Evaluative on Coca Cola - Case Study Example

Name: Topic: Evaluative Short Report on Coca Cola Institution: Date of submission: Instructor: Table of Contents Table of Contents 2 Executive summary 2 Introduction 3 Methodology 4 Government regulations 4 Demand 5 Supply 9 Conclusion 10 Recommendations 10 Bibliography 12 Executive summary The soft drinks industry in which coca cola is involved is very competitive. The greatest competition comes from rival companies such as Pepsi, which operate within the industry. Coca Cola Company is faced with challenges and pressures due to competition not only from the rival companies but also from substitute products, new entrants and other challenges that pertain the effective running of the organizations operations such as the supply and demand of the products. In addition, the whole fast moving consumer goods industry across the world is faced with numerous macro-economic challenges. For instance, the deepening of the foreign debt crisis in Europe has greatly contributed to the volatility of the currency and the austerity measures put in place by the governments are affecting the spending power of the consumers in countries that coca cola operates. This study seeks to explore and understand the competitive landscape and the market trends, demographic data relating to the supply and demand of coca cola products. Moreover, the study seeks to understand retailers selling behavior and customer’s buying behavior by analyzing the consumer’s exact needs and wants. The report covers issues in the soft drinks industry such as industry performance, growth opportunities and future prospects. The forecast and analysis given in this report uses variou8s economic models for illustration, and it is intended to act as a guide to Coca Cola Company so that it can improve its business economic processes. Introduction In order for coca cola to thrive, it has to ensure high performance in the prevailing macroeconomic environment. The micro economic environment greatly affects consumer behavior because micro economic pressure on governments is causing higher taxation trends across many countries that constitute the coca cola target market. It is important for coca cola to make sure that the governments in these countries understand the important role that coca cola plays in terms of providing employment, economic contribution and supplier spend. Moreover, market trends, globalization, and competition all affect coca cola’s operations in the soft drinks industry. Methodology The research utilized both qualitative and quantitative research. The study incorporates existing demographics data from various markets that coca cola operates in, so that the reader can get a proper picture of the economic dynamics pertaining to consumer behavior in the soft drinks industry. Specifically, the research also focuses on the US market, which is one of the largest and most competitive in the soft drinks industry, as a sample for forecasting consumer trends and preferences. Additionally, several economic literature sources and annual company reports on market share growth from previous years were keenly analyzed to provide a keen insight in the supply and demand of coca cola products throughout the world. The report helps stakeholders understand the various types of products that are found in the soft drinks industry. Furthermore, the report analysis the impact of fiscal policies on market growth and penetration. Government regulations High taxes directed at businesses and other taxes that affect the coca cola consumer market, such As increases in VAT significantly reduce the consumer’s disposable income, which consequently affects the overall consumer demand (Hoover, 2002). Agriculture poses a huge challenge in terms of sustainability. The decrease in agricultural productivity in certain regions due to unpredictable and shifting weather patterns may greatly limit and increase the cost of key agricultural products such as sugarcane and corn, which are all important ingredients used in the production and processing of coca cola products. The scarcity and increase in cost of commodities might disrupt the production capabilities, impair coca colas supply chain and consequently influence the demand for coca cola products (Shinde & Ganjre, 2007). Some markets such as those in the European Union had been experiencing below average consumer confidence levels. A combination of continued austerity measures and rising unemployment has made affordability a key issue due to reduced disposable income. Increased taxation by the governments further led to an increase in prices of coca cola products. This greatly affected consumer trends in terms of price elasticity of demand. Demand To put this into perspective, analysis of data from 32 high-income countries showed that a 10 % rise in price of soft drinks could decrease the level of consumption by up to 24%. This gives a coefficient of 2.4, which is in the elastic range. On the other hand, if soft drinks and fruits were subsidized by 10 %, the consumption level would increase by only 8%, which gives a coefficient of -0.8, which is inelastic. This data shows that consumers are more sensitive to an increase in price of a commodity than a decrease in price. These results could point to the fact that lower income consumers are more likely to purchase soft drinks while higher income consumers prefer purchasing fruits (Shinde & Ganjre, 2007). This data relating to price elasticity of demand may be modelled out on a supply and demand diagram to clear illustrate the concept. Figure. 1 showing the price elasticity of demand Market trends also indicate that consumers are shopping more, but they are spending less each time. In this context, private labels and value brands are increasing in relative significance. That challenge that coca cola faces is ensuring the products that it sells, retain identity whilst ensuring their profitability in a challenging economic environment (Rodda, 2010). Reductions in the disposable income of consumers and low consumer confidence have significantly influenced shopping habits, which is affecting consumers who purchase coca cola products. The decline in leisure spending through leisure activities has greatly minimized the opportunities for consumers to buy coca cola products in various consumption channels. Consequently, restaurants, hotels and café sales have decreased in most markets while sales through distribution channels such as supermarkets, hypermarkets have increased. These shifts in demand can adverse effects on the profitability since channels with immediate consumption are characterized by higher margins (Rodda, 2010). The shift in demand, however, can be an opportunity for coca cola. E- Retailing is significantly grown over the recent years, and coca cola can utilize it and position itself to reap the benefits. Studies have shown that an increasing number of customers are opening up e-retailing channels in the markets that are developing and those that are established. The changing mobile capabilities indicate that consumers no longer have to rely on shops, but can also use computers to buy goods from home, hence providing numerous opportunities to sell products. By utilizing such channels, coca cola can be able to explore untapped opportunities for increasing sales of the products on offer (Rodda, 2010). Competition Macro environmental factors in the industry such as the entry and exit of major firms is changing the dynamics in this industry. In this case, consolidation and mergers have been prevalent in the soft drinks industry over the last few years. This has caused the exit and re-entry of some firms. Other leading companies have been seeking to increase revenue and increase market share by venturing into new markets through mergers and acquisitions. For example, Pepsi Co. significantly increased its market share after acquiring Quaker oats (Shinde & Ganjre, 2007). Another macro environmental factor that is influencing the industry is globalization. The growths of the internet and other modern technological advancements have facilitated global communication. This has allowed companies to expand and collaborate with the target market and connect with the various market segments worldwide. This has intensified competition as companies seek first mover advantage in virgin markets. Following this trend, the global market for soft drinks is forecasted to grow and expand globally (Hoover, 2002). Coca cola faces competitions from other beverages such as coffee, teas, alcoholic drinks, and other several types of beverages that have been growing in popularity as influenced by taste and preference of consumers. Coca cola needs to innovate and diversify its products line in order to reduce the consumer’s need for other beverages. A survey was conducted in the US market to ascertain the market share and popularity of beverages. Several respondents were asked to name their favorite beverage and the data was analyzed and presented graphically to clearly illustrate the demographics. Figure. 2 bar graph showing the popularity of various beverages in the US Figure. 3 pie chart showing the popularity of various beverages in the US Additionally, soft drinks consumers are increasingly interested in issues about health such as information on natural ingredients use, calorie-intake and nutritional information. These health concerns relating to use of soft drinks among consumers is posing a serious risk to the soft drinks industry. This trend has altered the industry’s business environment since firms are increasingly differentiating their products to increase sales in markets that have stagnated. Coca cola needs to approach issues such as obesity, which is a concern for the current generation of consumers by taking action to help identify means of addressing the problem through partnerships with medical organizations. Coca cola needs to play a part in the health of communities where it operates and seek ways to find solutions (Bezjak, 2010). Supply The process of securing supplies is an important function of coca cola as a business. However, inputs cost have steadily been on the rise, led by increased sugar prices in all the major markets that coca cola operates in. for instance, the sugar market is highly regulated in Europe, with both consumers and producers of beverages and food affected. Other costs such as rising packaging because of the increase in the PET environment have also influenced production (Prasch, 2008). Suppliers involved in the soft drinks industry don’t pose and competitive pressure. They mostly deal with the bottling equipment and the secondary suppliers who are involved in packing. The suppliers who supply coca cola do not hold much bargaining power because the majority of the bottlers are owned by coca cola. The bargaining power of suppliers in the soft drinks industry is further eroded by the fact that the equipment in the soft drinks industry is not in short supply. Compared to other players in the soft drinks industry, coca cola has higher global sales than its rivals do. However, in the North American market, coca cola had lower sales compared to its biggest rival, Pepsi Co. for instance, in 2004; Pepsi was the dominant soft drinks producer in North America with sales of 22 billion dollars, while coca cola had about 6.6 billion dollars only. This further shows that Pepsi are the biggest direct competitor to coca cola (Shinde & Ganjre, 2007). New entrants to the soft drinks industry do not pose strong competitive pressure. Coca cola and Pepsi co are able to dominate the soft drinks market due to their strong brand and customer loyalty. Additionally, the soft drinks market is highly saturated, and the margin for growth is small. This scenario works to the advantage of coca cola since new entrants would find it very difficult to penetrate the market and start competing with an existing brand like coca cola while their brands are not known. Other barriers that such new entrants would face is the high cost of labor, high fixed cost for warehousing, distribution expenses and economies of scale (Prasch, 2008). Conclusion In conclusion, companies involved the soft drinks industry have experienced changes and have had to adapt to the ever-changing trends in the consumer market. The operating model has also evolved over time as companies seek to adjust quickly to the shifts in the social, economic and technological spheres. A growing public concern however, means that major players like coca cola needs to identify and formulate strategies that can counter the impact Recommendations In order to increase the market share and grow the coca cola brand into an even stronger brand globally, the company needs to expand its products line and increase innovation. This is crucial for the company because the soft drinks industry is no longer expanding, and the market share might continue to decrease as consumers’ explorer other healthier options. Through continues introduction of new product lines and diversification, the company will significantly increase its profit margins hence allowing the company to continue growth. Moreover, diverse product line will increase the stability within the corporation, which in turn will appeal to creditors and investors alike. In addition, coca cola should strive to sustain and further increase its market share globally. Although coca cola is a big global brand that is well established in the soft drinks industry, it has to sustain its position as a global leader in this sector since it is the core source of profit for the firm. If the global market share is lost to competitors, coca cola’s profits will dramatically decline. Finally, coca cola needs to increase and maintain brand loyalty among the consumers. Through good advertising strategies, coca cola can maintain and further increase the brand loyalty of its products. Brand loyalty is a key aspect of maintaining the company’s market share and sustained profits. Bibliography Bezjak, F., 2010. Global Economic Trends and Their Impact to Corporate Development. 1 ed. London: Books on Demand. Hoover, W. E., 2002. Managing the Demand-Supply Chain: Value Innovations for Customer Satisfaction. 1 ed. New York: John Wiley & Sons. Prasch, R. E., 2008. How Markets Work: Supply, Demand and the 'real World'. 1 ed. london: Edward Elgar. Rodda, C., 2010. PRICE, INCOME AND CROSS. Economics, 1(1), pp. 42-62. Shinde, G. & Ganjre, K., 2007. Brand building strategies for Soft Drinks. Technical Campus,, 1(3), pp. 170-177. Read More