Microeconomic Analysis

on
The Coca Cola Company

Group 20

November 16, 2018

 Authors

Nageswararao E
16XJ1A0324

N. Sai Kiran Kumar

16XJ1A0325

Naval Pattar
16XJ1A0326

Nishith Patnaik
16XJ1A0327

Pulkit Mehta
16XJ1A0328

Raja Simha Reddy

16XJ1A0329
 Contents

1 Authors 1

2 Introduction 1
2.1 Company review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Demand and Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2.1 Consumer segment . . . . . . . . . . . . . . . . . . . . . . . 3
2.2.2 Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2.3 Price elasticity . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Revenue Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4.1 Concentrate operations . . . . . . . . . . . . . . . . . . . . . 8
2.4.2 Finished product operations . . . . . . . . . . . . . . . . . . 8
2.4.3 The Bottling Investments Group(BIG) . . . . . . . . . . . . 9

3 Case study 10
3.1 Re-entry in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 2000-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 2007-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 2014-present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4 Conclusion 17

I
 Introduction

This report serves to study the operations of The Coca Cola Company in the
Indian market. Our case study focusses on the advertising campaigns and how
their decisions in this regard have influenced their sales.

2.1 Company review

1886 Pharmacist John Pemberton invented the original Coca-Cola drink and sold
it as a medicinal beverage. It was given this name as it was prepared from
Coca leaves and Kola nuts.

1894 American businessman Asa Candler purchased the company from Pember-
ton’s heirs with the intent to advertise and sell it as a beverage to regular
consumers.

1895 Coca-Cola was being sold in every state in the union.

1950 Coca-Cola marked its entry in India with the opening of the first bottling
plant by Pure Drinks, Ltd, in New Delhi.

1977 The company exited the country due to the implementation of Indias Foreign
Exchange Act.

1992 The company returns, post market liberalisation.

1993 Coca-Cola acquired brands like Thums Up, Limca, Gold Spot and Maaza
from Parle Bisleri.

1999 Coca-Cola India launched Sprite in the country along with Schweppes.

Coca-Cola India, is one of the country’s leading beverage companies, offering a

range of high quality, refreshing beverages to consumers. The Company along with
its bottling partners, through a strong network of over 2.6 million retail outlets,
reaches millions of consumers. Its brands are some of the most preferred and most
sold beverages in the country.The Coca-Cola system in India has already invested
$2 billion till 2011, since its re-entry into India. The Company plans to invest
another $5 billion by 2020. To date, they have more than 45 varieties of products
in India.

1
 Figure 2.1: Range of products.

Figure 2.2: Hierarchy of operations.

2
2.2 Demand and Elasticity
2.2.1 Consumer segment
Coke was the first ever cola drink in India. Initially it had a wide reach to
major sections of the population. But after its re-entry, coke initially only aimed
to get back the people who loved coke before its exit. Thums up was their brand
to attract youth. Sprite happened to be one of their brands which was meant for
all initially.

But later when they had a proper system after reentry, their target demographic
were both the youth and masses for all products except Thums up. Thums up is
still branded as a drink for the youth.

Figure 2.3: Consumer preference, by product.

3
2.2.2 Demand
The Coca Cola Company has a wide range of products in the categories of car-
bonated drinks and sports drinks. The market for soft drinks in booming in India,
however, the per-capita consumption is still less compared to countries like the US
where soft drinks are sold as a regular commodity. To compare, the per-capita
consumption in India is 5% of that in the US.

Region 2014 2015 2016 2017

Worldwide 28.6 29.2 29.3 29.2
Asia Pacific 6.57 6.71 6.73 6.71
India 0.85 0.872 0.874 0.872
India(aerated) 0.595 0.61 0.611 0.61

Table 2.1: Unit sales data, in billion cases [5] [6]

After stabilizing, the demand started incresing in the period 2014-2015. From
the 2016, the demand for carbonated drinks started decreasing gradually in India.
This is because of the increased health-consciousness among the consumers.
The same can be inferred from the percentage changes in the volume of sales
as the growth fell double-digit figures to 4% and is continuing to decrease slowly.

Region 2014 2015 2016 2017

Worldwide 17889 17482 16456 13256
Asia Pacific 2039.3 1853 1875 1789
India 265 240 243 232.5

Table 2.2: Syrup concentrate sales data, in million USD spent [5] [6]

The companies in this sector picked up on this consumer sentiment and launched
healthy drinks in the category of non-carbonated drinks to revive their revenue.

4
 Region 2014 2015 2016 2017
Worldwide 45998 44294 41863 35450
Asia Pacific 5243.7 4695.1 4772.3 4785.7
India 681.6 610.3 620.3 622.1

Table 2.3: Syrup concentrate sales data, in million USD earned [5] [6]

This is verified by the decrease in the volume of sales.

In an annual report released by The Coca-Cola Company, they have layed out
a plan to cut down the investment on carbonated drinks from 70% to 50% in the
next three years.

Figure 2.4: Price per unit of carbonated drinks.

2.2.3 Price elasticity

The demand for soft drinks is very elastic (ep > 1). This means that a small
variation in price could produce a large change in the demand, as a result of the
price competition. Given the nature of competition is that of an oligopoly, this
behaviuor is anomalous.

The above price elasticities are obtained by using the data from the demand
section. Arc elasticity method was used to calculate the price elasticity. The av-
erage price of a unit case was obtained from the Total revenue and total unit sales

5
 Timeline ep
2014-15 3.49
2015-16 1.24
2016-17 8.9

Table 2.4: Price elasticity of demand.1

volume. (The prices used in the elasticity calculation are not the original prices,
but are the approximated prices from sales volume so the numbers are not exact,
they just show the trend, thus could be the reason behind the anomaly).

From the above data, we can observe the decrease in price elasticity in the
2014-2015 period to 2015-2016. This is primarily due to the excise tax on the
products. The price of tin cans increases from Rs.34 to Rs.37.

Now as the demand for carbonated drinks is decreasing, the change in price is
not significant, the elasticity may not be affected much because the revenue from
other non carbonated products is expected to increase and the sales volume of
carbonted drinks is expected to decrease.

Figure 2.5: Price per unit case vs Units sold

1
Using Arc-elasticity method

6
2.3 Market Structure
Within a few years after their inception, The Coca Cola Company and Pep-
sico have grown to dominate the soft drink market, both in terms of revenue and
volume of sales. These companies owe their success to their innovative recipe for
a carbonated drink, a recipe that is kept secret to this day. In this section, we
will demonstrate how the non-alcoholic beverages industry is led only by a few
companies.

Figure 2.6: Volume of sales of soft drinks, by year in India, [1]

Figure 2.7: Market share by sales, [2]

7
 As illustrated by the above data, The Coca Cola Company and Pepsico, Inc
account for nearly 50% of the sales in India. Thus the market share of other players
taken individually is miniscule. These small companies generally lack the financial
capital to launch a brand at large enough scale. Additionally, the barriers to the
market are very high. Producing soft drinks for a wide market would require a
significant investment in production equipment, brand managing and advertising.
The smaller firms are caught in this vicious cycle of not be attracting enough sales
and not being able to invest in their expansion.

From our discussion on the dynamics of the demand, it can be seen that the
competition is imperfect in nature as the companies in this industry have the free-
dom to alter their prices by a small percentage with little effect on their sales.

2.4 Revenue Model

2.4.1 Concentrate operations
Coca Cola manufactures and sells syrup to authorised bottlers to make finished
Coca-Cola products and manufacture fountain syrups.

2.4.2 Finished product operations

The company also manufactures its own fountain syrups, manages several bot-
tling operations, and collects revenue on finished products.

Figure 2.8: Distribution of revenue by source. [5] [7] [8]

8
2.4.3 The Bottling Investments Group(BIG)
When bottlers face financial problems, it creates logistical and image issues for
Coca-Cola. The goal of BIG is to identify and help bottling franchises that need
financial and institutional supportBIG targets struggling franchises and provides
them with the resources they need to remain a part of the Coca-Cola franchise
network. Coca-Cola then sends in teams of experts and resources to drive growth
and return the franchise to profitability. Once profitability and stability in the lo-
cal market is achieved, the company finds a qualified bottler to assume operations.

The BIG program currently operates in 19 countries and is responsible for man-
aging over 25% of the total system bottling volume. Combined, the BIG program
is the largest global bottler in the company. In 2004, bottlers in the BIG program
took in $11 billion in revenue.[5] [7] [8]

9
 Case study

3.1 Re-entry in 2000

When Coca Cola exited the Indian market, Pure drinks launched a new prod-
uct by the name of Campa Cola to fill the void. On October 24, 1993, Coca-Cola
made its official return to India. But this was at a time when they would face stiff
competition from Pepsi and Thums Up. To remain competitive, Coca-Cola began
selling 300ml for Rs 5 while other brands sold 250 ml for Rs 5.5. Inspite of this,
their initial success was limited because consumers preferred smaller quantities
even if it meant spending more per ml.

In 1993, they started organising a traditional Indian procession called Juloos.

In every market people sampled free products along the main thoroughfare. This
campaign was a big hit with the media heavily focussing on Coca cola.

“Coke is back and we’re here for good“

Figure 3.1: Juloos campaign in 1993, India

Advertising was one of the factors which affected the sales of Coca Cola. When
they re-entered India, their national advertising was limited as they were yet to
have a system to deliver procucts at that scale. They launched in 17 cities and
each city was considered as an individual market. They went as local as they could
with advertising. This helped them a lot. Their sales volume increased by 50% in
two years.

When Coca-Cola returned, Pepsi had 40% of market share, with Parle claiming
the rest. On September 22 Coca-cola bought Parle for 40 million outbiding Pep-
sicos 32 million which increased its market share to 60%, [3]. Consumer studies
revealed that Thums Up was preferred, by far, over Coca-Cola’s primary competi-
tor, Pepsi. Coca-Cola couldnt afford to overlook Thums Up to promote Coke.

10
 One major advantage they had was that a generation of young Indians were
drinking Thums Up, which has a very unique taste profile and strong brand person-
ality. Coca-Cola then positioned Coke as an international brand, and continued
to market Thums Up as a nationally revered icon.The marketing challenge was
having both brands co-exist in a way so that one plus one equaled three and to
outflank Pepsi.

Figure 3.2: Sunil Gavaskar for Thums Up, 1985

They had to appeal to people who fondly remembered the taste of Coke. At
the same time, the future was clearly in recruiting new drinkers, so they were
heavily focussed on youth. An entire generation had grown up without Coke, so
to fill this void, Thums up was the solution.

Coca-Cola brought in a lot of innovation along with coke to India. These in-
cluded the 300mL Georgia Green contour bottle; pallet-loading, open-bay trucks;
auto-rickshaws and bicycle pushcarts; and four-color heat-fired tiles for kirana
stores. The company also introduced open-bay trucks to handle multi-sized packs.

One of Coca Cola first sponsorship in this period was The Coca Cola trination
Cup, between India , Australia and NewZealand. India won this cup contrast to the
Pepsi cup (1996). Along with sports sponsorships, they used to give complimentary
fancy items like 3d cards, Coupons, etc to attract cpons as a complimentary.

3.2 2000-2007
After settling in the Indian market, Coca-Cola started to increase the market
for its own product. This time, it was decided to focus on India as a whole market.

11
Coca-Cola registered a 7.2% growth in revenue, [4].

“Pyaar Mohabbat, Coca Cola“

Figure 3.3: Aamir Khan for Coke, 2000

Their first ever digital commercial starred Aamir khan as their model. This
advertisement was a hit and with its success, Coca-Cola roped in more bollywood
celebrities like Hrithik Roshan and Aishwarya Rai, highly popular youth celebri-
ties of early 2000’s. It was clearly targeted at the youth and it appealed at an
emotional level. These ads captured the value of friendship and centered this value
around coca cola.

“Chahe Ho Jaye, Coca Cola Enjoy“

Figure 3.4: Aamir Khan and Aishwarya Rai for Coke, 2000

“Thanda Matlab Coca-Cola“

In 2003, Coca-Cola launched one of its most successful campaigns. The series
was again enacted by Aamir Khan. Coca cola was trying to capture the feeling of
thanda and what followed was a set of brilliantly executed ads and were successful

12
in projecting Coca Cola as a thanda drink.

This campaign expanded the target audience from youth to the masses and
Coca cola would now become a cool drink for everyone. The percentage change
in sales during 2002-2003 was around 3.74% by volume and during 2003-2004 was
2.06%, [4]. The campaigns had the most important role in this increase of sales.
This decline was due to the insecticide controversy in 2003.

Figure 3.5: Aamir Khan in ”Thanda Matlab Coca-Cola”, 2003

“Sabka Thanda Ek“

Launched in 2007, this campaign tried to establish Coke as a universal choice,
which would bring people together. Prasoon Joshi, who came up with the cam-
paign said:

The sheer power of the Coca Cola brand lies in the universal ap-
peal. The creative challenge was to come up with a campaign, which
clearly brings out this universal appeal. The campaign captures all these
emotions in a very entertaining and engaging manner.

Sales in increased by 6.07% during 2006-2007 and 4.40% during 2007-2008 show-
casing the impact of the Thanda Campaign, [4].

3.3 2007-2014
In 2009, Coca-Cola started the open happiness campaign worldwide. Cricket
as we know is a religion for people in India. In India it started with the the involve-
ment of prominent cricketers like Gautam Gambir, Sachin Tendulkar who featured

13
in the ad films, called DOST and ’Cricket Ki Khushi’ by respective players.These
commercials aired during the telecast of Academy Awards. On ground campaigns
done by Coke for Open Happiness was the Happiness Truck. It surprised the
people on their regular day and beautifully captured their genuine reactions and
happiness around the Truck.Their best campaign was set in New Delhi , connect-
ing India and Pakistan. This was a set up to make a friend from our neighbouring
country and increase the positivity and love between the two countries.

“Open Happiness“

Many other taglines like ”Chhoti ho ya badi, har khushi mein coca cola”, ”Hap-
peniess without Border” and others. Their main motto was to get everyone close
in this modern era without using any techology. Unit Sales during 2007-2008 in-
creased by 2.95% and during 2008-2009 by 4.5%, [4].

Figure 3.6: Open Happiness and ”Choti ho ya badi” campaigns.

In 2011, Coca Cola roped in Sachin Tendulkar as the brand ambassador. The
annual revenue kept on increasing till the year 2014. But in 2014, there was in-
crease in excise tax on coke which reduced the revenue but the sales were increasing
or were remaining constant.

3.4 2014-present
2013-2014 were some of the toughest years for Coca-Cola due to the increase
in excise tax. The strategy they implemented in 2014 was to increase the price of
Thums up and increasing the supply of coke from the bottlers. They reduced the
price of coke from Rs 10 to Rs 8. Coke was the only soft drink which was sold at

14
a discount price. The percentage increase in sales was in double digits.

“Taste the Feeling“

In the year 2016, they launched a new campaign and roped in A-List celebrities
like Deepika Padukone, Farhan Akthar and Siddarth Malhotra for their series of
commercials.This was their most expensive campaign and were forced to do it due
to the decline in demand.This campaign sought to remind the consumers of the
joyous moments that a chilled Coca-Cola bottle brings to their life. Volume of
sales increased by 3% in this period, [4].

Figure 3.7: ”Taste the Feeling” campaign, 2016

Coca Cola has realized the importance of our ever changing nature of relation-
ships and launched:

“Share a Coke“

Instead of using commercials in TVs, newspapers, Coca cola stressed on a more

direct interaction with its customers by using its products more directly. For exam-
ple, coke cans and bottles had labels like ”Share a coke with - BRO, Troublemaker,
Merrymaker” and ”Share a coke with - DAUGHTER, My weakness, My strength”.

15
 They also used more youth centric platforms like YouTube Fanfest to reach out
to the targeted audience. Giant screens were put out where people could put their
names and messages. This idea has become a huge success and the company is
looking forward for more such innovative ways. People uploaded their photos hav-
ing coke with #ShareACokeIndia. With this campaign the consumption of coke
increased by 7%, [4]. It even increased the usage of the social media platforms.
This was one of the most successful campaigns of Coca Cola.

Figure 3.8: ”Share a Coke with” with Ashish Vidyarthi, 2018

16
 Conclusion

Coca-Cola is a company that invests a lot in advertising and they advertise on

worlwide, national and regional scales to reach out to a wide range of communities.
But with the current decline in the demand of soft drinks, we can observe that
the investment dropped during 2016-2017. Even in the Indian market Coca-Cola
is cutting down their investment in soft drinks from 70-50%.

Generally the investment shouldn’t decrease, inspite of poor sales but as the
reason behind it was a rising concern for health, it would be very hard to expect
a return on investment for advertising carbonated drinks. This is could perhaps
change if Coca-Cola could reformulate their recipe into a healthier version. For
the time being, Coca-Cola must push its health and energy drinks forward to stay
as the market leader.

Year Investment in Advertising

2001 1970
2003 1882
2007 2774
2009 2791
2013 3266
2016 4004
2017 3958

Table 4.1: Investment in million USD

.

17
 Bibliography

[1] Ministry of Food Processing Industries, India

[2] www.globalizationandhealth.com/content/pdf/1744-8603-7-26.pdf

[3] 20 Years Later: A Look back at Coke’s Dramatic 1993 Return to India

[4] Coca-Cola India, Annual reports,

https://www.coca-colacompany.com/investors/archives-annual-other-reports
https://www.coca-colaindia.com/sustainability-report-2016
https://www.coca-colaindia.com/stories/sustainability/downloads/sustainability-
report-2015-2016 2000-2017

[5] Susutainabilty reports 2004-2017 Coca-Cola India(References for Sales

volume and Revenue in India)
https://www.coca-colacompany.com/investors/archives-annual-other-reports
https://www.coca-colaindia.com/sustainability-report-2016
https://www.coca-colaindia.com/stories/sustainability/downloads/sustainability-
report-2015-2016

[6] Unit case volume part 2 ,Annual 10k reports(2000-2017),The Coca Cola
Company.
https://www.coca-colacompany.com/investors/archives-annual-other-reports
https://www.coca-colaindia.com/sustainability-report-2016
https://www.coca-colaindia.com/stories/sustainability/downloads/sustainability-
report-2015-2016

[7] Analysis of consolidated statements of income,Part 2,Annual 10k reports

(2000-2017)-The Coca Cola Company.

https://www.coca-colacompany.com/investors/archives-annual-other-reports
https://www.coca-colaindia.com/sustainability-report-2016
https://www.coca-colaindia.com/stories/sustainability/downloads/sustainability-
report-2015-2016

[8] Net operating Revenue,Part 2,Annual 10k reports (2000-2017)-The Coca

Cola Company.

https://www.coca-colacompany.com/investors/archives-annual-other-reports
https://www.coca-colaindia.com/sustainability-report-2016
https://www.coca-colaindia.com/stories/sustainability/downloads/sustainability-
report-2015-2016

18