The Coca-Cola Company - Case Synopsis - Submitted by: Christopher Hnatko, Romita Sidhu and Li Zhang - Somos Torrevieja
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The Coca-Cola Company
Case Synopsis
Submitted by:
Christopher Hnatko, Romita Sidhu and Li Zhang
Business 478- Section D300
March-17 2014INTRODUCTION
Firm History
The Coca-Cola Company is a beverage company. “It owns or licenses more than 500
nonalcoholic beverage brands” (MintGlobal, 2014). It primarily serves sparkling beverages but
also wide range of still beverages such as water, juices, ready-to-drink teas and coffees, and
sports drinks. The Coca-Cola Company was founded in 1886, by John S. Pemberton and served
Coca-Cola at a local Pharmacy in downtown Atlanta, Georgia (The Coca-Cola Company, 2014).
In 1892, Asa Candler purchased and incorporated the Coca-Cola Company as a Georgia
Corporation (The Coca-Cola Company, 2014). Fourteen years later, under Candler’s leadership,
bottling operations began in Canada, Cuba, and Panama. In 1919, the Coca-Cola Company was
purchased by a group of investors led by Ernest Woodruff for $25 million. From its early years,
Coca-Cola Company made significant innovations in the beverage industry, such as six-bottle
carton and steel 12-ounce cans. Additionally, it continued to expand internationally (The Coca-
Cola Company, 2014). In 1923, Robert W. Woodruff was elected as president of the Coca-Cola
Company, who also served as a Chairman of the Board in 1939. The very first new product
distributed by the Company was Fanta Orange in Naples, Italy. After the success of this product,
it established a diverse portfolio through acquiring Minute Maid Corporation and adding a line of
juice products. In 2008, “Sprite became the third Company product to sell more than 2 billion
cases annually, joining Coca-Cola and Diet Coke” (The Coca-Cola Company, 2014).
Current Situation
Today, the Coca-Cola Company has been serving for more than 127 years and is one of
the largest beverage companies headquartered in Atlanta, United States. The company is engaged
in the production, distribution, and marketing of nonalcoholic beverages and syrups. It is listed on
the New York Stock Exchange (NYSE) and the Dow Jones Industrial Average (DJIA)
1(MintGlobal, 2014). On March 16, 2014, the share price of the Coca-Cola Company is recorded
at $38.17 under NYSE (The Coca-Cola Company).
The Coca-Cola Company has over 3500 products and serves over 200 countries. Some of its
brands includes, Coca-Cola, Sprite, Fanta, Diet Coke, Dasani, Minute Maid, Power Ride, Simply
Orange, Fresca, and Vitamin Water. Moreover, it has partnered with approximately 250 bottling
companies worldwide. “The company’s segments include Eurasia and Africa, Europe, Latin
America, North America, Pacific, Bottling Investments and Corporate” (MintGlobal, 2014).
“Some of the company’s customers include bottling and canning operators, distributors, fountain
wholesalers, and fountain retailers” (MintGlobal, 2014). Lastly, in the beverage industry, the
Coca-Cola Company competes with PepsiCo, Inc., Nestle, and the Dr. Pepper Snapple Group Inc.
Vision and Mission
The Coca-Cola Company and its bottling partners developed a 2020 Vision in 2009. This
vision is a roadmap to doubling their global system revenues in the next 10 years by focusing on
six key areas: profit, people, portfolio, partners, planet, and productivity (The Coca-Cola
Company, 2014). The mission statement of the Coca-Cola Company is:
To refresh the world in mind, body and spirit. To inspire moments of optimism through
our brands and actions. To create value and make a difference everywhere we engage.
Goals and Objectives
The Coca-Cola Company is a leader in the beverage industry with a reputable brand and
strong global presence. According to the Coca-Cola Company’s mission statement and 2020
Vision, some of its goals include:
• Increase profit by cutting down costs through productive and efficient production facilities;
• Focus on environment friendly bottling production and enforce sustainability;
2• Continue to diversify its portfolio through innovations and partnerships, keeping
consumer demands in mind;
• Increase annual operating income by 6-8% in order to double their revenue by 2020.
Financial Performance
According to the MarketLine research, “soft drinks is the largest segment of the global
beverages industry, accounting for 35% of the industry’s total value” (MarketLine, 2013). Moreover,
the Coca-Cola Company is the leading player in the global beverages industry, generating 17.9%
share of the industry’s volume (MarketLine, 2013). According to the 2013 financial statements, the
company reported revenues of $46,854 million, a decrease of 2% compared to 2012. Moreover, the
net income in 2013 was $8,584 million, a decrease of 5% compared to 2012 (The Coca-Cola
Company, 2014). The 2% decrease in the operating revenues was due to, “unfavorable impact of
foreign currency fluctuations in U.S.” (The Coca-Cola Company, 2014).
Table 1: Financial Ratios in Year 2013 and 2012
Year 2013 Year 2012 Variance (%)
Profit Margin (%) 18.32 18.78 (0.94)
Return on Equity (%) 25.73 27.51 (1.78)
Return on Assets (%) 9.53 10.47 (0.94)
Current Ratio (x) 1.13 1.09 3.67
EXTERNAL ANALYSIS
General Environment
General environment can be broken down into six segments. Below is a brief analysis on
the general environment:
Demographic Segment
Coca-cola provides products and services to wide range of age groups, with the largest
portion of this focus on teenagers to middle aged adults. According to index mundi’s world
demographic profile in 2013, 57.4% of the world’s population lies in the demographic of 15-54
3years of age (World Demographics, 2013). This indicates that Coca-Cola is focusing on the
largest demographic in the world for potential customers, which can be seen as a suitable strategy
for sustainability and growth.
Political and Legal Segment
Coca-Cola being the global leader in soft drink production and sales must abide by the
rules and regulations in which countries it sells its products. For instance in Canada the maximum
amount of caffeine allowed in a soft drink is 200ppm (Health Canada, 2010). That being said
there are only two countries in the world in which Coca-Cola does not sell its products officially
because of prior legal trade embargos, Cuba and North Korea. Coca-Cola states that if their
products are being sold in these countries that are embargoed then the product is finding its way
there through unauthorized means.
Economic Segment
From 2006- 2012 the rate of inflation for food and beverages was higher than the overall
price inflation in the United States. This translated into consumers having less disposable income to
spend on these commodities (Volpe, 2013). This coupled with the increased amount of transportation
cost world wide due to oil price inflation means that costs will also be higher to transport their
product. This means that costs have increased in this industry, while the disposable income from
potential customers have decreased translating to lower revenues for the companies in this industry.
The fluctuations in the US currency in 2013 have also led profit margins declining due to increased
costs associated with doing business in foreign countries. Despite these facts, however, Coca-Cola had
a worldwide growth of 1% in their annual report in 2013 (Coca-Cola, 2013).
Socio-cultural Segment
Currently in the last decade there has been an increase in health awareness leading to a social
movement towards healthier lifestyles worldwide. In particular soft drinks have been linked to the
cause of type-two diabetes and as a result consumers have been moving towards healthier alternatives
(Walter, 2012). This may result in Coca-Cola losing its market share as consumers begin to substitute
4for healthier beverages. Coca-Cola, however, has been developing products to meet the needs of the
health conscious consumer such as Coke Zero and Diet Coke in order to sustain its market share.
Technological Segment
In order to increase brand awareness and demand, many soft drink companies are using social
media tools such as Facebook and YouTube as advertising channels because of their high traffic of
users. By advertising on these sites they are able to expose their brands to a larger amount of people
much more efficiently and effectively. Also, the development of Total Quality Management Systems
used in the industry allows the efficiency of the companies operations and distribution to increase.
Global Segment
As the global economies continue to develop, newly industrialized countries can be seen
as high potential consumer markets that have risen. This translates to a new amount of market
share that has not been exploited previously by the industry, allowing for growth from companies
like Coca-Cola. The global market is continuously growing and remains as a high opportunity
market for the soft drink industry.
Industry Environment:
The Porter’s five forces of competitive model is used to examine the industry environment.
Threat of New Entrants
The threat of new entrants is very low because of the well-established brands already in
this market. New entrants would have a hard time competing with Coke and Pepsi especially in
advertising as in 2000 Coke and Pepsi spent a combined $2.58 billion in advertising and
marketing (MBA, 2010). As a result of such expenditures brands are well established and thus
customer loyalty is relatively strong with these brands. It is also hard to enter the market because
Pepsi and coke will not make it easy for competitors to gain market share. For instance, they have
done this by creating bottling contracts with manufacturing in certain geographic areas, which
forbids these manufacturing from taking on another client. So will be hard to establish and
production and distribution network for new entrants.
5Threats from Buyers
Bargaining power of buyers is high because margins for this industry are low and
consumers buy in bulks. Since the products are similar they will purchase whichever brand offers
the most for the cheapest amount. At stores or fast food restaurants where a brand is exclusively
offered the threats from buyers will be relatively low because they have no alternatives.
Threats from Suppliers
The raw materials for soft drinks are very basic such as sugar, artificial flavor and water
leaving the power of suppliers relatively low since they can substitute between them. So
switching cost between suppliers will be extremely low. The threat of forward integration from
suppliers is also low since soft drink manufacturing need huge capital investments such as
manufacturing plants and distribution networks, which they could not afford. Overall the threat of
suppliers remains low in the industry.
Threat of Substitutes
The threat of substitutes in the industry is very high because of the amount of alternative
beverages available for example water, tea, coffee and energy drinks. This threat also remains
high because the prices of these products are relatively the same so the consumer faces low
switching costs between them. The way that soft drink companies combat this threat is by using
intensive advertising campaigns in order to create differentiation between their brands and these
substitute products.
Industry Rivalry
The makeup of this industry mainly composed of Coca-Cola and Pepsi who hold a large
majority of the market share with a few other competitors holding very small amounts of market
share. As result the rivalry in the industry is relatively low because there are basically only two
firms competing. The majority of this competition takes place in the advertising rather than the
price sector as the brands compete to differentiate their brands from one another and thus gain
some market share.
6Competitor Environment
The Coca-Cola Company’s main objective is to maintain its diet carbonated beverage
sales in developed markets. As the demand for carbonated beverages in emerging markets is
increasing, such as markets in Middle East and Africa, may double 2010’s revenues by 2020
(Euromonitor,2013). Additionally, as the trend of health and wellness is shaping the soft drink
industry, the Coca-Cola Company is trying to increase its non-carbonated beverages sales in the
market by acquiring other drink companies.
PepsiCo
The main competitor of the Coca-Cola Company is PepsiCo. PepsiCo is the world’s second
largest food and beverage company and has a presence in over 200 countries (MarketLine, 2013). In
order to meet consumers’ health and wellness requirement, PepsiCo has acquired NutritionCo as a
subsidiary (Euromonitor, 2013). PepsiCo is temporarily focusing on reshaping its brand image that
emphasizes on healthy food and drinks. Like the Coca-Cola Company, PepsiCo has established
well-known brands including, Pepsi, Gatorade, and . Table 2 shows the market share changing from
2007 to 2012 between the Coca-Cola Company and PepsiCo.
Table 2: The Coca-Cola Company (TCCC) vs PepsiCo: Soft Drinks Category Share 2007/2012
Bottled Water Carbonated Concentrates Fruit / Vege- Ready to Ready to Sports and
Soft Drinks table Juices Drink Coffee Drink Tea Energy Drinks
Note. Adapted from “Coca-Cola Co, The in Soft Drinks (World)”, 2013. Copyright 2013 by Euromonitor International.
7MAIN STRATEGIC CHALLENGES
Increasing revenue streams from all fronts
In order to achieve its goal of doubling the revenue in ten years, Coca-Cola needs to sell
its products in new geographic areas and expand its product like that meet the consumers’
changing preference and behaviors. Maintaining its current market size in the developed market,
the company also needs to increase sales in developing markets (Euromonitor, 2013).
Diversification
Carbonated beverages are the company’s bread and butter business so that the company
is heavily relied on their sales. This implies that the company needs to increase awareness and
sales on other drinks, such as bottled water, juice, ready-to-drink tea, and even Asian specialty
drinks since the consumer preferences are changing. Moreover, in order to maintain their share of
sales in the increasing competitive market, Coca-Cola has to continue to strengthen their brand
loyalty, innovation, and expand into other product categories in the beverage industry.
Diet products cannibalizing standard variants
As consumers have growing concerns about their health, such as obesity issues, which
results in a reduce demand of standard cola. Therefore, the amount of sugar in regular soft drinks
needs to be reduced accordingly. Although the introduction of the diet cola successfully
addressed this issue, the increasing demand and sales of diet drinks cannibalized the sales of
standard cola (Euromonitor, 2013). The company needs to find a way to sustain their revenues
while anticipating consumers’ preference changes.
Acquisition targets in developed markets
With the strong penetration power in the mature soft drinks industry, the Coca-Cola
Company’s revenue growth can be generated from secondary markets or new markets. However,
in developed markets, an acquisition option is limited because of market consolidation
(Euromonitor, 2013). It is challenging for the company to make large acquisitions in all markets.
8REFERENCES Euromonitor. (2013). Coca-Cola Co, The in Soft Drinks (World). Retrieved March 16, 2014, from Euromonitor Passport Database. "World Demographics Profile 2013." World Demographics Profile 2013. N.p., n.d. Web. 16 Mar. 2014. . "Who, What, Why: In which countries is Coca-Cola not sold?." BBC News. N.p., n.d. Web. 16 Mar. 2014. . "Common menu bar links." Caffeine and Carbonated Soft Drinks. N.p., 29 July 2010. Web. 16 Mar. 2014. . Volpe, Richard . "Price Inflation for Food Outpacing Many Other Spending Categories." USDA ERS -. N.p., 5 Aug. 2013. Web. 16 Mar. 2014. . "Press Center." The Coca-Cola Company. N.p., 4 Aug. 2013. Web. 16 Mar. 2014. . Walter, Ben"Soft Drinks and Disease." The Nutrition Source. N.p., 4 Feb. 2012. Web. 14 Mar. 2014. . "MBA LecturesEducating People For Tomorrow." MBA Lectures RSS. N.p., 25 Nov. 2010. Web. 16 Mar. 2014. . MarketLine. MarketLine Industry Profile: Global Beverages . London: MarketLine, 2013. MintGlobal. Coca-Cola Company. 16 March 2014. . The Coca-Cola Company. "Annual Report: 2013." 2014. . "Investors." 16 March 2014. Coca-Cola Journey: Global. . . "History of Coca-Cola." 16 March 2014. Coca-Cola: Great Britain. . . "Our Company: Mission, Vision & Values." 16 March 2014. Coca-Cola Journey: Global. . 9
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