1. Question A : Current Company Situation 1. Current
Performance
2. Month Coca-Cola AMBEV Others January 50.60% 16.50% 32.90%
February 50.50% 16.10% 33.40% March 50.20% 15.80% 34.00% April
48.90% 16.70% 34.40% May 48.80% 17.20% 34.00% June 49.00% 17.40%
33.60% July 50.40% 16.70% 32.90% August 50.70% 16.50% 32.80%
September 50.10% 16.40% 33.50% October 50.60% 16.40% 33.00%
November 50.40% 16.70% 32.90% December 50.10% 17.20% 32.70% Average
50.03% 16.63% 33.34%
3. Financial and Strategic Objectives To make the Brazilian
subsidiary the largest overseas operation, surpassing Mexico.
Financial Objective Improve profitability and regain lost market
share. Brazils market was third in sales and 20th in profitability
for Coca Cola. Coca Colas combined sales accounted for 50% of the
soft drink market in 2003. Coca Colas above average market share
Coca Colas combined sales accounted for 50% of the soft drink
market in 2003 3/1 to ratio between Coke and Pepsi in overseas sale
Coke grew 30% worldwide in 2003 compare to Pepsi 2% Pepsi held 6%
of soft drink market in Brazil, while in the Cola segment it was
number 2.
4. Coke's sales are growing. Overseas annual growth is 7%. Coke
demonstrated continued improvement in its internal performance,
processes and per unit cost. Coke expended the output of Guarana
Kuat. Renovated production facilities and Planted 200 hectares of
guarana to flavor Kuat. Coke's technology, product innovation and
delivery of products to customers is better than rivals etc. In
2003, Coke reintroduced returnable glass bottles. The lower price
of this made Coke more accessible to class C and D consumers. In
partnership with Norsa, Coke regained distribution in several
northeastern states. This led to 40% growth in operational
profit.
5. Question A : Current Company Situation II. Strategic Posture
a. Mission b. Objective c. Strategies
6. Strategic Posture Defensive strategy: In 1999, Coca cola
took quick action and cut its price from 1.80 $ to 1.25 $ to stop
tubainas growth. Expended the number of brands offered in the
market. Coca Cola designed returnable bottles price quite close to
tubainas so it appealed and became accessible to class C and D
consumers. Mission To gain a maximum market share. To refresh the
world - in mind, body and spirit. To inspire moments of optimism -
through our brands and actions. To create value and make a
difference everywhere we engage.
7. Objectives To improve the subsidiarys profitability, sales
and obtain customers loyalty in order to gain market share.
Strategies Coca Colas current strategy is in process to switch to
Low-Cost provider from Best-Cost Provider. Coca Cola has applied
Best-Cost strategy in Brazil with efforts to match the price of
tubainas as close as possible. It cut down its cost and final price
to the consumer to compete with lowest priced tubainas
8. Acquisition Coca Cola took over some competitive brands to
undercut growth of tubainas. Vertical Integration The company
promoted changes in its distribution channels, such as buying back
franchisee operations. Strategic Alliance Coca Cola entered a
partnership with Norsa to regain control of distribution in several
northeastern states. It boosted its market share in 2003.
9. Question B. Industry Analysis 1. Competitive Intensity
10. Factors HUFA MUFA Neutral MFA HFA Comment Economies of
scale Capital required Access to distribution channels Expected
retaliation Even small size companies can compete at low cost A new
entrant can easily locally produce and market its product. Several
tubainas brands were available in the leading supermarket chain at
low prices Coca cola was accused of economic abuse and unfair
business practiced by one of the tubaina
11. Factors HUFA MUFA Neutral MFA HFA Comment Differentiati on
Brand Loyalty Govt. Action Low differentiation among most competing
products. Brand loyalty is very little for the major part of
market. Brazilian authorities overlooked tax evasion practiced by
existing tubainas competitors.
12. Factors HUA MUA Neutral MA HA Comment Specialized Assets
Fixed Cost of Exit Strategic interrelatio nship Governme nt
Barriers Assets are easily convertible to other related products
Companies do not have to incur significant cost of exit due to the
presence of number of small brands Pepsi and Coke both have
strategic alliances with local distributors As such no government
barriers
13. Factors HUFA MUFA N MFA HFA Comments No. of important
Suppliers Switching cost Threat of forward integration No shortage
for the sources of raw materials in the market hence low cost of
switching reduced supplier power. No such occurrence was
reported.
14. Factors HUFA MUFA N MFA HFA Comment Threat of Obsolescence
of Industrys product Switching Cost Aggressiveness of substitute
products in promotion Perceived No such threat. Consumers were
enjoying relatively low cost substitute Substitutes are aggressive
in offering lowest cost C and D class buyers were price sensitive.
Returnable bottles by Coca Cola still caught their attention C and
D class buyers were price sensitive
15. Factors HUFA MUFA N MFA HFA Comments Importance of Buyer
industry to suppliers profit Quantity purchased by the industry of
suppliers product Suppliers product an important input to the
buyers business Cisper welcomed Coca Colas move for returnable
bottles as it would increase its sales by 20%. The soft drink
company buys in huge quantity and it have long term- stable
relationships Beverage and Bottlers had few requirements which are
easily available from other suppliers.
16. Factors HUFA MUFA N MFA HFA Comments Number of Important
buyers Threat of Backward Integration Switching cost Coca cola's
buyers consist of chain of leading supermarkets, stores etc. In
1996, DGB, leading distributor developed Frevo, its own soft drink.
No such instance reported again Cost associated concerns by leading
supermarket chains give them a bit of edge
17. Factors HUFA MUFA N MFA HFA Comments Profit earned by buyer
Importance to final quality of buyers Pr. A quarter of sales
through supermarkets Consumers were more inclined to tantalizing
taste and lower price than the quality of the soft drinks. This
should lead distributors placing low cost products than high
quality
18. Factors HU MU N MFA HFA Comments Composition of Competitors
Mkt. Growth rate Scope of competition Fixed storage Cost Many small
competitors Marketing growing rapidly. Huge market potential
Presence of Pepsi and RC Cola with Coca Cola enhanced the scope of
competition to global level Soft drinks come with a limited
expiration date
19. Factors HU MUFA Neu MFA HFA Comments Capacity Increase
Degree of differentia tion Strategic Stake AmBev and Coca Cola had
large plants at disposable to compete in the market. Degree of
differentiation was little in spite of various major players
competing Strategic Stake is high for both local and global
competitors
20. Overall Industry Attractiveness Factors Unfavorable Neutral
Favorable Entry Barriers Exit Barriers Rivalry among existing firms
Power of buyers Power of Suppliers Threat of substitutes
21. Economic Growth Brazil has high market growth rate and
potential consumers of Soft drinks. High growth markets included
Latin America and Asia as China (29%) and India (17%) and
Philippines A new Entrant RC Cola entered the market seeing the
growth and potential of the market. A taste backed by consumer
preferences in US.
22. Changes in cost and efficiency Coca cola attempted
different strategies to undercut Tubainas growth for about a
decade. Consumer shifts were observed among the price sensitive
Brazilian consumers throughout the cut throat competition with
considerable decline in their profitability Strategic Partnerships
Partnerships between local companies and global players will ensue
more partnerships among new and old competitors which will make the
market very competitive on price and distribution, eventually.
23. Question C. Internal Analysis 1. Coca colas financial
analysis for the year 2003
24. Liquidity Ratio Current Ratio: Current Assets/Current
Liability. 8396/7886 = 1.06 Quick Ratio: Liquid Assets/current
Liabilities 3322/7886 = 0.42 Inventory to working Capital Ratio:
Inventory/Working capital 1252/812 = 1.54
25. Profitability Ratios Net Profit Margin: Net profit *
100/sales 933843*100/21044 = 16.306 Operating Profit Margin:
Operating Income* 100/Sales Revenue 5,221* 100/21,044 = 24.00 Gross
Profit Margin: Gross Profit * 100/sales 13282 * 100/21044 = 61.11
Return on Investment (ROI): Net Income/Average total asset
4347/8860 = 0.44 Return on Equity (ROE): Net Income / Average
Stockholders Equity 4347/14090 = 0.30 Earning per share: (Net
profit after tax Preference dividend) / No. of equity common Shares
4,347/ 25,570 = .17
26. Activity Ratio Inventory Turnover: sales/Inventory of
finished goods 21044/1252 = 16.00 Asset Turnover: Sales/total
Assets 21044/27342 = 0.70 Account Receivable Turnover: Net Credit
Sales/Account Receivable 21044/2091 = 10.06
27. Leverage Ratios Debt to Asset Ratio: Total Debt/Total
Assets 2517/27342 = 0.072 Debt to Equity Ratio: Total
Liabilities/Equity 2512/29961 = 0.0038 Long Term Debt to Capital
Structure: Debts/Share holder Equity + Debts 2517/32478 = 0.047
Long-term debt to equity ratio: Total Long Term Debts /
Shareholders Fund 2517/29961 = 0.004 Times Interest Earned: Earning
before Interest and Tax/Net Interest Expense 5,495/ 178 =
30.07
28. Other Important Financial Measures Dividend yield on common
stock: Annual Dividend per Share / Market Price of the Stock
2166/0.88 = 2401.3 Price/Earnings Ratio: Net income/Total number of
shares 4347/2442 = 1.4 Dividend payout ratio Annual Dividend per
Share/Earning per Share 2166/.17 = 12741
29. Question C. Internal Analysis 2. Develop IFE Matrix
30. INTERNAL FACTOR EVALUATION MATRIX Weight Rating Weighted
Score Strengths 39 Manufacturing Plants-Largest Commercial Fleet
0.1 3 0.3 Market leader in Brazil with 50% MKT Share. 0.09 4 0.36
Product available at one million point of sale 0.15 4 0.6 Strong
distribution channel 0.18 4 0.72 Continuous growth in sale 0.05 4
0.2 Strong Financial position. 0.2 4 0.8 Weaknesses Low coke
consumption i.e. 80 ounce/person annually 0.06 1 0.06 profitability
ranked 20th position 0.07 2 0.14 Price dropped nearly 30% annually
0.1 1 0.1 Total 1 3.28
31. Question C. Internal Analysis 2. Develop EFE Matrix
32. Facts explaining Strategic FactorsKey External factors
Opportunities Weight Rating Weighted Score Market size is very
large i.e. 180million 0.1 3 0.3 Highest market growth rates in
Latin America 0.1 2 0.2 increase purchasing power 0.07 4 0.28
Shortage of vending machine 0.08 2 0.16 Changes in buyer
preferences 0.06 3 0.18 Small towns are still untapped 0.1 3 0.3
Threats 0 Low Cost Providers 0.1 3 0.3 Lack of govt. and legal
regulation 0.1 4 0.4 Unethical business practices by tubainas 0.09
4 0.36 Competitive pressure by Pepsi and AMBEV partnership 0.1 4
0.4 Competition by RC cola 0.07 1 0.07 shortage of shelf place 0.03
1 0.03
33. Question C. Internal Analysis 3. Develop Tows Matrix
34. Strength Weaknesses 1. 39 Manufacturing Plants 2. Market
Leader-50% MKT Share 3. Product available at one million point of
sale 4. Strong distribution channel 5. Continuous growth in sales
6. Strong Financial position. 1. Low coke consumption i.e. 80
ounce/person annually 2. In profitability ranked 20th position 3.
Price dropped nearly 30% annually Opportunities Threats 1. Market
size is very large i.e. 180million 2. Highest market growth rates
in Latin America 3. Economic stability plan increase purchasing
power 4. Continuous growth in industry by 5% annually 5. Shortage
of vending machine 6. Changes in buyer preferences 7. Small towns
are still untapped 1. Low Cost Providers 2. Lack of govt and legal
regulation 3. Unethical business practices by tubainas 4.
Competitive pressure by AMBEV and Pepsi Partnership 5. Competition
by RC cola 6. Shortage of shelf place
35. TOWS Strategies SO STRATEGIES Introduce new product in
existing market (S1, S2, S3, O2, O6) Enter in new markets with
existing product ( S4, S6,O7) WO STRATEGIES Install vending machine
to increase the consumption and make drink available to customer at
more locations(O5, W1) Enter small towns and earn higher
profitability (O7, W2) ST STRATEGIES Introduce different variants
to compete against competitors products .(T1,S1) TW STRATEGIES
Enter in untapped markets as Low-Cost providers to increase the
availability and coke consumption. .(T1,W1)
36. Question C. Internal Analysis 4. Develop SPACE Matrix
37. 3 PRICE RANGE OF COMPETITIVE PRODUCTS -5 BARRIERS TO ENTRY
-5 COMPETITIVE PRESSURE -4 PRICE ELASTICITY OF DEMAND - 3 AVERAGE
SCORE -23/7=- 3.29 Industry Strength ( IS) Growth Potential 5
Profit Potential 2 Technological Know how 5 Resource utilization 6
Capital Requirement 6 Ease of Entry 4 Productivity, capacity
Utilization 3 Average Score 31/7=4.42 Financial Strength (FS) (+)
Return on Investment 6 Leverage 3 Liquidity 4 Working capital 3
Cash Flow 3 Ease of exit PRODUCT LIFE CYCLE -3 CUSTOMER LOYALTY -6
COMPETITIONS CAPACITY UTILIZATION - 2 TECHNOLOGICAL KNOW HOW -2
CONTROL OVER SUPPLIERS AND DISTRIBUTORS -1 AVERAGE SCORE 17/7=-
2.42
38. Space Matrix ES (-3.29) + FS (3.71) = 0.42 CA (-2.42) + IS
(4.42) = 2
39. Question C. Internal Analysis 5. Identify three alternative
strategies. Discuss its pros and cons
40. 1. Coca Cola can make further acquisitions of local soft
drinks with financial muscles and threatening market share and
increase its market share and profitability in eventually. Pros: It
will help in regaining mainly the control of the market share and
ease up the downward pressure on price. Cons: It may put strain on
the yearly profitability of Coca Colas operation in Latin America
and still not prevent new rivals from entering the market.
41. 2. Develop new products for existing market by innovating
new variants and products at a rapid pace to outcompete local
tubainas producers. Pros: It will help differentiating Coca Colas
products from rivals. Products boasting different attributes will
bring higher profits and will release competitive pressure on
sales. Cons: It may attract big local competitors to introduce new
similar products to Coca Colas which may make it an expensive
strategic move for Coca Cola in the end
42. 3. Aggressively target with markets consisted of towns and
increase its market share and profitability. Pros: It will give
Coca Cola first mover advantage in the new markets thus longer
sustainability of growth and profitability. Cons: It may require
forming partnerships with local supply chain partners to have
access to towns away from main urban markets. The new distribution
partners may be costly and ineffective in conquering the new
geographic areas
43. Make further acquisitions of local soft drinks with
threatening financial muscles and market share to increase its
market share and profitability.