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INRODUCTION
In this report we would be discussing about the strategic management of The Coca- Cola Company and would be analyzing the strategies of the company. The Coca – Cola Company is an American multinational beverage corporation. The well known product of this company is Coca Cola, which was invented by pharmacist John Stith Pemberton in Columbus, Georgia in 1886. Asa Candler brought the formula of Coca Cola in 1889 and incorporated the company The Coca – Cola Company in 1892. Coca – Cola currently offers more than 500 brands in approximately 200 countries (The Coca – Cola Company 2012).
The valuation of Food and Beverages industry in the world is estimated to be more than $ 5.7 trillion. This industry is the major contributor to the growth of all the economies. It is expected that the industry will increase at a compounded annual growth rate of 3.5% to $ 7 trillion till 2014. Europe comes in first place in food and beverages industry as it alone generates the revenue of $1.4 trillion and gives employment to more than 4 million workers. Europe is followed by US who contributed $1 trillion to the world food and beverages industry. After that in Asia India and China are the leaders in F&B industry. These countries are the raw material supplier to the F&B industry (Beverages Daily 2012).
When we talk about the competition in the food and beverages industry we find that the competition is at its peak. The main competitors in this industry are The Coca Cola Company, PepsiCo, and the Dr. Pepper Snapple Group. They produce so many brands in different types of flavors. The Flavors/Types are Coal, Diet Cola, Cherry- flavored cola, “pepper” style, Orange, Lemon lime, other citrus flavors, Ginger ale, Root beer, Cream soda, Juices, Iced tea, Sports drinks, Energy Drinks, Mineral waters etc. And the customer range of these products is very large as these products can be assumed by everyone. Young age and older age people both are the customers of these companies. Because of the large market the scope for the growth becomes very high and consequently the competition increases (Beverages Daily 2012).
Now if we discuss the challenges faced by Coca Cola, we get that the main problem is of strategic issues. Coca Cola faces several significant strategic issues. When we analyze we find that there are three important strategic issues which need to get solved. The first issue is declining sales of carbonated soft drinks. The second most important issue is of current health and wellness trend. Third problem is increased threat from the PepsiCo. Except these three main problems there are other problems like conflicts with bottlers, lack of innovation, food safety and statutory regulatory compliance etc.
ANALYSIS
For analysis of the strategic marketing of The Coca – Cola Company we have so many tools. Further we would be applying these tools which generally include external analysis and internal analysis of the company and industry. Let us first take external analysis:
EXTERNAL ANALYSIS OF THE COCA – COLA COMPANY
Competition in an industry is the key factor which determines the company’s strength in utilizing its potential. How firms develop their strategies to earn revenue over time can be demonstrated by analyzing the company’s competitors in the industry. Let us first take the Porter’s five forces model to analyze The Coca – Cola Company. Michael Porter gave five forces to analyze a company within an industry which will include: The bargaining power of buyers, bargaining power of suppliers, Threat of new entrant, Threat of substitute, and Rivalry among the industry.
PORTER’S FIVE FORCES ANALYSIS
1. Threat of new entrants:
Threat of new entrant for The Coca – Cola Company is low. Coca – cola and PepsiCo are the two major players in soft drinks industry who dominate the market. The main strengths of these two players are their brand name and excellent distribution channel. New growth is small in the soft drinks industry as it is fully saturated. Other barriers for new entrants are high fixed costs of warehouse, trucks, labor and economies of scale. Because of these barriers entry of new players become difficult in the soft drink industry (Puravankara 2007).
2. Threat of Substitutes:
Threat of substitute for the Coca – Cola Company is very strong. Substitutes available for the coca – cola products are bottled water, sports drink, coffee and tea. Health conscious consumers prefer more bottled water and sports drink rather than drinking coca – cola. Also the number of brands and flavors are increasing in bottled water and sports drink. Coffee and tea become more competitive because they provide caffeine. Soft drinks can be substituted with coffee. Specialty blend coffees are becoming popular with the increasing number of Starbucks store that offer many different flavor of coffees. In all there are so many substitutes available in the market for soft drinks and the companies which are providing these products are also big potential companies (Puravankara 2007).
3. Bargaining power of Suppliers:
Bargaining power of suppliers is high and it becomes a big threat for the coca – cola. Suppliers to coca – cola are bottling equipment manufacturers and secondary packaging suppliers. Coca – cola enterprises is the company which manufactures bottles for The Coca- Cola Company. Although there are no other bottle manufacturer as big as coca – cola enterprises but there are some conflicts in between The Coca – Cola Company and coca – cola enterprises.
4. Bargaining power of Buyers:
Bargaining power of the buyers of The Coca – Cola Company is high. Buyers of these kinds of soft drinks are mainly large grocers, discount stores, and restaurants. Soft drink companies sell their product to these stores to sell to the final consumers. Since large grocers or discount stores are big that is why they are able to buy a large quantity of product at a single time and this allows them to bargain for lower prices (Puravankara 2007).
5. Rivalry among industry:
Rivalry among soft drinks industry is high. Coca – cola, PepsiCo and Cadbury Schweppes are the largest competitors in the industry. Although Coca – cola owns the four brands of top five brands (Coca – cola, Diet coke, Fanta, and Sprite) even then the sales of the company declined in 2006. Brand name loyalty is another competitive pressure. Ranks of Diet Pepsi and Diet Coke were 18th nd 47th respectively in The Brand Keys Customer Loyalty Leaders Survey in 2006.
INDUSTRY ANALYSIS
Soft drinks industry is mature industry and changes over time. Many entries and exits are taking place in the industry from time to time and these are bringing changes and challenges for the existing companies. E.g. PepsiCo acquired Quaker Oats which will help in enhancing the PepsiCo’s energy drink market. But coca – cola missed this opportunity even it was the first company to enter into the energy drink market.
Globalization is also an important factor in enhancing the competition among the soft drink industry. With the increased use of new internet technologies and communication system it has become very easy for the companies to collaborate with other companies and markets in the industry. Changing lifestyle is also another concern for the companies in the soft drinks industry. People in UK and Europe are becoming more health conscious and they prefer healthy drinks over soft drinks (Thinking Made Easy 2009).
Long term growth rate of soft drinks industry is very low. Since 2000 the CAGR of the industry is 1.5%. The companies in soft drinks industry need to make new strategies to compete with this slow growth rate. Another most important factor is lack of innovation in the food and beverages industry. Consumers are receiving same kind of products from all the companies, now they require some change.
COMPETITORS ANALYSIS
When we analyze the competition in the industry we see that there are some eight to ten companies in the industry who compete with each other. We can analyze the competition among them taking two criteria into our consideration, first is completeness of vision and second is ability to execute. Based on these two criteria the soft drink industry can be categorized into four quadrants which are leaders, challengers, visionaries, and niche players. The figure below explains the analysis completely:
(Source: Purvankara 2007)
Leaders are the companies which are strong in delivering their products at global level. Challengers are those who have good position in the market but they are limited to some specific environment. Under visionaries quadrant those companies come who have strong vision to get success in the market and in delivering new products. And niche players are those who do well in specific segments of beverages like natural drinks.
From the above figure we can conclude that the main competitor to Coca – Cola is PepsiCo, others are having potential but they are either not able to execute their strategies at that level or their vision is not complete.
PEST ANALYSIS
The Coca – Cola Company and its competitors have their own strengths and weaknesses which can affect the future performance of these companies. Therefore, it becomes very important to analyze the future constraints so that the companies can take the advantage of their ability to face those challenges. PEST analysis is a very popular method of analyzing the factors which can affect the business of a company in future. Further we would be discussing the different factors of PEST analysis in food and beverages industry having our focus on Coca – Cola (Thinking Made Easy 2009).
1. Political Analysis:
Under political analysis we examine the political pressure faced by a company in its particular region. Government plays a big role in manufacturing of these products. The government can put fine on the companies who are violating the law. After that other laws related to accounting and taxation also decide the future strategic action of the company. Coco – Cola is continuously monitoring the policies and regulations set by the government of different countries.
2. Economic Analysis:
According to Standard and Poor’s industry survey, “For major soft drink companies, there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany.” The survey says that the non alcoholic food and beverages companies have high sales outside the U.S. After analyzing the market we get that there is a low growth for Coca – Cola in its main market North America (Thinking Made Easy 2009).
3. Sociological Analysis:
Changes in the society also affect the organization. These changes may include changes in lifestyle, culture, preference etc. Today people are becoming more health conscious and because of this they prefer healthy food and beverages which gives a negative sign to The Coca – Cola Company. The demand for carbonated drinks decreases and this pulled down the revenues of Coca Cola.
4. Technological Analysis:
Technological improvements affect the soft drinks industry on a great scale. Improvement in technology creates opportunity for the new product development. One example is production of cherry coke in 1985 but the consumers still prefer the traditional taste of coke (Thinking Made Easy 2009).
INTERNAL ANALYSIS OF THE COCA – COLA COMPANY
Further in Internal analysis of The Coca – Cola Company we would be analyzing the internal strengths and weaknesses of the company. For developing an effective strategy it is important for Coca – Cola to understand its strengths and weaknesses as well as its competitors.
STRENGTH
Strength of Coca – Cola is its brand image and world level popularity. People from all over the world know about the products of Coca – Cola and PepsiCo and purchase. The brand name of the company is its strength because of its effective advertising. So, we can say that advertising is also strength of both the companies. These companies use television, print media, magazines and other methods of advertising which make consumers aware about their products. Technological development in the company is also its strength e.g. website of the company which is very easy to access (Puravankara 2007).
WEAKNESS
Weakness of the company is its inability to face the current problems. For Coca – Cola the big problem is health issue. People today are becoming more health conscious and they prefer healthier products rather than tasty or with flavor. Another problem for Coca – Cola is its inability to restrict older people to consume its products. Sometimes strength of a company also becomes its weakness e.g. availability of Coca – Cola and PepsiCo products everywhere, due to this children sometimes consume these products without restrictions and warnings and affect their health.
VALUE CHAIN ANALYSIS
Value Chain analysis of a company tells us the activities of the company which are required to create value for the consumers and customers. We can divide the purpose of Coca – Cola value chain into four areas which are given below:
1. Mission of Coca – Cola value chain is to deliver superior returns to its shareholders. This can be achieved by strong brand equity and revenue management that is comprised of sales, volume, pricing and costs.
2. Focal point of value chain of Coca – Cola is its customers and consumers. They are driven by brand preference, market penetration and superior price/value ratio.
3. Operational drivers are identified as the strategic metrics, process excellence and organizational excellence.
4. Key processes of value chain of Coca – Cola are divided into five functions which are consumer and customer service system, demand and operations planning, warehousing and logistics, manufacturing and infrastructure planning and development (Puravankara 2007).
STRATEGIC ALTERNATIVES FOR COCA – COLA
Before going to the strategic alternatives first we need to find out the main critical problems. Further we would be discussing the main critical problems for Coca – Cola and the strategies to solve them.
Declining volume in Carbonated Soft Drink sector:
According to the Beverages World in U.S. the volume of carbonated soft drink sector is declining. The survey done on 1550 consumers of age 13 – 65 says that the carbonated soft drink sector is under pressure. They forecasted that it decline at a rate of 1.5 % per annum further. Similar situation is there in North America; the volume is declining at 2% per annum in North America. In December 2006 first time PepsiCo overtook the market share of Coca –Cola. Experts said that this has happened because of the diversification strategy of PepsiCo in health conscious brands (Puravankara 2007).
Strategy for declining volume of carbonated soft drink:
It is clear from the above analysis that the carbonated soft drink sector is too large and there is lack of health conscious products in this sector. If Coca – Cola will focus only on the carbonated drink sector then it will be difficult for it to face the problem of declining volume and be the market leader.
PepsiCo have 50% market share in the non carbonated sector in U.S. Reason for this PepsiCo’s early start in non carbonated sector in late 1900’s. Coca – Cola stands at second with 23% market share in non carbonated sector because it focused only on carbonated soft drinks. PepsiCo holds nearly all the leading brand in non – carbonated sector e.g. Aquafina, Gatorade, Propel, Tropicana etc (Tripod 2012).
Coca – Cola needs to compete aggressively in non – carbonated energy drinks so that it can make it strong presence in healthy products also. If Coca – Cola competes outside of carbonated sector it will bring Coca – Cola in the sector which is having growth and it will enhance the performance of the company as well. Coca – Cola must change its strategies within time according to the needs and demand of young generation.
Problem of Health and Wellness trend:
Health and wellness trend is driving innovation across the globe in soft drinks sector. Consumers are now preferring those drinks which are healthier and having lesser side effects. A study in 2001 reported that child’s risk of becoming obese increases each time he adds a daily serving of sweetened soft drink to his diet. It also said that women who take soft drinks regularly increase their chances of gaining weight and diabetes. This controversy plays a very important role in shaping the future of carbonated soft drinks industry. Coca – Cola was late to react on this issue.
In addition the beverages industry did not able to understand the need of young professionals and older consumers. The young professionals want to lose or maintain their weight, they are not concerned about calories and older people are shifting from high calories to low calories (Puravankara 2007).
Strategy for Health and Wellness trend:
It is clear from the above analysis that Health and wellness trend decides the future of beverages industry. PepsiCo is again leader in focusing on this problem. PepsiCo launched the smart spot symbol the first of its kind designation that makes it easier for consumers to identify PepsiCo’s products that can contribute to a healthy life style. The smart spot symbol meets the criteria set by US FDA and NAS. The logo of Smart Spot appears on more than 250 brands of PepsiCo.
Coca – Cola should move forward with commitment to provide industry leadership in health and wellness arena. Coca – Cola should focus on the two key factors of the market which are baby boomers and the young generation (You Sigma 2012).
Increased competition with PepsiCo:
Coca – Cola and PepsiCo are the competitors of each other for more than 100 years. According to Yoffie and Slind the most intense battles in the so called cola war were fought over the $ 66 billion CSD industry in United States. Many experts realize that PepsiCo is one of the largest and most diverse food and beverages companies in the world. Annual revenue for PepsiCo is $ 35 billion and share of soft drinks market in this revenue in only 25%. PepsiCo has become leading marketing company in world with its top brands like Tropicana, Quaker, Frito – lay, and Gatorade with Pepsi. PepsiCo is currently operating in more than 200 countries outside North America and managing 17 brands each of which generate $ 1 billion revenue or more in annual sales. PepsiCo will remain a threat for Coca – Cola for the many years in future (Puravankara 2007).
Strategy to compete with PepsiCo:
Cola war has not ended, it will continue in 21 century also and PepsiCo will give a tough competition to Coca – Cola. The main issue here is again the strong presence of PepsiCo in non carbonated beverages sector. The most important thing is that the non carbonated beverages sector is growing very fast and PepsiCo has already made its strong presence in this sector. If Coca – Cola wants to lead the non carbonated sector it must focus on this segment. Coca – Cola needs to develop strategies to win the Cola war in this century. Winning the Cola war in twenty century is essential for Coca – Cola to maintain its leadership in the soft drinks industry.
Another problem for Coca – Cola is conflicts with bottlers. This not only affects the relationship of Coca – Cola with bottlers but also allows bottlers to work with other companies. Since bottlers are the critical local links to the consumers Coca –Cola needs to maintain its relationship with bottlers. It can be done through negotiation of top management with bottlers (Puravankara 2007).
Lack of innovation is also a big problem in the food and beverages industry. Innovation doesn’t mean new product development. It can be new manufacturing process, new way of distribution or anything else. Coca – Cola needs to focus on the innovation part as it was done by PepsiCo by launching smart spot symbol.
EVALUATION OF ALTERNATIVES:
When we evaluate the strategies available for Coca – Cola to solve the several problems we find that the most important strategy is to compete with PepsiCo. Although other strategies are also equally important but competition with PepsiCo will cover all the problems of Coca – Cola.
If we talk about declining demand of carbonated soft drink, health and wellness trend or conflicts with bottlers we can say that these issues are not as big as the competitive strength of PepsiCo. And if The Coca – Cola Company will be able to compete with PepsiCo all the other issues will be covered because without solving each problem Coca – Cola cannot become the market leader in the beverages industry.
IMPLEMENTATION OF THE STRATEGY
Implementation of strategy include structural and cultural changes in the organization, new controls or incentives to change the behavior, leadership changes at the top management, reallocation of resources, functional support strategies etc.
Recently PepsiCo got into new alliance in China with the leading local drinks maker named Tingyi – Asahi Beverages (TAB). Coca – Cola CEO Muhtar Kent said on this issue that the firm will not change its Chinese business strategies in response to PepsiCo’s new alliance. In a discussion about the growth of Coca – Cola, CEO of the company said that, we have recorded more than 9% overall volume growth. Although the company in performing good but it needs to sustain this growth level and also to try to grow further as PepsiCo is trying every time (Brown 2012).
PepsiCo has announced that it will cut 8700 jobs worldwide and will spend 500 to 600 million dollars on advertising and marketing strategies of the company. It is a cost cutting plan of PepsiCo because experts say that PepsiCo may lose 5% per share in 2012. According to analysts PepsiCo should sell its snacks division Frito – Lay and should only focus on beverages to compete with Coca – Cola. But the CEO of the company Indra Nooyi said that splitting the company will cost between $ 800 million and $ 1 billion. Due to this announcement PepsiCo’s stock fell down by 4.2% the job losses will reduce the work force of PepsiCo by 3%. This strategy will not only generate savings for PepsiCo but also send a message to the company that performance is important (Forbes 2012).
While PepsiCo is under pressure this is a good time for Coca – Cola to compete and make its position stronger in the market. We can find out that it is the consistent strategy of Coca – Cola which allows Coca – Cola to win the Cola – war. Top management of Coca – Cola does not care about the new strategies of PepsiCo and focus only in selling the soft drinks. If we compare the sales figures of both the companies in U.S. market we see that in 2009 Coca – Cola lost its 2% volume in beverages but PepsiCo also lost it and it was greater than Coca – Cola, 8%. This happened because of economic recession during that time. Coca – Colas market share in the carbonated soft drinks sector is 41.9% while PepsiCo’s is 29.9%. So, the strategy to focus only on carbonated soft drinks brings Coca – Cola at top but in the non carbonated sector it is behind PepsiCo. That is why it is recommended that Coca – Cola can think about its diversification in non – carbonated sector seeing the market trend of health and wellness consciousness (Tony D’ Altorio 2012).
Mobile Marketing is the new strategy which Coca – Cola has adopted. According to a marketing person of Coca – Cola, the company is looking at all the different ways of marketing such as traditional, in – store, out – of – homes as well as online and mobile methods. The mobile marketing strategy is launched specially for Sprite since it is focused on youth.
In implementing these strategies Coca – Cola may require some structural and cultural changes. For example coca – cola can also diversify its business easily into non – carbonated sector and since it has a strong brand name therefore it will not be a big difficulty to compete with PepsiCo. Also like PepsiCo did by cutting jobs Coca – Cola can bring some cultural changes in its environment to motivate its workforce towards performance. It can also be done by controlling the behavior of its customers i.e. distributors and bottlers. For this the company can bring some new incentives plan for its distributors and bottlers (Beverages Daily 2012).
If we talk about the immediate action plan of Coca – Cola it should first try to think about new product development in non – carbonated sector so that it can compete PepsiCo in this sector also. In short term action plan the company should focus on its relationship with its bottlers and distributors and for long term the company should follow its consistency strategy as well.
CONCLUSION
At the end after analyzing the strategies made by Coca – Cola and its competitors mainly PepsiCo we can say that The Coca – Cola company is a learning organization. A learning organization is organization which constantly monitors its environment for changes and not only learns from those changes but also adopts them. Coca – Cola is a leading company in doing this. Even coca – cola is consistent with its strategy to focus only on carbonated soft drinks but it can easily change its strategy and adopt the change of market which says that Coca – Cola needs to diversify in healthier products.
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