Coca-Cola Amatil - Performance, Competitive Landscape and Competitive Challenge - Case Study Example

Case Study: Coca-Cola Amatil (CCA) Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 Introduction 3 Company’s Overview 3 Operations: 3 History: 4 Challenges: 5 External and internal analysis 5 Internal Analysis: Swot Analysis 6 External analysis: Porter’s Five Forces Model 7 Competitive challenges in press 8 Current strategies 9 Recommendations 10 Conclusion 10 References 11 Introduction With headquarters in Australia, Coca-Cola Amatil (CCA) is The Coca-Cola Company’s (TCCA’s) leading global bottling partner that has operations in Australia, Asia, Eastern and Central Europe and South-East Asia. CCA is a leading Australian multinational that manufactures and distributes soft drinks, such as Coca-Cola, Fanta, Sprite, and Diet Coke (Mayes 2011). This paper presents a case study of the company to give an overview of the company's history, operations, performance, competitive landscape and competitive challenge, its external and internal analysis, the competitive challenge, the current strategies and lastly, the strategic management recommendations that can address the identified competitive challenge the company is facing. Company’s Overview Operations: Coca-Cola Amatil (CCA) serves some 450 million customers in four continents worldwide. It is the largest distributor of non-alcoholic drinks in developed markets, such as New Zealand and Australia, as well as developing countries such as Indonesia and Poland and South-East Asia. The company has is dedicated to employee development, environmental audits and continual reduction of waste across all production and distribution stages (Karnani 2014). In Australia, consumption of Coca-Cola soft drink has continually developed. Indeed, consumption of beverages Australian buyers purchase for home consumption makes up about half of the overall drinks sold in the Australian marketplace (The Drum 2013). The establishment of the company was after major restructuring of Amatil Limited in 1989. Initially, Amatil Limited dealt in packaging, beverage distribution, tobacco, and poultry. After reorganization, the company sold its interests in these businesses to focus on distribution of beverages and snacks as its core businesses. History: The company’s beverage business started far back in 1964, when the company acquired Shelley and Marchant in Australia. The company purchased interests in Coca-Cola Bottlers in Perth in 1965. In 1966, it took over the Coca-Cola Perth operation and the Coca-Cola Melbourne. Over a 25-year period afterwards, the company took control of Coca-Cola Bottlers in Port Macquarie, Brisbane, Geelong, Newcastle, and Sydney. Amatil made its initial beverages investment overseas in 1982 after acquiring Coca-Cola bottling facilities in Graz and Vienna in Austria. United Biscuits bought Amatil’s snack foods interests in 1993 to concentrate fully on beverages, before rapid expansion to entre in the Asia-Pacific and European markets. In 1998, its business initiation in Europe was as a distinct operation under Coca-Cola Beverages Plc to concentrate on the Asia-Pacific region. Apart from Australia and New Zealand, it is also a market leader in the beverage industry in Papua New Guinea, South Korea, Indonesia and Fiji. At present, CCA owns seven bottling facilities across Australia, after it acquired Northern Territory facility in 2005. As of June 2014, Coca-Cola Company (TCCA) owned 29 percent shares in CCA. Current Performance: Current statistics indicate that the company’s profits radically plummeted. As at June 2014, the company made a profit of $182.3 million, indicating a 19-percent drop. The company’s earnings before interest and tax (EBIT) reduced by 15.3 percent to reach $316.7 million. Additionally, while the company had strong cash flow, its earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 10 percent over the same period, compared to $448.1 million, before significant items (Dyer 2014). Challenges: CCA’s tenets for success focus on five major areas: (a) Quality, where the company consistently offers customers high quality soft drinks, (b) Marketing, where CCA delivers creative and innovative marketing programs globally, (c) Global accessibility, where Coca-Cola products are bottled and distributed globally (d) Continuous innovation, where CCA continually provides consumers near product offerings However, CCA faces a range of competitive challenges. The immediate challenges are in the Indonesian and Australian markets, where it has experienced a significant drop in market share in the beverages industry due to high competition from Apple and other small-scale soft-drink makers. In April 2014, the company’s presentation of a trading update indicated that its’ EBIT in the first half of 2014 to reduce by some 15 percent. The strong cash flow generated contributed to decline in net debts. Similarly, cash flow generated rose to $125.9 million from $141.5 million because of declined capital expenditure. External and internal analysis CCA experiences a range of challenges within the Australian and international marketplace due to its market-driven changes and socio-economic transformations. An internal analysis of the company is necessary to examine its internal capabilities. Additionally, an external analysis of the beverage industry is necessary to investigate the impact of the external environment (Porter 2004; Piercy & Giles 2007). Internal Analysis: Swot Analysis Strength: CCA is the largest manufacturer and distributor of non-alcoholic drink concentrate and syrups. The company has established brand recognition in Australia, as well as globally. It also has a strong portfolio of products. The company has strength in size due to its global operations, as well as a strong financial background. Indeed, CCA has wielded significant financial muscles leading to acquisition of Coca-Cola bottler facilities in Australia and abroad. It also has a strong global geographic distribution. Hence, the company makes significant volumes of sales in Australia, Europe, and Asia (EuroMinitor 2013). Weakness: CCA significantly depends on carbonate soft drinks. Hence, it is susceptible to downturn in the segment. Rise in consumer health consciousness concerning sugar diet has also slowed the consumption of its soft drinks. Opportunities: The emerging markets, such as Brazil, China and India present potential markets for growth. Additionally, the growth and health and wellness trends have meant that consumers get to understand the significant of healthy diets that seek healthier drinking options that company offers (Dyer 2014). Threats: CCA faces stiff competition from Pepsi. Additionally, it has better repositioning advantage in redefined marketplace. More health conscious consumers are shifting from carbonated Coca-Cola drinks to naturally homemade alternatives (EuroMinitor 2013). External analysis: Porter’s Five Forces Model Low Threat of New Entrants: The soft drink industry has low threat of new entrants. Entry into the market requires high initial cost, including cost of production facilities, warehouses, transportation facilities and marketing. Averagely, it could require as much as $75 million. High competition in the segment also signifies a threat to new entrants (EuroMonitor 2013). High Threat of Substitutes: The industry has high number of substitute products such as tea, coffee, sports drink and water, which appeal to different consumer tastes (Suddath & Stanford 2014). Low threat of suppliers: The key suppliers are bottlers and ingredient suppliers, which are low. Since the producers produce similar products, they maintain lower power over the pricing. Moderate bargaining power of buyers: The major customers of the soft drinks are restaurants, supermarkets, convenience stores and grocers. The buyers’ bargaining power is strong, since customers buy in bulk, which allows them bargain for cut prices (Suddath & Stanford 2014). Strong Competitive Rivalry: the industry is significantly competitive. Pepsi is the major competitor. For instance, while CCA distributes five of the leading soft drink brands in North America, Pepsi leads with sales of about $7 billion compared to CCA’s $22 billion (Williams 2013). Competitive challenges in press The company faces the challenge of new competitors in the beverage industry. Additionally, existence of substitutes, such as coffee, tea, milk, and fruit juice companies has been a real threat for the company (Dyer 2014). Despite holding some 40 percent of the market share, issues of health consciousness had also diversified their beverage products. For instance, the growing awareness of soft-drinks related illnesses, especially diabetes, has triggered a trend where more and more customers keep off the drinks. In the case of the carbonated drinks, countries, such as Australia saw the standard coal cannibalized by low calorie coals, which signified a challenge (Dyer 2014). Pepsi is the major competitor. Pepsi products are similar to that of Coca-Cola. The products have waged a tough price war in the soft drinks market. Indeed, over the years, CCA has considered only Pepsi to be its chief competitor. At the same time, Pepsi has stayed in the market for a long time. CCA has relied on Coca-Cola Company’s smart strategies, which has made its brands to be popular among the youth (Reuters 2014). CCA manufactures, distributes and retails a beverage portfolio that consists of Sprite, Fanta and Coke, as well as energy drinks, water, flavoured milk, fruit juice, vegetable products and coffee. Additionally, CCA distributes and sells premium wine and spirits products, such as Makers Mark and Jim Beam. Indeed, in May 2013, the company was compelled to reduce its prices because of the heavy discounting of Pepsi, as well as to check that Pepsi’s new product did not get considerable acceptance in the market (Chappel 2014). Additionally, the high labour costs in the Australian market and strong health systems have threatened CCA’s profitability. The company’s fruit business called SPSC Ardomona has equally faced serious financial pressure because of the rising competition from labels dealt by supermarkets. Despite the rich product portfolio, the price war by Pepsi along with other soft drinks companies, such as Pepsico, Dr Pepper Snapple Group, Nestle Waters France has threatened CCA’s earnings. In May 2013, the company report showed that its earnings have significantly affected by price wars, particularly in the blue-collar areas (Chappel 2014). Additionally, low consumer confidence affected the sales revenue by the growing number of soft drinks in supermarkets, especially in the low socioeconomic areas (Dyer 2014). In June 2014, CCA also reported a drop in profit by 19-percent, to $182.3 million (Reuters 2014). Current strategies The company's core strategy is to increase revenue in its entire product offering by expanding its geographic spread. To ensure this, it has focused on increasing per capita consumption within underdeveloped markets. Still, the company has failed to invest in significant marketing in its new territories and had tended to rely on The Coca-Cola Company (Richardson 2014). The company engages in significant diversification. For instance, it has made its portfolio in RTD tea stronger, in addition to Asian Speciality tea. Despite this, the company has failed to stop overreliance on carbonates. This has exposed it to vulnerabilities in market changes (Reuters 2014; Rasoava & Russell 2003). The company uses acquisitions as its key strategy to expand globally in order to increase customer base. Indeed, the company has managed to penetrate into the leading soft drink markets. The tactic has proved effective, as much volume growth has originated from secondary markets such as Indonesia and Vietnam (Dyer 2014). Recommendations The company should achieve expansion by establishing strategic alliances with distributors in underdevelopment markets and investing in significant market (Loke et al 2009; Holmberg & Cummings 2009). To counter cannibalisation of standard cola by low calories colas, the company has to continue sustaining its growth standard cola while simultaneously seeking expansion in low calories cola. The company should also spread risks from its carbonate drinks, by expanding sale of other products (Tripodi 2011; EuroMonitor 2014). In its acquisition strategy, CCA should set its eyes on larger acquisition targets in untapped markets, such as Africa and Middle East, as well as some secondary markets. Additionally, CCA needs to capitalise on the growing health and wellness trend. Hence, its acquisition strategies should also focus on extending the variety health and wellness drinks. Conclusion CCA faces a range of competitive challenges. CCA experiences a range of challenges within the Australian and international marketplace due to its market-driven changes and socio-economic transformations. The immediate challenges are in the Australian markets, where it has experienced a significant drop in market share in the beverages industry, due to high competition from Apple and other small-scale soft-drink makers. An internal analysis of the company shows that while it has strength in size due to its global operations, as well as a strong financial background, it significantly depends on carbonate soft drinks. Hence, it is susceptible to downturn in the segment Additionally, an external analysis shows that the industry is significantly competitive, with Pepsi being the major competitor. Despite the rich product portfolio, the price war by Pepsi along with other soft drinks companies, such as Pepsico, Dr Pepper Snapple Group, Nestle and Waters France has threatened CCA’s earnings. CCA requires a profitable system that has channel, customers, brand and a reporting that is accurate. The company should increase revenue in its entire product offering by expanding its geographic spread, engages in significant diversification and use acquisitions and strategic alliances to expand in emerging markets in Middle East and Africa. 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