Coca Cola Strategic Analysis

Strategic Analysis of Coca Cola

Coca Cola is one of the two leading beverages brands of the world which owns or licenses and markets more than 500 non alcoholic beverages brands. The beverages sold by Coca Cola can be grouped into the following categories – sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. Coca Cola also owns and markets world’s top five sparkling beverage drinks including Coca-Cola, Diet Coke, Fanta and Sprite. Coca Cola products are sold in US since 1886 and now the brand has spread over 200 countries.  In the recent years the soda industry is seeing heavy competition and apart from that the sweeping health trends and other changes are also affecting the industry. Coca Cola also invests a lot in marketing and product innovation. It brought several new products to the market during the last few years. The brand’s global presence and sales in 200 countries is supported by a large and global supply chain and distribution network. However, in 2017 the net Operating revenues of the brand have declined  and there was  large impact of acquisition and divestitures of its bottling investments on its net operating revenues.

External Analysis of the beverages industry

There are several factors and many kinds of forces affecting the global beverages industry. Apart from changing health trends, lifestyle changes and changing demographics of the global population are also affecting the soda industry. People are switching to healthier drinks due to rising health consciousness. It is the most important factor that  has led to growth in sales of bottled water and energy drinks during the recent years. According to various reports 2017 proved a profitable year for the soda industry. Bottled water segment registered the highest growth last year, a report by beverage digest highlighted.

A 2018 report published by beverage digest showed American consumers spent 2 billion dollars more on the non alcoholic beverages in 2017 than in 2016. Pepsi and Coca Cola have continued to focus on product innovation and bring new products to the market for faster growth. In 2017, the bottled water category saw the highest growth of all beverages apart from soft drinks including energy drinks. Beverage digest reports published in the last two years show that bottled water has acquired much popularity in these years as American people are now taking to healthy ways to satisfy their thirst.  Last year the industry registered total sales of 135.7 Billion dollars. Both bottled water and soft drinks added a billion each to the entire sales across the beverages industry. According to the beverage digest report for 2017, value growth in each category was as follows:

Carbonated soft drinks (+1.3%);

water (+3.8%);

RTD teas (+1.5%);

and RTD coffees/dairy-based and other (+11.7%)

juice/juice drinks (-0.9%)

and sports drinks (-1.8%)

In 2016 the bottled water brands  posted very healthy growth. Aquafina and Poland Spring led  the category with highest sales followed by Dasani. In this way, while the soda industry has achieved impressive growth during the recent years in US, it is the bottled waters and soft drinks including energy drinks which have been at the helm of the growth story.

SWOT Analysis of Coca Cola 2018:

Strengths:

– Brand image: Coca Cola has managed an excellent brand image globally as an ethical and customer friendly brand. The brand’s image is mainly connected with the youth.

– Global presence: Coca Cola started selling in US in 1886 and since then its business has spread worldwide to more than 200 countries. Today it is a global brand with very high level of popularity.

– Supply chain and distribution network:

Coca Cola has managed a global supply chain and distribution network. This is one of the primary strengths of the brand. It depends on a very large number of suppliers from several corners of the world, primarily for the supply of agricultural raw materials. In the recent years, it has focused a lot on the optimisation of its global supply chain.  An efficient supply chain and distribution network has helped the brand reduce its manufacturing costs as well as serve its customers more effectively.

– Marketing capabilities: Coca Cola is also an excellent marketer and spends a large sum on marketing  and promotions of its brand and products. It has also invested  a lot in digital marketing and advertising. In 2017, its marketing expenditure was 3.9 billion dollars. Its focus on customer engagement using digital channels has also grown.

– Large product portfolio:

Coca Cola has a very large product portfolio. It notes in its 2017 annual report “We are committed to meeting their needs and to generating new growth through our portfolio of more than 500 brands and more than 4,100 beverage products, including nearly 1,300 low- and no-calorie products, new product offerings, innovative packaging and ingredient education efforts. We are also committed to continuing to expand the variety of choices we provide to consumers to meet their ever-changing needs, desires and lifestyles”. (Coca Cola Annual Report 2017)

– Large & Loyal customer base:

Coca Cola’s business is spread over 200 countries where it has a very large and loyal customer base. Customer loyalty is a very important factor driving business growth in the 21st century. However, Coca Cola also invests a lot in building customer loyalty and keeping customers engaged.

Weaknesses:

– Water related issues: Coca Cola has been  facing a lot of flak over water management related issues. In the past, it has born severe criticism in this area. While these issues have continued, the brand is still dealing with water management related issues and investing in water conservation and other things to deal with the water crisis.

– Declining revenue:

For the past five years, its net operating revenues have declined steadily.  Gross profits of the brand have also declined steadily. Net Operating Revenues declined to 35.4 Billion dollars in 2017 from 41.9 Billion dollars in 2016. Apart from that its gross profits fell to 22.15 Billion dollars in 2017 from 25.4 Billion dollars in 2016.

Opportunities:

– Marketing opportunities: Marketing opportunities have grown in the 21st century with the arrival of new technologies including digital and AI. Pepsi seems to be getting ahead in the race. Coca Cola can use these resources and technologies for better marketing as well as higher customer engagement.

– Digitisation of supply chain : Digitising the supply chain can also help the brand manage its productivity better and reduce the manufacturing costs. A digital supply chain will increase efficiency and productivity.

– Market expansion through partnerships: The brand has excellent opportunities of market growth through new partnerships. Partnering with fast food or food brands can help it grow its market share and better market its brands.

– Healthy products:

Product innovation also offers major opportunities of growth since the new generation is highly health conscious. To cater to its taste and choices, Coca Cola must include more of health friendly products. This will also help create a better image and help with marketing.

Threats:

– Heavy competition in the soda industry: The competition in the soda industry has grown intense. While the last few years have brought some growth, still all the brands are highly aggressive about maintaining their market share. These brands invest aggressively in marketing and customer engagement as well as research and development.

– Increased costs of raw material and labor:

The costs of raw material and labor have increased. Coupled with water scarcity globally, these factors are leading to higher manufacturing costs. This has led to increased cost related pressures for Coca Cola brand.

– legal and regulatory threats:

the legal and regulatory threats have increased over time and the soda industry is also taking some flak. Apart from environmental conservation, food quality and labor related laws are also making growth difficult for the soda beverages brands. Non compliance can always be very costly.

PESTEL Analysis of Coca Cola:

Coca Cola is a global company and does business in several markets and regions. there are several challenges to global operations and while operating internationally a brand can come across hurdles that can be political, economic or even legal in nature. A PESTEL analysis helps understand these threats and challenges. PESTEL is an acronym for Political, Economic, Sociocultural, Technological, Environmental and legal.

Political:

Political factors have acquired enormous importance in the 21st century and globally the government oversight and political regulation of businesses has grown. The growing importance of political factors can also be understood from the fact that  in the recent period, EU has passed several policies that are very strict in terms of business and focus on protection of the consumers’ rights. Apart from trade policies the government’s role in the industry has grown in several other areas too. Worldwide businesses are subject to stiffer regulations that can hurt business growth.  Moreover, political stability is related to economic and financial growth. Economic growth is not possible without political stability. Unstable political environments or political chaos can hurt businesses and their supply chains.  Coca Cola’s supply chain is located globally in several countries and political disruptions an cause the disruption of its supply chain and distribution network. Moreover, the condition of trade relationships of US with other countries also affect its business and sales.

Economic:

Economic factors are of utmost importance in the 21st century. The world has been through  a bitter recession just some years ago and during that period the world economy saw declining activity, falling employment and retarded growth. All of this resulted in declining consumer spending and less sales for international brands. Once the recession was over, sales of the brands have again increased due to higher employment and increased consumer spending.  As economic activity returned the level of employment rose leading to higher dispensable income in the hands of the consumers. With this people’s spending on food and beverages products has increased. Overall economic factors play a major role in the growth of business and in the overall business environment worldwide.

Sociocultural:

Sociocultural factors have also acquired much importance in the context of business globally.  Their importance has grown due to several reasons. Changing social trends worldwide are affecting businesses and their social image. Sociocultural factors are affecting the business and marketing strategies of global brands. The demographic composition of the global population has also changed and businesses have to alter their marketing strategies and customer service practices in order to better cater to the needs and choices of the millennial generation. Moreover, studying sociocultural factors and using them to form local marketing strategies can also affect how well businesses connect with their customers and engage them. The importance of the cultural connection in marketing has grown multiple times.

Technological:

The technological factors have now grown central to doing businesses profitably. Technology is everywhere from marketing to manufacturing and supply chain. The importance of digital technology in the global business environment has increased immensely and brands are in a race to stay ahead of their rivals in terms of technology. However, technological growth has also proved good for international businesses in several other ways. From marketing to supply chain management as well as manufacturing and distribution, everywhere being technologically advanced is important for fast growth of businesses. Coca Cola has made significant investments in technology in various areas from marketing to supply chain and distribution. One another important area where investing in technology has proved profitable for businesses is customer engagement.

Environmental:

Environmental factors are now an important consideration in the context of large and global businesses. Brands are not just focusing on environmental conservation and low carbon footprint but it is now more important than ever for them to comply with the environmental laws. Coca Cola has faced sever  criticism over its water consumption. Water is an important raw material for Coca Cola and it has to use it in very large quantities. However, in the recent years it has focused a lot on water conservation and water management. It also invests in environmental protection through its sustainability and CSR efforts.

Legal:

Legal factors are also highly important now in the context of international business. It is because the legal net has kept tightening and creating difficulties for international businesses. Law and compliance have grown very important due to which organisations have special compliance teams dedicated to legal issues. These compliance teams take care of all the compliance issues in various markets. Local laws vary across the various regions of the world and organisations have to focus on it especially in order to avoid fines and resulting financial losses. From labor to product quality as well as several other areas, there are so many laws while EU has also kept tightening the legal net on big brands.

Five Forces Analysis of Coca Cola

Bargaining power of suppliers:

The bargaining power of Coca Cola’s suppliers is low which is because of their smaller size and their being globally scattered. Due to their small size, these suppliers do not hold significant bargaining strength. Moreover, they are scattered all over the globe and Coca Cola always has many more options to choose from. It is why Coca Cola can impose rules and regulations on its suppliers regarding quality, labor and sustainability practices.  There are more factors too that reduce the bargaining power of the suppliers including Coca Cola’s brand image, financial strength and large size.

Bargaining power of customers:

The bargaining power of the customers has risen manifold in the 21st century which is because the control now is in the hands of the customers.  Customers are more aware and equipped with information to make their choices. Moreover, their tastes have changed and they have too many options to choose from. Apart from Coca Cola and Pepsi, there are other local and international brands too in the market that are competing for market share and trying to attract customers using new strategies. Overall, customers are in a  very strong position. Some factors that can moderate their bargaining power are brand image and equity as well as the marketing efforts of coca cola and its competitive pricing strategy. The overall bargaining power of the customers gets to be moderately high.

Threat from substitute products:

The threat from substitute products mainly comes from the products made by the rival brands including beverages, fruit juices and energy drinks. Apart from Coca Cola, there are pepsi, Nestle, Red Bull and more brands in the market that offer similar and competing products.

Threat from new entrants:

The threat from new entrants for Coca Cola is moderately low. New players cannot get to enter the market easily. Even if they can start on a smaller and local level growing into an international brand is not easy. While there is a very large level of investment involved in infrastructure development as well as marketing and human resource management. There are legal barriers also to entry in market as legal and regulatory barriers make it difficult for new brands to launch their business.  Moreover, for a new brand to grow into a large brand like Coca Cola it will have to spend several billions.

Intensity of competitive rivalry in the industry:

The intensity of competitive rivalry in the industry has grown very high in the recent years. It is because brands are now competing aggressively to get ahead of the others. They are spending a lot on marketing and customer engagement. Apart from Pepsi and Dr Pepper Snapple, there are several other big and small brands also competing for market share locally and internationally. Proliferation of digital technology has also intensified the competition in the soda beverages industry.

Value chain analysis of Coca Cola:

Coca Cola is among the most globally recognizable brands. The brand is known for its strong image and global presence. It has several billion dollar brands in its portfolio. However, to establish a large and successful brand requires successful management of the value chain. A value chain includes several activities right from obtaining raw materials from various sources to the sales of the product and after sales customer service. There are several activities in the middle also which are an important part of the value chain. The value chain analysis concept was given by Professor Michael E Porter of Harvard Business School. Managers can get a better picture of how each stage of the value chain adds value to the product. Accordingly the managers can optimize the value chain for getting better results. Optimization of the value chain brings efficiency and can generate new sources of competitive advantage. Here is a detailed value chain analysis of Coca Cola. There are both primary and support activities in the value chain that have been discussed below:

Primary activities:

Inbound logistics:

Coca Cola has managed a very large supply chain that has tens of thousands of farmers and suppliers. It treats its suppliers as business partners.  These business partners provide raw material including ingredients, packaging and machinery as well as goods and services to Coca Cola’s manufacturing system.  However, the brand has set guiding principles for its suppliers that they are required to follow. At least the Coca Cola suppliers are required to comply with all the applicable laws and regulations. In its guidelines Coca cola also lays emphasis on responsible environmental and workplace policies and practices. The brand has also managed excellent relationship with it suppliers. This has helped the brand maintain a continuous and uninterrupted flow of raw material.

Operations:

The operations function of Coca Cola includes concentrate development and all the administrative functions at its headquarters. Coca Cola is a global brand operating at a local scale in every community where it operates. The Coca cola system operates using several local channels.  However, the brand does not own or control all of its bottling facilities several of which are owned by its bottling partners. The company manufactures and sells beverage bases and syrups to the bottling operations. Coca Cola owns the brand and does its marketing to its consumers.

Outbound logistics:

This part of Coca Cola’s Value chain includes its bottling partners and distributors. The bottling partners of Coca Cola manufacture, package, merchandise and distribute the final product to the customers and vending partners. These vending partners then sell the product to the customers. The customers of Coca Cola range from grocery stores, restaurants, street vendors, convenience stores and movie theatres to amusement parks. The bottling partners of Coca Cola work with its customers for implementing localized strategies they develop in partnership with Coca Cola company.

Marketing and sales:

Coca Cola is a well recognized and global brand.  However, it has invested a lot in marketing to acquire global popularity. The coca cola logo is among the most recognizable logos of the world. Apart from that Coca Cola is known for spending heavily in marketing. It uses digital channels, social media, in combination with print media and outdoor marketing for promotion of its brand and products. It runs excellent marketing campaigns from time to time to attract new customers as well as engage the existing ones. During recent years, it brought a major shift in its marketing strategy. Now instead of promoting its brands separately, Coca Cola promotes the entire brand together. Coca Cola products are sold in more than 200 countries worldwide. From retail stores to restaurants and theatres, Coca Cola products can be seen everywhere in the market.

Support Activities:

Technology:

Coca Cola has continued to maintain its heavy focus and investment in technology and research and development.  From production to distribution and sales, everywhere the brand has invested in advanced technology. Apart from that it invests in technological innovation through R&D activities. There are six Coca Cola R& D centers around the world. These centers  are connected to the external technology and assessment hubs that connect it with partners, tech start ups  and university researchers.  The company collaborates with partners in the other industries also for innovation across products, packaging, equipment and the other things. In this way, Coca Cola is continuously investing in innovation for the brand’s growth.

Human Resource Management:

HRM is an important area of Coca Cola’s value chain.  The company focuses on hiring and grooming talent. It has also created an environment of learning and growth inside its organization. Apart from comparatively better salaries it complements the payments with financial and non financial rewards.  Coca cola has focused on employee motivation and engagement.  Performance management policies and procedures are used to provide the employees with opportunities of career growth.

Procurement:

Coca Cola procures from several thousands of farmers and suppliers worldwide. To make the entire process easier and efficient, it has used advanced technologies.  The brand has maintained excellent relationships with its suppliers. It has provided them with guidelines in various areas that they are required to follow.

Firm Infrastructure:

The role of a firm’s infrastructure is critical to its success. Coca Cola has managed a very large infrastructure that includes its management, human resources, financial and technological infrastructure. It is training and educating its suppliers for better performance. The focus is also on innovation through its R&D centres.

Coca Cola Business Strategy & Competitive Advantage

Coca Cola is a truly global brand selling across more than 200 countries with a large and  varied product portfolio and obviously an excellent presence in the world of marketing.  However, the world of soda is also marked by intense competition. Apart from Pepsi there are more small and big brands selling soda and other drinks which are adding to the intensity of competition. To win in an intensely competitive market, requires high level of popularity which cannot be achieved without a great business strategy. Coca Cola has traditionally relied on competitive pricing and heavy investment in marketing for the growth and success of its business. However, the market has come far from where it was 5-10 years ago and now not just the taste but the expectations of the customers have also undergone a vast change. Not just this, technology has also altered marketing and customer service standards. Faster growth can be achieved only through higher customer focus and through greater focus on sustainability. These are some areas where Coca Cola has focused upon in the recent years. Apart from investing in water conservation and supplier empowerment, the brand has also grown more cautious about its marketing strategy and reputation management. This is the era of health consciousness when people are growing more and more health conscious. This is a very important part of Coca Cola’s revised business strategy where it has focused on bringing more healthy products as well as better packaging to appeal to the new generation of customers. All these things are now an important part of its business strategy and its long term focus on sustainable growth.

The sources of Coca Cola’s competitive advantage are as follows:

– Brand image/equity – a highly popular brand with excellent level of consumer trust

– Global presence: Sells in more than 200 countries

– large product portfolio : consisting of soda and healthy products

– customer loyalty

– Competitive pricing

While some of these sources have resulted in long term sustainable competitive advantage and some in temporary advantage that can be further strengthened through product innovation and marketing. Apart from these things, the brand is also investing in sustainability and healthier products as well as superior HR management for better long term results. HR is a critical area driving the growth of brands in the 21st century and Coca Cola is investing in its HR through several initiatives for the career growth and development of its employees.

VRIO Analysis of Coca Cola:

Important Resources & Capabilities of Coca Cola:

Brand image & Equity:

The brand has maintained an excellent image a san ethical and customer friendly image. It has also maintained an excellent level of trust among its customers.

Global presence:

The brand is present globally and its products sell in more than 200 countries.

Supply chain and distribution network:

Coca Cola has managed an excellent supply chain and distribution network. It sources raw material from around the world from several thousands suppliers and farmers. It distributes its products from its warehouses and distribution centres located at key points globally.

Customer loyalty:

The brand has managed to grab a large market share and has also maintained an excellent level of customer loyalty.

Marketing capabilities:

Coca Cola is known as an excellent marketer and its ads are known to be highly engaging. Its excellent marketing capabilities also set it apart from the large crowd of brands.

HRM & Organisational culture:

Coca Cola has also maintained excellent focus on Human resource management. Apart from paying attractive salaries to its employees it also pays them financial and non financial rewards. the brand has implemented several training and redevelopment programs that are for career development of the employees.

Resources/capabilities

Valuable

Rare

Inimitable

Exploited

Implication

Brand Image

Yes

Yes

Yes

Yes

Competitive advantage

Global presence

Yes

Yes

No

Yes

Temporary Advantage

supply chain

Yes

Yes

No

Yes

Temporary advantage

customer loyalty

Yes

Yes

Yes

Yes

Competitive advantage

Marketing capabilities

Yes

Yes

Yes

Yes

Competitive advantage

HRM & Culture

Yes

Yes

No

Yes

Temporary advantage

Financial Analysis of Coca Cola:

The Net operating revenues of Coca Cola have continuously declined for the past few years. the Net operating revenues of Coca Cola in 2015 stood at 44.3 Billion dollars which fell to 41.9 billion dollars in 2016 and then 35.4 Billion dollars in 2017.  Gross Profit and operating income have also declined steadily over the years.  The pros profits of the brand fell from 26.8 Billion dollars in 2015 to 25.4 Billion dollars in 2016 to 22.15 Billion dollars in 2017. Operating income of Coca Cola also saw a decline from 8.7 Billion in 2015 to 8.6 Billion in 2016 to 7.5 Billion dollars in 2017. The 15% decline in net revenue of the brand was mainly an impact of refranchising of its bottling operations. Cash from operations for the entire year was 7 billion dollars a decline of 20%. Full year cash flow was 5.3 billion dollars, a decline of 19 percent.

Coca Cola Financials

Suggestions:

– Coca Cola must focus on increasing the appeal of its healthy products portfolio. while bottled waters are seeing increasing sales, the health friendly products can also generate higher sales and help it grow faster.

– Focusing on digitisation and packaging innovation can help it find superior growth.

– Apart from developing a customer centric portfolio the brand must also stay focused on customer engagement.

– Focusing on sustainability to minimise wastage will help it get rid of some of the flak it has been facing over waste generation and water management.

– Research and development is another important focus area for faster growth of brand ,and to bring new and innovative products that  better suit the demand of the new generation.

Sources:

http://www.coca-colacompany.com/our-company/the-coca-cola-system

http://www.coca-colacompany.com/our-company/workplace-overview/suppliers/supplier-and-customer-partnerships

http://www.coca-colacompany.com/stories/rethinking-r-d-how-coke-uses-its-global-scale-to-take-innovations-further-faster

https://www.coca-colacompany.com/press-center/press-releases/the-coca-cola-company-reports-strong-operating-results-for-fourth-quarter-2017

https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2018/2017-10K.pdf

Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.