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  2. 2. DECLARATION I MR SHREERAJ HARIHARAN student of LORD UNIVERSAL COLLEGE, M.com Part-I (SEM I) hereby declare that I have completed project on “THE COCO COLA COMPANY”, in the academic year 2013-2014.This information is true &original to best of my knowledge signature of student Date: 2
  3. 3. Certificate This is to certify that this project entitled COCO COLA COMPANY for subject STRATEGIC MANAGEMENT is done by SHREERAJ HARIHARAN seat number 36 of M.com Part I Semester I in the academic year 2013-2014 and being submitted to University of Mumbai through LORD UNIVERSAL COLLEGE, Goregaon (west) (PROF.SAGAR ASRANI) INTERNAL EXAMINER SIGNATURE EXTERNAL EXAMINER SIGNATURE (DR RUKI MIRCHANDANI) Principal SIGNATURE 3
  4. 4. Acknowledgement With deep satisfaction and immense pleasure I am presenting this project report on “THE COCO COLA COMPANY” in partial requirements for the M.COM course. I would like to extend my sincere gratitude and appreciation to my project guide Prof. SAGAR ASRANI who assisted me into this project. It has indeed been a great experience working under her guidance during the course of the project. I would like to thank her for his valuable advice and support throughout this project. And last but not the least I would like to thank all the Faculty Members, staff of the institute for their help in making my project an unforgettable and great learning experience. Date: signature of student 4
  5. 5. CONTENTS Introduction.........................................................................................................06 History………………........................................................................................07 Marketing Research............................................................................................13 GLOBAL MARKETING STRATEGY.......................................................................15 STRATEGIC APPROACH AND COMPETITIVE ADVANTAGES……………….……17 SWOT ANALYSIS……………………………………....................................19 BCG MATRIX……………………………………………………….………29 PORTER’S FIVE FORCE ANALYSIS…………………………………………….30 ICONIC BRAND………………………………………………………………..38 CONCLUSION………………………………………………………………….39 Bibliography…………………………………………………………………...40 5
  6. 6. INTRODUCTION Coca-Cola, the product that has given the world its best-known taste was born in Atlanta, Georgia, on May 8, 1886. Coca-Cola Company is the world‘s leading manufacturer, marketer and distributor of non-alcoholic beverage concentrates and syrups, used to produce nearly 400 beverage brands. It sells beverage concentrates and syrups to bottling and canning operators, distributors, fountain retailers and fountain wholesalers. The Company‘s beverage products comprises of bottled and canned soft drinks as well as concentrates, syrups and notready-to-drink powder products. In addition to this, it also produces and markets sports drinks, tea and coffee. The CocaCola Company began building its global network in the 1920s. Now operating in more than 200 countries and producing nearly 400 brands, the Coca-Cola system has successfully applied a simple formula on a global scale: ―Provide a moment of refreshment for a small amount of money- a billion times a day.‖ The Coca-Cola Company and its network of bottlers comprise the most sophisticated and pervasive production and distribution system in the world. More than anything, that system is dedicated to people working long and hard to sell the products manufactured by the Company. This unique worldwide system has made The Coca-Cola Company the world‘s premier soft-drink enterprise. From Boston to Beijing, 6
  7. 7. from Montreal to Moscow, Coca-Cola, more than any other consumer product, has brought pleasure to thirsty consumers around the globe. For more than 115 years, Coca-Cola has created a special moment of pleasure for hundreds of millions of people every day. HISTORY The Company aims at increasing shareowner value over time. It accomplishes this by working with its business partners to deliver satisfaction and value to consumers through a worldwide system of superior brands and services, thus increasing brand equity on a global basis. They aim at managing their business well with people who are strongly committed to the Company values and culture and providing an appropriately controlled environment, to meet business goals and objectives. The associates of this Company jointly take responsibility to ensure compliance with the framework of policies and protect the Company‘s assets and resources whilst limiting business risks. The prototype Coca-Cola recipe was formulated at the Eagle Drug and Chemical Company, a drugstore in Columbus, Georgia by John Pemberton, originally as a coca wine called Pemberton's French Wine Coca. He may have been inspired by the formidable success of Vin Mariani, a European cocawine. In 1886, when Atlanta and Fulton County passed prohibition legislation, Pemberton responded by developing Coca-Cola, essentially a non-alcoholic version of French Wine Coca. The first sales were at Jacob's Pharmacy in Atlanta, Georgia, on May 8, 1886. It was initially sold as a patent medicine for five cents a glass at soda fountains, which were popular in the United States at the time due to the belief that carbonated 7
  8. 8. water was good for the health.[9] Pemberton claimed Coca-Cola cured many diseases, including morphine addiction, dyspepsia, neurasthenia, headache, and impotence. Pemberton ran the first advertisement for the beverage on May 29 of the same year in the Atlanta Journal. By 1888, three versions of Coca-Cola — sold by three separate businesses — were on the market. Asa Griggs Candler acquired a stake in Pemberton's company in 1887 and incorporated it as the Coca Cola Company in 1888. The same year, while suffering from an ongoing addiction to morphine, Pemberton sold the rights a second time to four more businessmen: J.C. Mayfield, A.O. Murphey, C.O. Mullahy and E.H. Bloodworth. Meanwhile, Pemberton's alcoholic son Charley Pemberton began selling his own version of the product. John Pemberton declared that the name "Coca-Cola" belonged to Charley, but the other two manufacturers could continue to use the formula. So, in the summer of 1888, Candler sold his beverage under the names Yum Yum and Coke. After both failed to catch on, Candler set out to establish a legal claim to Coca-Cola in late 1888, in order to force his two competitors out of the business. Candler purchased exclusive rights to the formula from John Pemberton, Margaret Dozier and Woolfolk Walker. However, in 1914, Dozier came forward to claim her signature on the bill of sale had been forged, and subsequent analysis has indicated John Pemberton's signature was most likely a forgery as well. In 1892 Candler incorporated a second company, The CocaCola Company (the current corporation), and in 1910 Candler had the earliest records of the company burned, further obscuring its legal origins. By the time of its 50th anniversary, the drink had reached the status of a national icon in the USA. In 1935, it was certified kosher by Rabbi Tobias Geffen, after 8
  9. 9. the company made minor changes in the sourcing of some ingredients. Coca-Cola was sold in bottles for the first time on March 12, 1894. The first outdoor wall advertisement was painted in the same year as well in Cartersville, Georgia. Cans of Coke first appeared in 1955. The first bottling of Coca-Cola occurred in Vicksburg, Mississippi, at the Biedenharn Candy Company in 1891. Its proprietor was Joseph A. Biedenharn. The original bottles were Biedenharn bottles, very different from the much later hobble-skirt design that is now so familiar. Asa Candler was tentative about bottling the drink, but two entrepreneurs from Chattanooga, Tennessee, Benjamin F. Thomas and Joseph B. Whitehead, proposed the idea and were so persuasive that Candler signed a contract giving them control of the procedure for only one dollar. Candler never collected his dollar, but in 1899 Chattanooga became the site of the first Coca-Cola bottling company. The loosely termed contract proved to be problematic for the company for decades to come. Legal matters were not helped by the decision of the bottlers to subcontract to other companies, effectively becoming parent bottlers. Coke concentrate, or Coke syrup, was and is sold separately at pharmacies in small quantities, as an over-thecounter remedy for nausea or mildly upset stomach. On April 23, 1985, Coca-Cola, amid much publicity, attempted to change the formula of the drink with "New Coke". Follow-up taste tests revealed that most consumers preferred the taste of New Coke to both Coke and Pepsi, but Coca-Cola management was unprepared for the public's nostalgia for the old drink, leading to a backlash. The company gave in to protests and returned to a variation of the old formula, under the name Coca-Cola Classic on July 10, 1985. On February 7, 2005, the Coca-Cola Company announced that in the second quarter of 2005 they planned to launch a Diet 9
  10. 10. Coke product sweetened with the artificial sweetener sucralose, the same sweetener currently used in Pepsi One. On March 21, 2005, it announced another diet product, Coca-Cola Zero, sweetened partly with a blend of aspartame and acesulfame potassium. In 2007, Coca-Cola began to sell a new "healthy soda": Diet Coke with vitamins B6, B12, magnesium, niacin, and zinc, marketed as "Diet Coke Plus‖. On July 5, 2005, it was revealed that Coca-Cola would resume operations in Iraq for the first time since the Arab League boycotted the company in 1968. In April 2007, in Canada, the name "Coca-Cola Classic" was changed back to "Coca-Cola." The word "Classic" was truncated because "New Coke" was no longer in production, eliminating the need to differentiate between the two. The formula remained unchanged. In January 2009, Coca-Cola stopped printing the word "Classic" on the labels of 16-ounce bottles sold in parts of the southeastern United States. The change is part of a larger strategy to rejuvenate the product's image. In November 2009, due to a dispute over wholesale prices of Coca-Cola products, Costco stopped restocking its shelves with Coke and Diet Coke. GLOBAL MARKET SHARE OF COCA-COLA In 2009, the company generated revenues of $31 billion with $6.8 billion net income. An increased consumer preference for healthier drinks has resulted in slowing growth rates for sales of carbonated soft drinks (abbreviated as CSD), which constitutes 78% of KO‘s sales. KO‘s profits are also vulnerable to the volatile costs for the raw materials used to make drinks - such as the corn syrup used as a sweetener, the aluminium used in cans, and the plastic used in bottles. Furthermore, slowing consumer spending in Coke's large North American market compounds the challenge of increasing costs and a weak economic environment. Finally, Coca-Cola earns approximately 10
  11. 11. 75% of revenue from international sales, exposing it to currency fluctuations, which are particularly adverse with a stronger U.S. Dollar (USD). Despite these challenges, Coca-Cola has remained profitable. Though the non-CSD market is growing quickly, the traditional CSD market is still large in terms of both revenues and volume and highly lucrative. The size and variety of KO‘s offerings in the CSD category, coupled with the unparalleled brand equity of the Coca-Cola trademark, has allowed KO to maintain its share of this important market. KO has also responded to consumers‘ changing tastes with new, non-CSD product launches and acquisitions such as that of Glaceau in 2007. Strong international growth has also more than offset a weak domestic market. On February 25, Coca-Cola Company announced its plan to buy Coca-Cola Enterprises (CCE) for $12.3 million.[7] Since spinning of Coca-Cola Enterprises (CCE) 24 years ago, the soft drink market has changed dramatically with consumers buying fewer soft drinks and more non-carbonated beverages, such as Powerade and Dasani water. Under the new deal, Coca-Cola Company will take control of the bottler's North America operations, giving the company control over 90% of the total North America volume. In return, Coca-Cola Enterprises will take over Coke's bottling operations in Norway and Sweden, becoming a European-focused producer and distributor. In March 2010, Coca-Cola Company entered into discussions to buy the Russian juice company, OAO Nidan Juices. The company is 75% owned by a private equity firm in London and 25% by its Russian founders and controls 14.5% of the Russian juice market. If successful, the purchase would add to CocaCola's 20.5% market share, passing Pepsi's 30% market share. The Russian juice market is estimated to be $3.2 billion dollars, and estimates of Nidan's purchase price are between $560$620 million. 11
  12. 12. In April 2010, Coca-Cola Company purchased a majority share of Innocent, the British fruit smoothie maker. Last year the company bought an 18% share of the company for more than $45 million, and recent purchases of additional shares increased Coke's stake to 58%. In June 2010, Coca-Cola Company agreed to pay Dr Pepper Snapple Group (DPS) $715 million for the continued right to sell their products following the company's acquisition of Coca-Cola Enterprises (CCE). The deal covers the next 20 years with an option to renew for an additional 20 years. 12
  13. 13. MARKETING RESEARCH Coca-Cola's most senior executives commissioned a secret effort named "Project Kansas" — headed by marketing vice president Sergio Zyman and Brian Dyson, president of CocaCola USA – to test and perfect the new flavor for Coke itself. It took its name from a famous photo of that state's renowned journalist William Allen White drinking a Coke; the image had been used extensively in its advertising and hung on several executives' walls.[4] The company's marketing department again went out into the field, this time armed with samples of the possible new drink for taste tests, surveys, and focus groups. The results of the taste tests were strong – the sweeter mixture overwhelmingly beat both regular Coke and Pepsi. Then tasters were asked if they would buy and drink it if it were Coca-Cola. Most said yes, they would, although it would take some getting used to. A small minority, about 10–12%, felt angry and alienated at the very thought, saying that they might stop drinking Coke altogether. Their presence in focus groups tended to skew results in a more negative direction as they exerted indirect peer pressure on other participants. The surveys, which were given more significance by standard marketing procedures of the era, were less negative and were key in convincing management to move forward with a change in the formula for 1985, to coincide with the drink's centenary. But the focus groups had provided a clue as to how the change 13
  14. 14. would play out in a public context, a data point that the company downplayed but which was to prove important later. Management also considered, but quickly rejected, an idea to simply make and sell the new flavor as yet another Coke variety. The company's bottlers were already complaining about absorbing other recent additions into the product line in the wake of Diet Coke. Many of them had sued over the company's syrup pricing policies. A new variety of Coke in competition with the main variety could, if successful, also dilute Coke‘s existing sales and increase the proportion of Pepsi drinkers relative to Coke drinkers. Early in his career with Coca-Cola, Goizueta had been in charge of the company's Bahamian subsidiary. In that capacity, he had improved sales by tweaking the drink's flavor slightly, so he was receptive to the idea that changes to the taste of Coke could lead to increased profits. He believed it would be "New Coke or no Coke" and the change must take place openly. He insisted that the containers carry the "NEW!" label, which gave the drink its popular name. Goizueta also made a visit to his mentor and predecessor as the company's chief executive, the ailing Robert W. Woodruff, who had built Coke into an international brand following World War II. He claimed he had secured Woodruff's blessing for the reformulation, but even many of Goizueta's closest friends within the company doubt that Woodruff truly understood what Goizueta intended 14
  15. 15. GLOBAL MARKETING STRATEGY Many have written on topics related to global strategy, but only a limited number of conclusions have been reached.Mesadag (2000) argues that global marketing is a particular form of international marketing which – in its truest form does not exist. Its essences that it covers a broad spread of the world‘s countries and that it strives to consciously standardize its marketing strategy between those countries.Svensson (2001), comments that a company‘s global strategy is closely related to its corporate strategy. The corporate strategy guides the performance of a company‘s overall business activities and the allocations of resources to achieve established business goals. Others state that when a company pursues a global strategy, it looks at the world market as a whole rather than at markets on a country-by-country basis (Jeannet and Hennessey, 2001).Levitt (1983) argues that the optimum global strategy is to produce single standardized product and sell it through a standardized marketing programmed. The challenge for the global corporation is to achieve low cost operations and also to produce products of a high standard. This strives for low cost through standardizing products is key and will result in growth for the corporation. Companies that dominate small domestic markets will gradually be eased out by the low cost producing global corporation.Kogut (1985) in his perspective of global strategy, 15
  16. 16. emphasizes strategic flexibility, whilst Collis (1991) has summarized global strategy in the following4 points: A global strategy is required whenever there are important interdependencies among a business‘s competitive position in different countries. The acid test is whether a business is better off in one country by virtue of its position in another. The sources of these interdependencies can be identified, including scale economies (Levitt, 1983), accumulated international experience, possession of global brand name, a learning curve effect (Porter,1985), and the option value or cross-subsidization (Hamel and Prahalad, 1985) that a multimarket presence confers. The critical issues that a global strategy must address include the configuration and co-ordination of the business‘s worldwide activities (Porter, 1986). The organization structure should be aligned with and derived from the global strategy. 16
  17. 17. STRATEGIC APPROACH AND COMPETITIVE ADVANTAGES The Coca Cola Company is known for its marketing expertise and the company has always followed a great marketing strategy that is responsible for bringing the success to the company for over a century. The biggest strength of Coca Cola is its brand. It has taken a lot of effort and good strategy to create the widely known brand. Apart from this, there are various strategies that Coca Cola has followed over the years in order to achieve competitive advantage using its Strategic capabilities. These strategies include: - Marketing and branding strategy: Healey (2008) defines a brand as a promise of satisfaction and emphasis that good branding reinforces reputation, generates loyalty and assure quality. Few companies in this world have developed a brand as strong as Coca Cola. The company has used its marketing resources to create a brand that is widely own and has become the biggest competitive advantage for the company. Coca Cola has been successful in creating brand loyalty among its consumers. This is a result of u stained marketing efforts starting from early 20th century. Coca Cola has adopted innovating marketing techniques right from the times of Candler and Robert Woodruff. Apart from usual advertising through bill boards and newspapers, Coca Cola focused on organizations, universities and colleges and this increased sales while promoting the brand name. Coca Cola’s global strategy: 17
  18. 18. Coca Cola has used its organizational capability to adopt a global strategy Gay et.al. (2007) – using a mix of central and local marketing functions in order to achieve maximum marketing and distribution effectiveness. Using this, Coca Cola maintains the strong global brand while introducing the local elements in the marketing to make sure that the product image is in harmony with the local culture. NEW PRODUCT INTRODUCTIONS Coca Cola follows out to in approach while developing New products. Coca Cola has always preferred taking note of customer preferences and Designing its products according to them, instead of taking an internal approach – the Process of taking stock of internal assets and expertise and using them to produce something that customers would buy. Based on these, the company either introduces a new product or acquires a company producing the suitable product. This is essential to Survive in the changing market and to change the product portfolio according to customer requirements 18
  19. 19. SWOT ANALYSIS WEAKNESS STRENGTHES Negative Publicity. World's leading brand. Decline in cash from Large scale of operations. Operating Activities. Robust revenue growth in 3 Sluggish Performance in segments. North America. SWOT ANALYSIS THREATS OPPORTUNITIES Intense Competition. Dependence on bottling Patners. Sluggish growth of Carbonated beverages. Acquisitions. Growing bottled water market. Growing Hispanic Population in U.S. . STRENGTHES: WORLD’S LEADING BRAND Coca-Cola has strong brand recognition across the globe. The company has a leading brand value and a strong brand portfolio. Business-Week and Inter-brand, a branding consultancy, recognize. Coca-Cola as one of the leading brands in their top 100 global brands ranking in2006.The Business Week-Inter-brand valued Coca-Cola at $67,000 million in 2006. Coca-Cola ranks well ahead of its close competitor Pepsi which has a ranking of 22 having a brand value of $12,690 million Furthermore; Coca-Cola owns a large portfolio of product brands. The company owns four of the top 19
  20. 20. five soft drink brands in the world: Coca-Cola, Diet Coke, Sprite and Fanta. Strong brands allow the company to introduce brand extensions such as Vanilla Coke, Cherry Coke and Coke with Lemon. Over the years, the company has made large investments in brand promotions. Consequently, Coca-cola is one of the best recognized global brands. The company‘s strong brand value facilitates customer recall and allows CocaCola to penetrate new markets and consolidate existing ones. LARGE SCALE OF OPERATIONS With revenues in excess of $24 billion Coca-Cola has a large scale of operation. Coca-Cola is the largest manufacturer, distributor and marketer of non-alcoholic beverage concentrates and syrups in the world. Coco-Cola is selling trademarked beverage products since the year 1886 in the US. The company currently sells its products in more than 200 countries. Of the approximately 52 billion beverage servings of all types consumed worldwide every day, beverages bearing trademarks owned by or licensed to Coca-Cola account for more than 1.4 billion. The company‘s operations are supported by a strong infrastructure across the world. Coca-Cola owns and operates 32 principal beverage concentrates and/or syrup manufacturing plants located throughout the world. In addition, it owns or has interest in 37 operations with 95 principal beverage bottling and canning plants located outside the US. The company also owns bottled water production and still beverage facilities as well as a facility that manufactures juice concentrates. The company‘s large scale of operation allows it to feed upcoming markets with relative ease and enhances its revenue generation capacity. 20
  21. 21. ROBUST REVENUE GROWTH IN 3 SEGMENTS Coca-Cola‘s revenues recorded a double digit growth, in three operating segments. These three segments are Latin America, ‗East, South Asia, and Pacific Rim‘ and Bottling investments. Revenues from Latin America grew by 20.4% during fiscal 2006, over 2005. During the same period, revenues from ‗East, South Asia, and Pacific Rim‘ grew by 10.6% while revenues from the bottling investments segment by 19.9%. Together, the three segments of ―Latin America‖, ―East, South Asia‖ and ―Pacific Rim‖ bottling investments, accounted for 34.8% of total revenues during fiscal 2006. Robust revenues growth rates in these segments contributed to top-line growth for Coca-Cola during 2006. WEAKNESS: NEGATIVE PUBLICITY The Coca-Cola Company has been involved in a number of controversies and lawsuits related to its relationship with human rights violations and other perceived unethical practices. There have been continuing criticisms regarding the Coca-Cola Company's relation to the Middle East and U.S. foreign policy. The company received negative publicity in India during September 2006.The company was accused by the Centre for Science and Environment (CSE) of selling products containing pesticide residues. Coca-Cola products sold in and around the Indian national capital region contained a hazardous pesticide residue. 21
  22. 22. On 10 December 2008, the US Food and Drug Administration (FDA) wrote to Mr. Muhtar Kent, President and Chief Executive Officer, to warn him that the FDA had concluded that CocaCola's product Diet Coke Plus 20 FL OZ was is in violation of the Federal Food, Drug, and Cosmetic Act. In January 2009, the US consumer group the Centre for Science in the Public Interest filed a class-action lawsuit against Coca-Cola. The lawsuit was in regards to claims made, along with the company's flavours, of Vitamin Water. Claims say that the 33 grams of sugar are more harmful than the vitamins and other additives are helpful. SLUGGISH PERFORMANCE IN NORTH AMERICA Coca-Cola‘s performance in North America was far from robust. North America is Coca-Cola‘s core market generating about 30% of total revenues during fiscal 2006. Therefore, a strong performance in North America is important for the company. In North America the sale of unit cases did not record any growth. Unit case retail volume in North America decreased 1% primarily due to weak sparkling beverage trends in the second half of 2006 and decline in the warehouse-delivered water and juice businesses. Moreover, the company also expects performance in North America to be weak during 2007. Sluggish performance in North America could impact the company‘s future growth prospects and prevent Coca-Cola from recording a more robust top-line growth. DECLINE IN CASH FROM OPERATING ACTIVITIES The company‘s cash flow from operating activities declined during fiscal 2006. Cash flows from operating activities decreased 7% in 2006 compared to 2005. Net cash provided 22
  23. 23. by operating activities reached $5,957 million in 2006, from $6,423 million in 2005. Coca-Cola‘s cash flows from operating activities in 2006 also decreased compared with 2005 as a result of a contribution of approximately $216 million to a taxqualified trust to fund retiree medical benefits. The decrease was also the result of certain marketing accruals recorded in 2005.Decline in cash from operating activities reduces availability of funds for the company‘s investing and financing activities, which, in turn, increases the company‘s exposure to debt markets and fluctuating interest rates. OPPORTUNITIES: ACQUISITIONS During 2006, its acquisitions included Kerry Beverages, (KBL), which was subsequently, reappointed Coca-Cola China Industries (CCCIL). Coca-Cola acquired a controlling shareholding in KBL, its bottling joint venture with the Kerry Group, in Hong Kong. The acquisition extended Coca-Cola‘s control over manufacturing and distribution joint ventures in nine Chinese provinces. In Germany the company acquired Apollinaire‘s which sells sparkling and still mineral water. Coca-Cola has also acquired a 100% interest in TJC Holdings, a bottling company in South Africa. Coca-Cola also made acquisitions in Australia and New Zealand during 2006. These acquisitions strengthened CocaCola‘s international operations. These also give Coca- Cola an opportunity for growth, through new product launch or greater penetration of existing markets. Stronger international operations increase the company‘s capacity to penetrate international markets and also gives it an 23
  24. 24. opportunity to diversity its revenue stream. On 25 February 2010, Coco cola confirms to acquire the Coca cola enterprises (CCE) one the biggest bottler in North America. This strategy of coca cola strengthens its operations internationally. GROWING BOTTLED WATER MARKET Bottled water is one of the fastest-growing segments in the world‘s food and beverage market owing to increasing health concerns. The market for bottled water in the US generated revenues of about $15.6 billion in 2006. Market consumption volumes were estimated to be 30 billion litres in 2006. The market's consumption volume is expected to rise to 38.6 billion units by the end of 2010. This represents a CAGR of 6.9% during 2005-2010. In terms of value, the bottled water market is forecast to reach $19.3 billion by the end of 2010. In the bottled water market, the revenue of flavored water (water-based, slightly sweetened refreshment drink) segment is growing by about $10 billion annually. The company‘s Dasani brand water is the third bestselling bottled water in the US. Coca-Cola could leverage its strong position in the bottled water segment to take advantage of growing demand for flavored water. GROWING HISPANIC POPULATION IN U.S Hispanics are growing rapidly both in number and economic power. As a result, they have become more important to marketers than ever before. In 2006, about 11.6 million US households were estimated to be Hispanic. This translates into a Hispanic population of about 42 million. The US Census estimates that by 2020, the Hispanic population will reach 60 million or almost 18% of the total US population. The economic influence of Hispanics is growing even faster than their population. Nielsen Media Research 24
  25. 25. estimates that the buying power of Hispanics will exceed $1 trillion by 2008- a 55% increase over 2003 levels. Coca-Cola has extensive operations and an extensive product portfolio in the US. The company can benefit from an expanding Hispanic population in the US, which would translate into higher consumption of Coca-Cola products and higher revenues for the company. THREATS: INTENSE COMPETITION Coca-Cola competes in the non-alcoholic beverages segment of the commercial beverages industry. The company faces intense competition in various markets from regional as well as global players. Also, the company faces competition from various non-alcoholic sparkling beverages including juices and nectars and fruit drinks. In many of the countries in which CocaCola operates, including the US, PepsiCo is one of the company‘s primary competitors. Other significant competitors include Nestle, Cadbury Schweppes, Groupe DANONE and Kraft Foods. Competitive factors impacting the company‘s business include pricing, advertising, sales promotion programs, product innovation, and brand and trademark development and protection. Intense competition could impact Coca-Cola‘s market share and revenue growth rates. DEPENDENCE ON BOTTLING PARTNERS Coca-Cola generates most of its revenues by selling concentrates and syrups to bottlers in whom it doesn‘t have any ownership interest or in which it has no controlling ownership interest. In 2006, approximately 83% of its worldwide unit case 25
  26. 26. volumes were produced and distributed by bottling partners in which the company did not have any controlling interests. As independent companies, its bottling partners, some of whom are publicly traded companies, make their own business decisions that may not always be in line with the company‘s interests. In addition, many of its bottling partners have the right to manufacture or distribute their own products or certain products of other beverage companies. If Coca-Cola is unable to provide an appropriate mix of incentives to its bottling partners, then the partners may take actions that, while maximizing their own short-term profits, may be detrimental to Coca-Cola. These bottlers may devote more resources to business opportunities or products other than those beneficial for Coca-Cola. Such actions could, in the long run, have an adverse effect on Coca-Cola‘s profitability. In addition, loss of one or more of its major customers by any one of its major bottling partners could indirectly affect CocaCola‘s business results. Such dependence on third parties is a weak link in Coca-Cola‘s operations and increases the company‘s business risks. SLIGGISH GROWTH OF CARBONATED BEVERAGES US consumers have started to look for greater variety in their drinks and are becoming increasingly health conscious. This has led to a decrease in the consumption of carbonated and other sweetened beverages in the US. The US carbonated soft drinks market generated total revenues of $63.9 billion in 2005, this representing a compound annual growth rate (CAGR) of only 0.2% for the five-year period spanning 2001-2005. The performance of the market is forecast to decelerate, with an anticipated compound annual rate of change (CAGR) of -0.3% for the five-year period 2005-2010 expected to drive the market to a value of $62.9 billion by the end of 2010. 26
  27. 27. Moreover in the recent years, beverage companies such as Coca-Cola have been criticized for selling carbonated beverages with high amounts of sugar and unacceptable levels of dangerous chemical content, and have been implicated for facilitating poor diet and increasing childhood obesity. Moreover, the US is the company‘s core market. Coca-Cola already expects its performance in the region to be sluggish during 2007. Coca-Cola‘s revenues could be adversely affected by a slowdown in the US carbonated beverage market. Coca-Cola India was the leading soft drink brand in India till 1977 when it was forced to close down its operation by a socialist government in the drive for self sufficiency. After 16 years of absence, coca cola returned to India and witnessed a different culture and economic platform. During their absence, Parle brothers introduced a new type of cola called THUMS UP. Along with, they also formulated a lemon flavoured drink, LIMCA, and mango flavoured, MAAZA. In 1993, coca cola bought the whole Parle Brother operation, in a hope to beat the main competitor (Pepsi). They presumed that with the tried and tested products of Parle they will be able to regain their throne in the Indian soft drink market. Pepsi having a 6 year head start helped revive the demand for global cola but it was not easy for the soft drink giant (coca cola) to return to India. Pepsi put more focus on the youth of the country in their advertisements but coca cola tried influencing Indians with the ‗American‘ way of life, which turned out to be a mistake. Coca-Cola invested heavily in India for the first five years, which got them credit of being one of the biggest investor in the country; however, their sales figures were not so impressive. Hence, they had to re-think their market strategies. Coca-Cola learned from Hindustan Lever that reducing their will result in more turnover, hence leading to profit. They launched an extensive market research in India. They ascertained that in India 3 As must be applied; Affordability, Availability and Acceptability. Coca-Cola learnt that they were competing with local drinks such as ―Nimbu Pani‖, ―Narial Pani‖, ―Lassi‖ etc. 27
  28. 28. and reached to a conclusion that competitive pricing was unavoidable. Since then they introduced a 200 ml glass bottle for Rs.5. Further, they had different advertising campaigns for different regions of the country. In the southern part, their strategy was to make Bollywood or Tamil stars to endorse their products. In various regions they tried portraying coca cola products with different regional food products. One of the most famous ad campaigns in India was ‗Thanda Matlab Coca-Cola‘; they featured the same quote with different regional entities. Presently, Coca-Cola is the biggest brand in soft drinks and is way ahead in market share i.e. 60% in Carbonated Soft drinks Segment, 36% in Fruit drinks Segment, 33% in Packaged water Segment, compared to its arch rival, Pepsi. Diversifying their product range and having a competitive pricing policy, they have regained their throne. With virtually all the goods and services required to produce and market Coca-Cola being made in India, the business system of the Company directly employs approximately 6,000 people, and indirectly creates employment for more than 125,000 people in related industries through its vast procurement, supply, and distribution System. The Indian operations comprises of 50 bottling operations, 25 owned by the Company, with another 25 being owned by franchisees. That apart, a network of 21 contract packers manufactures a range of products for the Company. On the distribution front, 10-tonne trucks – open bay threewheelers that can navigate the narrow alleyways of Indian cities – constantly keep our brands available in every nook and corner of the Country‘s remotest areas. 28
  29. 29. BCG MATRIX ? High Growth Of Cash Cow Do g High Low Low Relative share A Coca-cola beverage limited is now at a stage of question mark if we place it in a BCG Matrix. Because overall market is growing and it has relatively less market shares then its real competitor PEPSI. Only about 5% of the cold beverages are being utilized and this number is increasing. Coke is sold in the 1:2 approximately ratio with respect to Pepsi as market share or Coca-Cola Company is 27% and that of Pepsi is 68%. 29
  30. 30. PORTER’S FIVE FORCE ANALYSIS RIVALRY AMONG EXISTING FIRMS: The greatest competition that Coca-cola faces is from the rival sellers within the industry. Coca-Cola, Pepsi Co, and Cadbury Schweppes are among the largest competitors in this industry, and they are all globally established which creates a great amount of competition. Aside from these major players, smaller companies such as Cott Corporation and National Beverage Company make up the remaining market share. All five of these companies make a portion of their profits outside of the United States. Though Coca-Cola owns four of the top five soft drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite), it had lower sales in 2005 than did PepsiCo (Murray, 2006c). However, Coca-Cola has higher sales in the global market than PepsiCo, PepsiCo is the main competitor for Coca-Cola and these two brands have been in a power struggle for years (Murray, 2006c). Coke has been more dominant with a 53% of market share as in 1999 compared to Pepsi with a market share of 21%. 30
  31. 31. According to Beverage Digest's 2008 report on carbonated soft drinks, PepsiCo's U.S. market share has increased to 30.8%, while the Coca-Cola Company's has decreased to 42.7% due to Pepsi marketing schemes still the higher large gap between the market share can be attributed to the fact that Coca-Cola took advantage of Pepsi entering the market late and has set up its bottler's and distribution network especially in developed markets. "The Coca-Cola Company" is the largest soft drink company in the world. Every year 800,000,000 servings of just "Coca-Cola" are sold in the United States alone. Bottling plants with some exceptions are locally owned and operated by independent business people who are native to the nations in which they are located. Coca-Cola manufactures, distributes and markets nonalcoholic beverage concentrates and syrups, including fountain syrups. It supplies concentrates and beverage bases used to make the products and provides management assistance to help it's bottler's ensure the profitable growth of their business. This has put Pepsi at a significant disadvantage compared to US market. Overall, Coca-Cola continues to outsell Pepsi in almost all areas of the world. However, exceptions include India, Saudi Arabia and Pakistan. By most accounts, Coca-Cola was India's leading soft drink 31
  32. 32. until 1977 when it left India after a new government ordered, The Coca-Cola Company to turn over its secret formula for Coke and dilute its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA). In 1988, PepsiCo gained entry to India by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991 when the use of foreign brands was allowed. PepsiCo bought out its partners and ended the joint venture in 1994. In 1993, The Coca-Cola Company returned in pursuance of India's Liberalization policy. In 2005, The Coca-Cola Company and PepsiCo together held 95% market share of soft-drink sales in India. Coca-Cola India's market share was 52.5%. In Russia, Pepsi initially had a larger market share than Coke but it was undercut once the Cold War ended. In 1972, Pepsi Co Company struck a barter agreement with the government of the Soviet Union, in which Pepsi Co was granted exportation and Western marketing rights to Stolichnaya vodka in exchange for importation and Soviet marketing of Pepsi-Cola. This exchange led to Pepsi-Cola being the first foreign product sanctioned for sale in the U.S.S.R. Pepsi, as one of the first American products in the Soviet Union, became a symbol of that relationship and the Soviet policy. Brand name loyalty is another competitive pressure. The Brand Keys Customer Loyalty Leaders Survey (2004) shows the brands with the greatest customer loyalty in all industries. Diet Pepsi ranked 17th and Diet Coke ranked 36th as having the most loyal customers to their brands. The new competition between rival sellers is to create new varieties of soft drinks, such as vanilla and cherry, in order to increase sales and getting new customers. 32
  33. 33. Pepsi is however trying to counter this by competing more aggressively in the emerging economies where the dominance of Coke is not as pronounced, with the growth in emerging markets significantly expected to exceed the developed markets, rivalry in international market is going to be more pronounced. Pepsi advertisements often focused on celebrities, choosing Pepsi over Coke, supporting Pepsi's positioning as "The Choice of a New Generation." In 1975, Pepsi began showing people doing blind taste tests called Pepsi Challenge in which they preferred one product over the other. Pepsi started hiring more popular spokespersons to promote their products. In the late 1990s, Pepsi launched its most successful long-term strategy of the Cola Wars, Pepsi Stuff. Consumers were invited to "Drink Pepsi, Get Stuff" and collect Pepsi Points on billions of packages and cups. They could redeem the points for free Pepsi lifestyle merchandise. After researching and testing the program for over two years to ensure that it resonated with consumers, Pepsi launched Pepsi Stuff, which was an instant success. Tens of millions consumers participated. Pepsi outperformed Coke during the summer of the Atlanta Olympics, held at Coke's hometown where Coke was the lead sponsor for the Games. Due to its success, the program was expanded to include Mountain Dew into Pepsi's international markets worldwide. The company continued to run the program for many years, continually innovating with new features each year. Coca-Cola and Pepsi engaged in a "cyber-war" with the reintroduction of Pepsi Stuff in 2005 & Coca-Cola retaliated with Coke Rewards. This cola war has now concluded, with Pepsi Stuff ending its services and Coke Rewards still offering prizes on their website. Both were loyalty programs that give away 33
  34. 34. prizes and product to consumers after collecting bottle caps and 12 or 24 pack box tops, then submitting codes online for a certain number of points. However, Pepsi's online partnership with Amazon allowed consumers to buy various products with their "Pepsi Points", such as mp3 downloads. Both Coca-Cola and coke previously had a partnership with the iTunes Store. POTENTIAL ENTRANTS: New entrants are not a strong competitive pressure for the soft drink industry. Coca-Cola and Pepsi Co dominate the industry with their strong brand name and great distribution channels. In addition, the soft-drink industry is fully saturated and growth is small. This makes it very difficult for new, unknown entrants to start competing against the existing firms. Another barrier to entry is the high fixed costs for warehouses, trucks, and labour, and economies of scale. New entrants cannot compete in price without economies of scale. These high capital requirements and market saturation make it extremely difficult for companies to enter the soft drink industry therefore new entrants are not a strong competitive force. Capital requirements for producing, promoting, and establishing a new soft drink traditionally have been viewed as extremely high. According to industry experts, this makes the likelihood of potential entry by new players quite low, except perhaps in much localized situations that matter little to Coke or Pepsi. Yet, while this view may reflect conventional wisdom, some industry observers question whether a new time is coming, with 'new age' beverages selling to well-informed and health-informed and health-conscious consumers. This issue was beginning to grab the attention of both Coke and Pepsi in the summer of 1992, when they both were not able to explain a drop in their June 1992 sales. 34
  35. 35. SUBSTITUTES: Numerous beverages are available as substitutes for soft drinks. Citrus beverages and fruit juices are the more popular substitutes. Availability of shelf space in retail stores as well as advertising and promotion traditionally has had a significant effect on beverage purchasing behaviour. Overall total liquid consumption in the United States in 1991 included Coca-Cola's 10% share of all liquid consumption. ―For years the story in the non-alcoholic sector centred on the power struggle between Coke and Pepsi. But as the pop fight has topped out, the industry's giants have begun relying on new product flavours and looking to noncarbonated beverages for growth.‖ Substitute products are those competitors that are not in the soft drink industry. Such substitutes for Coca-Cola products are bottled water, sports drinks, coffee, and tea, juices etc. Bottled water and sports drinks are increasingly popular with the trend to be a more health conscious consumer. There are progressively more varieties in the water and sports drinks that appeal to different consumer's tastes, but also appear healthier than soft drinks. In addition, coffee and tea are competitive substitutes because they provide caffeine. The consumers who purchase a lot of soft drinks may substitute coffee if they want to keep the caffeine and lose the sugar and carbonation. Blended coffees are also becoming popular with the increasing number of Starbucks, Barista and CCD stores that offer many different flavours to appeal to all consumer markets. It is also cheap for consumers to switch to these substitutes making the threat of substitute products very strong (Data monitor, 2005). The growth rate has been recently criticized due to the market 35
  36. 36. saturation of soft drinks. Data monitor (2005) stated, ―Looking ahead, despite solid growth in consumption, the global soft drinks market is expected to slightly decelerate, reflecting stagnation of market prices.‖ The change attributed to the other growing sectors of the non-alcoholic industry including tea & coffee is 11.8% and bottled water is 9.3%. Sports drinks and energy drinks are also expected to increase in growth as competitors start adopting new product lines. Profitability in the soft drink industry will remain rather solid, but market saturation has caused analysts to suspect a slight deceleration of growth in the industry (2005). Because of this, soft drink leaders are establishing themselves in alternative markets such as the snack, confections, bottled water, and sports drinks industries. In order for soft drink companies to continue to grow and increase profits they will need to diversify their product offerings. So in order to compete with the substitutes industry, coca-cola has diversified from just carbonated drink industry to other substitute and so have other brands like Pepsi, Dr pepper/Snapple. BARGANING POWER OF BUYERS: Individual consumers are the ultimate buyers of soft drinks. However, Coke and Pepsi's real 'buyers' have been local bottlers who are franchised -or are owned, especially in the case of Coke- to bottle the companies' products and to whom each company sells its patented syrups or concentrates. While Coke and Pepsi issue their franchise, these bottlers are in effect the 'conduit' through which these international cola brands get to local consumers Through the early 1980's, Coke's domestic bottlers were typically independent family businesses deriving from franchises issued early in the century. Pepsi had a collection of 36
  37. 37. similar franchises, plus a few large franchisees that owned many locations. Until 1980, Coke and Pepsi were somewhat restricted in owning bottling facilities, which was viewed as a restraint of free trade. Jimmy Carter, a Coke fan, changed that by signing legislation to allow soft-drink companies to own bottling companies or territories, plus upholding the territorial integrity of soft-drink franchises, shortly before he left office. Also, the three most important channels for soft drinks are supermarkets, fountain sales, and vending. In 1987, supermarkets accounted for about 40% of total U.S. soft drink industry sales, fountain sales represented about 25%, and vending accounted for approximately 13%. Other retailers represent the remaining percentage. While both Coca-Cola and Pepsi distribute their bottled soft drinks through a network of bottling companies, Coca-Cola uses its own network of wholesalers for their fountain syrup distribution, and Pepsi distributes its fountain syrup through its bottlers. BARGANING POWER SUPPLIERS: The principal raw material used by the soft-drink industry in the United States is high fructose corn syrup, a form of sugar, which is available from numerous domestic sources. The principal raw material used by the soft-drink industry outside the United States is sucrose. It likewise is available from numerous sources. Another raw material increasingly used by the soft-drink industry is aspartame, a sweetening agent used in low-calorie soft-drink products. Until January 1993, aspartame was available from just one source -the NutraSweet Company, a subsidiary of the Monsanto Company- in the United States due to its patent, which expired at the end of 1992. Coke managers have long held 'power' over sugar suppliers. They view the recently expired aspartame patents as only enhancing their power relative to suppliers. 37
  38. 38. ICONIC BRAND ―The Coke Side of Life‖ campaign takes on the most recent cultural contradiction in the youth segment by addressing its widespread desire to be viewed as expressive individuals and alleviating anxiety created by misrepresentations in reality television. Using Holt‘s theory, The Stalwart Group will position Coca-Cola Classic – an already iconic brand – as a product that accepts and promotes individuality, expression and realism as the solution to the false representation of truth in reality television. The truth is, you are often a product of your environment – a combination of everything you surround yourself with. Our target market is slowly accepting what reality television portrays as genuine. From make-up to friendships, teenagers keep everything very near to the surface – just in case a new trend or belief comes along and changes what is considered ―cool.‖ Individuality lies underneath the surface and is not invited by society to shine through. The Stalwart Group‘s integrated marketing communications campaign will break through reality television‘s chokehold on today‘s youth by addressing and resolving the cultural contradiction that youth experiences on a daily basis. 38
  39. 39. CONCLUSION Coca Cola is a truly global company with presence in multiple countries. The company‘s biggest competitive strength comes from the strong brand that has been developed over 125 years of consistent marketing efforts. Economies of scale and the network with suppliers and distributors Also contribute to the success. Marketing and advertising has been the most important function that has taken Coca Cola to new heights. The company has adopted innovating marketing techniques right from the times of Candler and Robert Woodruff. Apart from usual advertising through bill boards and news papers, Coca Cola focused on organizations, universities and colleges and this increased sales while promoting the brand name. 39
  40. 40. BIBLIOGRAPHY www.thecoca-colacompany.com www.google.com Bell, L., 2004. The Story of Coca Cola. Mankato: Smart Apple Media Kotler, P., 1991. Marketing Management Henry, A. 2008. Understanding Strategic Management. New York: Oxford university WIKIPEDIA SHREERAJ HARIHARAN ROLL NO 36 M.COM PART- I SEMESTER- I 40