Coca Cola Analysis

In this paper, beverage giant, the Coca-Cola Company, has been analyzed. An internal as well as external analysis of the company has been undertaken using the following analytical tools: PESTEL, SWOT and Porter’s Five Forces. The 5-factor analysis has revealed: medium threat of new entrants, medium to high threat of substitute products, low supplier and buyer bargaining power, and high level of rivalry with its chief competitor, PepsiCo.

SWOT analysis results were as follows: Strengths: Brand Equity; Company valuation; Extensive international presence; Greatest market share; Brilliant marketing plans; Customer Loyalty and Distribution system. Weaknesses: Competition with Pepsi; Low Product Diversification; Lack of a health beverage offering and Water management. Opportunities: Diversification; Focusing on developing countries; Packaged drinking water; Supply chain improvement and Market lesser selling offerings. Threats: Sourcing of Raw Materials and Indirect competition.

Lastly, PESTEL analysis results were as follows: Political and Legal Factors potentially impacting the company: trade restrictions, tax policy, labor laws, environment policy, FDA certification, etc.; Economic factors: gross domestic product, interest rates, forex rates, disposable income, retail price index, demand and supply conditions, and unemployment rates; Social factors: trends, practices, traditions, wants, population, educational qualifications, aspirations, income distribution, corruption, customer awareness and education, standard of living, religious values, and family structure; and technological factors.

Key Facts
Name: The Coca-Cola Company
Industries served: Beverage (more than 600 brands)
Geographic areas served: Worldwide (more than 200 countries)
Headquarters: Atlanta, Georgia, United States
Current CEO: James Quincey
Revenue (US$): 41.863 billion (2016) 5.5% decrease over 44.294 billion (2015)
Profit (US$): 6.527 billion (2016) 11.2% decrease over 7.351 billion (2015)
Employees: 100,300 (2017)
Main Competitors: PepsiCo Inc., Dr. Pepper Snapple Group, Inc., Unilever Group, Mond?lez International, Inc., Groupe Danone, Kraft Foods Inc., Nestlé S.A. and several other beverage manufacturers.

The Coca-Cola Company’s business overview from the company’s financial report (Coca Cola Company, 2011):
The biggest global beverage manufacturer, Coca-Cola, owns, licenses and markets over six hundred brands of non-alcoholic beverages (chiefly sparkling beverages), besides numerous still ones including waters, juice drinks, enhanced waters, coffees, teas, juices and sports and energy drinks (Coca Cola Company, 2011).

The company owns and markets four out of the most popular 5 global brands of non-alcoholic sparkling beverages, namely: Coca-Cola, Fanta, Sprite and Diet Coke. Trademarked company beverages, marketed in America since the year 1886, can now be seen in over two hundred nations’ markets (Coca Cola Company, 2011).

The company’s branded beverages are accessible to customers worldwide via Coca Cola’s extensive network of self –owned or –supervised distribution and bottling facilities, besides independent bottling firms, distributors, retailers and wholesalers, making the biggest global beverage distribution network (Coca Cola Company, 2011).
Coca Cola-trademarked products make up 1.9 billion (roughly) of 59 billion (roughly) of every kind of beverage serving consumed daily across the globe (Coca Cola Company, 2011).

Coca Cola claims its success hinges on its capability of connecting with customers through offering them a broad array of product choices for suiting their lifestyles, wants and requirements and on its workforce’s capability of efficiently executing daily tasks (Coca Cola Company, 2011).

The company aims at utilizing its assets (i.e., its fiscal strength, brands, unparalleled distribution network, worldwide reach, and its managers’ and partners’ firm dedication and skill) for increasing its competitiveness and accelerating progress for ensuring value creation for its shareowners (Coca Cola Company, 2011).

Ever since the concept was proposed in the year 1979, Porter’s 5 Forces theory has remained the de-facto industrial analysis basis, with market competitiveness gauged by deducing market attractiveness. Conclusions from this assessment help ascertain extant and imminent industry risks for a given firm. Porter’s 5 forces are as follows: (1) Threat of Fresh Entrants, (2) Competition between Extant Companies, (3) Threat of Substitutes, (3) Suppliers’ Bargaining Power, and (4) Buyers’ Bargaining Power.
The Coca-Cola brand’s 5 Forces analysis (Valuation Academy, 2018):

Threat of New Entrants/Potential Competitors: Medium Pressure
The beverage sector has fairly low obstacles to entry owing to the lack of customer switching expense and of any need for capital. Novel brands are increasingly flooding the markets, featuring prices akin to Coca Cola’s products.
To customers, Coca-Cola is both brand and beverage. Its longstanding, highly significant share of the market implies long-time loyal clients will prove less likely to switch brands (Valuation Academy, 2018).

Threat of Substitute Products: Medium to High pressure
Market shelves display numerous types of sodas, juices and energy drinks. Coca-Cola lacks a distinctive flavor, as proven by its blind taste examination: participants were unable to differentiate Pepsi from Coke (Valuation Academy, 2018).

The Bargaining Power of Buyers: Low pressure
Individual customers have absolutely no bargaining power. While Wal-Mart and other large retail chains possess some degree of bargaining power owing to the large quantities ordered, brand loyalty of customers serves to weaken their bargaining power (Valuation Academy, 2018).

The Bargaining Power of Suppliers: Low pressure
Carbonated drinks’ chief ingredients are carbonated water, caffeine, phosphoric acid, and sweetener, whose suppliers are neither differentiated nor concentrated. After all, the company is only one (and probably the biggest) client of these supplying firms (Valuation Academy, 2018).

Rivalry among Existing Firms: High Pressure
At present, PepsiCo is Coca-Cola’s chief competitor, with its similarly broad array of beverages. Both brands are popular and dedicated strongly to sponsoring sporting and other outdoor activities and events. While other soft drink brands (e.g., Dr. Pepper) have gained some degree of popularity owing to their distinctive flavors, they haven’t come on par with Coke or Pepsi (Valuation Academy, 2018).

Nobody is unaware of the name Coca Cola. One can find it everywhere – in homes, office premises, restaurants, shops, etc. The company boasts of numerous product offerings. Its SWOT analysis is as follows (Bhasin, 2018).

Brand Equity – Coca Cola was the recipient of the 2011 Interbrand highest brand equity Award, which is understandable owing to its distinctive brand identity and extensive international outreach (Bhasin, 2018).

Company valuation – Among the world’s most valuable firms, it is valued at approximately $79.2 billion (covering brand value, revenues and operational expenses and its many global assets and manufacturing units (Bhasin, 2018).
Extensive international presence – Two-hundred nations worldwide market Coca Cola products. Such an extensive market presence has facilitated the development of its gargantuan brand name (Bhasin, 2018).

Greatest market share – The beverage sector has only two key competitors – Coca Cola and Pepsi, with the former enjoying the greatest global market share. Its chief growth-driving products are Coke, Fanta, Sprite, Thums up, Diet coke, Maaza and Limca (Bhasin, 2018).

Brilliant marketing plans – Contrary to its competitor, Pepsi, the Coca Cola Company strives, forever, to win the hearts of people. Pepsi’s focus is on youth, whereas Coke focuses on everyone (Bhasin, 2018).

Customer Loyalty – Its robust product offering ensures Coca Cola (particularly its Fanta and Coke) boasts an army of loyal customers. Its superior taste makes finding a substitute product to replace it tough for clients (Bhasin, 2018).

Distribution system – Coca-Cola’s immense market demand has necessitated the creation of its extensive distribution system, understandably the world’s largest. Further, its effective distribution system has ensured its superior market presence (Bhasin, 2018).

Competition with Pepsi – Coca Cola has been unable to monopolize the beverage market thanks to Pepsi. Fierce competition exists between these brands (Bhasin, 2018).

Low Product Diversification – Pepsi has wisely implemented product diversification by entering the snacks market with winning product offerings (Kurkure and Lays, for instance), but Coca Cola’s arms haven’t extended beyond the beverage sector. Snacks generate a fair share of Pepsi’s revenues and Coca Cola appears to be missing out on this extra income (Bhasin, 2018).
Lack of a health beverage offering – Obesity represents a chief issue plaguing modern society. Consumers are increasingly paying great attention to what they eat and as carbonated drinks form a chief source of fats, industrialized nations’ knowledgeable clients will decrease beverage consumption and opt for healthier substitutes (Bhasin, 2018).

Water management – The Company has earlier been criticized for its ineffective water management. Lawsuits have been filed by numerous groups, claiming the company consumes huge quantities of precious water even where a dearth of water exists. Simultaneously, it has faced censure for clearing pollutants from water by adding pesticides. This issue must be dealt with promptly (Bhasin, 2018).

Diversification – Diversifying into the snacks/food and health segments will prove beneficial for the company in terms of increasing revenues, particularly those derived from extant clients, through product cross-selling. Supply chain expenses may be shared by ensuring the same supply chain distributes both beverages and snacks (Bhasin, 2018).

Focusing on developing countries – While Coca Cola enjoys prominent market presence in industrialized countries, a gradual shift is being observed towards the consumption of healthier beverages. But as its offerings are still new to many unindustrialized countries, their populations, particularly those who face hot summers, increase their soft-drink consumption to nearly double in the summer season. Therefore, this marks a fine opportunity that the company can take advantage of (Bhasin, 2018).

Packaged drinking water – With hygienic drinking water garnering increasing focus in the present day, the concept of packaged drinking water emerged. While the company has ventured into this segment with Kinley, the product currently witnesses slow expansion. Considering its great expansion potential, the company must increase its focus on this area (Bhasin, 2018).

Supply chain improvement – Considering the ever-increasing transport expenses, the supply chain may prove to be a key cost sinkhole for the company. After all, Coca Cola is heavily reliant on distribution and transport. Thus, there is a need to closely supervise this area, identify potential improvements, and implement them for reducing expenses (Bhasin, 2018).

Market lesser selling offerings – Numerous Coca Cola offerings have yet to enjoy market acceptance and the company must focus on them, given the substantial cost of launching them. Their effective marketing and subsequently increasing sales will serve to boost the company’s revenue (Bhasin, 2018).

Sourcing of Raw Materials – The Company’s main threat is water. It is reported to utilize huge quantities of water and even add pesticides to it, which makes it liable to censure owing to the increase in water scarcity. Climate change and the aforementioned growing crisis of water scarcity implies beverage manufacturers will soon have to encounter additional criticism. Rationing or limiting of water supply to the company will cause a major setback for the company, in terms of production and subsequent distribution capability and income (Bhasin, 2018).

Indirect competition – Café coffee day, Starbucks, Costa coffee and other coffee chains have been growing in number and providing substitute products for soft drinks, thus denting Coca Cola’s beverage market. Likewise, energy drinks (Gatorade, Red Bull, etc.) and health drinks (Tropicana, Real, etc.) have been indirectly reducing the company’s market share (Bhasin, 2018).

Political and Legal Factors:
These factors largely involve regulations and laws. Moreover, they entail the legal and tax obligations of an organization when conducting business operations at the local or global level. They hold great significance as they differ between states as well as between nations. Some examples of political factors include trade restrictions, tax policy, labor laws, environment policy, etc.
All of Coca Cola’s offering needs to receive Food and Drug Administration (FDA) certification. The agency has been tasked with checking and certifying the complete production process of companies producing food, drink and medicinal products, and ascertaining whether or not standard international quality is being maintained. Further, governments impose accounting standards and taxes on companies (Baah, 2015). India and other politically unstable nations require the company to implement a long-term flexible strategic management structure for withstanding any changes to relevant political factors.

Economic factors:
The main economic factors for Coca Cola are: gross domestic product, interest rates, forex rates, disposable income, retail price index and unemployment rates. They cover local economic conditions as well, including demand and supply conditions. Numerous economic challenges exist, worldwide, with respect to beverages and food products.

The company is operational in over two hundred nations across the globe, including very far-flung places. In India and other multicultural nations, the company’s units hire workers belonging to diverse cultural groups and communities, and have to deal with individuals having diverse worldviews and values. It provides jobs to thousands of individuals worldwide and is committed to investing towards improving communities. It plays an indirect role in nations’ economic growth through the generation of employment opportunities for locals, purchasing capital, services, equipment and raw materials from locals, and paying governmental taxes. At times, the economic scenario of a nation affects company decisions. For instance, the company has hiked product prices in India owing to increasing expenses linked to packaging and raw material procurement. The growth in raw material prices has forced bottling units to marginally increase prices of particular products in particular markets (Baah, 2015).

Social factors:
These encompass cultural environmental or sociocultural changes. Dr. R.K. Singla (2011 p.28) states that "Business is born and develops in society”. Hence, social elements like trends, practices, traditions, wants, population, educational qualifications, aspirations, income distribution, corruption, customer awareness and education, standard of living, religious values, and family structure naturally impact companies.

Changes to the above elements can, on occasion, effect product demands owing to cultural aspects like ethnicity/race, religion, tradition or heritage that serve to enforce restrictions on products. The company’s product labelling and marketing approach differs for diverse nations based on their distinct traditions and cultures. Consider, for instance, India, where Bollywood governs standards and trends, with actors being highly influential members of society. The company has, thus, banked on actors like Amir Khan for marketing its products. This strategy is, in fact, adopted with several other nations too, with local celebrities posing as brand ambassadors and attracting clients. But the increasing health-consciousness of people and the consequent preference for diet coke as compared to normal coke can lower regular carbonated drinks’ demand (Walsh and Dowding, 2012).

Technological factors:
Dr. R.K. Singla (2011, p.28) is of the view that technology encompasses discovering novel product ideas and novel means of producing them. Technological advances ensure optimal raw material utilization and more superior manufacturing techniques. Such advances create opportunities as well as threats for the company. If the firm effectively grasps this concept, it will be able to attain its goal; the failure to do so will threaten the organization’s very existence. Coca Cola and other multinationals operating in developing nations such as India need to implement the more advanced Western technological standards. Globally, they need to implement long-run strategies for accommodating swiftly evolving technological standards, thus developing and retaining superior advantage over competitors (Walsh and Dowding, 2012).