Strategic Management: Cocacola Essay, Research Paper
Dr. John S. Pemberton in Atlanta, Georgia invented Coca-Cola in May 1886.
During the first year, sales of Coca-Cola averaged nine drinks a day, adding up to total sales for that year of $50.
Today, products of The Coca-Cola Company are consumed at the rate of more than one billion drinks per day.
The Company is the world’s leading manufacturer, marketer, and distributor of non-alcoholic beverage concentrates and syrups.
The Company and its subsidiaries employ nearly 31,000 people around the world.
Syrups, concentrates and beverage bases for Coca-Cola, the Company’s flagship brand, and over 230 other Company soft-drink brands are manufactured and sold by The Coca-Cola Company and its subsidiaries in nearly 200 countries around the world.
Our mission is to maximise share-owner value over time. In order to achieve this mission, we must create value for all the constituents we serve, including our consumers, our customers, our bottlers and our communities. The Coca-Cola Company and its subsidiaries (our Company) create value by executing a comprehensive business strategy guided by six key beliefs:
consumer demand drives everything
brand Coca-Cola is the core of our business
we will serve consumers a broad selection of the non-alcoholic ready-to-drink beverages they want to drink throughout the day
we will be the best marketers in the world
we will think and act locally
We will lead as a model corporate citizen.
The Company’s operating management structure consists of five geographic groups plus The Minute Maid Company. The North America Group comprises the United States and Canada. The Latin America Group includes the Company’s operations across Central and South America, from Mexico to the tip of Argentina. The Greater Europe Group stretches from Greenland to Russia’s Far East, including some of the most established markets in Western Europe and the rapidly growing nations of Eastern and Central Europe. The Africa and Middle East Group encompasses the Middle East and the entire continent of Africa. The Asia Pacific Group has operations from India through the Pacific region including China, Japan, and Australia.
The Minute Maid Company, the Company’s juice business in Houston, Texas, is the world’s leading marketer of juices and juice drinks. The Minute Maid Company’s products include Minute Maid Premium Orange Juice with calcium, Minute Maid Premium Lemonade Iced Tea, Minute Maid Coolers, Hi-C Blast and Five Alive.
By contract with The Coca-Cola Company or its local subsidiaries, local businesses are authorised to bottle and sell Company soft drinks within certain territorial boundaries and under conditions that ensure the highest standards of quality and uniformity.
The Coca-Cola Company is a publicly held corporation, chartered in Delaware on September 5, 1919. As of December 31, 1998, approximately 389,000 shareowners of record held approximately 2.47 billion shares of the Company s common stock.
The Coca-Cola Company stock, with ticker symbol KO, is listed and traded in the United States on the New York Stock Exchange. Common stock also is traded on the Boston, Cincinnati, Chicago, Pacific and Philadelphia exchanges. Outside the United States, Company common stock is listed and traded on German and Swiss exchanges.
The Coca-Cola Company has a commitment, more than a century old, to social responsibility through philanthropy and good citizenship. The Company’s reputation for good corporate citizenship results from charitable donations, employee volunteerism, technical assistance and other demonstrations of support in thousands of communities world-wide.
The Coca-Cola Company continues to sponsor the world’s most exciting sports events, including World Cup Football, the National (American) Football League, National Basketball Association, NASCAR, the Tour de France, the Rugby World Cup, COPA America and numerous sports teams. The Coca-Cola Company has sponsored the Olympic Games since 1928.
The company employs nearly 31,000 people in nearly 200 countries. They maintain a long-standing commitment to equal opportunity, affirmative action and valuing the diversity of their employees. The Company strives to create a working environment free of discrimination and harassment with respect to race, sex, colour, national origin, religion, age, sexual orientation or disability.
Benefits offered employees include health, dental and life insurance; short- and long-term disability; a retirement plan; a tuition aid program; and participation in the Company Thrift Plan.
It is the policy of the Company to provide employees with opportunities to develop knowledge and skills that lead to more effective job performance.
They employ both specialists in the field and people with general skills ranging from marketing to finance.
The firm operates a pay-for-performance business environment. Their Total Compensation programs are structured to drive value creation, to provide cost-effective rewards that are meaningful to associates, and to encourage continuous learning, making the Company as successful as it can be. Integral to their success in the nearly 200 countries where they do business are the people of the Coca-Cola business system, who remain intensely focused on creating long-term value for their share owners.
The headquarters of the company is located in Atlanta USA though they have branches in other countries around the world.
The firm has one of the most diverse beverage brand portfolios in the world.
In the United States, their core brands of Coca-Cola classic, diet Coke and Sprite are complemented by Barq’s root beer, Minute Maid Soda, Nestea, Fruitopia, Citra and Cherry Coke. Add to that the popular POWERaDE line, Minute Maid juices and Hi-C, plus the new bottled water, Dasani. Next up: the expansion of frozen Coca-Cola.
But they also sell Tian Yu Di (teas, waters and fruit juices) in China, Mori no Mizudayori (mineral water) in Japan, new SONFIL (juice/dairy blend) in Spain, Kuat (guarana-flavored soft drink) in Brazil and literally hundreds of varieties of local beverages. Adding Schweppes products last year brought them 39 new brands in more than 160 countries.
The company owns Coca-Cola Enterprises the largest soft-drink bottler in the world, operating in eight countries.
The Company also has business relationships with three types of bottlers: (1) independently owned bottlers, in which they have no ownership interest; (2) bottlers in which they have invested and have a non-controlling ownership interest; and (3) bottlers in which they have invested and have a controlling ownership interest.
They view certain bottling operations in which they have a non-controlling ownership interest as key or anchor bottlers due to their level of responsibility and performance. The strong commitment of these bottlers to their own profitable volume growth helps Coca Cola meet their strategic goals and furthers the interests of their world-wide production, distribution and marketing systems. These bottlers tend to be large and geographically diverse, with strong financial resources for long-term investment and strong management resources.
These bottlers give Coca-Cola strategic business partners on every major continent.
This is useful in gaining competitive advantage as the company has a stake in two thirds of the bottlers they use hence they can influence them.
The company believes that it s ability to generate cash from operations to reinvest in it s business is one of their fundamental financial strengths.
The firm gets its finance from sales, franchising, loans and stock flotation.
During 1999, the Company’s acquisition and investment activity, which included the acquisition of beverage brands from Cadbury Schweppes plc in more than 160 countries around the world, investments in the bottling operations of Embotelladora Arica S.A., F&N Coca-Cola Pte Limited, and Coca-Cola West Japan Company, Ltd., totalled $1.9 billion.
During 1998 and 1997, the Company’s acquisition and investment activity totalled $1.4 billion and $1.1 billion, respectively.
The Company sponsors and/or contributes to pension and post retirement health care and life insurance benefit plans covering substantially all U.S. employees and certain employees in international locations.
In July 1999, they completed the acquisition of Cadbury Schweppes plc beverage brands in 155 countries for approximately $700 million. These brands included Schweppes, Canada Dry, Dr Pepper, Crush and certain regional brands. Among the countries excluded from this transaction were the United States, South Africa, Norway, Switzerland and the European Union member nations (other than the United Kingdom, Ireland and Greece).
In September 1999, they completed the acquisition of Cadbury Schweppes beverage brands in New Zealand for approximately $20 million. Also in September 1999, in a separate transaction valued at approximately $250 million, they acquired the carbonated soft drink business of Cadbury Schweppes (South Africa) Limited in South Africa, Botswana, Namibia, Lesotho and Swaziland.
To meet their long-term growth objectives, Coca-Cola make significant investments in marketing to support their brands. Marketing investments enhance consumer awareness and increase consumer preference for the brands. This produces long-term growth in volume, per capita consumption and their share of world-wide non-alcoholic ready-to-drink beverage sales.
They heighten consumer awareness and product appeal for their brands using integrated marketing programs. The firm s integrated marketing programs include activities such as advertising, point-of-sale merchandising and product sampling.
The Coca-Cola brand is the most recognised trademark in the world. The bottle and name can recognised by people the world over. The word coke is used in everyday language to describe all types of cola drinks. The image of the company is also a great resource, it is recognised as a charitable organisation and one that offers great quality.
They are helping build multigrade schoolhouses in the Philippines to educate children, to strengthen communities.
Following floods in Mexico and Venezuela last year, they dedicated their consumer hotline to connecting people with missing relatives through the Red Cross and provided water and supply trucks to aid in disaster relief.
Coca-Cola customers are notoriously loyal and almost everyone around the world sees it as the superior soft drink.
Coca-Colas unique selling point is its name, image and taste. No other brand enjoys the type of loyalty afforded to Coke. A lot of competitors have tried to capture the taste or to package their products to look like Coke but to no avail. This uniqueness is possibly the company s greatest competitive advantage.
The Competitive Environment
There are a lot of competitors in the soft drink industry all of whom have the same market/customers as Coca-Cola, however none is quite as successful as the firm.
Coca-Cola, the heart of the business, is seen as one of life’s simple, affordable and frequent pleasures.
From the look and feel of the bottle to the sound of effervescence, the tickle of fizz on the nose and tongue and, of course, the unique flavour, Coca-Cola is a sensory experience. Wherever the company creates reminders of that experience, such as their Sensa-Domes in South Africa where consumers experience a 3-D movie and special effects to remind them of the pleasure of drinking a Coke they ignite the brand.
Competition in this industry where one product is virtually the same as the next is in some cases based on price, advertising and packaging. Supermarket and less well known brands are a lot cheaper and some even package their products in a similar packing to coke (i.e. The classic red pack with white writings).
There have been a lot of new entrants into this industry but many never last (e.g. Buzz Cola). The product differentiation of Coca-Cola and (Pepsi) has hindered the success of new competition. Consumers regard them of begin of better and higher value. The consumers are loyal to these brands and only weaver at times of depression when they are forced to buy cheaper brands.
Coca-Cola has a recognised image which no other brand except it s closest rival Pepsi can hope to compete with. Virgin Cola tried to sell it s self as the same but failed.
Pepsi is Coca-Colas greatest competitor. Its products including Diet Pepsi, Pepsi-One, Mountain Dew, Slice and Mug brands V account for nearly one-third of total soft drink sales in the United States, a consumer market totalling about $56 billion. Pepsi-Cola beverages are available in about 170 countries.
Pepsi-Cola North America also makes and markets ready-to-drink iced teas and coffees, respectively, via joint ventures with Lipton and Starbucks.
PepsiCo, Inc. is among the most successful consumer products companies in the world, with 1999 revenues of over $20 billion and 116,000 employees. PepsiCo brands are among the best known and most respected in the world and are available in about 190 countries and territories.
The company consists of:
Pepsi-Cola Company, the world’s second-largest beverage company (second to Coke)
Frito-Lay Company, the world’s largest manufacturer and distributor of snack chips
Tropicana Products, Inc., the world’s largest marketer and producer of branded juices
PepsiCo Mission Statement:
PepsiCo’s overall mission is to increase the value of our shareholder’s investment. We do this through sales growth, cost controls and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity.
PepsiCo’s success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity of its employees.
PepsiCo, Inc. (symbol: PEP) shares are traded principally on the New York Stock Exchange in the United States. The company is also listed on the Amsterdam, Chicago, Swiss and Tokyo Stock Exchanges.
Pepsi-Cola products account for about a quarter of all soft drinks sold internationally. In addition to brands marketed in the United States, major products include Mirinda and Pepsi Max. Pepsi-Cola North America includes the United States and Canada. Key Pepsi-Cola international markets include Argentina, Brazil, China, India, Mexico, Philippines, Saudi Arabia, Spain, Thailand and the United Kingdom. The company has also established operations in the emerging markets of the Czech Republic, Hungary, Poland, Slovakia and Russia, where Pepsi-Cola was the first U.S. consumer product to be marketed.
Pepsi-Cola provides advertising, marketing, sales and promotional support to Pepsi-Cola bottlers and food service customers. This includes some of the world’s best-loved and most recognised advertising. New advertising and exciting promotions keep Pepsi-Cola brands young.
The company is well known for it s adverts and the products blue packaging. Unlike other competitors to Coke who always adopt the red pack and try to be seen as the same as Coke, Pepsi marketed itself as an alternative, a rival, which I believe is one of the factors of their success.
The company serves nearly as many countries as Coke has more brands and the second most successful juice brand in the world. Their brands 7UP and Pepsi are also just as easily recognisable globally as Coca-Cola brands.
The company due to it s global span is affected by a lot of Macro Environmental Influences. Political situations in all the countries they trade in will affect the company. If the USA is at war or facing other problems with country involved with Coca-Cola the this will make business very bad for the firm in that particular country. Natives might take out their feelings towards the USA on the company.
Foreign trade regulations and taxation policies of both the US and the countries they deal with affect them. Legislation on employment and equal opportunities also influences the way the firm hires and treats its employees.
There are also Deposit laws which require that beverage bottlers and distributors charge a refundable deposit on beverage containers.
The company s commitment to the environment is based on the principle that they shall conduct their business in ways that protect and preserve our environment. Furthermore, they promote a philosophy of shared responsibility, where all participants in the supply chain accept responsibility for the environmental impacts occurring in their specific part of the chain.
Working together with their suppliers, customers, regulators and our environmental partners, they can achieve an effective balance between responsible environmental and economic stewardship. At The Coca-Cola Company it is believed that the best possible environment for our success is the best possible environment.
To help us meet the opportunities and challenges of a rapidly changing environmental landscape, The Coca-Cola Company has developed a comprehensive environmental management system. This system is designed specifically for alignment with operations of the Coca-Cola business system and focuses on environmental issues directly related to their business. Compliance, waste minimisation, pollution prevention, continuous improvement, and identification of cost savings are all hallmarks of The Coca-Cola Environmental Management System (TCCEMS).
At the core of The Coca-Cola Environmental Management System is a simple overarching principle: we shall conduct our business in ways that protect and preserve the environment. This principle is supported by a series of policies, requirements and practices.
Their system supports and encourages a wide array of environmental leadership initiatives around the world. The purpose of these initiatives is threefold:
To advance their understanding of the environmental issues facing their business
To foster new and innovative solutions to those issues
To serve as a catalyst for constructive dialogue and improved environmental performance
Business cycles like recession and booms affect the company. In times of recession people are more likely to buy cheaper alternatives to their product since it is not an essential product. Reduced income will mean that people want to spend their cash on vital things. The rate of interest and the rate of exchange of other countries will also affect the company. As a US based firm exporting goods to places like Britain whose currency have a higher value it will mean more profit for coke.
Inflation affects the way the firm operates in many markets around the world. In general, they are able to increase prices to counteract the inflationary effects of increasing costs and to generate sufficient cash flows to maintain their productive capability.
With approximately 70 percent of the company s 1999 operating income generated outside the United States, weakness in one particular currency is often offset by strengths in others over time. Coca-Cola uses derivative financial instruments to further reduce their net exposure to currency fluctuations.
In January 1999, certain member countries of the European Union established permanent, fixed conversion rates between their existing currencies and the European Union’s common currency (the Euro).
The transition period for the introduction of the Euro is scheduled to phase in over a period ending January 1, 2002, with the existing currency being completely removed from circulation on July 1, 2002. The Company has been preparing for the introduction of the Euro for several years. The timing of their phasing out all uses of the existing currencies will have to comply with the legal requirements and also be scheduled to facilitate optimal co-ordination with the plans of their vendors, distributors and customers. The work related to the introduction of the Euro and the phasing out of the other currencies will include converting information technology systems, recalculating currency risk, recalibrating derivatives and other financial instruments, evaluating and taking action, if needed, regarding the continuity of contracts; and modifying their processes for preparing tax, accounting, payroll and customer records.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging Activities. The statement requires all derivatives to be recorded on the balance sheet at fair value and establishes new accounting rules for hedging instruments. This company will have to change its process to comply with the above.
Things like income distribution, population and life style will affect the firms decision of whether or not to branch out into a certain region.
Levels of education will decide whether the right staff is available before new factories are set up.
Technological influences like speed of technological transfer and rate of obsolescence have to be borne in mind before new expensive equipment is purchased. The firm can not afford to waste funds on soon out of date equipment, especially with Pepsi close behind.
Coca-Cola though a multinational organisation operates in a static environment where the future can be easily forecasted.
The company s core competence is the brand name and image of Coca-Cola, though their marketing and distribution channels come a close second.
The company claims to be a corporate citizen whose first duty is to the public and its customers, however I believe that their first loyalty is to their shareholders and the board of trustees.
The ultimate objectives of Coca-Cola s business strategy are to increase volume, expand their share of world-wide non-alcoholic ready-to-drink beverage sales, maximise our long-term cash flows and create economic-value-added by improving economic profit.
Coca-Cola has more than 16 million customers around the world that sell or serve their products directly to consumers. There are nearly six billion people in the world who are potential consumers of the Company’s products. Ultimately, their success in achieving their mission depends on their ability to satisfy more of the beverage consumption demands and the company s ability to add value for its customers.
From the above strategic analysis I would say that the company s strengths are
The brand name Coca-Cola Coke
The image of the company/product (the real thing)
Their position in the market
The fact that the product can be easily substituted (customers will go for a cheaper alternative if need be since the product is not that dissimilar in taste and appearance to rival products)
I see their main opportunity as the company forging new markets and their main threat is the presence and continuing growth Pepsi-Cola.