INDIVIDUAL ASSIGNMENT 1

INTERNATIONAL BUSINESS STRATEGY

5 Forces Analysis of Coca Cola

Lecturer: BUI THUY DUONG

Full name: LE THI HONG NHUNG

Student ID: HS163445

Class: IB1607

Course: SSB301m
TABLE OF CONTENT

I. INTRODUCTION...............................................................................................................2

II. FIVE FORCES ANALYSIS..............................................................................................2

1. Threat of Entry: Moderate....................................................................................................2

2. Bargaining Power of Suppliers: Low...................................................................................3

3. Bargaining Power of Buyers: Low.......................................................................................3

4. Intensity of Rivalry: High....................................................................................................4

5. Threat of substitutes: High....................................................................................................6

III. CONCLUSION.................................................................................................................6

IV. REFERENCES..................................................................................................................9

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INTRODUCTION

Coca-Cola, headquartered in Atlanta, Georgia, incorporated in Wilmington, Delaware,

is an American multinational beverage company and manufacturer, retailer, and promoter of
non-alcoholic beverages and syrups. The company is best known for its flagship product
Coca-Cola, which was invented in 1886 by pharmacist John Stith Pemberton in Columbus,
Georgia.
The company operates over 500 different sparkling and still brands and over 3,900
beverage choices. In addition, the company has been operating with a franchised distribution
system since 1889 and currently has its products sold in over 200 countries. More than 1.9
billion servings of Coca-Cola products are consumed all over the world per day. Coca Cola is
sold all over the world except Cuba and North Korea

FIVE FORCES ANALYSIS OF COCA COLA

Porter's Five Forces is a model that identifies and analyzes five competitive forces that
shape every industry and helps determine an industry's weaknesses and strengths through
considering some factors such as: threat of entry, bargaining power of suppliers, intensity of
rivalry, bargaining power of buyers and threat of substitutes. Five Forces analysis is
frequently used to identify an industry's structure to determine corporate strategy. In this
essay, I will analyze Porter's Five Forces in the United States to assess the long-term
attractiveness of Coca Cola in the US market, thereby helping businesses have an effective
development strategy.

1. Threat of entry of Coca Cola: moderate

First, in recent years, the United States has many new entrant businesses such as

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 Olipop, Jones Special Release Birthday Cake Soda, ...
which are considered to be welcomed in the US with
delicious, cool taste and especially Olipop is good for
health. However, Coca-Cola is seen not only as a
beverage but also as a brand. It has held a very
significant market share for a long time and loyal
customers are not very likely to try a new brand.

Second, sunk costs that cannot be recovered are high. For example, a company that
produces Coca-Cola in the United States may have some sunk costs, such as the cost of
machinery and equipment, and the cost of rent and insurance. These are all spent and cannot
be recovered.

2. Bargaining power of suppliers of Coca Cola: low

Firstly, sellers are not concentrated: In the US, the suppliers, large or small, are
extremely large. We can go to any convenience store, grocery store or supermarket, this item
is always available.

Secondly, suppliers can not forward integrate: forward integration is a distant

possibility for most of its suppliers. Even if there are no substitutes for raw materials like
sugar, the number of suppliers is still high.

Finally, firms face low switching costs: Coca-Cola picking companies can easily switch
from one supplier to another, no supplier can cut ties with Coca-Cola easily. Any supplier can
lose money because of that. Although there are several vendors, each one is small or slightly
large in size.

3. Bargaining power of buyers of Coca Cola: low

First, the individual buyer has no pressure on Coca-Cola and they are not concentrated

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in specific markets like US either

Secondly, large retailers, like Wal-Mart, have bargaining power because of the large
order quantity, but the bargaining power is lessened because of the end consumer brand
loyalty.

Thirdly, Coca-Cola owns a lot of potential customers. Previously, Coca-Cola has

defined its target customer group in the US by age as from teenagers to middle-aged people.
However, when Coca-Cola is growing more and more and realizing many new consumption
trends, Coca-Cola has divided its customers into 2 main segments by age group, including the
key potential group (over 40 years old). : people who care more about health than product
design, packaging or taste) and new potential customers (10-35 years old: diverse products
catering to consumers' taste preferences) use children).

4. Intensity of rivalry: high

First, the number of competitors is high: Currently, the US market has many
competitors in the beverage industry, including Red Bull, Tetra Pak, PepsiCo, Keurig Dr
Pepper and Soylent. These are all very old companies. We can see in the statistics table the
likes and satisfaction rates of customers for drinks. Through the data, Coca Cola company
ranked 5th, which shows that Coca Cola's competitors are all very strong and trusted by
customers:

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 Secondly, incentive to “fight” are high because of these following reasons:

+ The opportunity to differentiate products is quite small: When it comes to Coca

Cola's competitors, the first name that comes to mind is Pepsi. These two companies
have been competing with each other since the late 19th century. The two drinks are
practically identical in every way from their caramel syrup color to their ingredients.
Both sodas contain sodium, sugar, carbonated water, high fructose corn syrup,
phosphoric acid, caffeine and natural flavors.

In Blink, a book about decision making and thinking, by author, journalist and
podcaster, Malcolm Gladwell, he
writes, “Pepsi is sweeter than
Coke and is also used by a citrusy
flavor burst, unlike the more
raisiny-vanilla taste of Coke. "
Don't miss how we settled the
cola taste-test debate.

However, currently, the main

competitor is Coca Cola, besides Pepsi, there are many competitors in the US market,
so the competition in this beverage industry is very high.

+ High exit cost: Coca Cola always brings goodwill to customers about good service
attitude as well as quality products. What's more, the exit fees from Coca Cola's US
leases are very high, e.g. store or equipment rentals.
5. Threat of substitutes of Coca Cola: high

First, there are many kinds of energy drinks, soda, juice and milk products in the
market such as Monster, Lipton, 7up, Revive, Gatorade,... . Cocacola doesn’t really have an
entirely unique flavor. In a blind taste test, people can’t tell the difference between Coca-Cola
and Pepsi.

Secondly, the cross-price elasticity of demand is moderate. Because for people who are

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followers of Coca Cola, if the price increases a little, buyers are still willing to accept some
money to buy Coca Cola. Conversely, if the price of Coca Cola increases, the buyer can
completely switch to Pepsi or other drinks.

Thirdly, the switching costs of Coca Cola are low. This is clearly demonstrated when
during the ongoing Covid 19 Pandemic, consumer demand and interest in immune system
related products increased sharply: 36% of US consumers Juice drinkers said in October 2020
that they had been drinking more juice since the Covid-19 outbreak due to concerns about
their immune systems. This shows that the demand for juice has increased and replaced
carbonated drinks, especially Coca Cola. We can look at the following chart and see the
decrease in Coca Cola's sales from the end of 2018 to the beginning of 2021 in United States:

CONCLUSION

According to my analysis, the beverage industry is a very attractive industry, not only
attracting investors, suppliers and especially customers. Because revenue in the Beverages
segment is projected to reach US$233.90bn in 2022. In addition, revenue is expected to

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show an annual growth rate (CAGR 2022-2025) of 14.77%, resulting in a projected market
volume of US$353.60bn by
2025. In the Beverages
segment, the number of users
is expected to amount to
1,303.9m users by 2025 and
user penetration will be 12.5%
in 2022 and is expected to hit
16.7% by 2025. Besides, the
beverage market is segmented
by distribution channel into supermarkets/hypermarkets, convenience stores, e-commerce,
and other channels. The supermarkets/hypermarkets market was the largest segment of the
food and beverages market segmented by distribution channel, accounting for 58.7% of the
total in 2021. Going forward, the e-commerce segment is expected to be the fastest growing
segment in the food and beverages market segmented by distribution channel, at a CAGR of
13.2% during 2021-2026.

Analysis of the five forces helps the Coca Cola organization to understand the factors
affecting profitability that can help make decisions regarding whether to increase capacity in
the industry and develop competitive strategies for sufficient competitive position to attract
customers over competitors. Coca Cola leads with a large market share in the beverage
industry according to statista.com. To do this, the Coca Cola company had certain
competitive advantages:
First, Coca Cola is a pioneering brand. Coca is a pioneer at every level - product,
content, marketing and distribution. Its ideas are novel for business, for industry, for society
and for the world. Coke is that rare company which created an entire industry – carbonated,
sugar-flavored beverages – and then established that industry nationally and globally with an
innovative distribution strategy. Coca-Cola is unique in that it generated a pioneering idea
based on a scientific formula and executed it brilliantly. It thus ensures sustainable success
for the enterprise – embedding innovation in process and practice.
Second, in 1886, the Formula of Coca-Cola was patented. Coca-Cola was patented as a
new drug and sold under the brand name Coca-Cola. Their first logo in 1888 is protected by
both trademark law and copyright law.

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 Third, Coca-Cola has a high learning curve as they claim to have put a lot of effort into
research and development, and a large part of their success comes from the experience they
have gained working at over 200 companies in different countries.
Fourth, about distribution, Coca-Cola is currently operating in more than 200 nations
globally. All this became possible because of its comprehensive supply chain management.
This brand has established a broad vending partnership network that has helped it to become
available in every situation. It also continually helps it, suppliers and farmers, with the
necessary support to maintain the quality and gathers data about a particular market and
serves based on the expectation. This dynamic and robust network is prominently responsible
for the larger selling margin this brand enjoys. For example, in Vietnam, Coca-Cola beverage
products are produced at 3 bottling plants in Ho Chi Minh City, Hanoi, and Da Nang. At the
same time, Coca-Cola's distribution network is nationwide, from big cities to rural areas,
from general agents to small retail stores, present at retail locations across the country, coffee
shops, soft drinks or restaurants, eateries, etc. Coca-Cola attracts small distribution points by
providing financial support, decorating stores, giving umbrellas, etc.
Finally, Coca-Cola has succeeded in strategically positioning its products in the global
soft drink market. The vital question that
arises is whether the company will continue
to keep the same product positioning or
adjust it based on the 200 countries where
the brand is sold. The principle of the
company that states “think global, act
local” reveals that Coke is willing to keep
the same product positioning and adapt the
offer to local needs. The strategic
positioning used by the company is helpful
in keeping the same image of the brand
worldwide (Barney, 2009)
Through the above analysis, Coca-Cola has a firm foothold in the hearts of world
consumers. Coca Cola's 5 force factors help us understand the business picture of the
industry, assess the strength of the business, have strategies for the business to develop more
and are also lessons on how to make a successful company for other brands to learn from.

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REFERENCES

History of Coca Cola: https://www.coca-colacompany.com/company/history

Soft drink trend in US:

https://www.statista.com/outlook/cmo/non-alcoholic-drinks/soft-drinks/united-states#key-ma
rket-indicators

Coca Cola Revenue 2010-2022: https://bom.so/LtX8c7

The Coca-Cola Company Competitors:

https://www.comparably.com/companies/the-coca-cola-company/competitors

Strategy position of Coca Cola

https://mastertcloc.unistra.fr/2018/09/04/localization-strategy-your-key-to-successful-foreign-
market-penetration/

Beverage market overview:

https://www.statista.com/outlook/dmo/ecommerce/beverages/worldwide