INVESTMENT PROJECT (OVERVIEW): As part, analyze performance potential industry BEVERAGE INVESTMENT PROJECT (DETAILS): Assignment: You analyze beverage industry companies coca cola,(KO) monster (MNST) . Assess industry performance years assess expected future performance, , years.
The modern day business environment is continually challenged by emergent threats from both within and outside its immediate environment. In other words, the micro and macro environments of economic agents raise both opportunities and threats, to which the companies have to adapt in an effort to perverse their competitiveness. Some of the more relevant examples of contemporaneous challenges include the changing needs and behaviors of the customers, the changing laws and legislations, the rapid pace of technologic development or the still ongoing economic crisis.
In such a complex environment, the investors are faced with difficulties in selecting the best options to place their capitals. They must therefore complete thorough analyses of the companies targeted, as well the overall industry in which they operate. At this level, a question is being posed relative to the investment potential of the Coca Cola Company and the Monster Beverage Corporation.
In order to assess the investment potential of the two companies, a three fold analysis would be conducted. At the primary level, emphasis would be placed on the analysis of the beverage industry, followed by the analysis of the two companies, and last completed with the assessment of the companies through the lenses of valuation. Based on these three analyses, a conclusion would ultimately be formed relative to the expected future of the industry, the companies and the potential of the industry and the companies to generate a favorable return on the capital of the investor.
2. Industry analysis
The Coca Cola Company and the Monster Beverage Corporation both sell soft drinks, activating as such in the beverage industry. Similar to any other industrial sector in the country and on the globe, the beverage sector is influenced by the internationalized economic crisis.
The economic recession was onset in the second half of 2007, with the burst of the real estate bubble and the credit crush. The economic agents in the beverage industry were as such faced with decreasing demand for their products, as a result of the decreasing consumer power. In other words, as people lost their jobs and their savings, they revealed a decreased purchase power, which was also manifested at the level of the demand for beverages.
Still, both the Coca Cola Company and the Monster Beverage Company have not been severely affected by the crisis, due to two primary elements. On the one hand, there was the industrial characteristic of the products they sold, namely the fact that the soft beverages were inexpensive, and as such accessible to even the people on decreasing incomes. The second element was a company specific one, revealed at the level of the competitive strategies implemented by the firms to overcome the new threats of the recession. Some examples in this sense include an expansion of the global network, the expansion of the product line through the integration of new flavors, brand strategies, or the reliance on the advantages of the created scale economies. Today, despite the crisis and the downturn economic stage, both organizations continue to operate on positive growth rates.
At a more industry specific level, the beverages sector in the United States is characterized by the existence of numerous competing firms, out of which the more notable competitors are Pepsi Co, the Coca Cola Company or the Monster Beverage Corporation. These companies generally created secret recipes for their soft beverages, and they create concentrates for the beverage. They then send the concentrate to bottling companies, which can either be operated and owned by the beverage company, or they can be independent tertiary organizations.
The bottling companies use different technologies and equipments in their operations, and this created points of difference for the firms. Once bottled, the beverages follow a complex logistics process, through which they are sent to retailers, such as grocery stores or restaurants, from where they eventually reach the end consumer. Aside from the bottlers, the beverage companies also send their concentrates to parties such as fast food restaurants, where they are mixed with water to create the final product.
The competitive power of the soft drink manufacturers can be assessed through the lenses of the market size, the growth rate and the overall profitability of the analyzed company. The competition in the industry can be summarized as follows:
The pressure posed by the threat of new entrants is relatively decreased, due to the fact that the industry is capital intensive, raising as such barriers for penetration.
The threat of substitute products is increasing; the products likely to substitute the soft drinks include tea or bottled water, which are becoming more popular as the consumers become more health aware and responsible.
The bargaining power of the suppliers is decreased; these suppliers normally include the bottlers and the equipment manufacturers, which depend on the beverage companies for their operations and revenues.
The bargaining power of the consumers is generally increased; the main consumers are represented by large size retailers, who then resell the beverages to the final consumer. By buying in large quantities, they have high bargaining powers.
In the context so far presented, the competitive rivalry is intense; in fact, the rivalry between the beverage producers in the most threatening element in the industry (Deichert, Ellenbecker, Klehr, Pesarchick and Ziegler, 2006).
3. Company analysis
3.1. Business models
The Coca Cola Company and the Monster Beverage Company are both producers of soft beverages, creating their own recipes for their beverages, and then sending it to the bottlers, and eventually to retailers, from where they reach the final consumers. The business model implemented by the two firms is therefore similar, since none of them bottles its own beverages, but collaborates with third party bottlers. The Coca Cola products are nevertheless more popular, since they are also commonly found in restaurants, fast food establishments and other entertainment facilities. The Monster Beverage products are more commonly found in supermarkets, such as Wal-Mart or Costco, are less commonly in leisure facilities.
3.2. Competitive strategies
The Coca Cola Company is a leading power in the American and global beverage industry and it has created and maintained this position due to a combination of strategic efforts to ensure organizational competitiveness. In other words, the baseline for the company's competitive strategy includes the following:
A continuous focus on innovation. The company has intensified its effort to innovate its products and its techniques in order to create better products through more efficient and responsible processes.
The global expansion of the firm through the growth of the distribution network across the entire globe; the Coca Cola products are virtually sold on all six continents of the globe.
The expansion of the brand through the alignment of the products with the youth, as well as the famous. The company has as such become distinguished through its extensive marketing campaigns integrating celebrities, but also average youth, sending powerful messages of tradition, family values, as well as hopes of a better world.
A continuous focus on the needs of the customers, coupled with intense organizational efforts to support the development and well-being of the communities in which the firm operates (2011 Annual Report of the Coca Cola Company).
In the case of the Monster Beverage Corporation, their competitive strategy has focused on the introduction of new products, including energy drinks. Similar to the Coca Cola Company, Monster also focuses on innovation in the strengthening of its business model and competitive position. Additionally, the competitive strategy at the Monster Beverage Corporation also included the company's expansion into new global regions, such as Colombia, Cyprus, Estonia, Greece and so on, alongside with strategies for competitive pricing, packaging, new product development and promotional and marketing strategies. The Monster Beverage Company recognizes its financial limitations and admits to competing in a highly dynamic environment, against companies with more resources (2011 Annual Report of the Monster Beverage Corporation).
3.3. Competitive forces
As it has been mentioned throughout the previous section, the beverages industry is a highly competitive environment, in which the final success of the firms is based on their ability to understand and serve the needs of the market place. Currently, this could include the need to create more healthy products, such as sugar free beverages, the need to operate in a more socially and environmentally responsible manner or the need to implement pricing strategies that respond to the decreased purchase powers of the consumers.
As it has been revealed throughout Porter's five forces analysis, the most intense competitive pressure is represented by the operations completed by the other firms in the industry. In other words, the competition is driven by intense rivalry; the buyers (large retailers) have an increased bargaining power, whereas the suppliers (bottlers and equipment manufacturers) have a decreased power to negotiate with the beverage companies.
Another important force driving the competition in the soft beverage industry is represented…