1

The Coca-Cola Company

Sia Kwimbere, Alexander Messados, Helen Zhao

AEM 2200
Fall 2014
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TABLE OF CONTENTS

Table of Contents …………………………………………………………………………..page 1

Memorandum ………………………………………………………………………………page 2
Introduction ………………………………………………………………………………...page 3
Financial Analysis ……………………………………………………………………….....page 4
Liquidity Analysis
Leverage Ratios
Profitability Ratios
Activity Ratios
Ratio Comparisons
Environmental Analysis ……………………………………………………………………page 8
Social Environment
Political, Legal, and Regulatory Issues
Diversity Issues
Global Presence Issues
Sustainability and Triple Bottom Line Issues
Current Events ……………………………………………………………………………..page 14
Social Environment
Legal and Regulatory Environment
Productivity Initiatives …………………………………………………………………….page 17
Chromocell
SABMiller
Four P’s Analysis ………………………………………………………………………….page 20
Product
Place
Price
Promotion
Five Forces Analysis ………………………………………………………………………page 23
Competitive Rivalry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of New Entrants
Threat of Substitute Products
Sources Cited ………………………………………………………………………………page 27
Appendix …………………………………………………………………………………..page 31
Financial Analysis Ratio Calculations
Stock Price Valuation
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Date: December 8, 2014

To: Professor Perez and AEM 2200 TAs
From: Sia Kwimbere, Alexander Messados, Helen Zhao
Subject: The Coca-Cola Company

The Coca-Cola Company is viable in the short term for several reasons including a healthy current ratio
compared to its industry and top competitors. This ratio has increased from 2011 to 2013, indicating that the
company holds relatively more assets than liabilities and is able to settle its short-term obligations. This ratio is also
higher than the industry average and on par that of top competitor PepsiCo, demonstrating its financial well-being as
one of the dominant players in its industry. In addition, the company currently holds the largest market share in its
industry of about 29.5%. This provides the company with greater sales, allows it to achieve economies of scale, and
improves profitability overall. Coca-Cola’s top competitor only holds 20.3% of market share, indicating that Coca-
Cola has a competitive advantage within the industry. Furthermore, the company holds a substantial amount of
inventory, which may seem detrimental. However, this is appropriate for a company of Coca-Cola’s size, influence,
and geographical reach, which most other producers in the industry lack. The large inventory satisfies its need for
quick distribution, which enables time utility, adding value to its products for customers.
Coca-Cola’s viability on the long run is portrayed through its high profitability ratios, including good return
on sales and return on equity percentages. Their average return on sales over the past five years is 22.2%, which
doubles the industry average of 10% and PepsiCo’s average of 10%. Since Coca-Cola owns the largest sector of
nearly one third of market share, this ratio accurately describes the company’s level of profitability. The return on
equity ratio does the same because Coca-Cola’s percentage is twice the industry average of 15.7% over the past five
years. In addition, its diverse portfolio of beverages and product lines enable it to attract as many types of consumers
as possible across different demographic and social environments. Despite recent health concerns that have
negatively impacted the demand for sodas, the company’s extensive product line includes beverages ranging from
carbonated soft drinks to juices to bottled water. As a result, consumers can substitute healthier alternatives for sodas
while still consuming Coca-Cola’s products. Brand loyalty ensures that the company has a consumer base in the
long run, which the rest of the industry except PepsiCo does not share. Furthermore, Coca-Cola’s fostering of a good
reputation grants it a competitive edge in differentiation, since it is a pioneer of sustainability in the industry. Due to
recent sustainability drives, the company’s good reputation encourages consumers to buy their products.
Coca-Cola’s strategy involves exploiting massive economies of scale to earn profits to be used for research
and development, innovation, and promotion. They also lower production costs, allowing Coca-Cola to implement
its cost-leadership strategy. The strategy also entails diversification of products, as consumer preferences have
recently shifted away from carbonated beverages to healthier options. Product diversification aligns with Coca-
Cola’s values of customer satisfaction by fulfilling the customer’s desires. Another strategy employed by the
company includes expanding its geographical reach and improving its distribution networks, particularly in
developing nations. In 2014, Coca-Cola established a partnership with SABMiller, a South African brewing
company, to create Coca-Cola Beverages Africa and transfer bottling operations to eastern and southern Africa. This
strategy allows the company to face lenient legislation in these countries. The cost of labor is lower than that in
Coca-Cola’s existing markets, allowing for lower production costs when they expand. This is an optimal strategy
because economies of scale are not available to other competitors, which makes their product costs and overall
prices relatively higher compared to Coca-Cola’s. Some may argue that Coca-Cola should develop healthier
alternatives instead of diversification of already established products. However, healthy alternatives are too
expensive because they require completely new plants, more distributors, and an increased marketing budget. Even
if the company pursues production of healthier beverages, the public will not necessarily believe that Coca-Cola’s
products have nutritional value. Therefore, it is better for the company to adhere to its original production of
carbonated soft drinks and emphasize its existing healthier alternatives, such as Simply Orange. Finally, Coca-Cola
should turn its attention to global expansion because increased global presence provides opportunities within new
markets for a larger consumer base, and within different social environments.
The Coca-Cola Company’s stock price value is appropriate because it is within the same range as most of
its viable competitors, especially PepsiCo. Both have a valuation of around $22 despite the fact that PepsiCo’s
current stock price is more than twice Coca-Cola’s. Dr. Pepper Snapple Group is very close with a valuation of $23,
while Mondelez International is worth $17. Mondelez’s financial state is not very good, as indicated in its ratio
analysis, so Coca-Cola’s value should be much higher than that. Even though Monster Beverage has a high
valuation of $54.6229, it focuses more on energy drinks rather than carbonated soft drinks and is therefore not
directly related to Coca-Cola. Since PepsiCo and Coca-Cola are very similar companies, direct competitors, and the
dominating players in the soda production industry, Coca-Cola’s value should be equal to PepsiCo’s.
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I. Introduction

Company Name: The Coca-Cola Company

Date of Incorporation: September 1919

Main Business: The Coca-Cola Company is the world’s largest beverage company. It owns,
licenses, and markets more than 500 nonalcoholic beverage brands, primarily sparkling
beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice
drinks, ready-to-drink teas and coffees, and energy and sports drinks. Coca Cola owns and
markets four of the world’s top five nonalcoholic sparkling beverage brands: Coca-Cola, Diet
Coke, Fanta and Sprite. Finished beverage products bearing Coca-Cola’s trademarks, sold in the
United States since 1886, are now sold in more than 200 countries (The Coca Cola Company,
2013).
Through its network of company-owned or company-controlled bottling and distribution
operations as well as independent bottling partners, distributors, wholesalers and retailers, Coca-
Cola makes its branded beverage products available to consumers throughout the world — the
world’s largest beverage distribution system. Beverages bearing trademarks owned by or
licensed to the company account for 1.9 billion of the approximately 57 billion beverage servings
of all types consumed worldwide every day (The Coca Cola Company, 2013).

Mission Statement: “To refresh the world, to inspire moments of optimism and happiness and
to create value and make a difference (The Coca Cola Company, n.d.).”
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II. Financial Analysis

Coca-Cola Five-Year Ratios
Year 2013 2012 2011 2010 2009
Liquidity Ratios
Current 1.1255978 1.0901118 1.0499938 1.1659282 1.2791342
Quick 0.9039948 0.7659682 0.7805872 0.9453393 0.8495583
Leverage Ratios
Debt-to-Equity 1.7147077 1.6280573 1.5280228 1.3520627 0.9626195
Profitability Ratios
Return on Sales 18.320741 18.782931 18.417773 33.625673 22.020006
Return on Equity 25.876466 27.505337 27.09657 38.089862 27.517239
Earnings per Share 1.9037481 1.9674956 1.845028 2.5308616 1.4650064
Activity Ratios
Inventory Turnover 5.6213 5.8373162 5.8913325 4.7898113 4.7102804

A. Liquidity Analysis

Coca-Cola’s current ratio hovers around 1.14 from 2009 to 2013. The difference by which the company’s assets

exceeds the company’s liabilities is not substantial because the current ratio barely exceeds one. This means that the

company has relatively more assets than liabilities and may be able to pay off its short-term liabilities in a timely

manner. However, this ratio does not guarantee the company’s ability to settle long-term debt and would reflect

better on Coca-Cola if it were closer to two. This ratio decreases from 2009 to 2011 and then increases from 2011 to

2013, indicating that the company is viable in the short run. It is currently trending towards more assets and fewer

liabilities, which is healthy because the company is losing debt.

Coca-Cola’s quick ratio hovers around 0.85 over the past five years, showing that the company holds a relatively

large amount of inventory because its quick ratio is smaller than its current ratio. Without taking into account

inventories, the company has an uncertain ability to meet its short-term financial obligations. It is probably over-

leveraged, or it is paying bills too quickly while collecting receivables too slowly. This ratio would reflect better on

the company if it were closer to one, at which liquid assets are equal to current liabilities and the company is

financially secure in the short term.

B. Leverage (Debt) Ratios

Coca-Cola’s debt-to-equity ratio hovers around 1.44 from 2009 to 2013. Since the company has more debt than

equity, it is moderately leveraged. Though the ideal ratio is a bit lower than Coca-Cola’s, this number does not

reflect poorly on the company because it is not high enough to prove that the company holds a harmful amount of

debt. Every company needs to finance its assets with long-term debt, especially ones as big as Coca-Cola. This ratio
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has steadily increased from 0.96 in 2009 to 1.71 in 2013, indicating that the company may be slowly losing solvency

compared to its financial health in previous years. Using large amounts of debt to finance operations can either

generate more earnings than the company would have with a different strategy, or outweigh the return and lead to

failure. In Coca-Cola’s case, debt financing has been slowly yielding less return over these past five years.

C. Profitability Ratios

Coca-Cola’s return on sales percentage hovers around 22.2% over the past five years, but falls to 18.5% from 2011

to 2013. This ratio indicates that the company is financially healthy because it is earning a good amount of profit for

every dollar of sales. The company is most likely operating efficiently to achieve such a high percentage, which is

an advantage that the rest of the industry may not enjoy. Since the ratio remains around 18.5% over the past three

years, the company is currently neither growing nor deteriorating. Though this is a dip from a return on sales of

33.6% in 2010, it still reflects profitability of the company because it is high compared to the industry.

Coca-Cola’s return on equity percentage hovers around 29.2% from 2009 to 2013. This is a very high percentage

indicating that the company is very profitable because it generates a good amount of profit with the money

shareholders have invested. Shareholders of Coca-Cola are most likely very pleased with their investments in the

company and its ability to give back to them. This percentage has fluctuated throughout the past five years without a

steady trend, but as a leading player in its industry, Coca-Cola is no doubt profitable.

Coca-Cola’s earnings per share hovers around $1.94 over the past five years. This is a decent number representing

the worth of one Coca-Cola share. Even though the company is certainly profitable, its share price is only

commonplace. The company’s high ROS and ROE percentages would make one expect a larger earnings per share

value. Even so, Coca-Cola’s share price is still higher than the industry average, reflecting its profitable status as a

dominant competitor in the industry. All three profitability ratios spiked in 2010 due to a one-time accounting event

in which the company revalued its ownership of Coca-Cola Enterprises to comply with required accounting

standards, resulting in a large one-time increase in net income. Without taking this event into account, Coca-Cola’s

profitability ratios have been steady over the past five years.

D. Activity Ratios

Coca-Cola’s inventory turnover hovers around 5.4 between the years 2009 and 2013. This is an almost healthy

number indicating that the company sells somewhat quickly and can afford to hold inventories the way it currently
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does. Excess inventories are not a major problem right now because the inventory turnover rate has decreased from

5.89 in 2011 to 5.62 in 2013. This ratio demonstrates overall well-being for Coca-Cola because consumers buy their

goods in a timely fashion. Although the ideal inventory turnover rate is higher than 5.4, this rate is appropriate and

healthy for the company because of its sheer size. Coca-Cola distributes globally and holds substantially more

inventory than the rest of its industry, so the ratio will not be as high as that of a small company.

E. Ratio Comparisons

Coca-Cola’s current ratio is higher than the industry average, which steadily hovers around a nearly satisfactory

1.11. This demonstrates Coca-Cola’s financial well-being compared to the entire industry. PepsiCo’s average

current ratio over the five years nearly the same as Coca-Cola’s, at 1.17. Pepsi’s ratio follows the same trend as

Coca-Cola’s, dipping from 2009 to 2011 and increasing from 2011 to 2013. Both companies are healthy and

becoming more stable in the short term. However, Mondelez has a disappointing average current ratio over the past

five years of 0.99, showing that it will not likely resolve its short-term debts which could destabilize the company.

Coca-Cola’s quick ratio is nearly the same as Pepsi’s, but lower than Mondelez’s. It is also much lower than the

industry average of around 2.66 over the past five years. Though it seems like an unhealthy ratio, this comparison

can be explained by the great size of the two leading companies in this industry. Because they are global

distributors, they must hold substantial amounts of inventory relative to smaller companies, so Coca-Cola’s quick

ratio compared to the industry is acceptable.

Coca-Cola is solvent in the long run, with a debt-to-equity ratio that is very close to the industry average of 1.47

from 2009 to 2013. Pepsi, however, has a ratio hovering around 2.13, which is too high to be healthy. This number

designates a substantial amount of debt owed by PepsiCo, which is more highly leveraged than it should be. Though

debt financing can yield great returns, the cost of doing so is exceeding returns in Pepsi’s case.

Coca-Cola’s return on sales greatly exceeds that of its competitors and industry, indicating great profitability and

reflecting the amount of market share the company owns. Both the industry average and Pepsi’s average over the

five years are around 10%, but Mondelez has an even lower ratio of 8.4%. Since Coca-Cola owns the largest sector

of nearly a third of market share, this ratio accurately describes the company’s profitability. Return on equity does

the same, as the industry’s ratio hovers around 15.7% from 2009 to 2013. Pepsi’s percentage is around 30.4% which

is very close to Coca-Cola’s, and both are nearly twice that of the industry. This ratio accurately reflects the fact that

PepsiCo and Coca-Cola are the two dominant producers. Coca-Cola’s earnings per share value, however, is lower
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than expected. PepsiCo has an average earnings per share value over the five years of $3.99, and even Mondelez’s

average of $2.06 is above Coca-Cola’s. Even so, Coca-Cola’s share price is still higher than the industry average of

$1.73, reflecting the profitability that the company enjoys.

Industry Average Five-Year Ratios

Year 2013 2012 2011 2010 2009
Current 1.0871325 1.1466902 1.0798562 1.121222 1.1078514
Quick 3.5028248 2.6747142 2.5364079 2.9074942 1.6598161
Debt-to-Equity 1.4626908 1.4340268 1.4370007 1.4320277 1.5791595
Return on Sales 11.761881 10.66703 9.5124962 10.163919 7.9327202
Return on Equity 17.070265 15.719527 14.774353 15.758885 14.927811
Earnings per Share 1.939462 1.8001629 1.7552477 1.7291868 1.4448462
Inventory Turnover 8.2291692 7.7528802 7.436885 6.5168556 6.9384782

PepsiCo Five-Year Ratios

Year 2013 2012 2011 2010 2009
Current 1.2446325 1.0954415 0.9607249 1.1055248 1.4357012
Quick 0.9323393 0.7993446 0.6244905 0.7986408 1.0003426
Debt-to-Equity 2.1911528 2.3478963 2.5400233 2.2202325 1.3713402
Return on Sales 10.14831 9.4332132 9.6881391 10.927072 13.753701
Return on Equity 27.760616 27.711492 31.294929 29.86203 35.384432
Earnings per Share 4.3205128 3.9225397 4.0344396 3.9157373 3.7704502
Inventory Turnover 9.1648577 8.738062 8.2552914 7.8817095 7.6772345

Mondelez Five-Year Ratios

Year 2013 2012 2011 2010 2009
Current 0.9180328 1.0503597 0.8783952 1.0358238 0.9932832
Quick 0.560364 0.7129698 0.451884 0.5759898 0.6351057
Debt-to-Equity 1.2412813 1.3429458 1.664537 1.6591784 1.5782192
Return on Sales 11.090966 8.6477224 6.4876299 7.480315 8.4134464
Return on Equity 12.093411 9.3993481 10.01505 11.480717 11.674911
Earnings per Share 2.1883734 1.6925657 1.9904063 2.3918605 2.0329744
Inventory Turnover 5.9281325 5.8644747 6.1952331 5.8954802 6.8307285
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III. Environmental Analysis

A. Social Environment

Due to its global presence in more than 200 countries, the Coca-Cola Company has a social environment that varies

from country to country. Complicating matters further, the social environment is continuously changing, and without

adapting to it, Coca- Cola cannot survive. The changing social environments provide both risks and opportunities for

Coca-Cola. Attitudes towards consumerism and environmentalism also affect Coca-Cola.

Despite very high levels of consumerism in developed countries, changing consumer preferences- increased health

awareness and concerns about obesity- resulted in a decline in soda consumption. “In the US, per capita

consumption of Coca-Cola beverages declined from 426 8-oz servings in 2002 to 401 8-oz servings in 2012 (Report,

2014). In reaction to this, in early 2012 France, Coca- Cola introduced Sprite and three varieties of Nestea

sweetened with a combination of stevia (plant derived sweetener) and sugar (Report, 2014). All four beverages

contain calorie contents that are 30% lower than Sprite and Nestea sweetened with sugar alone (Report, 2014). In

mid-2012, Coca-Cola began test marketing Fanta Select and Sprite Select in several U.S. cities (Report, 2014). Both

are reduced-calorie beverages sweetened with stevia and sugar (Report, 2014). Coca- Cola also removed and

reduced use of artificial ingredients (Report, 2014).

Coca-Cola is currently exploring other opportunities to rapidly expand their portfolio of stevia- sweetened products.

Through a partnership with Chromocell Corporation (Atlanta Business Chronicle, 2010), Coca-Cola is developing

flavors that enhance the sweet taste of sugar, natural sweeteners and other ingredients that will help offer great-

tasting beverages with fewer calories (Report, 2014). Innovative strategies in packaging such as variety in serving

sizes help consumers manage their calorie intake and energy balance (Report, 2014). In 2011, Coca-Cola began

offering more beverages in the United States in 7.5-ounce, 90-calorie mini-cans (Report, 2014). Coke, Diet Coke,

Coke Zero, Sprite, Fanta and Seagram’s Ginger Ale are now all available in mini-cans (Report, 2014). Some

products are also available in mini-cans in Australia, Canada, Korea and Thailand (Report, 2014). While a reduction

in sales of its primary product was not favorable for Coca-Cola, it provided an opportunity for innovation in making

its product healthier and increased the production of non-sparkling beverages such as juice (Minute maid) and more

recently milk, which are perceived by consumers as healthier (Wong, 2014).

Contrastingly, in developing countries, (such as China and India) consumption of Coca-Cola is increasing due to

rising (Ward, 2014) consumerism and may overtake that of developed countries. The social environment can also
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affect the success of a business. The communities that have production facilities are also those where consumers

live, therefore, collaborative relationships with local communities are mutually beneficial and fundamental to Coca-

Cola’s success. The importance a society places on education, investment and hard work ethic will affect workforce

standards and this is why Coca-Cola heavily invests in corporate social responsibility (The Coca-Cola Company,

n.d.).

B. Political, Legal, and Regulatory Issues

The Food and Drug Administration (FDA) regards non-alcoholic beverages such as Coca-Cola as within the food

category. The government regulates the manufacturing procedure of these products. Companies that fail to meet the

government's standards are subject to fines. Coca-Cola is also subject to the Occupational Safety and Health Act and

to local, state, federal, and foreign environmental regulation. “Following the adoption of soda taxes in Hungary and

France in 2011 and 2012, a number of new soda tax proposals have been put forth and implemented, while others

have been eliminated. Of note is the January 2014 initiation of the 1 peso (USD 0.08) per litre of soda tax in Mexico,

which is the highest per capita Coca-Cola consuming country in the world (accounting for an estimated 5% of the

Coca-Cola group’s sales)” (Report, 2014). In addition, St. Helena in May 2014 imposed a new tax of USD 1.17 to

the cost of sugar-sweetened carbonated drinks with more than 15 grams of sugar per litre (Report, 2014). Proposed

taxes in the US “Sugar-Sweetened Beverage Safety Warning Act, tax of USD 0.01 per teaspoon of sugar, high-

fructose corn syrup or other high caloric sweeteners used in sugar-sweetened beverages” and the passed taxes in

California, June 2014 “warning label on bottles and cans of sugar-sweetened drinks sold in the state that contain 75

calories or more per 12 fluid ounces” as well as proposed taxes by the Department of Health in South Africa In

August 2013, (a 20% tax on sugar- sweetened beverage to reduce the rate of overweight and obesity), may lead to a

further decline in consumption of Coca-Cola products (Report, 2014). However, Denmark abolished its USD 0.29

tax per litre on sugar-sweetened soft drinks and the ban on sodas over 16 ounces in New York City was ended which

may counteract the negative impact the taxes would have on The Coca-Cola Company (Report, 2014).

In addition to soda taxes, there have been additional cases unfavorable for Coca-Cola concerning violations of

wastewater regulations. The first of these violations was found in Plachimada India, where in 2005 the Kerala State

Pollution Control Board ordered Coca-Cola to permanently close down one of its plants as a result of pollution

caused by heavy metals (a high concentration of cadmium), wastewater, sludge and an overdrawing of water

supplies. “In July 2006, studies conducted by India's Hazard's Centre and People's Science Institute (TERI)
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confirmed that the Plachimada plant had contaminated local groundwater with dangerous levels of cadmium,

chromium, and lead. Water samples collected from nearby wells and hand pumps failed to meet government safety

standards and were deemed unsuitable for human consumption (Research, 2014).” “In 2011, the Kerala Assembly

unanimously passed the Plachimada Coca-Cola Victims Relief and Compensation Claims Special Tribunal Bill 2011

to secure compensation for the inhabitants of Plachimada for ecological damage caused by Coca-Cola’s unit in the

village (Research, 2014).” On “19 Feb 2014, the UN petitioned for an early nod to Plachimada bill, protesting

against the alleged inordinate delay in granting presidential assent for the 2011 Plachimada compensation bill.

(Research, 2014).” Another situation was in Atlanta where Coca-Cola’s syrup plant violated the city’s wastewater

regulations in February 2013 (Bouckley, 2013). The Nigeria Bottling Company linked to Coca-Cola was also asked

to review its supply chain over various consumer complaints by Nigeria’s Consumer Protection Council due to

consumer complaints of defective and contaminated products. The allegations proved to be true by the CPC

investigation and NBC was given 90 days to comply with demands of findings. All these scenarios are indications of

The Coca-Cola Company’s failure to comply with legal requirements in the respective areas mentioned.

C. Diversity Issues

The Coca-Cola Company has a Human Rights Policy, which determines the way the business is managed around the

world. “The Human Rights Policy applies to The Coca-Cola Company, the entities that it owns, the entities in which

it holds a majority interest, and the facilities that it manages. The Company is committed to working with and

encouraging bottling partners to uphold the principles in this policy and to adopt similar policies within their

businesses. The Supplier Guiding Principles apply to bottling partners and suppliers and are aligned with the

expectations and commitments of our overarching Human Rights Policy (The Coca-Cola Company, n.d.).”

The policy focuses on fostering open and inclusive workplaces based on human rights and includes ten components,

one of which is valuing diversity within the workplace (The Coca-Cola Company, n.d.). “At The Coca-Cola

Company, it is every employee’s responsibility to maintain a work environment that reflects respect and is free from

all discrimination and harassment. If any employee believes that someone is violating the Human Rights Policy or

the law, they are asked to report it immediately to their manager, Human Resources, Company legal counsel or

EthicsLine (The Coca-Cola Company, n.d.).”

Coca Cola uses a geocentric staffing approach (Banutu-Gomez, 2012), which enables it to “deal with cultural

differences through organization design by creating a variety of flexible structures and partnerships that can
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complement different markets and through staffing by valuing international assignments and giving our best people

exposure to different cultures and ways of conducting business (Veale, 1995, ρ.77).”

However there has been flouting of these rules and policies indicated by the allegations of discrimination against

female job applicants. Great Plains Coca-Cola Bottling, a Coca-Cola unit, “has agreed to pay $475,000 in back

wages and interest to settle allegations of sex discrimination affecting 1,293 female job seekers. OFCCP

investigators determined that Great Plains Coca-Cola Bottling unfairly rejected these qualified women for

merchandiser, driver, driver trainee, production and warehouse positions at the company's bottling and distribution

facility in Oklahoma City (McGinnis & Trupo, 2014).”

Nevertheless, Coca-Cola has put in a huge effort to encourage diversity, amongst many other notable things Coca-

Cola has done, as of December 31, 2013, 44% of its U.S. workforce was multicultural (The Coca Cola Company,

2013). In 2013, it hired 1,010 military veterans and increased its target with a five-year goal of 5,000 veterans hired

within the North America system (The Coca Cola Company, 2013). The Coca-Cola Company and The Coca-Cola

Foundation directed $30.7 million (or 46%) of U.S. community giving to ethnic, veteran, disability and LGBT

nonprofit organizations in 2013 (The Coca Cola Company, 2013). Finally, the Coca-Cola system spent $952 million

with diverse suppliers in 2013, a 14.8% increase over 2012 (The Coca Cola Company, 2013).

D. Global Presence Issues

Coca-Cola enlarges its global presence through branding, differentiation and cost leadership. Cost leadership is

particularly effective for international markets, especially those in developing countries in Asia and more

specifically its expanding market in Africa. Coca-Cola also uses social responsibility as part of its marketing

strategy in these countries, which is very effective in giving Coca-Cola a good reputation and increasing

consumption of its product. Although branding is a strategy primarily considered successful in the United States of

America (its local environment) due to its patriotic representation for Americans, branding also works on an

international front by making the product seem more desirable and fashionable. Coca-Cola’s branding strategies in

international markets include changing its name to suit the social environment. “When Coca-Cola entered the

Mainland China market, it used a revised name, which appealed more to the ideographic sense than the original

English sound. The same problem also occurred when Coca-Cola first entered the Hong Kong and Shanghai

markets. The Cantonese based brand name chosen emulated the original English sound translated to "pleasant to

mouth and wax" in Mandarin which was not the perception Coca-Cola wanted to convey (Banutu-Gomez, 2012).”
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In European nations such as Belarus, Coca Cola’s branding strategy focuses on the quality of the product. It does

this by rigorously testing ingredients and raw materials in its own accredited laboratory in compliance with world

quality standards (Banutu-Gomez, 2012). There have been global issues particularly in Spain where workers of

Coca-Cola bottling facilities have been on strike since February 2014 and rejected the proposal of shutting down

facilities and laying off 1200 employees from Coca-Cola. Major national worker unions have supported this and

held protests in various cities across the country (Agence France-Presse, 2014). In addition, the Spanish High Court

ordered Coca-Cola to re-hire over 800 workers it laid off. The Court ruled that the plant closures and workforce

reductions were not done lawfully (FERNÁNDEZ, 2014).

E. Sustainability and Triple Bottom Line Issues

Coca-Cola’s 2020 Vision focuses on people, planet, profit, partners, portfolio and productivity (Coca-Cola corporate

website 2010). The vision is meant to ensure long-term viability and growth for the Coca-Cola Company. Coca-

Cola’s priority areas for sustainability are the three Ws: women, water and well-being. Its goals are to provide

economic empowerment and entrepreneurship opportunities for women (five million by 2020), access to clean water

for communities without it and engage in water conservation and recycling. For well-being, Coca Cola plans to

encourage active healthy living, education and youth development.

Coca- Cola considers women as “pillars of the communities as they invest a sizable portion of the money they earn

on the health and education of their children and in their local economies, creating a tremendous economic impact.

As such, women are critical to local and global business success and are an essential cornerstone of our progress

towards our 2020 Vision, our long- term system wide plan for growth (The Coca Cola Company, 2013).” Through

multiyear Golden Triangle partnerships like the STAR program, women around the world and especially in Asia are

receiving business training and upon graduation, the opportunity to apply for business support, including access to

resources such as microfinance, merchandising and peer mentoring (The Coca Cola Company, 2013). The STAR

Program originally started as a pilot in 2011 and was scaled in 2013 to enable a cumulative total of 21,150 women.

“In 2013, 5by20 programs enabled more than 26,000 women entrepreneurs in India, who are often challenged by a

lack of business experience and difficulty accessing finance and assets. (The Coca Cola Company, 2013).” “Coca-

Cola helped them address barriers by leveraging product-cooling technology from the Coca-Cola system in India to

provide income-generating opportunities for female retailers in rural areas where electricity is intermittent. These

products that are part of the eKOCool program, use solar power (sustainable energy) and also provide power-
 14

charging ports for mobile phones and solar lanterns. Solar coolers reduce the cost of doing business by eliminating

the costs of electricity and/or ice, the charging ports draw more potential customers to the store, and the lantern

allows her to stay open after sunset. Through 2013, more than 1,000 eKOCool units have been installed in women-

run outlets across five states in India (The Coca Cola Company, 2013).”

The availability of water is vital for Coca-Cola’s business sustainability, since it is the main ingredient in the

production of beverages. Coca-Cola has fostered NGO partnerships and community projects globally, devoted to the

sustainable use of water that involves reducing, reusing and recycling it, to replenish the water it uses across its

supply chain. Coca-Cola had the goal of improving its water efficiency by 20% in 2012. It also has a goal of

becoming water neutral by 2020, by safely returning to nature and society the equivalent of the water used in Coca-

Cola beverages and production. “Coca-Cola has participated in more than 250 community water partnerships in over

70 countries to provide safe drinking water to communities in water-stressed areas of the world (Coca-Cola

2008/2009, Sustainability Review).” Coca-Cola’s involvement in Kaladera India is an example of one of its water

stewardship and sustainability initiatives (Ward, 2014). Despite protests, Coca-Cola persevered in implementing

strategies towards sustainability and community engagement to overcome the challenges of water scarcity in the

region (Chaklader & Gautum, 2013).

In regards to the environment, Coca Cola “introduced PlantBottle™ packaging – the first-ever fully recyclable PET

plastic bottle made partially from plants – in 2009 and has since distributed more than 15 billion of the breakthrough

bottles in 25 countries. Approximately 8% of the company’s PET plastic bottles last year contained Plant Bottle

technology. (The Coca Cola Company, 2013).” “In addition to eliminating the equivalent of approximately 140,000

metric tons of CO2 emissions from the company’s PET plastic bottles, to date, the innovation has boosted sales of

key brands like Dasani. PlantBottle also has strengthened Coke’s competitive advantage with key customers, racked

up headlines and sustainable and innovation awards, and caught the collective eye of the supply chain and investor

community (The Coca Cola Company, 2013).”

 15

IV. Current Events

A. Social Environment

The Coca-Cola Company’s main goal is to address the desires of its consumers. If it does not anticipate, adjust to

and fulfill evolving consumer preferences, its profitability will deteriorate rapidly. Health and nutrition

considerations, obesity and artificiality concerns among many other things (such as shifting consumer demographics

which include aging populations in developed markets, changes in consumers tastes and needs, changes in consumer

lifestyles, competitive product and pricing pressures) are causing a change in the preference for consumers to

healthier non-alcoholic alternatives (The Coca Cola Company, 2013). These shifts away from what is Coca-Cola’s

main product gives way for competitors in the highly competitive beverage industry to try gain more market share

and overtake Coca-Cola. Some of this competition is from international beverage companies like PepsiCo that are

similar to Coca-Cola and some, is regional or local (The Coca Cola Company, 2013). Coca-Cola’s “beverage

products also compete against private label brands developed by retailers, some of which are Coca-Cola system

customers (The Coca Cola Company, 2013).” Its ability to gain and maintain market share both globally and locally

may be impeded upon due to actions carried out by competitors. Without marketing and innovation to maintain

brand loyalty and market share, Coca-Cola will face extremely negative consequences and outcomes of the business,

and find itself unable to keep up with the social external environment (The Coca Cola Company, 2013). This may

cause Coca-Cola to have less liquidity and profitability and possibly even shut down in the long run. In reaction to

the importance of the social environment, Coca-Cola has developed various healthy beverage alternatives that align

better with consumer preferences. Coca-Cola Life is the Coca-Cola Company’s first reduced-calorie sparkling

beverage sweetened with cane sugar and stevia leaf extract which has 35 percent fewer calories than other leading

colas at 60 calories per 8-oz. glass bottle (The Coca Cola Company, 2013). The use of the green label in branding

also satisfies the current social focus towards sustainability, awareness and considering the effect for future

generations (The Coca Cola Company, 2013). Although Coca-Cola risks cannibalisation with Coca-Cola Life due to

other previously low calorie innovated products such as Coke Zero, product line extensions can recruit new

consumers and increase the brand's market share (Cornil, 2014). The health labels such as those used by Coke Life

are strategic and have a powerful impact on consumers' product perception (from symbolic to physical perception),

giving the product a halo effect (Cornil, 2014). “Research has shown that consumers generally underestimate

calories and infer unrelated health benefits from products with such labels. This misperception can even lead
 16

consumers to consume larger quantities of health-labeled products, to the extent of ingesting more calories when a

health label is present than when it is absent. One reason for this overconsumption of products claimed to be healthy

is that such claims alleviate consumers' guilty feelings (Cornil, 2014).” Introducing a new "healthy" extension to a

product line can also alter the perception of the other products of the line. Coke Life may undermine consumers'

perceptions of existing Coca-Cola products, and standard Coke, Coke Zero and Coke Light may suffer from

damageable contrast effects (Cornil, 2014). However, Coke Life's health halo may also reflect on the whole Coca-

Cola brand, indirectly benefitting the other Coca-Cola products (Cornil, 2014). As a result of an increase in

disposable incomes, consumers are now more selective about the quality and impact of their purchases and

consumption. In reaction to this, Coca- Cola also developed Fairlife (the product of a joint venture formed by Coca-

Cola and dairy co-op Select Milk Producers in 2012). “Coke saw the partnership as an opportunity to develop

“higher quality value-added health and wellness beverages,” particularly what it calls value-added dairy with more

protein and calcium than standard milk, half the sugar, and no lactose (Wong, 2014). It is also expensive, with initial

prices (in test markets) running 65¢ more per quart than conventional milk (Wong, 2014). Premium Milk could

boost profitability for Coca-Cola if it manages to achieve high volume sales in the future, and the product’s high

prices and economies of scale could boost the company’s net profitability (Trefis Team, 2014). “Bottled water is

another high volume market, but Coca-Cola does not derive meaningful profits from this category mainly due to

competitive pricing (Trefis Team, 2014). In addition, Coca-Cola has been criticized for selling “bottled tap water,”

which forced the company to withdraw its water brand Dasani from the U.K. in 2004. However, enhancing the

quality of regular milk might not meet the same fate. Coca-Cola’s Simply brand of juice and juice drinks grew 7% in

North America last year (94% U.S., 6% Canada), despite the 1.9% decline in the overall fruit beverage segment in

the domestic market (Trefis Team, 2014). Even though the high amounts of sugars and calories have dissuaded

consumers from juice consumption, especially orange juices, the Simply brand enjoys strong sales as it is marketed

as healthier, all-natural, and contains no added sugar or preservatives (Trefis Team, 2014).” Fairlife could boost the

company’s beverage portfolio and sales, and very well shake-up the overall U.S. fluid milk market (Trefis Team,

2014). Nevertheless, Coca-Cola’s venture into healthier products has not been without criticism. There have been

cases with false advertising for its vitamin water (Brison, 2012). Furthermore there has been a case of fraud and

seeking of a class action status against Coca-Cola’s Simply Orange juice brand over claims that it is misleading ().

In spite of this, sales for the healthier products are increasing (Coca-Cola in US legal fight, 2012).
 17

B. Legal and Regulatory Environment

The proposal of soda taxes in various states and countries has reduced profitability and liquidity for The Coca-Cola

Company. The initiation of the 1 peso (USD 0.08) per litre of soda tax in Mexico (the highest per capita Coca-Cola

consuming country in the world accounting for an estimated 5% of the Coca-Cola group’s sales) (Report, 2014) has

had an unfavorable impact on Coca-Cola’s profit and liquidity. Although Coca-Cola FEMSA sees the demand

overcoming the tax (Cattan, 2014) Coca-Cola may have decided to diversify and increase its global presence in Asia

and Africa where the regulatory environment is not as severe to safeguard against any loss in profitability.

Furthermore, obesity concerns are not on the forefront of government officials’ considerations in these continents

and countries since they have more substantial issues to deal with, and therefore, instead of cannibalizing the

production of other Coca-Cola products, The Coca-Cola Company can just concentrate on marketing the original

Coca-Cola soda (but still provide the less calorie options) in this geographic concentration. “Zambia is one of The

Coca-Cola Company’s midsize geographic markets in Africa, ranking 19 out of 56 countries by volume sales in

2009 (Oxfam America, n.d.).” However, South Africa, India and China may not be particularly conducive

environments for the sales of Coca-Cola since South Africa has introduced a tax on sodas (Report, 2014) and India

and China have developed health awareness and concerns about the link between high calorie drink and obesity

(Mukherjee, 2014) (Illy, Pereir, Ireton, Hewitt, & Panyawuthikrai, 2013 ). India is also considering introducing a

soda tax, so Coca-Cola may be better off just trying to promote other brands and products such as its teas, Minute

Maid and Simply Orange globally.

 18

V. Productivity Initiatives
A. Chromocell

The Chromocell Corporation is a company that focuses on developing new and innovative food and beverage

ingredients. The company is particularly effective in developing healthier alternatives to the unwholesome

ingredients that were previously used in Coca-Cola’s products. Using fruits, herbs and vegetables, Chromocell is

able to discover reduced and sometimes zero calorie sweeteners. On December 10, 2010 it was announced that

Chromocell and the Coca-Cola Company were to collaborate to research further developments in flavoring.

Particularly, Coca-Cola wanted to uncover a larger amount of information about sweetness enhancers and natural

sweeteners (Jordin, McCormick, 2010). This was a particularly important partnership for Coca-Cola, as during that

time, consumers were growing more and more conscious of where their food and drinks were coming from.

The deal between Coca-Cola and Chromocell gave the beverage company exclusive rights to all flavors, sweeteners,

and sweetness enhancers in all non-alcoholic, ready-to-drink categories around the world (Food Market Watch,

2010). Chromocell would receive royalty payments and research funding based on the amount of sales of products

that contain Chromocell-developed ingredients. The agreement between the two companies came about two months

after Coca-Cola’s former ingredient research company, Senomyx Inc. decided to collaborate with their rival,

PepsiCo Inc (Klayman, Caney, 2010).

This deal was made in order to create economies of scale when using and developing new ingredients for Coca-

Cola’s products. Had the beverage company not collaborated with another company, they would have had to

research and develop these ingredients themselves, or purchase them all from another company. Developing and

researching the ingredients on their own would be inefficient and ineffective because they would be wasting

valuable money and time on a field in which they do not have specialized skills and knowledge in. Purchasing all

ingredients would, at the very least, be inefficient, as costs would be much higher than if they partnered with another

company to complete these actions. Therefore, this collaboration was definitely a productivity related initiative.

This alliance with Chromocell was an important move for the Coca-Cola Company. During this time period,

consumer demand for healthier and more natural products was growing. These healthier alternatives were not only

difficult to discover, but also much more expensive than the traditional ingredients that Coca-Cola used. It would be

a great waste of time, effort, and capital if Coca-Cola was to develop these ingredients themselves, but the company

would risk an even greater decrease in sales and possibly a significant PR hit if they do not adapt to the growing
 19

needs of the consumers. Therefore, Coca-Cola had to find a way to maintain low costs, while also increasing the

perceived quality of their products. Of course, this was no easy task. As it turns out, they were able to find a credible

and reliable partner in Chromocell. Although they must pay a royalty to Chromocell as a percentage of sales, this

cost is only significant if the sales on these products are significant. This higher cost would be a good sign, however,

indicating that consumer demand for Coca-Cola products is increasing. Chromocell has proven that they are a

worthy partner through their development of one of the most successful low-calorie sweeteners in the world, Stevia.

Stevia is used in more than 20 Coca-Cola products around the world.

B. SABMiller

In November of 2014, the Coca-Cola Company was faced with decreasing sales in some of its major markets. The

particular market that they were concerned with was North America. In a response to this, Coca-Cola partnered with

SABMiller, a South African brewing company based in the United Kingdom, to create Coca-Cola Beverages Africa.

This newly formed partnership will allow a substantial amount of Coca-Cola bottling operations to be carried out in

southern and eastern Africa. This deal coincided with Coca-Cola’s cost-cutting initiative over the past several years

in response to recent decreases in sales (Evans, 2014).

As part of the deal, Coca-Cola received 11.3% of Coca-Cola Beverages Africa, SABMiller received 57% and

Gutsche Family Investments received the remainder. Coca-Cola will begin producing and distributing products in

the countries of South Africa, Kenya, Ethiopia, Mozambique, Tanzania, Uganda, Namibia, Comoros and Mayotte.

Within the next few years, contribute to the operation in Swaziland, Botswana and Zambia. Furthermore, Coca-Cola

paid $260 million for global rights to SABMiller’s Appletiser soft-drink brand and 19 other beverage brands in the

African and Latin American regions (Nasdaq, 2014).

This deal is part of a series of steps that Coca-Cola plans to pursue in order to dramatically cut costs and boost

profits in particular regions. Instead of assuming full ownership of all distribution and bottling entities, Coca-Cola is

beginning to grant more and more territories to its bottlers and distributors. For example, in addition to this

partnership with SABMiller, Coca-Cola is also in the process of granting all of its territories in Chicago to Great

Lakes Coca-Cola Distribution L.L.C. The beverage company plans on relinquishing territories to most of its North

American bottling subsidiaries by 2017, and most of its global territories by 2020 (Zacks, 2014).

This productivity related initiative would significantly decrease Coca-Cola’s short-term and long-term costs. As the

company relinquishes control of these bottling entities, they will not have to pay as many of the costs associated
 20

with them, such as basic operating costs, wages, maintenance of facilities and property taxes. However,

relinquishing ownership and territory to these bottling firms will also most likely result in a decrease in revenues.

The beverage company will receive a smaller percentage of revenues accumulated by these companies and,

therefore, Coca-Cola’s overall short-term revenue will decrease. From the perspective of long-term sustainability,

this process makes a degree of sense for the Coca-Cola Company. As long-term costs decrease and margins

maintain a favorable level, Coca-Cola will accumulate a respectable amount of revenue and capital and retain these

earnings to develop more efficient means of production and development. In other words, this is a way for Coca-

Cola to start over and correct the mistakes they made previously, such as amassing high costs and using inefficient

practices. This process marks the beginning of Coca-Cola taking a regressive stance in order to become stable, and

then later on begin to spearhead a growth initiative. However, this series of steps does not make an incredible

amount of sense if it is examined from a competitive perspective. The beverage industry is one that is highly

competitive, especially the direct competition between Coca-Cola and PepsiCo Inc. Even the growing Dr. Pepper

Snapple Group can present a challenge. As a result of this cost-cutting drive, Coca-Cola may fall behind in this

competition and struggle to regain their position as the leader of the soft drink industry.
 21

VI. Four P’s Analysis

A. Product

The Coca-Cola is the Coca-Cola Company’s namesake. Most people simply refer to it as Coke. In the simplest

sense, the product of Coke is a concoction of carbonated water, high-fructose corn syrup, caffeine, phosphoric acid,

caramel coloring, and natural flavorings. The natural flavorings are particularly intriguing, because the components

of them are a trade secret. Due to this, it is safe to assume that the natural flavorings are at least a part of their

competitive advantage, because they are something that a competitor cannot and, most likely, will not ever replicate.

These ingredients can simply be found on the side of a can or bottle of Coke. These flavor combinations deliver a

variety of different tastes to a consumer. The high-fructose corn syrup adds a sweet taste. The caffeine adds a slight

hint of bitterness. The phosphoric acid adds a little bit of a tang. This combination of ingredients do not only deliver

flavor to consumers, but also has other features. The caffeine gives consumers a temporary boost of energy. These

are the things that comprise the tangible aspects of the product that Coke is.

However, there is much more to Coke than its taste and energy boost. In 2006, Coca-Cola attempted to cultivate

customer loyalty by introducing MyCokeRewards. In this campaign, entering promotional codes printed on Coke

bottles and cans eventually accumulate into points, which can be used to receive prizes and be entered into

sweepstakes. After accumulating a certain amount of points, customers can win many things, from a Coca-Cola t-

shirt, to a PlayStation 4 with an added $100. So, as part of the product, not only are consumers receiving great taste,

but they are also receiving chance of a reward (Coca-Cola, 2006).

In 2011, Coca-Cola began printing names on their Coke bottles and cans in Australia, urging customers to share a

Coke with whoever’s name is printed on the bottle or can. By 2013, this was also being done in the United Kingdom

and by 2014 it was being done in the United States (Coca-Cola, 2010) (Coca-Cola, 2014). Although this may be

seen as Coca-Cola just trying to increase volume, they are also trying to present the consumer with another aspect of

their product: friendship and companionship. Seeing those words printed on a Coke may urge someone to actually

go out of their way to, maybe not actually share a Coke with but spend some time with a friend. They would then

have the Coca-Cola Company to thank for that encounter.

B. Place

Coca-Cola is one of, if not, the most wide-reaching brands in the entire world. Every year between 2000 and 2012,

Coca-Cola reigned as the most valuable brand in the world. As of 2014, they have dropped to third place
 22

(Interbrand, 2014). Though not as prestigious as they once were, Coca-Cola remains one of the world’s most

valuable and noticeable brands.

Brand is not the only aspect of Coca-Cola that has infiltrated nearly every market in the world. The product itself is

actually currently being bottled and distributed in every single country in the world, with the exception of Cuba and

North Korea. The reason Coke is not sold in these countries is due to economic sanctions placed on them as a result

of authoritarian practices. However, these countries are not able to resist the magnificent influence of Coca-Cola.

Although the United States disallows for the direct sale of Coke in these countries, this does not stop Cubans

(Weissert, 2007) and North Koreans (Hebblethwaite, 2012) from consuming it. In these countries, the product is

considered a parallel import (Crawley, Duncan, 2012). This means that, although Coca-Cola and the United States

disallow for the sale of the product in these countries, unofficial distributors import and sell the product. So, whether

it is official or unofficial, the product Coca-Cola is present in every single country across the globe.

Coca-Cola’s placement goes much farther than whether or not the product is sold in a specific country. Coca-Cola

has made its mark upon numerous movies, television shows and on-stage productions throughout its history. Often

times, the judges on the hit TV show American Idol can be seen sipping on Coca-Cola. On several occasions, Coke

has actually been a critical component of the main plot of on-screen productions. In the movies, The Gods Must Be

Crazy and One, Two, Three have both had plots that center around a bottle of Coca-Cola (Warren, 2012). By 2012,

Coca-Cola made an appearance in almost 50 different movies per year. According to sheer data (number of movies,

appearances in movies, duration of movies, and success of the movies) Coca-Cola has had the most significant

influence of any non-entertainment company on Hollywood and the movie industry (Warren, 2012).

C. Price

A 12.5 ounce bottle of Coke typically sells for $.89. This price is set this low due to large economies of scale leading

to extremely low production costs. Also, the Coca-Cola Company wants their namesake and most powerful brand to

be affordable for all consumers, in order to allow their brand to permeate throughout all populations in the world.

Going back to the low production costs, this allows the beverage company to focus on their world-renowned

promotional campaigns and social responsibility.

D. Promotion
 23

Coca-Cola uses an extremely large amount of its marketing budget on promotion. The company has become an

American icon through the use of advertising and celebrity promotion. Advertising is something that runs deep in

the lineages at Coca-Cola, as John Pemberton, the inventor of the soft-drink, placed its first advertisement in the

Atlanta Journal in 1886, the same year it was invented. Up until today, advertising remains the most crucial aspect

of promotion of the soft drink.

One of Coca-Cola’s most iconic aspects of advertising is its polar bear. First introduced in 1993, the polar bears

have aired on numerous Coca-Cola television commercials, banners, and billboards. Over the years, these polar

bears have become synonymous with the Coca-Cola product and brand. As a matter of fact, plenty of research was

done to display the most realistic portrayal of a polar bear on their advertisements, while retaining the animated

aspect. Studies were done to pinpoint the exact way that polar bears move their bodies. Months of work went into

the simple, nearly inaudible sounds that the polar bears made. Coloring and reflection was added to advertisements

with immense detail. Although it seems questionable why so much work would be put into a polar bear on an

advertisement, the answer is quite simple: these polar bears reflect what many humans seek in life: the desire to be

carefree, innocent, and enjoyable. This creative and effective strategy, combined with delicate and precise attention

to detail has made for a long-lasting and iconic series of advertisements that are still around today (Ryan, 2012).

Coca-Cola also has a tendency to showcase their slogans within their advertisements. Coca-Cola’s history of slogans

has proven to adapt the appeal of potential consumers. Coke slogans have changed every few years throughout the

soft drink’s history. Depending on which slogan, it can be characterized as demanding, eloquent, catchy, boasting,

or simple. Coca-Cola’s most recent slogan, “Open Happiness”, caters to the needs of today’s consumer as average

attention spans shrink and the influence of social media grows. Nonetheless, Coca-Cola has shown no signs of

slowing down its use of slogans (Conversations Staff, Coca-Cola, 2012).

Over Coca-Cola’s history, the company’s promotional strategy has remained rather consistent. Advertising

combined with the use of slogans, along with interjection into mass media through the use of product placement has

been the definition of the Coca-Cola promotional strategy for decades. Due to their relatively recent drop in the

worldwide brand rankings after over a decade atop them, perhaps these promotional tactics are not as effective and

they have to use different and more innovative ones.

 24

VII. Five Forces Analysis

A. Competitive Rivalry

Competitive rivalry in the soda production industry is intense. First, manufacturers compete mainly based on price

level, which is important to buyers because they have limited disposable incomes (IBISWorld database, 2014).

Producers often slash prices to boost demand because consumers are likely to choose the least expensive product on

the shelf, thus intensifying competition among manufacturers. Even though brand loyalty is important to consumers,

there is a point at which some will switch to affordable beverages because one brand’s prices are too high. Therefore

companies in the industry compete to produce the highest quality drinks at the lowest price. Second, shifting

consumer preferences strengthen competition because the growing health concerns around the world have caused

manufacturers to introduce healthier beverages (IBISWorld database, 2014). New soft drinks are often lower-calorie

versions of existing products, which generates competition by increasing the amount of products in a nearly

saturated market. The new trend towards health-consciousness also deepens competition in the industry by guiding

consumers to substitutes for soda, such as bottled water, iced tea, fruit juices, etc. Now that soft drink manufacturers

have more than just other soft drink companies to compete with, they must develop new products that appeal to

health-conscious buyers. Industry players have created a variety of products in different flavors, caloric content, and

container size to boost brand loyalty and tap into new consumer groups. Therefore, the range of products released

into this market by shifting consumer tastes is an important basis of competition. Third, global beverage companies

spend considerable money on advertising in order to maintain market share and launch new products (IBISWorld

database, 2014). This creates competition between producers to obtain the best time slots to broadcast their products

in ads. Producers also vie for shelf space at retail stores, which is vital to lucrative sales because brands with the

most visibility at grocery stores have an advantage in sales. Though large retailers like Walmart possess ample shelf

space to hold a variety of brands, smaller downstream markets like vending machines, food service operators, and

convenience stores usually limit their soda offerings to one manufacturer (IBISWorld database, 2014). This creates

competition among producers for shelf space and downstream consumers.

B. Bargaining Power of Suppliers

The bargaining power of suppliers in this industry is weak. First, most of the raw materials used in manufacturing

soft drinks are basic commodities such as flavor, color, caffeine, sugar, packaging, etc. (IBISWorld, 2014). These
 25

can be found from many different suppliers and are readily available to every producer, so suppliers have inadequate

power in the industry because switching costs for manufacturers are very low. This limits the bargaining power of

suppliers because no producer heavily relies on one supplier – instead, they are all interchangeable to soft drink

companies. Second, the threat of forward integration is very low because leading soda producers require sizeable

manufacturing plants, global bottling arrangements, strong distribution networks, and optimal shelf space at retail

store (Marc, 2014). Suppliers cannot afford such well-established networks and most likely do not need to. This

reduces their bargaining power because they cannot produce their buyers’ products themselves, and thereby depend

on soda manufacturers. Third, the soft drink industry is very important to its suppliers because producers purchase

raw material in bulk from the suppliers (Marc, 2014). This encourages suppliers to retain positive relations with their

buyers, who have more power since supplier products are not differentiated and are easily substitutable. Fourth,

suppliers are not concentrated in numbers compared to buyers, so soft drink producers do not rely on one strong

supplier. Instead, the dominant players in the industry, such as Coca-Cola and Pepsi, make up a significant portion

of sales for suppliers. Since suppliers depend on a few major buyers, they have limited bargaining power and must

satisfy their consumers or otherwise lose business and revenues.

C. Bargaining Power of Buyers

The bargaining power of buyers in the soda production industry is moderate and increasing. First, high prices tend to

decrease demand for beverages because soda products are mostly homogeneous and substitutable (Marc, 2014).

Even though brand loyalty exists and some consumers will purchase expensive brands’ products, others will opt for

affordable beverages by trading down to generic brands. Since price is one of the biggest demand factors for soda,

consumers are very sensitive to changes in price and producers must respect that. If producers ignore the demands of

buyers, they will lose business and revenue when buyers switch to cheaper alternatives, thus giving buyers some

degree of bargaining power. Second, producers must adapt to recently growing health concerns, which have

negatively affected demand for carbonated soft drinks because consumers have moved to healthier alternatives such

as bottled water, fruit and vegetable juices, iced tea, etc. (IBISWorld, 2014). The effects of a change in consumer

preference show that buyers have bargaining power over producers, who must adapt to satisfy buyers’ tastes. Third,

the fact that there are many substitutes for the industry, both internally and externally, gives buyers power. Since

sodas are homogeneous by nature, consumers have many options to shop around. If one finds Coke too expensive,

one can simply switch to another brand for which the price is thirty cents cheaper. There are also plenty of
 26

substitutes outside the soda production industry that are attractive to buyers in this industry because they are healthy.

This makes it even easier for buyers to replace soda, giving them considerable power over producers. Plus,

switching costs for buyers in this industry are low, giving them more incentive to find cheaper alternate producers

(IBISWorld, 2014). Because substitutes for soda are abundant, manufacturers must comply with consumer

preference, or else they will lose buyers and thereby sales revenue.

However, buyers in the soda production industry are widespread with differing tastes, which does not give them an

advantage (Marc, 2014). Though there has been a recent trend towards health-consciousness, a portion of consumers

still drink soda at the same rate, retaining brand loyalty. Since there are many buyers in the industry who are not

highly concentrated in one area, buyers have less power over producers because sales revenue is not dependent on a

few customers. This gives manufacturers some leniency when it comes to matching consumer preferences because

there are many different tastes to be satisfied. Buyers also lack bargaining power in the sense that soft drinks are

difficult and time-consuming to duplicate at home. Manufacturing one’s own soft drink is not worth it because of

how cheap sodas are, so buyers depend on producers and their determined prices to some extent (Marc, 2014).

D. Threat of New Entrants

The threat of new entrants in this industry is weak because there are significant barriers to entry (IBISWorld, 2014).

First, brand loyalty is important to consumers in the industry, making it difficult for new entrants to earn sales

because consumers will choose popular brands such as Coca-Cola and Pepsi over unfamiliar ones. Industry

concentration benefits current leaders and pushes new participants out, thereby minimizing the threat of new

entrants. Second, the high initial capital investments required to enter the industry is discouraging for prospects

because new companies do not have the capital or funding to build the necessary factories or processing plants, thus

keeping them out of the industry (IBISWorld, 2014). The industry’s leaders already have enormous marketing

budgets, global bottling arrangements, and extensive distribution networks, but new entrants lack these advantages

and find it difficult to compete with established players when finding bottlers and distributors. Without a substantial

budget, new companies cannot advertise their new products or capture market share. Without bottling arrangements

and wide distribution networks, new players cannot expand geographically and will therefore stagnate over time.

Other advantages that existing producers have include the best suppliers, an understanding of product quality,

possession of necessary patents, and technological knowledge. Since these advantages can only be acquired over

time, the dominant manufacturers will enjoy these advantages that keep them at the top, while new entrants without
 27

them will face growing barriers to entry. Third, established producers enjoy economies of scale which new players

lack. Leading manufacturers exploit these economies by merging their many bottling plants in order to lower per

unit costs of production (IBISWorld, 2014). This allows them to sell their products at lower prices than those of new

entrants, which gives established producers an undoubted advantage to attract buyers. New manufacturers do not

have enough capital to use economies of scale and therefore have relatively high production costs. This often pushes

prospects out of the industry, thereby decreasing the threat of new entrants. Fourth, it is difficult for new companies

to join existing distribution channels and secure contracts with retail stores because these are heavily controlled by

the industry’s leaders (IBISWorld, 2014). Without the appropriate means to launch new products, industry entrants

cannot earn enough market share to survive. Fifth, the saturation of the market for soda production is a significant

barrier to entry. When the amount of products in a market has been maximized and only product improvements can

further develop a company, new players simply cannot compete (Marc, 2014). Market share has been divided

amongst currently existing manufacturers with the majority in the hands of dominant companies, making it difficult

for new ones to produce sales.

E. Threat of Substitute Products

The threat of substitution in this industry is moderate and increasing. First, recent concerns about the nutritional

value of soft drinks has pushed consumers towards healthier options such as bottled water, iced tea, low-calorie

soda, and naturally sweetened beverages (IBISWorld, 2014). This new trend increases the threat of substitution

because buyers no longer want to drink unhealthy sodas that contain relatively high amounts of calories. Producers

in the industry expanded their product lines with new healthier options like low-calorie soda and diet carbonated

drinks, while manufacturers in other beverage production industries launched healthy functional beverages such as

noncarbonated beverages, bottled iced tea or coffee, and sparkling fruit drinks. With this influx of new products, soft

drinks are now more easily replaced with healthy substitutes than ever before. The decline in demand for soda over

the past five years shows that the threat of substitution exists. Second, low switching costs in the industry encourage

consumers to explore and switch between their numerous options (Marc, 2014). However, some consumers are

brand loyal and thereby willing to pay for expensive products. Others believe that each sodas are differentiated and

therefore cannot serve as substitutes for each other. Both brand loyalty and perceived product differentiation limit

the threat of substitution.

 28

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Appendix
A. Financial Analysis Ratio Calculations

Current Ratio
Company Name Current Assets – 2013 Current Liabilities – 2013 Current Ratio – 2013
Coca-Cola Co 3.13E+10 2.781E+10 1.1255978
Current Ratio = Current Assets / Current Liabilities
Coca-Cola’s current ratio in 2013 will be (3.13E+10) / (2.781E+10) = 1.1255978

Quick Ratio
Company Name Total Cash – Marketable Net Accounts Current Quick Ratio –
2013 Securities – Receivable 2013 Liabilities – 2013
2013 2013
Coca-Cola Co 1.712E+10 3.147E+09 4.873E+09 2.781E+10 0.9039948
Quick Ratio = (Cash + Marketable Securities + Net Accounts Receivable) / (Current Liabilities)
Coca-Cola’s quick ratio in 2013 will be (1.712e10 + 3.147Ee9 + 4.873e9) / (2.781e10) = 0.9039948

Debt-to-Equity Ratio
Company Name Stockholder’s Equity – Total Liabilities – 2013 Debt-to-Equity Ratio –
2013 2013
Coca-Cola Co 3.317E+10 5.688E+10 1.7147077
Debt-to-Equity Ratio = Total Liabilities / Shareholder’s Equity
Coca-Cola’s debt-to-equity ratio in 2013 will be (5.688E+10) / (3.317E+10) = 1.7147077

Return on Sales
Company Name Net Income – 2013 Net Sales – 2013 Return on Sales – 2013
Coca-Cola Co 8.584E+09 6.824E+09 18.320741
Return on Sales = (Net Income / Net Sales) * 100
Coca-Cola’s ROS in 2013 will be (8.584E+09) / (4.685E+10) *100 = 18.320741

Return on Equity
Company Name Net Income – 2013 Stockholder’s Equity – Return on Equity – 2013
2013
Coca-Cola Co 8.584E+09 3.317E+10 25.876466
Return on Equity = (Net Income / Shareholder’s Equity) * 100
Coca-Cola’s ROE in 2013 will be (8.584E+09) / (3.317E+10) *100 = 25.876466

Earnings per Share

Company Name Net Income – 2013 Average Shares Earnings per Share – 2013
Outstanding – 2013
Coca-Cola Co 8.584E+09 4.509E+09 1.9037481
Earnings per Share = Net Income / Average Outstanding Shares
Coca-Cola’s EPS in 2013 will be (8.584E+09) / (4.509E+09) = 1.9037481

Inventory Turnover
Company Name Costs of Goods Sold – Inventories – 2013 Inventory Turnover – 2013
2013
Coca-Cola Co 1.842E+10 3.277E+09 5.6213
Inventory Turnover = COGS / Average Inventories
Coca-Cola’s inventory turnover in 2013 will be (1.842E+10) / (3.277E+09) = 5.6213

B. Stock Price Valuation

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Price/Earnings Ratio = Market Value per Share / Earnings per Share

Company Name Current Stock Price EPS Valuation

Coca-Cola Co $43.53 $1.9037481 $22.8654
PepsiCo $97.76 $4.3205128 $22.6269
Mondelez International $38.50 $2.1883734 $17.5930
Dr. Pepper Snapple Group $71.94 $3.0513447 $23.5765
Monster Beverage $106.69 $1.9532087 $54.6229
National Beverage $24.67 $0.9223973 $26.7455