Strategic Analysis of the Coca Cola Company - Essay Example

? Strategy Report: Coca Cola Executive Summary The paper deals with the strategy analysis of one of the global leaders in the beverage industry and that is Coca Cola. Coca Cola from a single production unit has developed itself into a giant company charting among one of the biggest companies in the world. A majority part of its success can be dedicated towards its strategy development and implementation. In this paper the company profiling has been provided with SWOT analysis to explore the internal and external situation of the company. After that the strategy development of the company has been discussed analytically. Following that the strategies on which the company will rely on is discussed for its future development. 1. Strategic analysis 1.1 Company outline The phenomenon of strategy is basically forward looking and it is also concerned with the ways in which the forms will be competing in the present scenario as well as how will it become in the future (Grant, 2010, p.26).On this foundation the strategy analysis of the Coca Cola Company will be executed. The company Coca Cola occupies an apex position within the global market of manufacturing. The company has been founded in the year 1919 and in origin it is a beverage company. The company is a leading manufacturer, distributor as well as marketer of the non alcoholic beverage concentrates, syrups, finished beverages distributing them to the bottling and canning operations and authorized wholesalers. The company has in its production domain, more than 230 beverage brands and the company is the marketer of four globally acclaimed beverage brands like Coke, diet Coke, Fanta and Sprite. The finished beverage products of the company bearing the company’s trademark are being sold over 200 countries (Lagos et al, 2001, p.2). The industry segments of the company include areas like Eurasia, Africa, Europe, Latin America, North America, Pacific, Bottling investments and the corporate. In the United States of America in the year 2011, Coca Cola acquired the Great Plains Coca Cola Bottling Company (Great Plains). The company also includes in its kitty, the acquisition of remaining interest in Great Plains and Honest Tea Inc. In the month of September, 2012 the company includes the acquisition of 50 percent of the equity in Aujan industries beverage commerce (The Profile: Coca Cola Co, 2012). In the present situation, around 43% of the business of the company comes from the developed markets of the world which includes United States, Western Europe, Australia and Japan. Around 37% in the developing nations as well as 20% of the emerging markets forms the revenue portfolio of the company. It is a firm belief of the management of the company is that with the growing and emerging developing markets that the new geographic segments will be contributing around 33% of the company’s business by the end of 2020 (Risk Reward Balanced at Coca-Cola, 2012). The largest market of the company is Europe with around 44% of the total industry value of beverage market. Coca Cola is the major player in the overall industry, being the company most strongly focused on pure drinks products, and also having one of the strongest brands. However, this leading position still gives Coca Cola only a 2.7% share of the overall industry, or around 7% of the soft drinks market, with revenues of around $35 billion (Datamonitor, 2012b). This demonstrates how fragmented the global industry is, with different tastes and trends affecting sales volumes in different countries. Competitors like Nestle and Pepsi have larger sales revenues than Coca Cola, with $105 billion and $58 billion respectively, but this is due to their product portfolios including milk based products, foods, snacks and other products (Datamonitor, 2012b). This indicates the fact that the company is not only a giant in itself but it is also jet packed for propelling its business dynamics. 1.2 Company Profile 1.2.1 Areas of core competence Coca Cola Company concentrates mainly on the sales of soft and non alcoholic drinks. The company structures its operations into six operating groups, covering “Eurasia and Africa, Europe, Latin America, North America, Pacific, and Bottling Investments” (Coca Cola, 2012). The first five of these cover the company’s geographic segmentation and sales of its core syrup products to restaurants and bars. The last one covers the company’s investments in a major network of partly owned bottling and distribution operators, to which Coca Cola sells syrups to be made into drinks, bottled, distributed and sold. This allows the company to reach a wide market without incurring significant risks (Coca Cola, 2012). 1.2.2 Unparalleled network The company’s primary core competence and source of competitive advantage is its strong market presence, built on its strong brand portfolio and the bottling partnerships discussed above. In particular, the bottling network allows Coca Cola to provide differentiated beverages to large numbers of markets, without huge capital demands of maintaining an internal network. This presents significant growth opportunities, as Coca Cola can expand its product lines and range rapidly by sourcing the correct partners. However, it also creates weaknesses in product quality, with some damaging product recalls having occurred after bottling operators failed to ensure product safety. Coca Cola is also threatened by a shift towards healthier drinks and products (Coca Cola, 2012). The article aims at presenting a profile of the beverage company Coca-Cola along with the strategy analysis, strategy development and implementation for future. Now the subsequent segment will be focusing on the SWOT and PESTEL analysis of the company. 1.2.1 SWOT analysis The acronym for SWOT stands for “Strengths, Weaknesses, Opportunities and Threats” (SWOT analysis, n.d.). The strengths and weaknesses are generally considered as the internal factors over which the companies generally possess some degrees of control. The opportunities and threats are some attributes which are external to the firm and the companies do not possess any control over them. SWOT analysis tool is one of the renowned tools for realizing the analysis of the overall strategic position of the business and its environment. The main theme of SWOT analysis is in identifying the strategies of the firm that will be directing towards the generation of specific business model aligned with the resources of the organization as well as capabilities to various requirements of the environment in which the firm will generally operate (SWOT analysis, n.d.). Internal factors External factors Strength Weaknesses Opportunities Threats Brand value A large number of product lines Easy access of finance International acclamation Health related issues Failure in brands Lack in advertisement Increase in the consumption of bottled water on a global basis Acquisitions Dynamic growth in NARTD market Bigger competitors Reduction in the demand on a global basis Escalated cost of raw materials Table 1. SWOT analysis (Coca Cola, n.d.) Strengths Coca Cola Company pioneers in the brand value among the top companies in the world. The company received a rank of No.6 with a brand value which is estimated at a value of $74.3 billion in 2012.The brand value of the firm escalated by 1 percent in the year (Couret, 2011). The Company is the highest valued brand today. From the reports of Financial World, the company’s value is $39 billion. The company has been successfully able to establish its core product Coke and it is one of highest expanding brand in the overseas markets gaining a brand of its own and favorite of almost all households. The brand promise of the company is robust everywhere whether it is sold in posh areas of New York or in road side stand in Mongolia (Holding, n.d.). The product line of the company is highly augmented. It has a portfolio of around 3500 products in and around more than 200 countries. Ranging from Inca Kola which is a sparkling beverage in North and South America to Vita found in Africa are all the bi products of the company. The major products of the company includes “Dasani water, Fanta, Powerade, Sprite, Flavored Cokes such as Cherry, Vanilla and many more, Barq’s Root Beer, Fresca, Mr. Pibb, Nestea, Minute Maid, Bacardi Mixers Fruitopia, TaB, Tahiti Treat, Mello Yello, Splice, & Mexican Coke” (Coca Cola, product line, n.d.). The list is partial and it includes much more in its production line kitty with different portfolios around the world (Coca Cola, product line, n.d.). The company owing to its magnificent brand value has an easy access to financial market. Capital markets are flexible to this company. Apart from that, the company itself also executes some fruitful initiatives. One of the Coca Cola’s initiative which is known as BY 20 initiative aims at the constant empowerment of around 5 million women entrepreneurs across the company’s value chain by the year 2020. The company has targeted in the development and execution of programs which is aimed at breaking down hurdles for the female entrepreneurs in the small business sector. The examples of the business comprise “fruit farmers, shopkeeper, collectors, and artisans” and so on. (Coca-Cola Company, 2001). The program developed by the company with their partners include that of various skill training courses and access to financial services and supporting the peer networks and that of the mentors (Coca-Cola Company, 2001). The company possesses the highest market share within the global beverage market. From a recent report it is revealed that the market share of the company in the US for carbonated soft drinks was around 42% along with comparison with its toughest competitor and that is Pepsi Co. The PepsiCo’s CSD market share is 29.3% (The Coca-Cola Company Corporate Valuation, 2011, p.3). Weaknesses In the recent years, Coca Cola has been alleged of some health issues related with it. The concerns are associated with an artificial brown coloring agent which according to the researchers is a potential threat of cancer creation. Health lobby group of Center for Science in the Public Interest (CSPI) stated that, “The caramel coloring used in Coca-Cola, Pepsi, and other foods is contaminated with two cancer-causing chemicals and should be banned” ( Poulter, 2011). The product recalls impacted negatively on the brand image of Coca Cola which has diminished the confidence of some of the consumer in the Coca-Cola products. In the year 2010, Smart Water PET bottles were being recalled in North America as the beverages were not up to the standards of the FDA’s quality standards for bottled water. In the year 2009, in Israel, the company was alleged and traces of benzene and sulfur figured out in the bottles of Coke and Diet Coke resulting in product recall (The Coca-Cola Company Corporate Valuation, 2011, p.3). The company was alleged for misleading advertisements. The advertisement claimed that the nutritional benefits derived from the drink were equal to that of the benefits that were reaped from eating vegetables. Advertising Standards Authority (ASA) asserted that, "We noted that the word 'brussels' was not capitalised and considered it was not clear from the ad, or its context, that the claim intended to refer to a well-known actor” ( Davis, 2009). In another ad there was a manifestation of a woman which signified that either anyone can become pretty or anybody can have a pretty woman in their life as pretty woman like Coca Cola. The portrayal of the ad can be said to be the representation of a poor visual act without proper idea establishment through the ad. Opportunities The consumption of the bottled water has been increasing in a rapid pace around the world and the consumption increase for Coca Cola products like that of Dasani and Smart Water is increasing in a rapid pace. From the recent bottled water statistics provided by the International Bottled Water Association, the aggregate bottled water consumption in the United States has escalated by a percentage of 3.5% in the year 2010. In the recent years, the total US refreshment beverage category has also grown by 1.2% as well as the bottled water market share has increased by 15% as the consumer’s interest in the healthy, calorie free beverages has also increased (Annual report, 2011). Threats In the recent years, the consumers, public health officials and the government officials have become highly concerned with the consequences of public health in association particularly with the young generation. In addition, several researchers and health advocates opine that the strict guidelines of diet have encouraged the consumers in the reduction of sugar sweetened beverages including sweetened with HCFS or that of other nutritive sweeteners. Increase in the public concern associated with the issues could be including various possible new taxes on the sugar sweetened beverages. There might be also the inclusion of various regulations of the government, labeling and that of packaging of the sale of the beverages and that of negative publicity which can affect the profitability of the company in an adverse manner(Annual report, 2011). Water is one of the primal resources for sustainability establishment of all the products of the company. Water resources are limited in different parts of the world and different challenges are faced from the exercises of over exploitation, poor management as well as unprecedented change in climate. The demand for water is ever increasing in the world and as the water sources are becoming scarce and also the quality of the water is getting deteriorated. The system may pose the threat of escalated costs or that of various capacity constraints adversely affecting the profitability of the company or that of the net operating revenues in the long run(Annual report, 2011). In the recent years, the non alcoholic beverage business has been evolving with greater pace along with the increase in the health conscious people over exemplifying over health issues and obesity mechanism. This has resulted in the shift of preferences of the consumers which has also included changes which are based on health, nutrition and obesity concerns. The shift in the tastes and needs of the consumers, changes in the lifestyles of the consumer as well as competitive product there has been pressure in the pricing policies. Apart from that the non alcoholic beverage retail landscape has been increasing in a dynamic way. It is also constantly evolving with the developing market with the increase in trade outlets and also in the developed markets where the new formats like that of the discounters as well as the value stores with the increase in transactions through the spectrum of e-commerce is increasing rapid pace. The beverage industry has also been badly affected by the trend towards consolidation in the retail channel basically in Europe and the United States. The company if unable to adapt rapidly to the changing environment and retail trends then the overall financial results can be affected in the negative sense (Annual report, 2011). 2. Strategy Development 2.1 Dynamism from the CEO 2.1.1 Focus on global business The CEO of the company Mukhtar Kent has been highly responsible for the dynamic growth of the company. It is under his dynamic leadership that the company has included strong commitment towards inclusiveness. Kent believes that the leaders in today’s global companies have to be well acquainted with the international affairs and they are required to possess a rigorous amount of experience in the living as well as working within the markets around the globe. He states that it is highly important in recognizing the business from the bottom and for Coca Cola, around 80 percent of the business is outside the United States. Kent states that for knowing the business there should be a rigorous knowledge about the global markets with people, cultures and other stakeholders comprising the majority of the business of Coca Cola (Inclusive leadership: for Coca-Cola, it’s the real thing, 2012). 2.1.2 Strategies for dynamic development One of the foremost strategies on which the CEO of the company relies upon is that of the strategic renewal process that steers the company and the bottling partners around the globe for dynamic development. Kent emphasizes on the vision that the byproduct of the input from various diverse leaders across the company is the outcome of the collective strength of the company. CEO states that the whole is infinitely are more powerful as compared to the individual parts. The CEO also has lined up various programs in queue. One of the programs in which the CEO is vehemently engaged is that of picking up the rising stars from various companies and then place them in various special assignment teams around the world. The CEO in this case targets in placing people outside their comfort zones and allow them working in areas which are out of their comfort zones and rigorously interact with the people whom they have never known and explore the markets that they have never experienced. Kent also visualizes various challenges which are still existent within the company. Building of a unified workforce derived from the jolt of a diverse workforce is one of the challenges faced by the company. Kent states that in the Vision 2020, the company targets at the creation of a diverse and inclusive workforce with parameters being established meeting optimal customer satisfaction. Kent states that, “When global leaders come together and agree on shared priorities and accountabilities, progress is inevitable” (Inclusive leadership: for Coca-Cola, it’s the real thing, 2012). 2.1.3 Strategic Business unit (SBU) The primal strategic decisions of the company are delivered through an executive committee of 12 company officers. The committee is fragmented to provide six strategic priorities. The division is shown in the figure below: Fig. 1 Delivery of strategic decisions (Creating an effective organizational structure, n.d.) The chair person of the Executive committee performs the function of the figurehead for the company as well as also chairs the board meetings. He is also vested the power of chief executive officer and he is the senior decision maker. The other executives are vested with the responsibility of the major regions like that of Africa or possess important business. The success of the company largely depends on the ability of the company for connecting with the local consumers. The company is organized into a regional structure with the combination of centralization as well as localization. 2.1.4 Operational domain There are six geographic operating segments which can be referred to as the strategic business units as well as the corporate segment. This is depicted in the following figure: Fig. 2 Strategic business Units (Creating an effective organizational structure, n.d.) The SBU’s of the company make the decisions at the local levels and they are dedicated towards region specific market research and also development of the local advertising through the use of the languages of the countries where the company generally operates (Creating an effective organizational structure, n.d.). Thus having a strong foothold at the base level with the development of regional and local expertise, the company is jam packed to establish a dynamic future growth. A GANTT chart below shows the company’s significant initiatives along with starting date and date of completion. The data labels in the following stacked bars represents to corresponding years i.e., 11 represent the year 2011. Fig. 3 GANNT Chart, (Annual Report,2011). 3. Strategy implementation For portraying the alternative corporate growth strategies of the company, the Ansoff matrix is a useful tool. This is dedicated towards the explanation of the company’s present and potential products and markets. In the existing markets as well as in the new markets, four possible ways can be chalked out in a matrix which is given as below: Existing products New Products Existing market Market Penetration Product development New Market Market Development Product diversification Fig 3. Lester, 2009, p.52 Based on the above matrix, the strategic position of the Coca Cola company can be formulated as below: Current Products New Products Current Markets Market Penetration Increase in the market share Increase in the product usage Increase in the frequency of use Increase quantity used New applications Product development Product improvement Extensions in the production lines Product differentiation in the same market New Markets Market Development Expansion of markets for the existing products Expansion in geographic territories Target of new segments Diversification strategies Vertical Integration Differentiation in the related business Diversification in unrelated business Fig 4. Strategy implementation (Vrontis & Sharp, 2003, p.301) The above matrix shows the combination of specifications of strategies that the company will be implementing in the future for maintaining sustained growth. The other strategies which should be taken into consideration by the company are that of introducing new flavors into the market with thorough customer analysis of that market. It can also incorporate different festivals as marketing strategies for strengthening the customer base. Quality standards should be maintained very strictly so that health related issues and constraints do not evolve and the customer do not get any chance of complaining. The competitors like Pepsi can be tackled through intelligent marketing and advertisement strategies which will be tailored towards the attracting an optimal customer base to their side. Ethical standards should be maintained by the company for operating a environmentally responsible business operation. 4. Conclusion Coca Cola is a giant company in the beverage market and through its hard struggle and innovative mechanisms has brought success to the company and has made it one of the leading companies in the platform of global business. The paper explained its strategic position with the help of SWOT analysis which reflected the internal and external factors that are currently affecting the company. One of the main reasons for the development of the company has been possible for the dynamic leadership of the CEO of the company, Mukhtar Kent who has emphasized on the international business development through local and regional market strength. The company’s business operation and its classification have been shown which give us an idea of important strategy development and implementation of those strategies at the same time. In the strategy implementation by analyzing the strong areas and weak areas, appropriate strategy matrix has been developed which gives the idea of accelerating the areas of business. These strategies could be developed and implemented for running a sustainable business. References 1. Annual Report, (2011). 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Available at, http://80.251.40.59/politics.ankara.edu.tr/ozer/Dersler/Introduction_to_marketing/Articles/The_Strategic_Positioning_of_Coca_Cola_in_Their_Marketing_Operation.pdf(accessed on December 3, 2012). Read More