Professional Documents
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FACULTY OF FUUAST
LOVE RAJ
ROLL # 40
AJEET KUMAR
ROLL # 4
AMJAD WIGHYO
ROLL # 07
GHULAM SARWAR
ROLL # 26
History analysis
In May, 1886, Coca Cola was invented by Doctor John Pemberton a pharmacist from
Atlanta, Georgia. John Pemberton concocted the Coca Cola formula in a three legged
brass kettle in his backyard.
Being a bookkeeper, Frank Robinson also had excellent penmanship. It was he who first
scripted "Coca Cola" into the flowing letters which has become the famous logo of today.
The soft drink was first sold to the public at the soda fountain in Jacob's Pharmacy in
Atlanta on May 8, 1886.
Until 1905, the soft drink, marketed as a tonic, contained extracts of cocaine as well as
the caffeine-rich kola nut.
Until the 1960s, both small town and big city dwellers enjoyed carbonated beverages at
the local soda fountain or ice cream saloon. Often housed in the drug store, the soda
fountain counter served as a meeting place for people of all ages. Often combined with
lunch counters, the soda fountain declined in popularity as commercial ice cream, bottled
soft drinks, and fast food restaurants became popular.
On April 23, 1985, the trade secret "New Coke" formula was released. Today, products
of the Coca Cola Company are consumed at the rate of more than one billion drinks per
day.
Vision Statement
“To maintain our reputation as a leading cola company through out the
world”
Mission Statement
With refreshing beverages including soft drinks, water, energy drinks, juices, and tea
Our signature product Coke is a favorite around the world and a wide variety of our
products are sold in over 200 nations
Our employees are fairly compensated and we practice fair trade in all markets we
compete.
We value our responsibility to all communities we serve and support many educational
and leadership programs
1. Barriers to Entry
The several factors that make it very difficult for the competition to enter the soft drink market
include
Bottling Network: Both Coke and PepsiCo have franchisee agreements with their
existing bottler’s who have rights in a certain geographic area in perpetuity. These
agreements prohibit bottler’s from taking on new competing brands for similar products.
Also with the recent consolidation among the bottler’s and the backward integration with
both Coke and Pepsi buying significant percent of bottling companies, it is very difficult
for a firm entering to find bottler’s willing to distribute their product. The other approach
to try and build their bottling plants would be very capital-intensive effort with new
efficient plant capital requirements in 1998 being $75 million.
Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the
industry is in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by
Coke, Pepsi and their bottler’s. The average advertisement spending per point of market
share in 2000 was 8.3 million (Exhibit 2). This makes it extremely difficult for an entrant
to compete with the incumbents and gain any visibility.
Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and
this has earned them huge amount of brand equity and loyal customer’s all over the
world. This makes it virtually impossible for a new entrant to match this scale in this
market place.
Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 15-
20% on these soft drinks for the shelf space they offer. These margins are quite
significant for their bottom-line. This makes it tough for the new entrants to convince
retailers to carry/substitute their new products for Coke and Pepsi.
Fear of Retaliation: To enter into a market with entrenched rival behemoths like Pepsi
and Coke is not easy as it could lead to price wars which affect the new comer.
Most of the raw materials needed to produce concentrate are basic commodities like Color,
flavor, caffeine or additives, sugar, packaging. Essentially these are basic commodities. The
producers of these products have no power over the pricing hence the suppliers in this industry
are weak.
Food Stores: These buyers in this segment are some what consolidated with several
chain stores and few local supermarkets, since they offer premium shelf space they
command lower prices, the net operating profit before tax (NOPBT) for concentrate
producer’s in this segment is $0.23/case
Convenience Stores: This segment of buyer’s is extremely fragmented and hence have
to
pay higher prices, NOPBT here is $0.69 /case.
Fountain: This segment of buyer’s are the least profitable because of their large amount
of purchases hey make, It allows them to have freedom to negotiate. Coke and Pepsi
primarily consider this segment “Paid Sampling” with low margins. NOPBT in this
segment is $0.09 /case.
Vending: This channel serves the customer’s directly with absolutely no power with the
buyer, hence NOPBT of $0.97/case.
4. Threats of Substitutes:
Large numbers of substitutes like water, beer, coffee, juices etc are available to the end
consumers but this countered by concentrate providers by huge advertising, brand equity, and
making their product easily available for consumers, which most substitutes cannot match. Also
soft drink companies diversify business by offering substitutes themselves to shield themselves
from competition.
5. Existing Rivalry:
The Concentrate Producer industry can be classified as a Duopoly with Pepsi and Coke as the
firms competing. The market share of the rest of the competition is too small to cause any
upheaval of pricing or industry structure. Pepsi and Coke mainly over the years competed on
differentiation and advertising rather than on pricing except for a period in the 1990’s. This
prevented a huge dent in profits. Pricing wars are however a feature in their international
expansion strategies.
Political
Like most companies, Coca-Cola is monitoring the policies and regulations set by
the government. There are no political issues in this instance.
Economical
There is low growth in the market for carbonated drinks, especially in Coca-Cola’s
main market, North America. The market growth recorded at only 1% for North
America in 2004.
Social
There are changes in consumers’ lifestyles. Consumers are more health conscious.
This affects the Coca-Cola’s sales of the carbonated drinks as consumers prefer
non-carbonated drinks such as tea, juices and bottled drinks. Demand for
carbonated drinks decreases and this leads to a decrease in Coca-Cola’s revenues.
Technological
As the technology advances, new products are introduced into the market. The
advance in technology has led to the creation of cherry coke in 1985 but consumers
still prefers the traditional taste of the original coke.
Opportunities
1. Bottled water consumption increase up to 11%
7. Consumers are striving to drink and eat in their way to better health
than previous generations
Threats
3. Smaller lesser known brands are turning to major beer distribution for
botteling
4. Over all carbonated drinks sale has been flattened due to links of sugar
to obesity and high fructose cone syrup to heart disease
7. Many small companies are fierce competitors around the world in there
local market
Strength
7. Leader of dividend yields of 2.6 percent The Company has had 43 consecutive years of
an annual dividend increase.
8. Joint venture between The Coca Cola Company and Nestle has resulted in the
establishment of Beverage Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming
their largest customer.
Weaknesses
2. A failed $16 billion acquisition of Quaker Oats hinders long- term growth.
3. Negative publicity in India because of water issues, has led to poor brand image and
hindered growth there.
6. Coca Cola’s inventory turnover is only 5.4 compared to Pepsi Co.’s 8.0.
THE EFE MATRIX
II. Strong global presence, located in over 200 countries. 0.10 4 0.40
III. Long history has built excellent brand recognition. 0.06 4 0.24
billion.
VII. Leader of dividend yields of 2.6 percent The Company 0.04 4 0.16
has had 43 consecutive years of an annual dividend
increase.
VIII. Joint venture between The Coca Cola Company and 0.06 4 0.24
Nestle has resulted in the establishment of Beverage
Partners Worldwide (BPW).
VI. Coca Cola’s inventory turnover is only 5.4 compared 0.05 2 0.10
to Pepsi Co.’s 8.0.
Total 1.00 3.09
SWOT Strategies
Strength Weakness
Opportunities SO Strategies WO Strategies
Space Matrix
Financial Strength
Return on Assets (R
Competitive Advan
Market Share
x-axis: -1.4 + 5.0 = 3.6
Product Quality
y-axis: 5.4 + -3.2 = 2.2
Customer Loyalty
Conservativ
e
FS
Aggressive
C
A Technological know- IS
Competitive Advan
Grand Strategy Matrix
Quadrant II
The Boston Consulting Group (BCG) MatrixQuadrant I
Weak
Competitiv
Relative Market Share Strong
e
Position Competitiv
Position e
Position
Quadrant III Quadrant IV
Coke Question
Industry Stars Growth
Slow Market Marks
Sales
Growth
High I II III
3.0 to
3.99
Medium IV V VI
1.0 to
1.99
QSPM
Strategic Alternatives
Acquire KKD Produce new
and GLDC diet drinks
that have
Key Internal Factors healthier
Weight sugar
substitutes
Strengths TAS AS TAS
AS
1. Product line has over 400 0.09 2 0.18 4 0.36
brands.
2. Strong global presence, located 0.10 --- --- --- ---
in over 200 countries.
3. Long history has built excellent 0.06 2 0.12 4 0.24
brand recognition.
4. Partnership longevity with 0.05 --- --- --- ---
established sporting events
including the Olympics.
5. Industry leader in market 0.12 4 0.48 3 0.36
capitalization with $112 billion.
6. Return on Equity yielded 30 0.04 4 0.16 3 0.12
percent in 2006.
7. Leader of dividend yields of 2.6
percent. The company has had 43 0.04 --- --- --- ---
consecutive years of an annual
dividend increase.
8. Joint venture between The Coca
Cola Company and Nestle has 0.06 --- --- --- ---
resulted in the establishment of
Beverage Partners Worldwide
(BPW).
9. Coca-Cola has formed a strong
partnership with McDonalds, with 0.10 --- --- --- ---
McDonalds becoming their largest
customer.
Weaknesses
1. Product line is limited to 0.09 4 0.36 1 0.09
beverages.
2. A failed $16 billion acquisition of 0.10 --- --- --- ---
Quaker Oats hinders long-term
growth.
3. Negative publicity in India
because of water issues, has led to 0.03 --- --- --- ---
poor brand image and hindered
growth there.
4. Lack of management willingness 0.02 --- --- --- ---
to place foreign products into
American markets.
5. Marketing deficiencies due to
turnover in leadership and a 16 0.05 --- --- --- ---
percent decrease in advertising
spending.
6. Coca Cola’s inventory turnover is 0.05 4 0.20 1 0.05
only 5.4 compared to Pepsi Co.’s
8.0.
SUBTOTAL 1.00 1.50 1.22
Recommendations
The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and
snack food company) was a better option than producing a new diet soda line made form
more healthy sugar alternatives. Both scores on the QSPM are relatively close and given
the financial condition of KKD and GLDC, it is recommended Coca Cola undertake both
strategic alternatives. The Net Worth of both companies is provided below. It is
estimated it would cost $200 million to research, produce and market the new diet drinks.
References
1. www.moneycentral.msn.com
2. www.coca-cola.com
3. Strategic Management concepts and cases by Fred David 12
edition
4. Exploring Corporate Strategy text & cases 8th edition