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Coca cola company strategies

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Coca cola company strategies

  1. 1. Coca-Cola CompanyA. Case Abstract Coca Cola (www.cocacola.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coca Cola’s common stock is publicly-traded on the New York Stock Exchange under the ticker symbol KO. Coca Cola operates in over 200 nations around the world and sells carbonated and non carbonated beverages. Coca Cola’s line of non carbonated drinks includes: water, juice, and teas. The company has over 70,000 employees and is led by CEO Neville Isdell. The Coca-Cola Company’s (Coke’s) operating segments include 1) Africa, 2) East, South East Asia & Pacific Rim, 3) European Union, 4) Latin America, 5) North America, 6) North Asia, Eurasia, and the Middle East, and 7) bottling investments. Not all soft drink products/flavors of the company are available in all the operating groups. The Coca-Cola Company has two major rivals: PepsiCo and Cadbury Schweppes PLC. It’s interesting to note that PepsiCo has more that double the employees as Coca-Cola as listed in Exhibit 6. Groupe Danone competes to a lesser degree with C oke. The number 3 soft drink producer, Cadbury Schweppes PLC (behind Coca-Cola and PepsiCo Inc.), is a diversified company that produces and markets beverages, chocolate, and chewing gum. Cadbury plans to divest its beverage division in 2007 of PepsiCo, Coca Cola Company, and Cadbury Schweppes PLC. Federal regulations may prohibit PepsiCo and Coke from bidding for Cadbury’s carbonated soft drink business. Analysts however believe the brand Snapple, which Cadbury sells, would be a good fit for Coke. PepsiCo would likely benefit most from acquiring Cadbury’s Mexican assets with such strong brands as Squirt, Crush, and Canada Dry.B. Vision Statement (actual) To maintain our reputation as the leading cola company in the world.C. Mission Statement (actual) Everything we do is inspired by our enduring mission: • To Refresh the World... in body, mind, and spirit. • To Inspire Moments of Optimism... through our brands and our actions. • To Create Value and Make a Difference... everywhere we engage. At Coca Cola we believe our main responsibility is providing customers (1) with refreshing beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit any occasion in their day to day lives (6). Our signature product, Coke (7), is a favorite around the world and a wide variety of our products are sold in over 200 nations (3). We use the only the most sophisticated equipment (4) to process and make our products to ensure each glass of Coke product is as good as the last (5). Our employees (9) are fairly compensated and we practice fair trade in all markets we compete. We value our responsibility to all communities we serve and support many educational and leadership programs (8). 1
  2. 2. 1. Customer 2. Products or services 3. Markets 4. Technology 5. Concern for survival, profitability, growth 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employeesD. External Audit Opportunities 1. Bottled water consumption has increased 11 percent. 2. According to the S&P Industry Survey, consumers are drawn to new smaller beverage brands that are not sold on a mass scale. 3. Word Economic Forum’s annual Davos, Switzerland gathering grants international voice. 4. Less developed countries are in desperate need to improve community water supplies. 5. Energy drink sales are expected to increase 7 to 8 percent in 2007. 6. Disposable income has increased 6.2 percent. 7. Consumers are striving to drink and eat their way to better health than pervious generations. 8. EPS is expected to rise 7 to 8 percent in 2007. Threats 1. Consumption of American beverages is denounced by foreign officials in areas where conflicting interest exist. 2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in advertising 3. Smaller, lesser known brands are turning to major beer distributors for bottling. 4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high fructose corn syrup to heart disease. 5. Pepsi is more diversified offering beverage and food products. 6. High cost of commodities such as sugar, and metals used in production of cans. 7. Many smaller companies are fierce competitors around the world in their local markets.CPM – Competitive Profile Matrix Coca-Cola Pepsi Cadbury SchweppesCritical Success Weight Rating Weighte Rating Weighted Rating WeightedFactors d Score Score ScoreMarket Share 0.15 4 0.60 3 0.45 2 0.30Price Comp 0.10 3 0.30 3 0.30 3 0.30Financial Position 0.12 4 0.48 4 0.48 3 0.36Product Quality 0.15 3 0.45 3 0.45 3 0.45Product Lines 0.15 4 0.60 4 0.60 3 0.45Customer Loyalty 0.15 4 0.60 4 0.60 3 0.45Employees 0.11 3 0.33 3 0.33 3 0.33Marketing 0.07 3 0.21 3 0.21 3 0.21Total 1.00 3.71 3.56 2.85External Factor Evaluation (EFE) Matrix 2
  3. 3. Key External Factors Weight Rating Weighted ScoreOpportunities1. Bottled water consumption has increased 11 0.06 4 0.24 percent.2. According to the S&P Industry Survey, consumers are drawn to new smaller 0.05 2 0.10 beverage brands that are not sold on a mass scale.3. Word Economic Forum’s annual Davos, 0.02 2 0.04 Switzerland gathering grants international voice.4. Less developed countries are in desperate 0.02 2 0.04 need to improve community water supplies.5. Energy drink sales are expected to increase 0.06 3 0.18 7 to 8 percent in 2007.6. Disposable income has increased 6.2 0.05 3 0.15 percent.7. Consumers are striving to drink and eat their 0.07 3 0.21 way to better health than pervious generations.8. EPS is expected to rise 7 to 8 percent in 0.07 4 0.28 2007.Threats1. Consumption of American beverages is denounced by foreign officials in areas 0.02 3 0.06 where conflicting interest exist.2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in 0.04 2 0.08 advertising3. Smaller, lesser known brands are turning to 0.06 2 0.12 major beer distributors for bottling.4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high 0.10 2 0.20 fructose corn syrup to heart disease.5. Pepsi is more diversified offering beverage 0.20 3 0.60 and food products.6. High cost of commodities such as sugar, 0.10 3 0.30 and metals used in production of cans.7. Many smaller companies are fierce 0.08 3 0.24 competitors around the world in their local markets.TOTAL 1.00 2.84E. Internal Audit Strengths 1. Product line has over 400 brands. 2. Strong global presence, located in over 200 countries. 3. Long history has built excellent brand recognition. 4. Partnership longevity with established sporting events including the Olympics. 5. Industry leader in market capitalization with $112 billion. 3
  4. 4. 6. Return on Equity yielded 30 percent in 2006. 7. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an annual dividend increase. 8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment of Beverage Partners Worldwide (BPW). 9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their largest customer. Weaknesses 1. Product line is limited to beverages. 2. A failed $16 billion acquisition of Quaker Oats hinders long-term growth. 3. Negative publicity in India because of water issues, has led to poor brand image and hindered growth there. 4. Lack of management willingness to place foreign products into American markets. 5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in advertising spending. 6. Coca Cola’s inventory turnover is only 5.4 compared to Pepsi Co.’s 8.0.Financial Ratio Analysis (December 2006) Growth Rates % Coca Cola Industry SP-500 Sales (Qtr vs year ago qtr) 19.20 22.20 11.60 Net Income (YTD vs YTD) 8.30 25.70 17.10 Net Income (Qtr vs year ago qtr) 13.30 30.00 9.30 Sales (5-Year Annual Avg.) 6.54 8.45 13.09 Net Income (5-Year Annual Avg.) 5.01 9.38 19.82 Dividends (5-Year Annual Avg.) 11.49 12.61 10.00 Price Ratios Current P/E Ratio 25.4 26.2 20.3 P/E Ratio 5-Year High NA 49.9 26.8 P/E Ratio 5-Year Low NA 20.7 6.8 Price/Sales Ratio 5.00 3.96 2.37 Price/Book Value 6.97 5.71 3.45 Price/Cash Flow Ratio 21.10 19.60 10.70 Profit Margins Gross Margin 64.2 52.7 34.5 Pre-Tax Margin 26.0 17.5 17.8 Net Profit Margin 19.8 14.2 12.6 5Yr Gross Margin (5-Year Avg.) 64.4 59.1 34.3 5Yr PreTax Margin (5-Year Avg.) 27.9 20.1 16.4 5Yr Net Profit Margin (5-Year Avg.) 21.1 14.9 11.4 Financial Condition Debt/Equity Ratio 0.49 0.69 1.06 Current Ratio 0.8 1.0 1.1 Quick Ratio 0.6 0.7 0.9 Interest Coverage 55.1 41.0 31.8 Leverage Ratio 2.1 2.5 3.7 Book Value/Share 8.52 10.25 18.53 Investment Returns % Return On Equity 28.9 22.0 24.9 Return On Assets 14.9 11.2 7.6 Return On Capital 22.6 16.9 10.2 Return On Equity (5-Year Avg.) 32.0 25.4 18.5 4
  5. 5. Return On Assets (5-Year Avg.) 16.7 12.6 6.4 Return On Capital (5-Year Avg.) 24.6 18.2 8.6 Management Efficiency Income/Employee 76,690 56,327 92,892 Revenue/Employee 386,732 360,922 806,706 Receivable Turnover 9.8 10.1 14.3 Inventory Turnover 5.4 6.8 7.8 Asset Turnover 0.8 0.8 0.8 Adapted from www.moneycentral.msn.com Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%) 12/06 20.30 4.71 6.61 21.1 12/05 21.00 4.18 5.84 21.1 12/04 23.30 4.65 6.29 22.3 12/03 25.00 5.99 8.79 20.8 12/02 31.10 5.56 9.18 20.3 Date Book Value/ Debt/Equity ROE (%) ROA (%) Interest Share Coverage 12/06 $7.30 0.27 30.0 17.0 28.7 12/05 $6.90 0.35 29.8 16.6 25.4 12/04 $6.61 0.45 30.4 15.4 29.1 12/03 $5.77 0.38 30.9 15.9 29.3 12/02 $4.78 0.45 33.7 16.3 27.4 Adapted from www.moneycentral.msn.comNet Worth Analysis (December 2006 in millions)1. Stockholders’ Equity + Goodwill = 17,000 + 1,400 $ 18,4002. Net income x 5 = $5,000 x 5= $ 25,0003. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000= $ 123,9314. Number of Shares Outstanding x Share Price = 1,600 x $58.00 = $ 92,800Method Average $65,032Internal Factor Evaluation (IFE) MatrixKey Internal Factors Weight Rating Weighted ScoreStrengths1. Product line has over 400 brands. 0.09 4 0.362. Strong global presence, located in over 200 0.10 4 0.40 countries.3. Long history has built excellent brand recognition. 0.06 4 0.244. Partnership longevity with established sporting 0.05 4 0.20 events including the Olympics.5. Industry leader in market capitalization with $112 0.12 4 0.48 billion.6. Return on Equity yielded 30 percent in 2006. 0.04 4 0.127. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an 0.04 4 0.16 annual dividend increase.8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment of 0.06 4 0.24 5
  6. 6. Beverage Partners Worldwide (BPW).9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their largest 0.10 4 0.40 customer.Weaknesses1. Product line is limited to beverages. 0.09 1 0.092. A failed $16 billion acquisition of Quaker Oats 0.10 1 0.10 hinders long-term growth.3. Negative publicity in India because of water issues, 0.03 2 0.06 has led to poor brand image and hindered growth there.4. Lack of management willingness to place foreign 0.02 2 0.04 products into American markets.5. Marketing deficiencies due to turnover in leadership 0.05 2 0.10 and a 16 percent decrease in advertising spending.6. Coca Cola’s inventory turnover is only 5.4 0.05 2 0.10 compared to Pepsi Co.’s 8.0.TOTAL 1.00 3.09F. SWOT Strategies SO Strategies 1. Improve environmental awareness with community involvement (S2, S4, O2, O3). 2. Market new diet drinks that have healthier sugar substitutes (S5, O7). WO Strategies 1. Market international beverages to American consumers (W4, O2, O6, O7). 2. Increase marketing efforts for bottled water (W5, W6, O1). ST Strategies 1. Acquire Krispy Kreme (KKD) to help diversify the product line (S5, T5). 2. Acquire Golden Enterprises (GLDC) to help diversify the product line (S5, T5). WT Strategies 3. Acquire Krispy Kreme (KKD) to help diversify the product line (W1, T5). 4. Acquire Golden Enterprises (GLDC) to help diversify the product line (W1, T5).G. SPACE Matrix 6
  7. 7. FS Conservative Aggressive 6 5 4 3 2 1 CA IS -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 -2 -3 -4 -5 -6 Defensive Competitive ESFinancial Strength (FS) Environmental Stability (ES)Return on Assets (ROA) 6 Rate of Inflation -3Leverage 6 Technological Changes -2Net Income 6 Price Elasticity of Demand -2Income/Employee 6 Competitive Pressure -6Inventory Turnover 3 Barriers to Entry into Market -3Financial Strength (FS) Average 5.4 Environmental Stability (ES) Average -3.2Competitive Advantage (CA) Industry Strength (IS)Market Share -1 Growth Potential 5Product Quality -1 Financial Stability 6Customer Loyalty -1 Ease of Entry into Market 4Technological know-how -2 Resource Utilization 5Control over Suppliers and Distributors -2 Profit Potential 5Competitive Advantage (CA) Average -1.4 Industry Strength (IS) Average 5.0x-axis: -1.4 + 5.0 = 3.6y-axis: 5.4 + -3.2 = 2.2Coordinate: (3.6, 2.2)H. Grand Strategy Matrix 7
  8. 8. Rapid Market Growth Quadrant II Quadrant I Weak Strong Competitive Competitive Position Position Quadrant III Quadrant IV Slow Market GrowthI. The Internal-External (IE) Matrix 8
  9. 9. The IFE Total Weighted Score Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99 High I II III 3.0 to 3.99 Medium IV V VIThe EFE Total 2.0 to 2.99WeightedScore Coca Cola Low VII VIII IX 1.0 to 1.99Grow and BuildDivisions Percent Revenue 2006North America 29.1Bottling Investments 21.2North Asia, Eurasia & Middle East 16.5European Union 14.6Latin America 10.3Africa 4.6East, South Asia & Pacific Rim 3.3Corporate 0.4J. QSPM 9
  10. 10. Strategic Alternatives Acquire KKD and Produce new GLDC diet drinks that have healthierKey Internal Factors sugarWeight substitutesStrengths AS TAS AS TAS1. Product line has over 400 brands. 0.09 2 0.18 4 0.362. Strong global presence, located in over 200 0.10 --- --- --- --- countries.3. Long history has built excellent brand 0.06 2 0.12 4 0.24 recognition.4. Partnership longevity with established sporting 0.05 --- --- --- --- events including the Olympics.5. Industry leader in market capitalization with 0.12 4 0.48 3 0.36 $112 billion.6. Return on Equity yielded 30 percent in 2006. 0.04 4 0.16 3 0.127. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an 0.04 --- --- --- --- annual dividend increase.8. Joint venture between The Coca Cola Company and Nestle has resulted in the 0.06 --- --- --- --- establishment of Beverage Partners Worldwide (BPW).9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming 0.10 --- --- --- --- their largest customer.Weaknesses1. Product line is limited to beverages. 0.09 4 0.36 1 0.092. A failed $16 billion acquisition of Quaker Oats 0.10 --- --- --- --- hinders long-term growth.3. Negative publicity in India because of water issues, has led to poor brand image and 0.03 --- --- --- --- hindered growth there.4. Lack of management willingness to place 0.02 --- --- --- --- foreign products into American markets.5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in 0.05 --- --- --- --- advertising spending.6. Coca Cola’s inventory turnover is only 5.4 0.05 4 0.20 1 0.05 compared to Pepsi Co.’s 8.0.SUBTOTAL 1.00 1.50 1.22 Acquire KKD and Produce new dietKey External Factors GLDC drinks that haveWeight healthier sugar substitutesOpportunities AS TAS AS TAS1. Bottled water consumption has increased 11 0.06 --- --- --- --- percent.2. According to the S&P Industry Survey, consumers are drawn to new smaller beverage 0.05 1 0.05 3 0.15 brands that are not sold on a mass scale.3. Word Economic Forum’s annual Davos, 0.02 --- --- --- --- 10
  11. 11. Switzerland gathering grants international voice.4. Less developed countries are in desperate need 0.02 --- --- --- --- to improve community water supplies.5. Energy drink sales are expected to increase 7 to 0.06 --- --- --- --- 8 percent in 2007.6. Disposable income has increased 6.2 percent. 0.05 --- --- --- ---7. Consumers are striving to drink and eat their 0.07 2 0.14 4 0.28 way to better health than pervious generations.8. EPS is expected to rise 7 to 8 percent in 2007. 0.07 4 0.28 3 0.21Threats1. Consumption of American beverages is denounced by foreign officials in areas where 0.02 --- --- --- --- conflicting interest exist.2. Multiple lawsuits against the new Enviga 0.04 --- --- --- --- beverage for calorie burning claims in advertising3. Smaller, lesser known brands are turning to 0.06 --- --- --- --- major beer distributors for bottling.4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high fructose 0.10 2 0.20 4 0.40 corn syrup to heart disease.5. Pepsi is more diversified offering beverage and 0.20 4 0.80 2 0.40 food products.6. High cost of commodities such as sugar, and 0.10 --- --- --- --- metals used in production of cans.7. Many smaller companies are fierce competitors 0.08 --- --- --- --- around the world in their local markets.SUB TOTAL 1.47 1.44SUM TOTAL ATTRACTIVENESS SCORE 2.97 2.66K. Recommendations The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and snack food company) was a better option than producing a new diet soda line made form more healthy sugar alternatives. Both scores on the QSPM are relatively close and given the financial condition of KKD and GLDC, it is recommended Coca Cola undertake both strategic alternatives. The Net Worth of both companies is provided below. It is estimated it would cost $200 million to research, produce and market the new diet drinks.Krispy Kreme (KKD) Net Worth January 2008 (in millions).1. Stockholders’ Equity + Goodwill = 79 + 28 $ 1072. Net income x 5 = $-42 x 5= $ NA3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42= $ NA4. Number of Shares Outstanding x Share Price = 65 x $2.73 = $ 177Method Average $142Golden Enterprises (GLDC) Net Worth January 2008 (in millions). 11
  12. 12. 1. Stockholders’ Equity + Goodwill = 19.4 + 0 $ 19.42. Net income x 5 = $1.2 x 5= $ 6.03. Share price = $2.95/EPS 0.19 =$15.52 x Net Income $1.2= $ 18.64. Number of Shares Outstanding x Share Price = 11.2 x $2.95 = $ 33.0Method Average $19.3L. EPS/EBIT Analysis $ Amount Needed: 360M Stock Price: $58 Tax Rate: 35% Interest Rate: 5% # Shares Outstanding: 1,600M Common Stock Financing Debt Financing Recession Normal Boom Recession Normal BoomEBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000Interest 0 0 0 18,000,000 18,000,000 18,000,000EBT 4,000,000,000 6,000,000,000 8,000,000,000 3,982,000,000 5,982,000,000 7,982,000,000Taxes 1,400,000,000 2,100,000,000 2,800,000,000 1,393,700,000 2,093,700,000 2,793,700,000EAT 2,600,000,000 3,900,000,000 5,200,000,000 2,588,300,000 3,888,300,000 5,188,300,000# Shares 1,606,206,897 1,606,206,897 1,606,206,897 1,600,000,000 1,600,000,000 1,600,000,000EPS 1.62 2.43 3.24 1.62 2.43 3.24 70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock Recession Normal Boom Recession Normal BoomEBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000Interest 5,400,000 5,400,000 5,400,000 12,600,000 12,600,000 12,600,000EBT 3,994,600,000 5,994,600,000 7,994,600,000 3,987,400,000 5,987,400,000 7,987,400,000Taxes 1,398,110,000 2,098,110,000 2,798,110,000 1,395,590,000 2,095,590,000 2,795,590,000EAT 2,596,490,000 3,896,490,000 5,196,490,000 2,591,810,000 3,891,810,000 5,191,810,000# Shares 1,604,344,828 1,604,344,828 1,604,344,828 1,601,862,069 1,601,862,069 1,601,862,069EPS 1.62 2.43 3.24 1.62 2.43 3.24 12

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