External and Internal Analysis of Coca-Cola

4867 words (19 pages) Essay

19th Apr 2019 Business Strategy Reference this

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Introduction 

The purpose of this report is to understand and explain why Coca-Cola has become such a successful business, and to analyse the environment which Coca-Cola operates and to look into their business markets.

Coca-Cola began when Dr. John Pemberton began to produce Coca-Cola syrup for sale in fountain drinks, the bottling business began in 1899 Benjamin F. Thomas, and Joseph B. Whitehead, who secured the exclusive rights to bottle and sell Coca-Cola for most of the United States from the Coca-Cola Company. Since then, Coca-Cola have managed to adapt effectively and efficiently to optimise their revenue.

After its introduction, in 1916, the company began bottling its iconic bottle (still used today), and in 1928, Robert Woodruff, led the expansion of Coca-Cola overseas when he introduced Coca-Cola to the Olympic Games for the very first time. During the 1980s, social attitudes towards unhealthy drinks began to change, in response, Coca-Cola introduced Diet Coke. Also during this period, Coca-Cola began to grow rapidly, every year they were introduced to another country. Today they lead their market share, with more than 1.4 billion beverage serving sold each day.

External Environment: Coca Cola PESTLE Analysis

(P)olitical

Within the U.S., the Food and Drug Administration (FDA) includes non-alcoholic beverages such as Coca-Cola within the food category. Governments would regulate the manufacturing procedures of products. Any company that fails to meet the government’s standards could possibly receive fines. Coca-Cola must also comply to the Occupational Safety and Health Act and with local, state, federal and foreign environmental regulation. The following are key factors that influence Coca-Cola’s operations:

Changes in laws and regulations – changes in accounting standards, taxation requirements (change in tax rate, modification with tax law, introduction of new tax laws), and environmental laws in domestic or foreign authorities.

Changes in non-alcoholic business – competitive product and pricing policy pressures and ability to earn or maintain share of sales in worldwide market.

Political conditions – civil conflict, governmental changes, and restrictions to allow relocation of capital across borders.

Ability to compete with emerging and developing markets – this also relies on economic and political conditions, such as civil conflict and governmental changes, as well as Coca-Cola being able to create effective strategic business alliances with local bottlers, and improving their production amenities, distribution networks, sales equipment, and technology.

Summary of key factors:

  • Tax policies
  • Trade restrictions
  • Environmental policies and laws
  • Influences derived from the FDA
  • Standards imposed by the state
  • Global political issues

(E)conomical

One particular example of Coca-Cola tackling economic factors is at the time of the recession of 2001, where the U.S. government took extreme actions to improve the economy by 2002. Coca-Cola realised that loan interest would most likely rise as the economy returned. Therefore, they took out low-cost loans in 2001, to fund their growth for 2002. The loans were used for research and development on new products to capitalise on for a stronger 2002 economy.

Coca-Cola will have sales impacted by economic factors which are beyond the company’s control. These factors include: level of economic growth within the country and in the industry, tax rates and currency exchange rates, interest rates, labour cost, etc. The financial crisis of 2007 to 2009 was another important economical factor which had major impact on many businesses around the globe. Yet, Coca-Cola managed to avoid any serious damage. Its operating margin remained at industry-front 22% despite the crisis.

Fluctuations in exchange rate is one of if not the most important economic factor that has unfavourably impacted Coca-Cola performance in recent years. For example, the devaluation of Venezuela’s currency had profits reduced by 55% in this market during the fourth quarter of 2014, there are also similar instances in other parts of the world.

Summary of key factors:

  • Economic growth
  • Employment rates
  • Inflation rates
  • Monetary policy
  • Consumer confidence

(S)ocial

Since the 90s, the pursuit for a healthier lifestyle has become more prominent within most households. The health concerns towards obesity fuelled by sugar and carbonated drinks has been one of the most important social change that has directly affected Coca-Cola.  The image below shows that the amount of soft drinks consumption in the US has steadily declined during the past 20 years, with sports drinks and especially bottled water experiencing an increase during the same period.

Other additional factors that greatly impact Coca-Cola are demographic changes, changing family values and family patterns, media perception of the brand and health and welfare of target customer.

Summary of key factors:

  • Income distribution
  • Demographic influences
  • Lifestyle factors

(T)echnological

The machinery belonging to Coca-Cola is essential in the production of their products. So, it is clear that efficient and productive a machine is vital for the success of the company. New machinery will always be designed with the idea of better quality products with high quantitates. The factories in Britain will contain the best machineries to ensure that their products are delivered in mass. Constant changes product requirements can force companies to alter their machinery also.

Other technological needs include promotion of their products. Coca-Cola and most other companies are now using social media to help run a cheaper and possibly more effective advertisements but also to connect with their customers. A notable advertisement was their name campaign, this proved to be very successful, customers would line up to take photos of bottles with their name on it. However, this campaign may have not been as successful without the use of social media, websites such as twitter and Facebook helped encourage the sales of the company as it was trending during that period.  

Summary of key factors:

  • International influences
  • Changes in technology

(L)egal

Focuses on the effect of the national and international laws. The Coca-Cola Company receives all the rights of their business and all inventions and productions through the patented process. They are legally bound to the regulations of the FDA or any local authority which they offer their products (and services)

They have 7 major partnerships with large companies and charities such as WWF and Special Olympics GB.

Summary of key factors:

  • Taxation policies
  • Employment laws
  • Industry regulations
  • Health and safety

(E)nvironmental

Water is essential for the production of Coca-Cola, yet climate change and various other reasons has meant water accessibility is declining. If water scarcity becomes too big of an issue, the regions most effected will prioritise water over Coca-Cola beverages. This will more than likely result in major loss for the company. To combat the issue, Coca-Cola have claimed to have adopted a carbon reductive strategy, this includes switching to cleaner energy sources. They are also trying to reduce their environmental impact by focusing on collection, recovery, and recycling.

Summary of key factors:

  • Regulation and restriction
  • Attitudes of customers

Internal environment

Corporate culture

They define themselves by 7 core values: leadership, passion, integrity, collaboration, diversity, quality, and accountability.

The Coca-Cola company includes a worldwide team that is diverse, talented, and adaptable.  Being a global business, its is vital for Coca-Cola to embrace and understand both the marketplace and the workplace. They believe this is critical for their sustainability.  Programs are adopted to attract, retain, and develop diverse talent; provide support systems for groups with diverse backgrounds; and educate all members. They strive to ensure inclusive and fair work environment for their associates, who all have to complete a diversity training on a regular basis.

Coca Cola believes that embracing and operating in a multicultural world both in the marketplace and workplace is critical to their company’s sustainability. Inside the workplace, they try to keep their workforce diverse which includes programmes to attract, retain and develop diverse talent from all over the world. They educate and support people with all backgrounds to master the skills they will need to achieve sustainable growth. Working hard to produce a fair working environment for all associates is very important to the company. They believe that communication is key to create better understanding for their colleagues, suppliers, customers, stakeholders, shareholders and to create greater success in the marketplace Coffee chains such as Starbucks and Costa Coffee are on the rise. They offer a healthier alternative than Coca-Cola’s carbonated drinks. They will not massively hurt Coca-Colas performance however they will make a dent to its beverage market.

Corporate social responsibility (CSR) and ethics

Examples of CSR include:

  • Sustainability: for example, how the waste a business produces is recycled so that it does not impact on the environment.
  • Donating to charity: either giving money directly or allowing employee’s time to support worthy causes and projects.

Coca-Cola have committed to donating at least 1% of their annual income for mostly charitable causes every year. Coca-Cola released a report which includes details of the programs and initiatives which they will support. The below image illustrates the distribution of their fund for 2013.

Major CSR programs and engagements participated by the company include the following:

Educating and empowering workers: During 2013, Coca-Cola was mentioned in 26 notable lists, including the World’s 25 Best Multinational Workplaces 2013. This is recognition for their efforts towards the workforce, a great way to promote the company.

Labour and human rights: Providing stakeholders opportunity to inform perceived violations of Code of Business Conduct, Workplace Rights or other violations. Spreading the power in the company decreases the chances of corruption.

Health and safety: 94% of company-owned facilities comply with Coca-Cola Workplace Rights Policy. The rate of lost-time incident decreased in 2013, dropping to a low of 1.9. A company wants its employees to stay safe and healthy.

Environment: Coca-Cola improved their energy efficiency improved by 20% compared to 2004. 100 service vans in the US have been converted into efficient hybrid-electric vehicles. Coca-Cola had also announced a program to reduce their carbon footprint by 25% by 2020.   Coca-Cola also announced its commitment to balance its water usage by 2020. In 2013 the company has replenished an estimated 68% if the volume of its finished beverages and returned about 108.5 billion litres of water to communities and the nature. They have also increased their water usage efficiency. Since 2010 to 2013, it had improved by 8%.

Other initiatives: In 2014, Coca-Cola helped empower more than 865,000 women as part of the 5by20 program. The program has the aim to achieve economic empowerment of 5 million women by the year 2020. Coca-Cola has also supported over 290 physical activity programs in nearly 125 countries and territories. PlantBottle packaging is a development program with the aim to make plastic bottles partially made from plants. To market more appropriately, Coca-Cola does not advertise its products directed younger than 12 years old. They also do not buy advertising that is directed at target audiences with more than 35% children younger than 12.  

Ethics

Coca-Cola’s ethics and compliance program are their “Code of Business Conduct”. It requires honesty and integrity in all matters. All their Associates and directors are required to read and understand the Code, so they can follow its precepts in the workplace and larger community.

Competitive environment

Competition

Coca-Cola is essentially a monopoly, Pepsi is its only real competitor. They both have similar taste, colour, and price so without telling it would be hard to distinguish between the two. Places such as Cinemas and small attractions tend to sell Pepsi over Coke, this is because Pepsi is generally cheaper. Coca-Cola also has many indirect competitors such as Tropicana, Nescafe, Starbucks, Costa, Red Bull, etc. Coffee chains such as Starbucks and Costa Coffee are on the rise. They offer a healthier alternative than Coca-Cola’s carbonated drinks. They will not massively hurt Coca-Colas performance however they will make a dent to its beverage market. Customer are starting to become more aware of health issues revolving around drinking Coke, so healthier alternatives are becoming more popular over time.

Coca-Cola SWOT Analysis

Strengths
Brand Equity –  Coca-Cola was awarded Interbrand in 2011 which is the highest of its kind. The vast presence and unique brand identity is one of the costliest brands with the highest brand equity. Company valuation – One of the biggest and most valuable companies in the world, and has a valuation of around 7.2 billion dollars. This includes the brand value, factories, and assets found across the world. Vast global presence – Coca-Cola is present in 200 countries but is likely to be in every country due to its vastness. Largest market share – Coca-Cola is basically a monopoly with Pepsi as its only serious competitor yet still very far behind. Notable beverages owned by Coca-Cola include: Thums up, Sprite, Diet Coke, Fanta, Limca, and Maaza. Customer loyalty –  It has a strong history, which over time has built customer loyalty. Most of their drinks have a large fan following so people will prefer those drinks to alternative ones. The quality of their good makes it harder for customers to find a subsidy. Distribution network – Coca-Cola has the largest distribution network which is due to its constant demand.  
Weaknesses
Competition with Pepsi – Pepsi is constantly trying to outdo Coca-Cola. Without Pepsi, Coca-Cola would certainly be the absolute market leader, on the over hand they ensure Coca-Cola sustains its performance. Product Diversification is low – The products which Coca-Cola offer is limited to soft drinks. This keeps them in one market which is too saturated for any major improvements. Absence in health beverages – The social stance on soft drinks is becoming more negative, people are more aware of the health risks involving obesity for example. Carbonated drinks are a major fat intake, and Coca-Cola is the largest manufacturer of carbonated drinks. Water management – Coca-Cola has faced criticism in the past due to lack of its water management.  
Opportunities
Diversification –  Changing or adding products will improve the options for Coca-Cola’s customers. This will also ensure larger revenue due cross selling their products. Developing nations – Developing countries have a market which is nowhere near as saturated as the developed countries. This leaves a massive gap in the market, Coca-Cola can take advantage of this and make massive profit. Packaged drinking water –  bottles water has seen a massive increase in popularity. Coca-Cola who own Kinley (a bottled water company) could focus more on expansion with that company to increase their market share. Supply chain improvement – Their business is based of transportation and distribution therefore its in their interest to always improve this section. Market the lesser selling products – Coca-Cola own a vast number of other products, some of which have yet to reach their potential. If they focused more on their over products, they can increase their overall revenue.    
Threats
Raw material sourcing – The only major threat to Coca-Cola is water. The problem is the increasing scarcity of water sources. Climate change, and regions within various countries facing water scarcity may cause a forced decrease in Coca-Cola products in favour of needed water. Indirect competitorsCoffee chains such as Starbucks and Costa Coffee are on the rise. They offer a healthier alternative than Coca-Cola’s carbonated drinks. They will not massively hurt Coca-Colas performance however they will make a dent to its beverage market.  

Competitive advantage

Coca-Cola have a secret recipe which is arguably much better tasting than its competitors. They are constantly developing new products and improving current ones, they also offer vast number of brands, over 400, in over 200 markets worldwide. There distribution system is one of the most advance and efficient which allows Coca-Cola to be accessible to billions of people worldwide. They manage to offer products in locations other companies wouldn’t even consider selling. An example would be Africa, its common to see a shop selling Coca-Cola which would appear to be in the middle of nowhere. Their production technique is extremely efficient, the cost of making is a fraction of the cost of selling, and this leaves a high profit margin. Cola-Cola lead the market by a massive majority, this allows Coca-Cola to control the cost of their products, and they can therefore alter the price for maximum revenue.

Influences

Influences on demand

Coca-Cola have been very successful at distributing their products to the right locations, at the right time, and at the right price. Being affordable for the majority is one of the key factors to their success, this includes constantly being on high demand. The affordability and accessibility is what makes it such an appealing option to consumers. What also helps them is their high brand awareness with operations in exactly 200 countries. All these factors contribute to their major popularity, they are an established beverage, affordable to everyone, and trusted by its loyal customers. 

Cola-Cola is an international company; therefore, the GDP varies significantly between each country. For example, A farmer in rural India would have much less spending money than someone working in the city. Coca-Cola will increase the price for regions with higher GDP compared to regions with lower GDP.

Coca-Cola has only one serious competitor with is Pepsi, both have very similar taste, colour, and price. The difference is very small but because of brand loyalty the more popular choice would be Coca-Cola. Distributors such as cinemas, small shops, and attractions know that the difference is very minimal, so they would prefer the cheaper option which is usually Pepsi.

During the summer, cold beverages are usually preferred over hot drinks, this is the most profitable time for Coca-Cola. The demand during the winter would therefore be much higher compared to the summer.

Influences on supply

The production of Coca-Cola relies massively on water supply to produce their drinks. Unfortunately, this is a resource that is declining at an increasing speed. If the need for water becomes too critical than it is possible for Coca-Cola to be forced to decline their production, which will damage their revenue.

Coca-Cola employ thousands of workers, all of them will expect to be treated fairly. If the company fails to do so then there is a chance of a strike. This could be very damaging as their whole production process could stop, for an international company like Coca-Cola this could cost millions.

The company buys many different materials, the prices of them will constantly change. Events such as warfare could increase material prices significantly. This might result in Coca-Cola decreasing their production amount, which most likely would negatively impact their revenue. 

Coca-Cola receives no government support…

Elasticity

Coca-Cola top drinks are inelastic. This is because they are an establish company who have been around for over some 100 years. During that time, the customers trust, and loyalty has grown so much, lots of people would still pick Coca-Cola over Pepsi even if the price is higher. Places such as theme parks, cinemas, or service stations, the product is even more inelastic as people seem to be more willing to pay extra for the product.

Different market structures

In the market Coca-Cola operate, they have a monopoly over it. This means they have full control over the prices, for example, if they put the price down on their drinks other companies competing with Coca-Cola will be forced to do so as well. This does however mean a more saturated market, Coca-Cola will struggle to improve revenue within that market.

Pricing and output decisions

Economic factors such as inflation increases the price of production. This would lead to Coca-Cola raising the price of their products. This might cause customers to seek other products. Coca-Cola is not a necessity but rather a luxury, in America the price of 2Litre coke cost 99 cents but as risen to $1.98 today. All these factors contribute to the price of the product going up.

Natural forces such as fossil fuels will increase in price which increases the cost of transportation. On top of transportation, bottles are also made of raw materials that contain petroleum and fossil fuels. This increases the cost of production. They are trying to reduce the cost of production by introducing Plantbottle.

Other soft drink companies such as Pepsi have similar pricing and sales figures. Another competition factor are sub products (Starbucks, Red Bull, etc)

Conclusion

In this conclusion, I will explain why Coca-Cola is still dominating the market, and how they manage to maintain their position. I will also put forward ideas which could improve the business even further.

The company is massive, and owns many other major companies along with it, they vary from soft drinks to water itself.  Coca-Cola for a long time has been the world’s leading manufacturer, marketer and distributer of non-alcoholic beverages. The company sells four of the five top selling drinks including Diet Coke, Fanta and Sprite. It is the most recognisable brand throughout the World. It operates in more than 200 different countries, and has a workforce from over 200 different nationalities, who communicate in over 100 languages. They operate as local business partner, providing quality in the marketplace, enhancing the workplace, preserving the environment and strengthening the community. All these factors contribute massively to their success. From its birth in 1886 by Dr. John S. Pemberton sales averaged 9 drinks a day in its first year to now over 1 billion a day.

Coca-Cola are one of the most popular companies around, they have massive customer loyalty but also strong brand awareness. It doesn’t matter what country you live in, it’s almost guaranteed that someone nearby would know what Coca-Cola is. It’s believed that almost 1.9 drinks are sold every day, a staggering 2/7th of the World’s population.

Throughout the years Coca-Cola have had to adapt many times to match the constantly changing expectations of their customers. Social change in recent years has meant the company has had to take a more healthy approach, healthier alternatives include: coke zero, and diet which both are much healthier than Coca-Cola. Coca-Cola life is supposedly made from all natural resources. Coca-Cola are also tackling global warming by introducing electrical transportation, rather than using fossil fuels.

Coca-Cola are extremely successful within the soft drink market, they have been dominating it since the 1940s, however the market is saturated and so the room for improvement is very small. However to further their revenue the company could diversify their products, for example: healthy drinks, sports drinks, bars, etc.

  • Technology change
  • Social change
  • Successful
  • Not so successful
  • Past changes
  • What will happen for future

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