained significant
progress in inventory turnover, with specific facilities that accomplished the number of
weeks of inventory on hand declined between 50 to 75%.

2. Improved productivity Level of quality targets within these facilities, whether for
products, bottles or cans, coupled with high responsiveness to production experienced
productivity gain of 85% to 100%.

3. Improved customer delivery performance

In different facilities, order fulfillment and delivery are technically reported to be 100% on
time. In fact, the time since the last missed shipment is measured in years, not days, weeks
or months. For Coke, this is just a part of putting value not just to the products but on
punctuality and customer responsiveness.
 Coca-Cola Retailing Research Councils
Interconnection with the Value Chain
4. Better supplier delivery performance: Prior to acquiring the Class A rate, the
performance of the supplier is measured to be falling between 50 to 75%. But right after
the complete integration of CPE, while taking into critical account of the Research
Councils' role, worldwide facilities had experienced supplier on-time delivery
performance of higher than 95%.

5. Improved business processes: For different processes like purchasing and customer
order processing, there had been a large reduction in cycle times.

6. High data integrity Inside different Coke facilities, inventory record accuracy and bill of
material accuracy is reported to be 99-100% and 100%, respectively.

7. Decline in cost of goods: The reductions, as high as 20%, in each facility annually is
viewed to be a significant improvement.

8. High team spirit: Communications within and between marketing, finance, quality
assurance and manufacturing are improved with respect to the global teams.
The focus of the company is on holistic improvement instead of systems replacement that
centers on the development of the business operation in different levels but most
significantly on the retailing. Implementations are the key towards proactive
functionality within manageable and actionable initiatives. Coca-Cola 's plan is one
facility at a time with decision-making that is based on anticipated benefits.
Coca-Cola Creation of the Absolute Effective Position
1. Coca-Cola continued to deliver unit case volume growth. Been ranking 4 of the
top 5 nonalcoholic sparkling beverage brands are owned by the Coca-Cola.

2. Brand-wise, the original Coca-Cola is still the best known brand globally Evidently,
the beverage leadership position is delivered by how consumers can more around
the Coke portfolio depending on their needs at different stages of their lives.
3. Financially, the Coca-Cola Company reported in February 2007 that profit jumped
of about 18% with net income nearly $6B - $5.98 billion on $28.9 billion in
revenue. Further, Coca-Cola and its bottling partners delivered unit case volume
growth of 6% for the year 2007 and four consecutive quarters of double-digit
earnings per share growth. Worldwide, the sparkling beverage volume increased by
4% and the still beverages by 12%.
4. In terms of systemic integration, adding value with its bottling partners, there had
been the existence of collaboration, support and shared values and goals and
through its customers, Coke brands were made possible for the consumption in local
communities. Driven by the Coca-Cola system, the company is now no. 1 in sales of
sparkling beverages, juices and juice drinks, no. 2 in sales of sports drinks and no. 3
in sales of bottled water.
 Conclusion
At Coke, the creation of the absolute effective position is central on investing
on Coca-Cola Retailing Research Councils. Along with its four key processes,
Coke creates value through proactively engaging their retailers at technically
every levels of the value chain from raw materials down to end-products.
Conforming to holistic improvements, Coke strategically put value to store
management, providing consumers with the right to choose while also
enjoying the health benefits of its brands.

More than complying to standards and acquiring first rates, Coke aimed at
enhancing the shopping experience and enjoyment of refreshments which are
reflected in the figures they accumulate coupled with ethical operation.