Coca-Cola Strategic Analysis: SWOT, PESTEL & Porter's Five Forces

Executive Summary

This paper analyzes beverage giant the Coca-Cola Company through both internal and external lenses, employing the following analytical tools: PESTEL, SWOT, and Porter's Five Forces. The Five Forces analysis reveals a medium threat of new entrants, a medium-to-high threat of substitute products, low supplier and buyer bargaining power, and a high level of rivalry with the company's 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 issues. Opportunities: diversification, focusing on developing countries, packaged drinking water, supply chain improvement, and marketing lesser-selling offerings. Threats: sourcing of raw materials and indirect competition.

PESTEL analysis results were as follows. Political and legal factors potentially impacting the company include trade restrictions, tax policy, labor laws, environmental policy, and FDA certification. Economic factors include gross domestic product, interest rates, forex rates, disposable income, retail price index, demand and supply conditions, and unemployment rates. Social factors include trends, practices, traditions, consumer wants, population dynamics, educational qualifications, aspirations, income distribution, corruption, customer awareness, standard of living, religious values, and family structure. Technological factors relate to innovation in production and raw material utilization.

Company Overview

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) — a 5.5% decrease from $44.294 billion (2015)
Profit (US$): $6.527 billion (2016) — an 11.2% decrease from $7.351 billion (2015)
Employees: 100,300 (2017)
Main Competitors: PepsiCo Inc., Dr Pepper Snapple Group Inc., Unilever Group, Mondelēz International Inc., Groupe Danone, Kraft Foods Inc., Nestlé S.A., and several other beverage manufacturers.

The biggest global beverage manufacturer, Coca-Cola owns, licenses, and markets over six hundred brands of non-alcoholic beverages — chiefly sparkling beverages — as well as 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 of the world's five most popular non-alcoholic sparkling beverage brands: Coca-Cola, Fanta, Sprite, and Diet Coke. These trademarked beverages, marketed in America since 1886, are now available in over two hundred national 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, as well as independent bottling firms, distributors, retailers, and wholesalers — together constituting the world's largest beverage distribution network (Coca-Cola Company, 2011).

Coca-Cola-trademarked products account for approximately 1.9 billion of roughly 59 billion beverage servings consumed daily across the globe (Coca-Cola Company, 2011). The company attributes its success to its capability of connecting with customers by offering a broad array of product choices suited to their lifestyles and requirements, and to its workforce's ability to execute daily tasks efficiently (Coca-Cola Company, 2011). The company aims to utilize its assets — fiscal strength, brands, unparalleled distribution network, worldwide reach, and the commitment and skill of its managers and partners — to increase competitiveness, accelerate progress, and ensure value creation for its shareholders (Coca-Cola Company, 2011).

Porter's Five Forces Analysis

Ever since the concept was proposed in 1979, Porter's Five Forces theory has remained the de facto basis for industrial analysis, with market competitiveness gauged by assessing market attractiveness. Conclusions from this assessment help identify existing and imminent industry risks for a given firm. Porter's five forces are: (1) Threat of New Entrants, (2) Rivalry among Existing Companies, (3) Threat of Substitutes, (4) Suppliers' Bargaining Power, and (5) Buyers' Bargaining Power.

The beverage sector has fairly low barriers to entry owing to the absence of significant customer switching costs and minimal capital requirements. Novel brands are increasingly flooding the market, featuring prices comparable to Coca-Cola's products. However, to customers, Coca-Cola is both a brand and a beverage. Its longstanding and highly significant market share means long-time loyal customers are less likely to switch brands (Valuation Academy, 2018).

Market shelves display numerous types of sodas, juices, and energy drinks. Coca-Cola lacks a truly distinctive flavor, as demonstrated by blind taste tests in which participants were unable to differentiate Pepsi from Coke (Valuation Academy, 2018).

Individual customers have essentially no bargaining power. While Walmart and other large retail chains possess some degree of bargaining power owing to the large quantities they order, customer brand loyalty serves to weaken the overall bargaining power of buyers (Valuation Academy, 2018).

Carbonated drinks' chief ingredients — carbonated water, caffeine, phosphoric acid, and sweetener — come from suppliers who are neither differentiated nor concentrated. The Coca-Cola Company is, in fact, one of the largest (and likely the biggest) clients of these supplying firms (Valuation Academy, 2018).

PepsiCo is currently Coca-Cola's chief competitor, offering a similarly broad array of beverages. Both brands are popular and heavily committed to sponsoring sporting and other outdoor activities and events. While other soft drink brands — such as Dr Pepper — have gained some popularity owing to their distinctive flavors, none have yet reached the level of Coke or Pepsi (Valuation Academy, 2018).

SWOT Analysis

Coca-Cola is one of the most universally recognized brand names in the world, present in homes, offices, restaurants, and shops everywhere. The company offers a vast range of products. Its SWOT analysis is as follows (Bhasin, 2018).

Brand Equity: Coca-Cola received the 2011 Interbrand highest brand equity award, which is attributable to its distinctive brand identity and extensive international reach (Bhasin, 2018).

Company Valuation: Among the world's most valuable companies, Coca-Cola is valued at approximately $79.2 billion, encompassing brand value, revenues, operational expenses, and its many global assets and manufacturing units (Bhasin, 2018).

Extensive International Presence: Coca-Cola products are marketed in two hundred nations worldwide. This extensive market presence has facilitated the development of its enormous brand name (Bhasin, 2018).

Greatest Market Share: The beverage sector has 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: Unlike its competitor Pepsi, the Coca-Cola Company consistently strives to appeal to all people. While Pepsi focuses primarily on youth, Coke targets everyone (Bhasin, 2018).

Customer Loyalty: Coca-Cola's robust product offering — particularly Fanta and Coke — has cultivated a large base of loyal customers. Its superior taste makes it difficult for consumers to find a satisfying substitute (Bhasin, 2018).

Distribution System: Coca-Cola's immense market demand has necessitated the creation of the world's largest distribution system. This effective distribution network has ensured its superior market presence (Bhasin, 2018).

Competition with Pepsi: Coca-Cola has been unable to monopolize the beverage market owing to fierce competition from Pepsi (Bhasin, 2018).

Low Product Diversification: Pepsi has wisely implemented product diversification by entering the snacks market with successful offerings such as Kurkure and Lays. Coca-Cola's operations, however, have not extended beyond the beverage sector, causing the company to miss out on additional revenue streams (Bhasin, 2018).

Lack of a Health Beverage Offering: Obesity is a chief issue in modern society. Consumers are increasingly attentive to what they consume, and as carbonated drinks are a significant source of calories, health-conscious consumers in industrialized nations are reducing their beverage consumption and opting for healthier alternatives (Bhasin, 2018).

Water Management: The company has faced criticism for ineffective water management. Numerous groups have filed lawsuits claiming the company consumes huge quantities of water even in water-scarce regions, and it has also been censured for allegedly adding pesticides to water in the purification process. This issue requires prompt attention (Bhasin, 2018).

Diversification: Diversifying into the snacks, food, and health segments would prove beneficial for the company in terms of increasing revenues — particularly from existing customers — through product cross-selling. Supply chain expenses could also be shared by using the same distribution infrastructure for both beverages and snacks (Bhasin, 2018).

Focusing on Developing Countries: While Coca-Cola enjoys a prominent presence in industrialized countries, a gradual shift toward healthier beverages is being observed there. However, in many developing nations, soft drinks remain relatively new offerings, and populations — particularly those experiencing hot summers — nearly double their soft-drink consumption during the warmer months. This represents a significant growth opportunity (Bhasin, 2018).

Packaged Drinking Water: With the increasing focus on access to hygienic drinking water, the packaged drinking water segment has grown considerably. While the company has entered this segment with Kinley, the product is currently expanding slowly. Given its great potential, the company should increase its focus in this area (Bhasin, 2018).

Supply Chain Improvement: Given ever-increasing transportation costs, the supply chain represents a significant potential cost burden for Coca-Cola, a company heavily reliant on distribution and transport. Closely supervising, identifying, and implementing supply chain improvements could meaningfully reduce expenses (Bhasin, 2018).

Marketing Lesser-Selling Offerings: Numerous Coca-Cola products have yet to gain widespread market acceptance. Given the substantial cost of launching these products, the company should focus on marketing them more effectively to boost revenues (Bhasin, 2018).

Sourcing of Raw Materials: The company's primary threat relates to water. It reportedly utilizes large quantities of water and has faced criticism for adding pesticides to it, exposing it to censure as global water scarcity worsens. Climate change compounds this growing crisis, and rationing or limiting water supply to the company would cause a major setback in terms of production, distribution capability, and income (Bhasin, 2018).

Indirect Competition: Coffee chains such as Café Coffee Day, Starbucks, and Costa Coffee have been growing in number and offering substitute products for soft drinks, thereby eroding Coca-Cola's beverage market share. Likewise, energy drinks (such as Gatorade and Red Bull) and health drinks (such as Tropicana and Real) have been indirectly reducing the company's market share (Bhasin, 2018).

Conclusion

This report has provided a comprehensive overview of the Coca-Cola Company, assessing it using PESTEL and SWOT analyses. Internal environmental conditions as well as the company's challenges with regard to internal and external forces have been addressed. By adopting the example of a diverse consumer base and variable market such as India, key insights have been provided regarding how the company ought to adapt itself to diverse markets, thereby retaining an edge over the competition. The impacts of multiple external elements have been addressed in depth, and requisite strategic changes for increasing profitability have been identified.