Evaluation of Coca Cola Strategies: SWOT Analysis

Executive summary

This report gives a detailed account of the Coca Cola brand. It starts off by briefly examining the history of the brand to see how it becomes the world’s largest beverage company. It also introduces the various products that the company offers.

The report goes on to introduce the various strategies that the company employs in conducting their operations. Coca cola overall has a few broad corporate strategies in which the business units follow. Some of the corporate strategies may include geographical expansion, vertical integration and diversification. Being recognized internationally, the company needs to employ different strategies to cater for each business unit or geographic region. Each of them has a set of strategies that is only suitable to them. The report breaks down each of these strategies and explains how they could bring a positive impact to the business.

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The report also analyses the company’s internal and external business environment through a SWOT analysis. It provides a list of strength and weakness the company has as well as any potential opportunities and threats that the company may face. This will give its management a better idea on how to position its brand within the market.

1. Background

1. Vision, Mission, Goals and Values

Mission and vision

Just like most other multi-national companies, Coca-Cola aims to maximise their profits while maintaining a long term sustainable growth within the beverage industry. The company’s mission statement states that the company aims to:

• refresh the world,
• inspire moments of optimism and happiness and
• Create value and make a difference in the place that we all live in.

In order to put the company’s mission into perspective, the organization conducts their business in a unique fashion and is quite distinguished from its competitors. Rather than going through direct marketing programs and traditional channels to the consumers, Coca-Cola utilizes various bottling partners in order to focus more on beverage creation and marketing.

It is called “The Coca-Cola system”. The company starts off by manufacturing the concentrates, beverage bases and syrups then distribute them to their bottling partners while keeping ownership of the brands. The company itself is more involved in the marketing activities such as print and television advertising, retail store displays as well as contests and package designs.

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The bottling partners on the other hand, comprise of many different entities. They include international and publicly-traded businesses and even some small family businesses. These partners are usually responsible for the producing, packaging and distributing of the company’s products.

2. External Analysis

By analyzing the external industry environment, the company is able to identify its opportunities and threats in their operating industry. Besides it is very important to select and formulate an appropriate strategic planning, because external factors have the effects on the organization in different aspects.

2.1 Macro-environment

The macro-environmental forces surround businesses. The analysis of the macro-environmental forces can be done by using PESTEL model six forces, which include the following:

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1. Political Legal

2. Economic

3. Sociocultural

4. Technological

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5. Environment

6. Legal

2.1.1 Political/Legal

Political/legal is the potential factor that influences the political and legal system. The non-alcoholic beverages fall in the category under the FDA and the government plays a role within the operation of manufacturing these products. In terms of regulations, the government has the power to set penalties for the companies that do not meet their standard law requirement.

In addition, with the changes in laws and regulations, such as accounting standards, taxation requirements and environmental laws, foreign jurisdictions, deregulations, monopolies legislation and general government policy might affect the book of the company as well as their entry in foreign country. However, Coca Cola is continuously monitoring the policies and regulations set by the government.

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2.1.2 Economic

Economic factors are analyzing local, national and world economy impact, which also, includes the issue of recession and inflation rates, interest rate, currency exchange rate, unemployment levels, income levels, and personal saving rate. As the Standard and Poor’s Industry survey indicates, “For major soft drink companies, there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany.” These markets will continue to play a major role in the success and stable growth for a majority of the non-alcoholic beverage industry.

2.1.3 Sociological

Sociological analyzes the ways in which changes in society affect the organization such as changing in lifestyles and attitudes of the market. Since many are reaching an older age in life, they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic beverage industry by increasing the demand for the healthier range of beverages. As the demand for carbonated soft drinks decreases, the revenue of Coca Cola also declines.

2.1.4 Technological

Technological force refers to analysis where the introduction and the emerging technological techniques are valued. This creates opportunities for new products and product improvements in terms of marketing and production. As the technology advances, new products are introduced into the market.

2.1.5 Legal

Legal aspect focuses on the effect of the national and world legislation. The Coca Cola Company receives all the rights applicable in the nature of their business and every inventions and product developments are always going into the patented process.

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2.1.6 Environmental

Environmental factor analyses the local, national and global environmental issues. According to the data of the Coca Cola Company, all of the facilities are strictly monitored according to the environmental laws imposed by the government.

2.2 Micro-environment

To analyze the micro-environment and its factors, we use the Porter’s five forces model to identify the existing industrial factors, which include the following:

1. Threat of new entrants
2. Rivalry among existing competitors
3. The bargaining power of buyers
4. The bargaining power of suppliers
5. Threat of substitute product

2.2.1 Threat of new entrants

Threat of new entrant is the result of new competitors joining in the industry, causing the company to develop competitive advantage and maintain the market share. Hence, competition within the industry becomes higher. However, to reduce the threat of new entrants, Coca-Cola would need to create a strong brand image. By creating brand image, customers would be more likely to stay with the product and therefore the threat is reduced. As Coca Cola is the dominant player in vending machines in public areas, it is able to create a strong presence for the Coca-Cola brand in public places through its numerous vending machines (Euromonitor International, 2008).

2.2.2 Rivalry among existing competitors

High competitive pressure influences price. Intensity of rivalry is related to the number of competitors, rate of industry growth, product or service characteristics, amount of fixed costs, the capacity, height of exit barriers and diversity of rivals. It is hard to avoid poaching business when competitors are numerous or are roughly equal in size and power. The major competitor for Coca-Cola is Pepsi. To reduce the rivalry among existing competitors, company should try to differentiate their products or even consider buy out competition in order to help them grow. Sutton (1998) cited in Matraves (1999) argued that Coca-Cola has a first mover advantage dating from World War II. It was able to persistently dominate the market through its superior advertising competition. In addition, Coca Cola’s market share relative to Pepsi is much higher within the cola segment.

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2.2.3 The bargaining power of buyers

The bargaining power of customers is powerful when the buyer purchases larger proportion of seller’s products or there is a small negotiating power when there are many similar products in the market. If the company is serving to industrial customers, they should be awarded that those customers tend to be more price sensitive. In addition, cutting off powerful intermediaries is one of the most common ways used by companies to reduce the bargaining of buyers.

2.2.4 The bargaining power of suppliers

The bargaining power of suppliers in soft drink industry is considered strong. Suppliers are powerful when a few suppliers dominate the market rather than an incomplete source of supply where there is no substitute for that particular input.

Company could choose to buy over a supplier. By doing so, company could reduce its production cost in long term.

2.2.5 Threat of substitute product

The threats of substitutes are high since the soft drink industry is a highly competitive industry. The threats of substitutes would be high when: the product that the company is offering does not provide any real benefits compared to the other products, customers have little loyalty, the cost of switching and replacing the product is low, and the substitute product offers an attractive price performance trade off to the industry products. If we were to observe erosion in Coca Cola’s market share, this would suggest that other firms are successfully convincing consumers that the perceived quality of their products is higher than Coca-Cola.

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2.3 Industry Life Cycle0010320304001

Change in social concerns, attitudes, and lifestyles are important trends. In the recent century, people are becoming more concerned with a healthy lifestyle. “Consumer awareness of health problems arising from obesity and inactive lifestyles represent a serious risk to the carbonated drinks sector” (Datamonitor, 2005, p. 15). The trend is causing the industry’s business environment to change, as firms are differentiating their products in order to increase sales in a stagnant market.

3. Internal Analysis:

SWOT Analysis Using Coca Cola Amatil (CCA) as an example

Internal environment analysis is a process whereby the strategic strengths and weaknesses within the organization are identified and analyzed to establish the degree of their influence on the key value chain management and the roots of competitive advantage which include competencies, resources and capabilities.

The Coca-Cola Amatil (CCA) Company is committed to becoming a world-class leader in both customer and distribution services and to continue building value chain excellence. The main objective of the CCA value chain is to deliver superior returns to its shareholders. The key elements to drive shareholder value include a strong brand equity and revenue management consisting of sales volume, pricing, and costs

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(Distribution Management Update, 2009).

The operational drivers in CCA’s value chain are strategic metrics, process excellence, and organizational capabilities. The key processes in CCA’s value chain are Consumer and Customer Service Systems, Demand and Operational Planning, Warehousing and Logistics, Manufacturing, and Infrastructure Planning and Development.

The major strengths that allow CCA to achieve superior efficiency, quality, innovation and responsiveness to customers reflect their possession of competencies, valuable resources and capabilities necessary to exploit it. CCA focuses on leveraging development capability of premium and market leading brands, scale and reach of sales force, high technology and high touch of customer servicing capability, highly efficient national manufacturing and physical distribution capability.

       Key capabilities of CCA include its improvements to its inventory management systems which principally aimed to ensure that distributors receive appropriate quantities of beverages and that stock replenishment occurs effectively, thus allowing CCA to operate with lower inventory levels and reducing the costs of storage and warehousing. CCA also adopted a Co-Managed Inventory System which allows it to electronically monitor inventory levels at Coles and Woolworths supermarkets to ensure suitable stock levels (Crawford, 2004).

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The focus points in CCA’s value chain are consumers and customers. With an in-depth knowledge of its customer’s needs and perceptions and innovations in wireless technology, CCA is able to improve its service to its customers, by closely monitoring vending machine stocks. This decreases the likelihood that the product will not be available when the consumers intend to purchase and increases consumer confidence in the vending machine channel. It also provides the promotional benefits to CCA by creating a strong presence for the Coca-Cola brand in public places (Euromonitor International, 2008).

       In addition, CCA has also upgraded its physical distribution capability which enables it to substantially improve order fulfillment efficiency, reduce distribution and transport costs, and cut greenhouse gas emissions by utilizing the supply chain remodeling program Project Jupiter. It was designed to ensure CCA can service their 14,000 route trade customers across the state from their Eastern Creek distribution centre (Crawford, 2004).

Significant investments in the automated manufacturing warehouse and semi-automated distribution centre have led to the capability operating systems overhaul and the execution of best practice process improvement in customer service across the CCA Group. Their manufacturing centers have greatly improved their business efficiencies to the extent that CCA has one of the lowest cost of doing business ratios and is one of the best performing bottlers is the global Coke system.

       CCA’s cola carbonated soft drinks which have been traded under the most recognizable brand names of all the producers in the industry are considered to be rare, unique resource. It has enabled CCA to create a competitive advantage in the global beverage market (Hill, Jones, Galvin and Haidar, 2007). However the soft drinks sector in Australia is fast approaching its maturity phase. CCA and many other manufacturers have responded to this issue by committing resources to the market with healthier product categories such as fruit juices, bottled waters and energy drinks (Business monitor international, 2009).

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Strategies used to capitalize their strength include: increasing people’s awareness towards the product through effective marketing, advertising and promotions and also invest in innovative projects to further develop existing products. CCA has initiated the expansion of the company’s traditional portfolio beyond carbonated soft drinks into other beverages including water, fruit juices, coffee and alcohol. As a result of the diversification strategy, the business revenue dependence on fizzy soft drinks has reduced from 95 % in 2001 to less than 70 % in 2008 (Transmission Australia, 2009).

One of the most straightforward business management strategies known for CCA is to launch takeovers. This strategy will enable it to selectively broaden the family of beverage brands to drive profitable growth. Moreover, it enables CCA to be in the front line to lead and accelerate the global growth of carbonated soft drink.

Takeovers or mergers will create value for CCA when it offers competitive advantage for the firm e.g. economies of scale, increase market share and synergies created from resources that are unobtainable should CCA stay independent. It allows CCA to grow and increase capability together with fellow bottlers.

4. Stakeholders

Being the world’s largest non-alcoholic beverage company, Coca-Cola is committed to maintain a dialogue with its stakeholders both inside and outside of the company. Major stakeholders include:

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5. Corporate Strategies

5.1 Vertical Integration

Vertical integration is the process of combining several steps in the distribution chain either the inputs or outputs of the organizational controls. In this case, Coca-Cola started Coca-Cola Enterprises (CCE) and positioned it as an independent bottling subsidiary of Coca-Cola. The parent company would buy other struggling bottlers and resell them to CCE.

Apart from that, the company has also established a long standing relationship with various distributors and bottlers that would lower transaction frequency. This could in turn lower transaction costs and unreliability. This is done by entering long term contracts with its counter parties.

5.2 Diversification Strategy

Diversification strategy refers to seeking unfamiliar products or markets to develop and exploit. It is a strategy to eliminate the potential risk of a current product or market orientation does not seem to provide further opportunities for growth.

Coca-Cola uses this strategy to explore new drink categories continuously, and it is keeping the tradition of expanding on their current portfolio of brands and products. Coca-Cola has more than 3000 products in over 200 countries of the beverage brands with core focus on brand of Coca-Cola, Diet Coke, Coke Zero, Sprite and Fanta. Branching out from its traditional soft drinks, Coca-Cola ventured into energy drinks segment in Powerade.

5.3 Strategic Alliance

The distribution of Coca-Cola has reached all around the globe; it has a huge and wide customer base. Therefore, Coca-Cola highly focuses on enabling their customers to reach their products more regularly. Thus, all partners of Coca-Cola work closely with customers — grocery stores, restaurants, street vendors, convenience stores, movie theaters and amusement parks, among many others — to execute localized strategies developed in partnership with Coca-Cola.

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On the other hand, Coca-Cola also gained profit by going into joint ventures with other companies. For example, in February 2001, the Coca-Cola Company and Procter & Gamble announced a $US 4.2-billion joint venture to use Coca-Cola’s huge distribution system to increase reach and reduce time to market for the P&G products Pringles and Sunny Delight.

5.4 Global Strategy

Globalization is the key concern of Coca-Cola. The company has a total control in cost pressure, so the cost pressure is low. Therefore, Coca-Cola can operate under the Multidomestic Strategy. Thus, by running the local responsiveness of Coca-Cola is high.

However, the features of multidomestic strategy for Coca-Cola are that they mutually extensive customize both their product offering and marketing strategies in different place with different national conditions. In addition, they are operating in seven regional operating groups such as, North America Group, Latin America Group, Europe Group, Eurasia & Africa Group, Pacific Group, Bottling Investments Group and McDonald’s Division. The reason is that they are trying to create their value innovation activities by doing the market and product research in different potential national market.

6. Business Strategy

6.1 Corporate Level Strategy

These are the three forms of corporate strategy that Coca-Cola Company follows:

6.1.1 A single business strategy to diversification:

Stage one: a small single business

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Stage two: Geographical expansion

Stage three: Vertical integration

Stage four: As growth slows, strategic option the growth matrix.

6.1.2 Related diversification strategy:

Ø Shared technology

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Ø Common employee skills, distribution channels, suppliers and raw materials sources

Ø Similar operating methods and managerial

Ø Ability to share common sales force and customer relationship

6.1.3 Unrelated diversification strategy:

Ø Can business make profits and return on investment?

Ø Will business need a large amount of capital?

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Ø Is business in industry with growth potential?

Ø Is there a strategy or solution to cope with recession, inflation, high interest rates or government policy

There are several advantages that Coca-Cola Company can gain from the strategies:

Ø A single product line made by the firm can help reduce the risk

Ø Gain experience to different technologies

Ø Develop economies of scope

Ø A desire to expand the company’s brand into further product areas

Ø Accomplish profitable growth (Quick MBA 2009)

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6.2 Business Unit Level Strategy

Three generic strategies identified by Michael Porter such as cost leadership, differentiation and focus. Coca Cola Company applied these generic strategies to create a competitive advantage.

6.3 Functional Level Strategy

To lead competitive advantage a company can either perform functional activities:

Ø At a cost lower than its competitors.

Ø Easily to differentiate its goods and services from those competitors.

Conclusion

In order to survive and perform successfully within a highly competitive industry, Coca cola has been able to utilize various corporate and business strategies to align each business unit’s objective and goals and act as one whole company. By doing so, the company is able to combine and employ their resources in a more efficient manner.

It is not due to serendipity that Coca Cola has become the world’s largest producer and manufacturer within the beverage market. It is very obvious that the management of the company has articulately positioned the company within the beverage industry. This can only be done through extensive market research on its customers, its supply chain as well as the company itself.

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References

Coca-Cola Amatil Ltd – Impulse Food and Drink Channels – Australia Euromonitor International: Local Company Profile, August 2008.

Crawford C. (2004) Coca-Cola Amatil-Marketing, Business studies update, Vol. 4 No.2

Food & Drink Brief: CCA Plans to Re-enter Bottle Manufacturing Business. Business monitor international, 03Aug2009.

Hill, Charles W L., Jones, Gareth R., Galvin, P. and Haidar, A. (2007), Strategic Management: An integrated approach, 2nd ed. Melbourne, Wiley, 114-115.

Hooley, G., Piercy, N.F., Nicoulaud, B. 2008, Marketing Strategy and Competitive Positioning, 4th Edition, Prentice Hall, London.

Matraves C. (1999) “Market Integration and Market Structure in the European Soft Drinks Industry: Always Coca-Cola,” Wissenschaftszentrum Berlin.

Porter, M.E. (Ed.) 1980 and 1998, Competitive Strategy: Techniques for Analysing Industries and Competitors, Free Press, New York.

Internet sources:

Coca-Cola official website: http://www.thecoca-colacompany.com/ourcompany/leadership.html

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http://www.scribd.com/doc/20695595/Global-Strategic-Management-Coca-Cola [Accessed November, 2009].

http://www.brandrepublic.com/News/85343/

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