Business Strategy of Coca-Cola & Analysis

Submitted By

Md. Mahabub Alam ID: 082028025

Rabeya Akter ID: 081098025

Jannatul Mawa Mim ID: 083048025

A Report

Submitted to the Presidency University

As a fulfillment of the Partial

Requirement for the

Course Code: MGT 493 of BBA program

Supervisor:

Prof. Muhammad Mahboob Ali,

Head, Department of M.H School of Business

Submissin Date: 15th april, 2012

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Declaration

We do hereby declare that the report title: “Business Strategy of Coca-Cola & Analysis” submitted to the supervisor Prof. Muhammad Mahboob Ali, Head, Department of M.H School of Business for completion of the course Code No. MGT-493. This is an original work of us. No part of it, in any form, has been submitted to any university or Institute for any degree, diploma or for other similar purpose.

Md. Mahabub Alam ID: 082028025

Rabeya Akter ID: 081098025

Jannatul Mawa Mim ID: 083048025

Presidency University

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Table of Content

Executive Summary 4

Introduction 5

Vision 6

Mission 6

Objectives 7

Methodologies 7

Present Status of Coca-Cola 8

History of Coca Cola 8

Brands of Coca Cola 11

Consumer Choice at A Glance 13

Different Players In the Soft Drinks Market 14

Analysis of Findings 15

The Value Of the Company 15

Internal and External Analysis Of Coca-Cola 16

SWOT Analysis 20

Coca-Cola: Value Chain Model 23

Recommendations 24

Conclusion 25

Reference 26

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EXECUTIVE SUMMARY

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. Coca-Cola was first introduced by John Syth Pemberton, a pharmacist, in the year 1886 in Atlanta, Georgia when he concocted caramel-colored syrup in a three-legged brass kettle in his backyard.

Coca-Cola originated as a soda fountain beverage in 1886 selling for five cents a glass. Early growth was impressive, but it was only when a strong bottling system developed that Coca-Cola became the world-famous brand it is today.

The main objective of this study lies in understanding the organization and studying and understanding the consumers’ perception and opinion about the latest product, Minute Maid Pulpy Orange by the Coca-Cola Company

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INTRODUCTION

Coca-Cola Company is the world's largest nonalcoholic beverage company.

It offers a portfolio of world class quality sparkling and still beverages, starting with Coca-

Cola® and extending through over 400 soft drinks, juices, teas, coffees, waters, sports and

energy drinks that refresh, hydrate, nourish, relax and energize.

Coca-Cola has more than 400 brands are nearly 2,400 beverage products. Four of the world's

top-five soft-drink brands are : Coca-Cola, Diet Coke®, Sprite® and Fanta®. Thums Up and

Limca, which are formulated to appeal to local cultures and lifestyles.

With operations in more than 200 countries, we have a diverse workforce of approximately

55,000 Company employees.

Coca Cola family of beverages accounts for approximately 1.3 billion servings worldwide of the

50 billion beverage servings consumed every day-a figure that indicates both strength and

growth opportunity of the company.

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VISION:

Our vision guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable growth.

People: Being a great place to work where people are inspired to be the best they can be.

Portfolio: Bringing to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs.

Partners: Nurturing a winning network of customers and suppliers, together we create mutual, enduring value.

Planet: Being a responsible citizen that makes a difference by helping build and support sustainable communities.

Profit: Maximizing long-term return to shareowners while being mindful of our overall responsibilities.

MISSION :

Our mission declares our purpose as a company. It serves as the standard against which we weigh our actions and decisions. It is the foundation of our Manifesto.

(1) To refresh the world in body, mind and spirit.(2) To inspire moments of optimism through our brands and our actions.(3) To create value and make a difference everywhere we engage.

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Objectives

To analysis the brand value of Coca-Cola

To analysis Porter’s five forces model in Coca-Cola

To find out the value chain of Coca-Cola

Methodologies:

This report relies principally on the contributions only one source

Secondary Sources:

Company’s websites

Internet

Article

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PRESENT STATUS OF COCA-COLA

The Coca-Cola bottling system grew up with roots deeply planted in local communities. This

heritage serves the Company well today as people seek brands that honor local identity and the

distinctiveness of local markets. As was true a century ago, strong locally based relationships

between Coca-Cola bottlers, customers and communities are the foundation on which the entire

business grows.

HISTORY OF COCA COLA

Coca-Cola® originated as a soda fountain beverage in 1886 selling for five cents a glass. Early growth was impressive, but it was only when a strong bottling system developed that Coca-Cola became the world-famous brand it is today.

1894 – A modest start for a Bold Idea

In a candy store in Vicksburg, Mississippi, brisk sales of the new fountain beverage called Coca-Cola impressed the store's owner, Joseph A. Biedenharn. He began bottling Coca-Cola to sell, using a common glass bottle called a Hutchinson.

Biedenharn sent a case to Asa Griggs Candler, who owned the Company. Candler thanked him but took no action. One of his nephews already had urged that Coca-Cola be bottled, but Candler focused on fountain sales.

1899 The first bottling agreement

Two young attorneys from Chattanooga, Tennessee believed they could build a business around bottling Coca-Cola. In a meeting with Candler, Benjamin F. Thomas and Joseph B. Whitehead obtained exclusive rights to bottle Coca-Cola across most of the United States (specifically excluding Vicksburg) -- for the sum of one dollar. A third Chattanooga lawyer, John T. Lupton, soon joined their venture.

1900-1909 … Rapid growth

The three pioneer bottlers divided the country into territories and sold bottling rights to local entrepreneurs. Their efforts were boosted by major progress in bottling technology, which improved efficiency and product quality. By 1909, nearly 400 Coca-Cola bottling plants were

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operating, most of them family-owned businesses. Some were open only during hot-weather months when demand was high.

1916 … Birth of the contour bottle

Bottlers worried that the straight-sided bottle for Coca-Cola was easily confused with imitators. A group representing the Company and bottlers asked glass manufacturers to offer ideas for a distinctive bottle. A design from the Root Glass Company of Terre Haute, Indiana won enthusiastic approval in 1915 and was introduced in 1916. The contour bottle became one of the few packages ever granted trademark status by the U.S. Patent Office. Today, it's one of the most recognized icons in the world - even in the dark!

1920s … Bottling overtakes fountain sales

As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in the U.S. Their ideas and zeal fueled steady growth. Six-bottle cartons were a huge hit after their 1923 introduction. A few years later, open-top metal coolers became the forerunners of automated vending machines. By the end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales.

1920s and 30s … International expansion

Led by longtime Company leader Robert W. Woodruff, chief executive officer and chairman of the Board, the Company began a major push to establish bottling operations outside the U.S. Plants were opened in France, Guatemala, Honduras, Mexico, Belgium, Italy, Peru, Spain, Australia and South Africa. By the time World War II began, Coca-Cola was being bottled in 44 countries.

1940s … Post-war growth

During the war, 64 bottling plants were set up around the world to supply the troops. This followed an urgent request for bottling equipment and materials from General Eisenhower's base in North Africa. Many of these war-time plants were later converted to civilian use, permanently enlarging the bottling system and accelerating the growth of the Company's worldwide business.

1950s … Packaging innovations

For the first time, consumers had choices of Coca-Cola package size and type -- the traditional 6.5-ounce contour bottle, or larger servings including 10-, 12- and 26-ounce versions. Cans were also introduced, becoming generally available in 1960.

1960s … New brands introduced

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Following Fanta® in the 1950s, Sprite®, Minute Maid®, Fresca® and TaB® joined brand Coca-Cola in the 1960s. Mr. Pibb® and Mello Yello® were added in the 1970s. The 1980s brought diet Coke® and Cherry Coke®, followed by POWERADE® and DASANI® in the 1990s. Today hundreds of other brands are offered to meet consumer preferences in local markets around the world.

1970s and 80s … Consolidation to serve customers

As technology led to a global economy, the retailers who sold Coca-Cola merged and evolved into international mega-chains. Such customers required a new approach. In response, many small and medium-size bottlers consolidated to better serve giant international customers. The Company encouraged and invested in a number of bottler consolidations to assure that its largest bottling partners would have capacity to lead the system in working with global retailers.

1990s … New and growing markets

Political and economic changes opened vast markets that were closed or underdeveloped for decades. After the fall of the Berlin Wall, the Company invested heavily to build plants in Eastern Europe. And as the century closed, more than $1.5 billion was committed to new bottling facilities in Africa.

21st Century

The Coca-Cola bottling system grew up with roots deeply planted in local communities. This heritage serves the Company well today as people seek brands that honor local identity and the distinctiveness of local markets. As was true a century ago, strong locally based relationships between Coca-Cola bottlers, customers and communities are the foundation on which the entire business grows.

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BRANDS OF COCA COLA

Coca-Cola Zero® has been one of the most successful product launch hes in Coca Cola’s history. In 2007, Coca Cola’s sold nearly 450 million cases globally. Put into perspective, that's roughly the same size as Coca Cola’s total business in the Philippines, one of our top 15 markets. As of September 2008, Coca-Cola Zero is available in more than 100 countries.

Energy Drinks

For those with a high-intensity approach to life, Coca Cola’s brands of Energy Drinks contain ingredients such as ginseng extract, guarana extract, caffeine and B vitamins.

Juices/Juice Drinks

We bring innovation to the goodness of juice in Coca Cola’s more than 20 juice and juice drink brands, offering both adults and children nutritious, refreshing and flavorful beverages.

Soft Drinks

Coca Cola’s dozens of soft drink brands provide flavor and refreshment in a variety of choices. From the original Coca-Cola to most recent introductions, soft drinks from The Coca-Cola Company are both icons and innovators in the beverage industry.

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Sports Drinks

Carbohydrates, fluids, and electrolytes team together in Coca Cola’s Sports Drinks, providing rapid hydration and terrific taste for fitness-seekers at any level

Tea and Coffee

Bottled and canned teas and coffees provide consumers' favorite drinks in convenient take-anywhere packaging, satisfying both traditional tea drinkers and today's growing coffee culture.

Water

Smooth and essential, our Waters and Water Beverages offer hydration in its purest form.

Other Drinks

So much more than soft drinks. Coca Cola’s brands also include milk products, soup, and more so you can choose a Coca Cola Company product anytime, anywhere for nutrition, refreshment or other needs.

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CONSUMER CHOICE AT A GLANCE

Coca-Cola Mainly preferred by the Youngster & Kids.

Thums-Up Youngster.

Limca Common Drink.

Fanta Basically Preferred by Ladies and Kids.

Maaza Also Ladies and Kids.

Sprite Not clearly defines.

Kinley Soda Mostly those who consume liquor.

DIFFERENT PLAYERS IN THE SOFT DRINKS MARKET

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PEPSI

Caleb Brandhum, a North Caroline Pharmacist, structure Pepsi Cola In2 the 1890’s as cure of dyspepsia (indigestion). In 1902, Bradhum applied for a trade mark, issued ninety seven share of stock and began selling Pepsi syrup in earnest. In his first year of business he spend $1900 on advertising a huge sum that he sold only 8000 gallons of syrup. In 1905 Bradhum built Pepsi’s bottling plant. By 1907 he was selling 10,000 gallons a year, two years later, he hired a New York advertising agency. After passing through many troubles for some period now Pepsi is a market leader in international arence and is available in 187 Nations throughout the world.

CADBURY SCHWEPPES

Cadbury Schweppes are joined force of Cadbury found in 1824 of U.K. and Schweppes of Ireland founded in 1783. Cadbury Schweppes is unified bussing which manages the relations his with over 240 franchised bottling operation on Zambia and Zimbabwe. Cadbury Schweppes has fottlery and partnership operations in 14 countries around the world.

ANALYSIS OF FINDINGS

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The value of the company

Financial and Value Review

Defensive:

1) Size of firm Net worth of $16.92billion

2) Financial condition with a weighted current ratio of 0.94 Coke falls below the required 2, therefore they fail this test.

3) Earnings stability there has been positive net income for the past ten years and they 8pass this test.

4) Earnings growth Earnings are greater than five years ago. Pass.

Overall we would not suggest Coke being placed in the defensive investor’s portfolio at this time.

Opinion:Seeing that currently Coke is trading at a much higher price than our internal valuation we would be skeptical to purchase this security at this time. However, Coke is an excellent firm with great management, products, dividend history, and earnings. This stock we would place on our review list and periodically watch the share price to see if it dips and falls more in line with what we would be comfortable paying.

Internal and external analysis of Coca-Cola:

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COCA COLA - RATIO ANALYSIS

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  2006 2005 2004

  $ Percent $ Percent $

Income Statement(in millions)  

(in millions)  

(in millions)

Revenue 24,088 100.0% 23,104 100.0% 21,962

Cost of Goods Sold 8,164 33.9% 8,195 35.5%  

Interest Expense 220 0.9% 240 1.0%  

Tax Expense 1,498 6.2% 1,818 7.9%  

Income from Cont Operations 5,080 21.1% 4,872 21.1% 4,847

Net Income 5,080 21.1% 4,872 21.1%  

         Balance Sheet        

Cash 2,440 8.1% 4,701 16.0%  

Short Term Investments 150 0.5% 66 0.2%  

Accounts Receivable 2,704 9.0% 2,281 7.8% 2,171

Inventory 1,641 5.5% 1,424 4.8% 1,420

Current Assets 8,441 28.2% 10,250 34.8%  

Long Term Investments 6,783 22.6% 6,922 23.5%  

Net Fixed Assets 6,903 23.0% 5,786 19.7%  

Other Assets 7,668 25.6% 6,469 22.0%  

Total Assets 29,963 100.0% 29,427 100.0% 31,327

Current Liabilities 8,890 29.7% 9,836 33.4%  

Total Liabilities 13,043 43.5% 13,072 44.4%  

Stockholders' Equity 16,920 56.5% 16,355 55.6%  

           Cash Flow          

Cash Flow from Operations 5,957   6,423   5,968

Dividends Paid 2,912   2,679    

Interest Paid 220   240    

           Per Share          

Market Price at Year End 48.25   40.31    

Earnings Per Share - Basic 2.16   2.04    

           

RATIO ANALYSIS          Growth Ratios          

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Sales Growth 4.3%   5.2%    Income Growth 4.3%   0.5%    Asset Growth 1.8%   -6.1%    Activity Ratios          Receivable Turnover 9.7   10.4    Inventory Turnover 5.3   5.8    Fixed Asset Turnover 3.5   4.0    Profit Ratios          Profit Margin 21.1%   21.1%    Return on Assets 17.1%   16.0%    Return on Equity 30.5%   59.6%    Dividend Payout Ratio 57.3%   55.0%    Price Earnings Ratio 22.3   19.8    Liquidity Ratios          Current Ratio 0.95   1.04    Quick Ratio 0.60   0.72    Solvency Ratios          Debt to Total Assets 0.44   0.44    Times Interest Earned (Accrual) 30.90   28.88    Times Interest Earned (Cash) 28.08   27.76                          

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FINANCIAL HIGHLIGHTS

Year Ended December 31, 

2006 

($) 

2005 

($) Percent Change

Net operating revenues  24,088  23,104 4%

Operating income 6,308 6,085 4%

Net income 5,080 4,872 4%

Net income per share (basic and diluted) 2.161 2.042 6%

Net cash provided by operating activities 5,957 6,423 (7%)

Dividends paid 2,911 2,678 9%

Share repurchase activity 2,474 2,019 23%

Unit case volume (in billions)

   International operations 15.6 14.8 6%

   North America operations 5.8 5.8 0%

   Worldwide 21.4 20.6 4%

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CURRENT ORGANIZATIONAL CHART

SWOT ANALYSIS

SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats inside a company, project, or a business venture. It involves identifying the internal and external factors that are favorable/unfavorable for business to succeed

STRENGTHS

1. Brand equity/image & recognition2. Product distribution and worldwide network

3. Solid financial performance

4. One of the world's most recognized brand.

5. Product diversification (water, juices, soft drinks, sport drinks, etc)

6. Co-operate identity.

7. Innovation

WEAKNESSES

1. Credit rating

CEO

EVP/ President Bottling Invest/

Supply Chain

CFO and EVP EVP/ President

MKT Strategy

President & COO

SVP & General Counsel

SVP & Director Human

Resources

SVP & Director Public

Affairs/ Communi- -

cation

President of African Group

President European

Union Market

President of Eurasia Group

President Latin

America Group

President of Pacific Group

2. Customer concentration, particularly in the US (Wal-Mart accounts for more than 10% of Coca Cola's business in the US)

3. A lot of loyal Pepsi customers are not enough loyal Coca Cola customers

4. Does not enjoy the number one position in India, Pakistan.

OPPURTUNITIES

1. Possible growing demand.2. Expansion – Reaching all segments.3. Globalization4. Catering to Health Consciousness of People5. Bottled water growth

6. Acquisitions of smaller players.

THREATS

1. Health Drinks – Fruit Juice Companies2. Key competitors (Pepsi, etc)

3. Commodity prices growth

4. Image perception in certain parts of the world.

5. Smaller, more nimble operators/players

COCA-COLA: PORTER’S FIVE FORCES

The five forces model of Porter is and outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value…) of an industry structure

Allows the development of a competitive strategy

Suggests 5 main forces may be decisive in helping shape the outcome:

Suppliers

New entrants

Substitutes

Buyers

Rivalry (Industrial competitors)

Power of Suppliers

Sugar Packaging

Bargaining power of suppliers is low due to two reasons.

First, the main inputs are sugar and packaging. Sources of sugar are on the open market which subsequently makes the creation power of suppliers at low levels. There are several suppliers for packaging as well as the abundance in supply of inexpensive aluminum.

Second, direct negotiations from concentrate producers to suppliers are present; an initiative to encourage reliable supply, faster delivery and lower prices.

Barriers to Entry:

Penetrating the soft drink industry is hard because of the established name of Coca-Cola,

Exclusive Territories Direct-store-delivery (DSD)

Substantial Investment

Current Market Presence of Coca-Cola

Coca-Cola has long-term relationships with their retailers and distributors making possible the defense of the position by means of discounts and other tactics, and regulation make it impossible for new bottlers to enter areas where an existing bottler operates.

Substitutes :

Wide and thick causing a significant decline in Coca-Cola profits. To reduce the threats it embraced bottling and concentrated on diversification

Teas Milk

Coffee

Juice

Alcoholic drinks

Bottled water

Energetic drinks

Other refreshments

Rivalry:

Condition concentrated on 2 main

Coca-Cola Pepsi

Bargaining Power of Buyers:

It depends on the marketing channel used. For Coca-Cola, there are six core channels such as:

Super Markets Convenience Stores

Mass Merchandisers

Fountain

vending machine

Restaurants and Food stores

Bargaining power of buyer is high for fountain supermarkets and mass merchandising because of the low profitability and strong negotiation power of retail channels but for vending bargaining power is non-existing caused by high profitability.

COCA-COLA: VALUE CHAIN MODEL

The purpose of Coca-Cola’s value chain is divided into four areas namely shareholder, consumer, business operation and key processes.

1. To deliver superior returns to its shareholders is the mission of the Coca-Cola value chain. The key elements to achieve this end are a strong brand equity and revenue management that is comprised of sales, volume, pricing and costs

2. Consumers and customers are the focal points of the value chain driven by brand preference, pervasive market penetration and superior price/value ratio.

3. Operational drivers are identified as the strategic metrics, process excellence and organizational excellence.

4. Key processes are further divided into five key functions: Consumer and Customer Service Systems, Demand and Operations Planning, Warehousing and Logistics, Manufacturing, and Infrastructure Planning and Development.

There are four enablers in Coca-Cola's value chain. These:

1. Coca-Cola's suppliers include business partners that provide the company with raw materials such as ingredients, packaging, machinery and services.

2. Coca-Cola’s customers range from far-reaching, international chains of retailers and restaurants to major corporations to small and independent businesses to corner markets down to local pushcart vendors.

3. Coca-Cola Retailing Research Councils provide research concerning issues that have significant impacts on the food retailing industry. Within the company, there exists collaborative customer relationship process. The purpose of this collaboration is to improve shopper marketing and supply chain collaboration.

4. Coca-Cola Customer Development and Training provide support to smaller customers in terms of making their business more efficient and profitable. In different areas of operation, Coca-Cola had established customer development training centers.

Coca-Cola’s value chain initiatives could be summed up in 10 areas:

1. Supplies of Components and Materials: Coke has a relatively wide range of cooperation among its suppliers. The company has generally not experienced difficulties obtaining raw materials.

2. Purchasing: Order sizes depended on customers or sales volume per person, frequency of visit based history and order collection based on customer attributes, made possible through order collection personnel. Variables are geography, density and logistics.

3. Inventory Holding: Coke has 68 days inventory on hand and has 5.7927 inventory turns. The figures mean that Coke sells its entire inventory 5.79 times each year.

4. R&D/Design/Engineering: Coca-Cola has a patent portfolio inside and outside the US, 800 and 1800, respectively; relating to various beverages with related technologies. Apart from product formulation as the trade secret, technologies complementary to these are packaging, vending equipment, fountain equipment and water treatment.

5. Component Manufacture: The three largest components within the system are manufacturing, fleet/transport and sales/marketing equipment. There are nearly 850 plants in the manufacturing process, with system's fleet of approximately 200, 000 vehicles to transport ingredients, packaging and finished beverages.

6. Testing/Quality Control: Coca-Cola invested in real-time microbiology analyzer or the D-count. Such technology is adapted because of: quantitative analysis with satisfying detection limit, automated analysis with reduction of the analytical time, reliability of the results and robustness of the system for an intensive routing use.

7. Inventories of Final Goods: The selling numbers of Coca-Cola ranges from 9 glasses per day to over six trillion from the period of 1886 to 2003. Getting from this, we can determine that the unpredictability of sales follow a logical pattern that serves as indicators of the amount Coke produced and sold.

8. Sales and Marketing: Coca-Cola is getting their products advertised more frequently by means of own advertising as well as through sponsorships and other organizations

9. Distribution: In the distribution of products, the wholesalers have no involvement; but rather conform to agent network. The company divides a country into various regions and established a franchisee within these regions.

10. Service/Dealer Support: Within each region are different dealers that orders through three primary categories: bulk, side load and full service. Coca-Cola system ensures that dealerships are assisted upon.

Analysis:

We do not see R&D head of expenses, which would show that Coca Cola does notassign sufficient amount to its R&D department which is key to excel in the market.If we see the proportion of Income generated by different regions, we can easily infer that Coca Cola, because of innovative advertisements or because of intelligent decision making, still enjoys a competitive market position. We can still suggest them to make an efficient R&D head/ department which will surely make them compete in market, effectively and profitably.

RECOMMENDATIONS

• Coca-Cola needs to use its internal strengths to develop a market penetration and market development strategy.

• Company should integrate with other companies, acquisition of potential competitor businesses and innovation in branding.

CONCLUSION:

At Coke, the creation of the absolute effective position is central on investing on Coca-Cola Retailing Research Councils. Along with its four key processes, Coke creates value through proactively engaging their retailers at technically every levels of the value chain from raw materials down to end-products. Conforming to holistic improvements, Coke strategically put value to store management, providing consumers with the right to choose while also enjoying the health benefits of its brands.

More than complying to standards and acquiring first rates, Coke aimed at enhancing the shopping experience and enjoyment of refreshments which are reflected in the figures they accumulate coupled with ethical operation.

REFFARANCE:

Charles W. L. Hill and Gareth R. Jones: Strategic Management an intregrated approach 7th edition.

Jesmin Islam* and Muhammad Mahboob Ali: Journal of Business and Policy Research- Identifying Problems of Strategic Operations Management in Business Organizations in Bangladesh: An Empirical Analysis

Company Websity: http://www.coca-cola.com/en/index.html