Business case analysis and strategic decision-making

Coca-Cola Enterprises, Inc.

Company Overview

The Coca-Cola Company is one of the oldest and largest companies in the United States. The Coca-Cola Company had its roots in 1886 when Dr. John Pemberton began to produce Coca-Cola Syrup for fountain drink dispensers. Coca-Cola bottling has been around since 1899. From there the franchises grew into the giant that it is today. Its most recent accomplishment is its entry into the global marketplace. (CCE, 2002).

Coca-Cola's primary objective is to maintain its current position as a leader of beverage producers in the global marketplace. It is a large corporate entity, however, holds onto a philosophy of maintaining a strong local image and presence in the communities where it operates.

Coca-Cola has 463 facilities, which generate an annual revenue of $16 billion dollars. The Coca-Cola Company currently stands as the world's biggest drink company. They control over half of the world-wide marketshare. Its primary brand is Coca-Cola. The company owns an additional 240 other soft drinks ranging from Coca-Cola spin-offs to Fanta, bottled water and iced coffee.

Soft drinks are a major consumer item with a large customer base. Recently the soft drink industry has been experiencing an economic downturn and a saturated market. There are several prospectives in emerging markets, such as more Asian countries or South America. At this time, the beverage market is risky, for those who wish to enter the market. It could be expected that if expenditures rise and new emerging markets do not increase sufficient revenues, even the major players may have to scale-back operations. At this time, the beverage industry does not appear to be an attractive proposition.

Market Information

The key factors to Coca-Cola's success have been the efforts of its marketing department. Although marketing is never finished and efforts to maintain a presence must be constantly undertaken, Coca-Cola now rides on over 100 years of marketing success. This, in combination with sound risk management strategies has been the key to Coca-Cola's success. Coca-Cola's most valuable asset is its trademark (CCE, 2002). They are one of the oldest and most established brands in the United States and is gaining this type of recognition globally as well.

Aside from their number one brand, "Coke" they also have the brand equity of the top 10 soft drink brands in the United States. Coca-Cola Enterprises is the entity behind many familiar brands such as Fanta, Sprite, Perrier, and many more familiar brands.

Coca-Cola Enterprises maintains an increasing presence in the global marketplace. The Company operates in 46 states in the United States, all 10 provinces in Canada, and portions of Europe including Belgium, continental France, Great Britain, Luxembourg, Monaco, and the Netherlands. It maintains Coca-Cola as its major product with the largest portion of shares. However, it also owns the top ten brands in the United States as well.

Coca-Cola Enterprises is comprised of many divisions on many different levels. On the top level, is CEO Lowry F. Kline. Mr. Kline has been CEO since 1997. Along with the CEO, Vice President and any other corporate officers, major company-wide decisions are in the hands of a Board of Directors. There are many management levels from district to local levels with in the corporation.

Coca-Cola Enterprises is the largest beverage companies in the world. Coca-Cola Enterprises' franchise territories encompass a population of 398 million people. This represents 80% of the population in North America and all of the population in Belgium, continental France, Great Britain, Luxembourg, Monaco, and the Netherlands (CCE, 2002). Coca-Cola distributed approximately 4.2 billion cases of soft drinks 2001. This was an increase from 3.8 billion in 2000. The bottle and can varieties comprise of 87% of that market with only 13% from the fountain drink sector (Proforma Cash statement. 2001).

Governmental and Environmental Concerns

The production, distribution and sale in the United States of many of the Company's products are subject to the Federal Food, Drug and Cosmetic Act, and the Occupational Safety and Health Act. It is also subject to other federal, state and local statutes regulating the production, transportation, sale, safety, advertising, labeling and ingredients of such products.

Environmental concerns began to place pressure on the Coca-Cola Company and other major corporations in the 1970s. In response to this, Coca-Cola uses 100% recyclable packaging throughout the Company. This policy has been in effect since 1972. They have site-specific policies in place to minimize the environmental impact of their facilities.

Financial Position

Currently, Coca-Cola Enterprises has a current ratio of 0.63. Its profit margin for the past trailing twelve months is 0.6% with an operating margin of 4.6%. Its debt/equity ratio is 4.32. The Return on Assets for the trailing twelve months is 0.39% with at Return on Equity for the same period of 3.02% (YahooFinance.com, 2002). Although, these numbers do not indicate immediate difficulties for Coca-Cola, they do reflect rising costs of production, coupled with the need to expand markets. Current management philosophies strive to maintain debt levels consistent with cash flow, interest coverage and percentage of debt to total capital.

SWOT Analysis - Competitive Forces

Coca-Cola's major rival is Pepsico. A recent emerging competitor is Richard Branson's Virgin Group. Virgin Group owns a number of businesses including beverages, cosmetics, clothing, financial services, health clubs, Internet services, mobile phone services, passenger trains, publishing, record labels, tour operations, and TV production.

The principal raw material used by the Company's business in the United States is high fructose corn syrup, available from numerous domestic sources and is historically subject to fluctuations in its market price. Due to the Company's longstanding relationship with a supplier of high-quality Brazilian orange juice concentrate, the supply of juice available that meets the Company's standards is normally adequate to meet demand.

The many threat of substitution is from the Pespsico Company and its direct rival products. Other smaller companies do compete directly with Coke on local levels, however, their chief competition remains Pepsi. These two companies are constantly launching campaigns and counter campaigns to gain more market share.

Coca-Cola's distributors and customers are located worldwide. It has over 53,000 vendors and over 100,000 employees worldwide. Its customers are comprised of over 80% of the population of the United States with a growing presence overseas.

Entry into the beverage industry has high costs associated with the building of a manufacturing facility. Coca-Cola has established itself as a barrier to entry into the market. In order to enter the beverage market, one must first compete with Coke's 100 years of established brand equity, then you must compete with its enormous established distribution system.

Coca-Cola has established its top position in the marketplace by its sheer size. It rides on 100 years of marketing superiority. The chief weakness of the company lies in the market itself. The product may be at the end of its product life cycle. It is unlikely that people will simply quit drinking coke. However, it already controls a majority of the market share. Costs continue to rise and the only way to maintain its competitive advantage is to seek new markets.