Coca-Cola Management Strategy

Assessment 1 Case Study Report of Coca Cola Company Hang LU S81293 Executive Summary The Coca-Cola Company (NYSE:  KO) is the world's largest beverage company, largest manufacturer, distributor and marketer of non-alcoholic beverage concentrates and syrups in the world and is one of the largest corporations in the United States. The company is best known for its flagship product Coca-Cola, invented by pharmacist John Stith Pemberton in 1886. The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake Coca-Cola beverage, Coca-Cola currently offers nearly 400 brands in over 200 countries or territories and serves 1. 6 billion servings each day. [4] The company operates a franchised distribution system dating from 1889 where The Coca-Cola Company only produces syrup concentrate which is then sold to various bottlers throughout the world who hold an exclusive territory. The Coca-Cola Company is headquartered in Atlanta, Georgia. Its stock is listed on the NYSE and is part of DJIA and S 500. Its current chairman and CEO is Muhtar Kent. CONTENTS Introduction Company Background Mission and Vision Goals The Competitive Advantage of Coca-Cola Brands Five Forces Analysis Intensity of the Competitive Forces Generic Business Strategy Conclusion Introduction Coca-Cola has sold more than one billion servings every day. More than 10,450 beverages are consumed every second. It is present on all seven continents and is recognized by 94% of the world population. Coca-Cola grow from its humble roots as a home-brewed Georgia-based patent medicine to be the international soft drink powerhouse today. Coca-Cola used many technologies to achieve its rise to the top of the soft drink industry, defining new technologies and establishing paradigms that popped the status quo like a cap from a soda bottle. Through technology, Coca-Cola perfected Coke as a beverage and spread it throughout the world. Even today, the US soft drink industry is organized on this principle. â€Å"The Coca-Cola Company† is now the largest soft drink company in the world with products that include Coca- Cola, Diet Coke, Sprite, and Fanta etc.. It is employing about 71,000 people worldwide in over 200 countries. Coke produces about 400 brands consisting of over 2. 600 beverage products, such as water, juice and juice drinks, sports drinks, energy drinks, teas, and coffees. Coke products are distributed though restaurants, grocery market, street vendors, and others, all of which sell to the end users: consumers, who consume in excess of 1. 4 billion servings daily. Company Background The Coca-Cola Company is now the largest soft drink company in the world. Coca- Cola became the largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups which operate in more than 200 countries. Coca- Cola was invented on May 1886 by Dr. John Stith Pemberton in Jacob's Pharmacy in Atlanta, Georgia. The name Coca-Cola was suggested by Pemberton's book-keeper, Frank Robinson. He penned the name Coca-Cola in the flowing script that is famous today. Vision & Mission Coca-Cola has been marketed with catching marketing themes such as â€Å"Drink Coca- Cola† and â€Å"Delicious and Refreshing†. After years of globalization and brand building, Coca-Cola proudly pronounces its Mission Statement â€Å"The Coca-Cola Company exists to benefit and refresh everyone who is touched by our business†. And their goals: The basic proposition of our business is simple, solid and timeless. When we bring refreshment, value, joy and fun to our stakeholders, then we successfully nurture and protect our brands, particularly Coca-Cola. That is the key to fulfilling our ultimate obligation to provide consistently attractive returns to the owners of our business. Indeed, it was! Coca-cola's mission â€Å"our people and our promise† mainly focuses in Coca-Cola world is to celebrate, refresh, strengthen and protect. Coca-Cola feels that they should offer a soft-drink to the entire global community, which is environmentally safe and accepted. The company's mission is directed towards its soft drink business and the strategy management changes that will be forthcoming. Coca-Cola appeals to the long term interests of stakeholders particularly shareowners, employees and customers. This helps to support the local populations by offering job opportunities, and it also helps out the local and global economies in which the employees live. Woodruff's vision that coca-cola to be placed within â€Å"arm's reach of desire† came true from the mid 1940s until 1960, the number of countries with bottling operations nearly doubled. It is so feasible that the company can reasonably expect to achieve in due time. Coca-Cola strives to find new innovations to better its products and to stay a step ahead of its competitors as what is mentioned in the mission â€Å"the action we will take†. This is a key element in the company's drive to be number one in the industry. Also it is constantly looking for improvements in everything that it does, both in the production and the manner in which the company is run daily. Goals â€Å"That combination infuses all the elements of the strategy that we are implementing to deliver value to our share owners in the year to come, and well into the future: a) Accelerate carbonated soft-drink growth, led by Coca-Cola; b) Selectively broaden our family of beverage brands to drive profitable growth; c) Grow system profitability and capability together with our bottling partners; ) Serve customers with creativity and consistency to generate growth across all channels; e) Direct investments to highest potential areas across markets; and f) Drive efficiency and cost-effectiveness everywhere. † The Competitive Advantage of Coca-Cola Brands The company's sharp focus on its business also gives it a cost advantage. Although Coke earned less than five cents per 8oz serving last year, it did manage to sell about 380 bil lion servings! That kind of volume has advantages. The Coca-Cola Company has invested in building its trademark for over 113 years. Consumers worldwide recognize the Coca-Cola trademark and icons as symbols of quality and refreshment. Because Coca-Cola is the â€Å"ideal† soft drink that sets the benchmark for consumers' expectations, businesses that display and associate with the trademark immediately signal that they are committed to serving the most preferred soft drinks in the industry. The advantages of coca cola in adopting globalization trends are first of all with the economic scale that is bigger (talking about the whole entire world instead of one country, as mass marketing) it help coca cola to actually reduce the cost of producing adjusting to the country where the product is manufactured and price (cutting the cost of transportation, export and import cost as well as tax). It also helps coca cola to gain competitive advantages of a high quality product. The localize system or management help the company to expand the local network with the value creation functions and also established in low c ost markets, instead of the country of origins. They also can have a tight bound of long term contract with the low cost supplier in each country. Five Forces Analysis Today, soft drink industry is a very competitive industry to be in. Porter's five forces model shows us that there is already a strong barrier to entry established by the traditional concentrate producers such as Coca-Cola, suppliers' bargaining power is strong, buyers' power is weak, substitutes for beverage products are easy to produce, and the intensity of rivalry is strong since the industry is already facing a slow growth and high industry concentration. †¢ Suppliers' Bargaining Power Suppliers' bargaining power in this beverage industry is strong. For example, the soft drink ingredient producer – NutraSweet who specializes in producing concentrate sweeteners. Since there is a rising concern in health and safety issues in the soft drink drinking within the consumer market, the healthier sweetener, aspartame, that NutraSweet markets allowed it to have a high impact and input on costs of each bottler's product costs. Since NutraSweet was the only marketer that marketed the standard aspartame the costs of using NutraSweet's aspartame is relatively high compare to other substitutes such as sugar. Buyers' Bargaining Power The Buyers of the soft drink industry are the concentrate bottlers. Bottlers of the soft drink industry have a low bargaining power since they form the largest base (the greatest number) of all the elements of Porter's five forces. Most of the bottlers are Coca-Cola owned before 1980, and almost all of them are under some sort of contractual agreement stating that bottlers must accommodate the programs set u p by the concentrate producers' for the products that they have franchised. High fees are required of the bottlers re such as high start-up costs ranging from $100,000 to several million dollars, paying for two-third of promotional costs, while costs were typically split fifty/fifty for doing consumer promotion and trade. It is also hard for bottlers to identify their own brand identity since their products are made of concentrates and the names that they use are the names of the concentrate manufacturer . Coca-Cola, hence discouraging their own product differentiation. †¢ Rivalry Among Competing Sellers There is a strong barrier setup by the traditional concentrate producers. For new rivalry to enter into the market is extremely difficult since the two soft drink giants such as Coca-Cola and Pepsi-Cola have already created a soft drink tradition and branding. Also since the soft drink giants have already created their bottler network and also owned majority of them, it is even harder for new entrants to be gain an absolute cost and competitive advantage. Governmental policies also create obstacles to the new entrants in the cola industry since the word â€Å"Coke† is strictly mean Coca-cola. Current rivalry within the soft drink industry is mainly evolved around the two giants who are Coca-Cola and PepsiCo. The two giants owned most of the spacing for the vending machines, developed most the flavors for the popular products within the market, and occupied most of the soft drink market shares within the industry. They are able to utilize and plane well ahead of other smaller companies within the industry. Other smaller firms are mainly there for competition between the two firms. One example would be PepsiCo's purchase of Seven-Up's to expand its product line. Once Coca-Cola is aware of PepsiCo's expansion, readily they are also willing to purchase Dr Pepper. However since the buyout of Seven-Up's domestic operations was blocked by the Federal Trade, Coca- Cola also dropped its pursuit on Dr Pepper. In the current soft drink industry, there is a constant battle between Coca-Cola and PepsiCo. †¢ Substitute Products Threats of substitutes are high since soft drink industry is a highly unstable industry. Switching costs for the consumers are extremely low since the pricing of soft drinks is cheap and consumer's taste is ever changing. There is no tradeoff for the consumers to switch to other products so it is easy for consumers to change their loyalties. One example would be the Pepsi Challenge rose by PepsiCo over the states. The challenged had blinded people over the states tasted different brands of soft drinks and found out that majority of them liked Pepsi over Coke, thus PepsiCo's Pepsi-Cola was able to gain market share and attracted a larger market share. †¢ Potential New Entrants The soft drink industry is an extremely difficult industry to get into. The existing soft drink industry is already dominated by experienced dominant players with over century-long experience, new entrants would have to be truly unique to be able to gain an absolute competitive advantage within this industry. If their products are unique, they would not have to worry about the fear of product substitution. Once the new entrants have gained an absolute advantage within the industry, they would have to deal with the suppliers who may have a strong bargaining power over pricing on the ingredients they need. Apart from that, they would need buyers, which are bottlers in this case. Once they have a base of bottlers with them, then only they have a chance of success in this industry. Intensity of the Competitive Forces Coca-Cola created a very strong barrier to entry for its competitors. New entry into the market is extremely difficult. The two soft drink giants, Coca-Cola and PepsiCo controlled the whole market. In addition, Coca-Cola has already created its bottler network and also owned majority of them, it is even harder for new entrants to gain an absolute cost and competitive advantage. The threats of substitutes are high since soft drink industry is a highly unstable industry. Switching costs for the consumers are extremely low and there is no trade-off for the consumers to switch to other products so it is easy for consumers to change their loyalties. Generic Business Strategy In order to gain competitive edge in the consumer market, other than responding quickly to the external forces and its internal environment, Coca-cola also looks into its position within the industry. The generic competitive strategies pursued by Coca-Cola are: Low Cost Strategy & Broad Differentiation Strategy Coca-Cola is seen to have employed these two competitive strategies: Focused Low Cost and Broad Differentiation. The company has chosen to serve the consumer drink market and achieved cost savings by means of: ) Achieving economies of scale in the mass production of all Coca-Cola products lowers its unit cost. ii) Long learning, knowledge and experience in production and process, as the company existed more than a century. iii) Efficiency and effectiveness in manufacturing and distribution network. iv) Sharing of research and development, advertising and promotions cost among the brands carried by Coca-Cola has enabled to achieve economies of scope. C oca-Cola uses Broad Differentiation strategy on the basis of: i) Offering of wide range of its drink products . round 230 brands are currently being offered in the global market. ii) High brand image and recognition have resulted in superior product perception among consumers. iii) Packaging and bottling . The use of contoured shape bottle and the slim curly font have made Coca-Cola an easily recognized symbol. Conclusion Nowadays, Coca-Cola is not just a brand. It’s already a part of people’s life. It leads carbonated soft-drink industry growth. The company is monopolize the beverage market over a century. However, People are becoming increasingly health conscious, this has led to a decrease in the consumption of soft drink. It is the big challenge for coca-cola company in the future. References 1. ^ â€Å"Board of Directors Elects Muhtar Kent Chairman†. The Coca-Cola Company. April 23, 2009. http://www. thecoca-colacompany. com/presscenter/nr_20090423_muhtar_kent. html. Retrieved 2009-05-02. 2. ^ Coca-Cola Products: New Coca-Cola Products, Brands of Beverages & More 3. ^ â€Å"2009 Form 10-K Annual Report†. Form 10-K. The Coca-Cola Company. 2009. http://www. thecoca-colacompany. com/investors/form_10K_2008. html. Retrieved 2009-08-31. 4. Cola Wars : Five Forces  Analysis October 18, 2007