1. Coca-Cola Company
A. 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. 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 employees
D. 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 Schweppes
Critical Success Weight Rating Weighte Rating Weighted Rating Weighted
Factors d Score Score Score
Market Share 0.15 4 0.60 3 0.45 2 0.30
Price Comp 0.10 3 0.30 3 0.30 3 0.30
Financial Position 0.12 4 0.48 4 0.48 3 0.36
Product Quality 0.15 3 0.45 3 0.45 3 0.45
Product Lines 0.15 4 0.60 4 0.60 3 0.45
Customer Loyalty 0.15 4 0.60 4 0.60 3 0.45
Employees 0.11 3 0.33 3 0.33 3 0.33
Marketing 0.07 3 0.21 3 0.21 3 0.21
Total 1.00 3.71 3.56 2.85
External Factor Evaluation (EFE) Matrix
2
3. Key External Factors Weight Rating Weighted
Score
Opportunities
1. 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.
Threats
1. 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
advertising
3. 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 2.84
E. 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. 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. 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.com
Net Worth Analysis (December 2006 in millions)
1. Stockholders’ Equity + Goodwill = 17,000 + 1,400 $ 18,400
2. Net income x 5 = $5,000 x 5= $ 25,000
3. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000= $ 123,931
4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 = $ 92,800
Method Average $65,032
Internal Factor Evaluation (IFE) Matrix
Key Internal Factors Weight Rating Weighted
Score
Strengths
1. Product line has over 400 brands. 0.09 4 0.36
2. Strong global presence, located in over 200 0.10 4 0.40
countries.
3. Long history has built excellent brand recognition. 0.06 4 0.24
4. 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 0.12
7. 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. 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.
Weaknesses
1. Product line is limited to beverages. 0.09 1 0.09
2. 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 3.09
F. 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
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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
ES
Financial Strength (FS) Environmental Stability (ES)
Return on Assets (ROA) 6 Rate of Inflation -3
Leverage 6 Technological Changes -2
Net Income 6 Price Elasticity of Demand -2
Income/Employee 6 Competitive Pressure -6
Inventory Turnover 3 Barriers to Entry into Market -3
Financial Strength (FS) Average 5.4 Environmental Stability (ES) Average -3.2
Competitive Advantage (CA) Industry Strength (IS)
Market Share -1 Growth Potential 5
Product Quality -1 Financial Stability 6
Customer Loyalty -1 Ease of Entry into Market 4
Technological know-how -2 Resource Utilization 5
Control over Suppliers and Distributors -2 Profit Potential 5
Competitive Advantage (CA) Average -1.4 Industry Strength (IS) Average 5.0
x-axis: -1.4 + 5.0 = 3.6
y-axis: 5.4 + -3.2 = 2.2
Coordinate: (3.6, 2.2)
H. Grand Strategy Matrix
7
8. Rapid Market Growth
Quadrant II Quadrant I
Weak Strong
Competitive Competitive
Position Position
Quadrant III Quadrant IV
Slow Market Growth
I. The Internal-External (IE) Matrix
8
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 VI
The EFE Total 2.0 to 2.99
Weighted
Score Coca Cola
Low VII VIII IX
1.0 to 1.99
Grow and Build
Divisions Percent Revenue 2006
North America 29.1
Bottling Investments 21.2
North Asia, Eurasia & Middle East 16.5
European Union 14.6
Latin America 10.3
Africa 4.6
East, South Asia & Pacific Rim 3.3
Corporate 0.4
J. QSPM
9
10. Strategic Alternatives
Acquire KKD and Produce new
GLDC diet drinks that
have healthier
Key Internal Factors sugar
Weight substitutes
Strengths AS TAS AS TAS
1. Product line has over 400 brands. 0.09 2 0.18 4 0.36
2. 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 0.12
7. 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.
Weaknesses
1. Product line is limited to beverages. 0.09 4 0.36 1 0.09
2. 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 diet
Key External Factors GLDC drinks that have
Weight healthier sugar
substitutes
Opportunities AS TAS AS TAS
1. 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. 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 0.21
Threats
1. 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
advertising
3. 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 1.44
SUM TOTAL ATTRACTIVENESS SCORE 2.97 2.66
K. 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 $ 107
2. Net income x 5 = $-42 x 5= $ NA
3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42= $ NA
4. Number of Shares Outstanding x Share Price = 65 x $2.73 = $ 177
Method Average $142
Golden Enterprises (GLDC) Net Worth January 2008 (in millions).
11