Business Strategy for Coca-Cola Company - Research Paper Example

Business Strategy for Coca-Cola Company Introduction The Coca-Cola Company is the leading producer of soft drinks in the world. The company operates in 200 countries worldwide and sells approximately 400 nonalcoholic beverage brands worldwide. The organization ranks as the most valuable in the world based on different valuations in business journals. The company is also recognized globally because of its high presence in various markets across the world. The Coca-Cola Company was established in May 1886 in the United States and has operated effectively through different economic conditions (The Coca-Cola Company, 2015). By the 1990’s, the organization was among the most respected companies worldwide, a leader in building a brand and effective management team. This paper assesses the business strategy of the Coca-Cola Company. In addition, there is an evaluation of the internal and external factors that influence the operations of the company in the industry. Furthermore, the paper examines the present situation in the beverage industry in terms of competition and future approaches. There is also an evaluation of the Coca-Cola’s major competitor in the beverage industry as well their strengths and weaknesses. The paper provides an analysis of the financial ratios of the organization and provides recommendations regarding the strategy for the company. Coca-Cola Company The Coca-Cola Company was created in Atlanta, Georgia in 1886. It engages in the manufacture, distribution and marketing of nonalcoholic beverages and syrups. The Company is responsible for the production and distribution of 400 brands of beverages, which include light and diet beverages, juice drinks and juice, waters, coffees, teas, energy and soft drinks. Moreover, the company owns various canning and bottling subsidiaries in different regions worldwide. In addition, the organization sells finished products of beverages which bear its trademark in more than 200 nations worldwide. By 2006, the Coca-Cola Company operated via eight segments which include Africa, Pacific Rim, East, South Asia; Latin America; European Union; North America; Middle East and Eurasia; corporate and bottling companies. The Coca-Cola Company activities straddle various sectors of the soft drink industry: in world’s trade in 2004, the company was leading in terms of value and volume in the carbonates, vegetable or fruit juice, coffee and ready to drink sectors. In the Asian specialty and functional drinks, Coca-Cola Company was the second-best player in the world (The Coca-Cola Company, 2015). The company produces syrups and concentrates which are sold to different bottling organizations for final processes such as dilution and packaging. The company's globalization initiative was begun in 1920's and currently operates in all major markets in the world. The collaboration between the Coca-Cola Company and other bottling companies creates the most effective distribution and production system in the world. The distribution system is designed such that the workers commit to the achievement of the company’s long-term and short-term objectives. One of the primary objectives of the organization is increasing the value of its market share by operating alongside its associates to satisfy the needs of the customers (The Coca-Cola Company, 2015). The organization also aims at creating value by valuing and protecting the interests of its customers in different countries in the world. External Environment The competitive nature of an industry is a core factor in determining the criteria through which firms develop their strategies for profit maximization over time. Regardless of the differences in the state of competition between industries, the nature of competition in the soft drink industry depends on its specific structure. The structure of the industry refers to the relationship ascribed to the Porter’s five forces. Presently, the soft drink industry is characterized by increased competition from new entrants into the market. In addition, alcoholic beverage companies in various regions in the world are engaging in the production of soft drinks, which promotes competition in the market. The Porter's Five Forces model approach is essential in evaluating the industry's attractiveness and economics. There are five forces that are useful in determining the profitability of an organization in a specific industry, which include new entrants, competitors with the industry, buyers, suppliers and substitute products. In this case, weak forces in the model attract greater opportunities for the company’s performance in the industry. Furthermore, companies that fulfill the Key Success Factors achieve better performance (Dess & Miller, 2010). Threats of new entrants Presently, the soft drinks industry is characterized by the increase in new entrants. However, the new entrants have minimal impact on the competitiveness of the soft drink industry. PepsiCo and Coca-Cola Companies dominate the industry with their superior distribution systems and brand name. Moreover, there is saturation in the soft-drink industry that limits huge new growth. This saturation of the industry limits the growth of new entrants into the market. In addition, most of the soft-drink consumers purchase the products based on the brand name (The Coca-Cola Company, 2015). For example, a product of a new entrant into the industry fails to compete effectively with the established products of the Coca-Cola and PepsiCo brands. The costs of the equipment that are required for the establishment of a soft-drink company are high, which hinders the establishment of new entrants. The costs of labor, distribution trucks, warehouses and the economies of scale hinder new entrants in the market from competing with the established brands. In this case, new entrants in the soft-drink industry are a weak competitive force. The KSF identified from the aspect of new entrants include price, size, brand image, global presence and distribution channels (Baye, 2010). Threats of Substitutes The substitutes for the Coca-Cola products include sports drinks, bottled water, tea, and coffee. Sports drinks and bottled water are gaining popularity due to the health concerns of the sugary products. However, the Coca-Cola Company is engaging in the production of sports drinks and bottled water to attract more consumers to their products. Regardless of the introduction of bottled water, Coca-Cola Company faces competition from established organizations in the industry. Moreover, tea and coffee are competitive substitutes because they provide consumers with caffeine (Schwartz & Davis, 2009). In this case, coffee can substitute soft drinks. Specialty blend types of coffee are becoming popular with the expansion of Starbucks and MacAfee in various countries worldwide. The low cost of the substitute products enhances their competitiveness in the industry. The KSF for the threat of substitute encompasses innovation and quality (Dess & Miller, 2010). Suppliers The suppliers of the Coca-Cola Company are the manufacturers of bottling equipment and suppliers of secondary packaging. The company owns a high percentage of the bottling entities in various countries in the world. In this case, the suppliers of the bottling equipment have limited bargaining power. However, disagreements between the company and its major bottlers recently increased concerns regarding the ability of the organization to create stability in its distribution channel. The introduction of new Coca-Cola products in the market is affecting the operations of its bottlers which promote conflicts within the company. The conflicts are a major threat to the distribution channel of the company. The increase in the cost of packaging materials and sugar affects the organization’s profitability directly. Buyers The buyers of the Coca-Cola products are large retail outlets, restaurants and discount stores. The buyer’s bargaining power is strong because they purchase the products in large volumes. The large retail outlets, therefore, can purchase the products at low costs because of their strong bargaining power. On the other hand, restaurants have a limited bargaining power because of they purchase the products in small volumes. The increase in the demand of the buyers could facilitate the bargaining power of the buyers due to increase in the number of soft-drink consumers in the market. Competitive Rivalry The competition from rival sellers is the highest competitive force that is facing the Coca-Cola Company in the industry. The major players in the industry include Cadbury Schweppes, PepsiCo and Coca-Cola. The sales of the Coca-Cola products continue to decrease in regions with high presence of PepsiCo (Dess & Miller, 2010). Additionally, PepsiCo is gaining loyalty from consumers in Asia, Africa and Europe that promotes competition in the soft-drink industry. Factors that are driving Industry Change The soft-drinks industry is facing steady growth worldwide. Various factors contribute to the changes in the industry. First, globalization is one of the factors that influence various aspects of the industry such as branding, differentiation, and marketing strategies (Jeffs, 2009). Soft-drink companies with the global presence tend to adjust to the cultural needs of the local communities for effective marketing strategies. In addition, globalization promotes the concept of product diversification among the industry players. In this case, leading organizations in the soft-drink industry produce products that meet the needs of the local consumers. Secondly, changes in the consumer preferences contribute to changes in the composition of the soft-drinks that are availed in the market. Companies in the industry focus on producing healthy products due to changes in consumer attitudes towards sugar based and caffeine products (Schwartz & Davis, 2009). The major competitor of Coca-Cola Company is PepsiCo. PepsiCo is among the fastest growing soft drinks companies in the world, and it specializes in the production of sugar-free products in the market. PepsiCo has adopted various strategies to compete effectively with Coca-Cola in the industry such as aggressive marketing, branding, pricing and production of sugarless products. The company is gaining consumer loyalty in the traditional Coca-Cola regions such as Asia, Africa, and Europe due to the competitive costs and composition of their products. Besides, the company is enhancing its global presence to enhance their market share as well as branding purposes (Jeffs, 2009). The major success factors in the soft-drink industry include the production of healthy beverages, diversification of products and increased market presence in the global contexts. These factors enable the organization to establish the brand among consumers and adhere to the health regulations of the policy makers worldwide. Product diversification is crucial for enhancing the loyalty of the consumers towards specific products in the company. Internal Environment The present strategy of Coca-Cola Company is functioning effectively regarding their market share, competitiveness and achievement of long-term goals. Swot Analysis Strengths: Coca-Cola is one of the largest beverage producer and distributor in the world. There are various strengths of the organization such as size, global presence, popularity, and brand. The company's size and global presence enhances its distribution and marketing strategies in different regions worldwide. In addition, the company uses the economies of scale to compete effectively in the market. The brand of the organization is established based on its products’ popularity worldwide. This branding aspect enhances the sales and profitability of the company. The costs and prices of the company are competitive because of the economies of scale (Baye, 2010). Weaknesses The major weakness of the Coca-Cola Company is the health issues that are associated with some of its products. For instance, some countries limit children from drinking the Coke brand because of high levels of sugar and caffeine. Opportunities The company has various opportunities in the industry. First, the marketing team can engage in advertising the unpopular brands of the company to promote loyalty and sales. Secondly, the company can engage in mergers and acquisitions to phase out future competition from the industry (Sadler, 2011). Threats The company faces different threats. First, the changes in the health consciousness of the consumers threaten to reduce the sales and market share of the company. In addition, the company faces various legal issues regarding their products and competition strategies that limit effective decision-making process. Secondly, the major rival in the industry, PepsiCo is experiencing steady growth in the market that is a major issue of concern in Coca-Cola Company (Jeffs, 2009). Key Financial Ratios Current Ratio= Years 2013 2014 Current Ratio 1.05 1.09 The current ration of the company has increased from 1.05 to 1.09 in 2013 and 2014 respectively implying that efficiency and liquidity are improving. Total Asset Turnover Ratio = Years 2013 2014 Asset Turnover 0.58 0.55 The decrease in the asset turnover indicates that the organization generated additional revenue per dollar of investment in assets in 2013 than 2014. Inventory Turnover Ratio =. The company's ability to sell the inventory reduced from 5.9 in 2013 to 5.8 in 2014. Debt Ratio=. The Coca-Cola Company faces various issues. First, the company is facing lawsuits regarding the composition and health effects of their products that limit concrete decision-making processes. Secondly, there is steady competition from its major rival in the industry that affects the sales and profitability of the company. Finally, the company faces restrictions to sell specific products in particular markets that limit its profitability and branding initiatives. Strategic Alternatives and Recommendations Production of Healthy products Consumers are acquiring knowledge regarding the effects of specific products on their health. This information has influenced the consumers’ preferences to favor health alternatives to Coca-Cola products such as bottled water and juices. The company can engage in processing of natural juice products and water to attract the health conscious consumer base (Baye, 2010). Pricing Pricing is another concept that can benefit the Coca-Cola Company. The company can capitalize on the economies of scale to compete effectively in the industry. In this case, the organization can reduce the cost of production through purchasing products from the suppliers in bulk at lower prices (Sadler, 2011). Marketing The aspect of marketing is crucial for promotion of new products in the market. The company can product their new products through advertising on various platforms such as traditional media and social media to attract more consumers (Baye, 2010). Plan of Action 1. Introduction of Healthy Products 2. Marketing the products 3. Global Distribution 4. Pricing Competition References Baye, M. (2010). Managerial economics & business strategy (2nd ed.). Boston: Irwin/McGraw-Hill. Dess, G., & Miller, A. (2010). Strategic management (4th ed.). New York: McGraw-Hill. Jeffs, C. (2009). Strategic management. Los Angeles: SAGE. Sadler, P. (2011). Strategic management (2nd ed.). Sterling, VA: Kogan Page. Schwartz, H., & Davis, S. (2009). Matching corporate culture and business strategy. Organizational Dynamics, 30-48. doi:10.1016/0090-2616(81)90010-3 The Coca-Cola Company,. (2015). Our Company - The Coca-Cola Company. Retrieved 4 July 2015, from http://www.coca-colacompany.com/our-company/ Read More