StrategicAuditofTheCoca-ColaCompany
YEDITEPE UNIVERSITY INSTITUTE OF SOCIAL SCIENCES
BUS 707 ADVANCED SEMINAR IN
STRATEGIC MANAGEMENT AND
CORPORATE GOVERNANCE
STRATEGIC AUDIT OF THE COCA-
COLA COMPANY
Submitted by: Özgür Önday
Submitted to: Prof. Dr. Atilla Dicle
Abstract: This paper performs a strategic audit of The Coca-Cola Company, a global leader in the beverage industry. Soft drinks is the largest segment of the global beverages industry, accounting for 35% of the industry’s total value. Moreover, the Coca-Cola Company is the leading player in the global beverages industry, generating 17.9% share of the industry’s volume represents 59% of the entire soft drink market and makes 76% of its sales outside of the United States. Coca-Cola owns or licenses and market more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Coca-Cola owns and markets four of the world’s top five nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. Finished beverage products bearing trademarks, sold in the United States since 1886, are now sold in more than
200 countries. (16000 words)
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Table of Contents
2.3.2 Marketing and Branding Strategy: ..................................................... 12
2.3.4 New Product Introductions: .............................................................. 13
Committees of the Board of Directors ................................................. 17
Ownership of Equity Securities of the Company .................................. 18
Natural Environment ........................................................................... 19
4.1.2 Sustainability Commitments .............................................................. 20
Societal Environment ........................................................................... 24
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Task Environment ................................................................................ 27
4.3.2 Threat of Substitute Products ............................................................ 28
4.3.3 Bargaining Power of Buyers............................................................... 28
4.3.4 Bargaining Power of Suppliers ........................................................... 29
4.3.5 Rivalry among Existing Firms ............................................................. 29
Corporate Structure ............................................................................. 29
5.3.3 Research and Development .............................................................. 40
7.Strategic Alternatives and Recommended Strategy ...................................... 46
8.Implementation, Evaluation and Control ...................................................... 56
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1.
Current Situation
1.1
Current Performance
Today, The Coca-Cola Company is the world's most recognized trademark in the World! It is recognized by 94% of the world's population. Company has been serving for more than 128 years and is one of the largest beverage companies headquartered in Atlanta, United States.
The company is engaged in the production, distribution, and marketing of nonalcoholic beverages and syrups. Company-owned or -controlled bottling and distribution operations as well as independent bottling partners, distributors, wholesalers and retailers — the world’s largest beverage distribution system. Beverages bearing trademarks owned by or licensed to company account for 1.9 billion of the approximately 57 billion beverage servings of all types consumed worldwide every day.
The Coca-Cola Company has over 3500 products and serves over 200 countries. Some of its brands includes, Coca-Cola, Sprite, Fanta, Diet Coke, Dasani, Minute Maid, Power Ride,
Simply Orange, Fresca, and Vitamin Water. Moreover, it has partnered with approximately
250 bottling companies worldwide. The company’s segments include Eurasia and Africa,
Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. Some of the company’s customers include bottling and canning operators, distributors, fountain wholesalers, and fountain retailers. In the beverage industry, The Coca-Cola Company competes with PepsiCo, Inc., Nestle, and the Dr. Pepper Snapple Group Inc.
1.1.1 Profit
The Coca-Cola Company by the end of 2013, generated $10.5 billion in cash from operations out of approximately $500 billion valued worldwide soft drink industry and returned
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$8.5 billion in value to shareowners like through dividends and net share repurchases. In early
2014, Coca-Cola increased dividend for the 52nd consecutive year. At its February 2014 meeting, the Board of Directors increased quarterly dividend 9 percent to $0.305 per share, equivalent to an annual dividend of $1.22 per share.It is listed on the New York Stock
Exchange (NYSE) and the Dow Jones Industrial Average (DJIA) . On May 9, 2014, the share price of the Coca-Cola Company (KO) is recorded at $40.87 under NYSE while its’ closest competitor PepsiCo, Inc. (PEP) is recorded at $87.17 under NYSE.
Worldwide, Coca-Cola increased volume 2 percent, with brand Coca-Cola alone adding nearly 100 million cases. Sprite and Fanta each grew 2 percent, together adding more than
80 million cases. Still beverages, meanwhile, grew 5 percent—or more than 300 million cases. Ready-to-drink tea volume expanded by a robust 11 percent, while juices and juice drinks grew 5 percent.
In fact, by year-end 2013, the extraordinary men and women of The Coca-Cola Company and its global bottling system had set an impressive array of new records for its business:
Record volume of 28.2 billion unit cases, including record volume for brand of nearly
11 billion unit cases
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In 2013, unit case volume in the United States (‘‘U.S. unit case volume’’) represented 19 percent of the Company’s worldwide unit case volume. Of the U.S. unit case volume for
2013, 68 percent was attributable to sparkling beverages and 32 percent to still beverages.
Trademark Coca-Cola Beverages accounted for 46 percent of U.S. unit case volume for 2013.
Unit case volume outside the United States represented 81 percent of the Company’s worldwide unit case volume for 2013. The countries outside the United States in which unit case volumes were the largest in 2013 were Mexico, China, Brazil and Japan, which together accounted for 31 percent of worldwide unit case volume. Of the non-U.S. unit case volume for 2013, 75 percent was attributable to sparkling beverages and 25 percent to still beverages.
Trademark Coca-Cola Beverages accounted for 48 percent of non-U.S. unit case volume for
2013.
In short, by the end of Dec. 31, 2013
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1.1.2 People
As of December 31, 2013 and 2012, company had approximately 130,600 and
150,900 employees, respectively. The decrease in the total number of employees in
2013 was primarily due to the deconsolidation of bottling operations in the Philippines and Brazil.
Together with bottling partners, company ranks among the world's top 10 private employers with more than 700,000 system employees.
1.1.3 Portfolio
Brand Coca-Cola alone was a billion-dollar brand in 19 countries. And company has a strong pipeline of future megabrands, with 20 other brands now generating more than $500 million in annual retail sales.
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Building on strategy of offering a for every lifestyle and occasion, company brought Caffeine-
Free Coke Zero to the U.S. Meanwhile, in Argentina and Chile, company launched Coca ‑ Cola
Life, an exciting new lower-calorie naturally sweetened with cane sugar and stevia.
1.1.4 Partners
Since 2010, The Coca-Cola Company and bottling partners have invested more than
$50 billion in business, adding 3 million coolers and 4 million customer outlets during that time. Being a bottler does not create a legal partnership or joint venture between company and its bottlers. Bottlers are independent contractors and are not their agents.
In finished product operations company typically sell finished beverages to retailers directly or to distributors, wholesalers and bottling partners who in turn distribute them to retailers. In addition, in the United States finished product operations’ customers include fountain retailers, such as restaurants and convenience stores who use the fountain syrups for immediate consumption, and fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers.
1.1.5 Properties
Company worldwide headquarters is located on a 35-acre office complex in Atlanta, Georgia.
The complex includes 621,000 square foot headquarters building and an 870,000 square foot building in which North America group’s main offices are located. The complex also includes several other buildings, including 264,000 square foot Coca-Cola Plaza building, technical and engineering facilities, a learning center and a reception center. Company also owns an office and retail building at 711 Fifth Avenue in New York, New York. These properties,
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except for the North America group’s main offices, are included in the Corporate operating segment. Company may own or lease additional facilities, real estate and office space throughout the world which they use for administrative, manufacturing, processing, packaging, storage, warehousing, distribution and retail operations. These properties are generally included in the geographic operating segment in which they are located.
1.1.6 Planet
Knowing business can only be as strong and vibrant as the communities they proudly serve, they organized sustainability efforts around the “Three Ws” of Women, Water and Well-
Being.
2.Strategic Posture
Corporation's current mission, objectives, strategies, and policies are clearly stated as follow:
2.1 Vision & Mission & Values
The Coca-Cola Company and its bottling partners developed in 2009. This vision is a roadmap to doubling their global system revenues by focusing on six key areas: profit, people, portfolio, partners, planet, and productivity. Company sees a world filled with opportunities that range from doubling system revenues by 2020, to developing new beverage products that meet consumers’ evolving preferences and needs, to creating social value and making a positive difference in the communities in which they operate. 2020
Vision is the roadmap for converting these long-term aspirations into reality. It provides business goals that outline what company needs to accomplish together with global bottling partners, customers and consumers in order to achieve sustainable, measurable growth.
Company’s vision for sustainable growth includes the following:
• 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 beverage brands that anticipates and satisfies people’s desires and needs.
• Partners: Nurturing a winning network of partners and building mutual loyalty.
• Planet: Being a responsible global citizen that makes a difference.
• Profit: Maximizing return to shareowners while being mindful of overall responsibilities.
• Productivity: Managing our people, time and money for greatest effectiveness.
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The mission statement of the Coca-Cola Company is: “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”.
Company’s values include:
Leadership: The courage to shape a better future
Collaboration: Leverage collective genius
Integrity: Be real
Accountability: If it is to be, it's up to me
Passion: Committed in heart and mind
Diversity: As inclusive as our brands
Quality: What we do, we do well
Focus on the Market
Focus on needs of our consumers, customers and franchise partners
Get out into the market and listen, observe and learn
Possess a world view
Focus on execution in the marketplace every day
Be insatiably curious
Work Smart
Act with urgency
Remain responsive to change
Have the courage to change course when needed
Remain constructively discontent
Work efficiently
Act like Owners
Be accountable for our actions and inactions
Steward system assets and focus on building value
Reward our people for taking risks and finding better ways to solve problems
Learn from our outcomes -- what worked and what didn’t
Be the Brand
Inspire creativity, passion, optimism and fun
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2.2 Objectives & Goals
As stated in company’s 2013 Annual Report, company’s objective:
“Our objective is to use our formidable assets — our brands, financial strength, unrivaled distribution system, global reach, and the talent and strong commitment of our management and associates — to achieve long-term sustainable growth”.
According to the Coca-Cola Company’s mission statement and 2020 Vision, some of its goals include:
• Increase profit by cutting down costs through productive and efficient production facilities;
• Focus on environment friendly bottling production and enforce sustainability;
• Continue to diversify its portfolio through innovations and partnerships, keeping consumer demands in mind;
• Increase annual operating income by 6-8% in order to double their revenue by 2020.
2.3 Strategies
To compete in the global beverage market, Coca-Cola uses a differentiation strategy to create value for its customers and consumers. Coca-Cola's mission statement reflects this: " To refresh the world. To inspire moments of optimism. To create value and make a difference"
To accomplish this mission Coca-Cola adopts the following strategic growth paths.
Grow Core Global Carbonated Soft Drink Brands: Coca-Cola is set to capture the full potential of Trademark Coca-Cola and accelerate growth of core brands in each market through immediate consumption opportunities to improve margin, consumer recruitment, and revenue.
Grow Other Core Brands: This is the profitable noncarbonated market and includes coffee, energy drinks and sports drinks.
Develop Transformational Wellness Platforms: Coca-Cola will enter this market with an initial focus on tea, juice, soy, and enhanced hydration platforms.
Nurture System Health: Coca-Cola is implementing a market-by-market focus on System health, including bottler revenue growth, by balancing volume, price, mix, costs, investments and share, concentrate pricing, cost effectiveness and route-to market efficiencies.
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Create Customer Value: Coca-Cola tries to clearly understand what its customers want and need. Understanding customers' expectations can help to target those likely to value what
Coca-Cola offers.
2.3.1 Strategic Priorities
• Accelerate sparkling growth, led by brand Coca-Cola
• Strategically expand profitable still portfolio
• Increase media investments by maximizing productivity
• Win at the point of sale by unlocking the power of the Coca-Cola system
• Invest in next generation of leaders
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 strategies capabilities. These strategies mainly include:
2.3.2 Marketing and Branding Strategy: Few companies in this world have developed a brand as strong as Coca-Cola. Though the soft drink giant slipped to #3 with a brand value of $79.2 billion, Coca-Cola has enjoyed a long and illustrious reign as #1 Best Global Brand for good reason. An enduring classic that has evolved over its 128 years, Coca-Cola remains the most recognizable—and one of the most valuable—brands in the world. Guided by its 2020 Vision goals around innovation, focus, and creativity, Coca-Cola achieves impressive global presence through standout ad campaigns, bold design, digital savvy, and a simple, universally relevant theme that weaves throughout the brand’s communications: happiness.
The company has used its marketing resources to create a brand that is widely known and has become the biggest competitive advantage for the company. Coca Cola has been successful in creating brand loyalty among its customers. This is a result of sustained 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 billboards and newspapers, Coca-Cola focused on organizations, universities and colleges and this increased sales while promoting the brand name.
Company invests billions of dollars each year in order to passionately convince the consuming public that their product is good for you, or at least harmless. Coca-Cola looks to
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public relations firms, strategic alliances, targeted donations and the creation of research institutes as tools that can downplay the risks of tooth decay or weight gain that results from consuming their products. In fact, the corporation goes to some lengths to convince the public that their product is actually good for you.
2.3.3 Glocal Strategy: Coca-Cola has used its organizational capability to adopt a glocal srategy – using a mix of central and local marketing functions in order to achieve maximum marketing and distribution effectiveness. Using this, company 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.
2.3.4 New Product Introductions: Coca-Cola practices a high degree of product adaptation and modification across every market it serves. Rapid product testing, and adaptation are the hallmark of Coca-Cola's product strategy. Product testing and development are performed in each individual market, since market research for one country or region is unlikely to show trends that are identical to other markets. Against a backdrop of stagnating carbonates sales, new product development activity to widen its array of non-fizzy drinks. With increased consumer interest in healthier drinks such as bottled water, fruit juice, energy drinks, and
RTD teas and coffees, the company has embarked on an ambitious program of product launches. Coca-Cola has significantly stepped up Coca-Cola follows out to in approach while developing new products.
2.4 Policies (HRS/WRP/SGP)
Commitment to respecting human rights, as formalized in Human Rights Statement, is grounded in the Universal Declaration of Human Rights, related covenants and the
International Labor Organization's Declaration on Fundamental Principles and Rights to
Work. The workplace rights principles are encompassed in Workplace Rights Policy, which covers company-owned operations and Supplier Guiding Principles, which covers supplier partners and independent bottlers.
Human Rights Statement
Company is committed to earning that trust with a set of values that represent the highest standards of quality, integrity and excellence. A serious commitment to human rights is
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fundamental to the way company conducts business. Human Rights Statement establishes a foundation for managing business around the world in accordance with these high standards.
Human Rights statement is guided by the United Nations Declaration of Human Rights and related international covenants. While governments are responsible for protecting human rights through legal frameworks, businesses have a corporate responsibility to respect all human rights. Company’s Human Rights Statement recognizes this commitment. In addition to Human Rights Statement, TCCC (The Coca-Cola Company) has endorsed the Guiding
Principles on Business and Human Rights, a framework adopted by the United Nations.
Workplace Rights Policy
The success of company business depends on every employee in global enterprise. They are committed to fostering open and inclusive workplaces that are based on recognized workplace human rights, where all employees are valued and inspired to be the best they can be.
Company’s Workplace Rights Policy reflects these values and commitment to uphold workplace rights globally. The Coca-Cola Company's Workplace Rights Policy applies to all of the entities that it owns, holds a majority interest, has management responsibility or where a bottler has adopted the policy.
Supplier Guiding Principles
The reputation of The Coca-Cola Company is built on trust and respect. Employees and those who do business with the company around the world know they are committed to earning their trust with a set of values that represent the highest standards of quality, integrity, excellence, compliance with the law, and respect for human rights and the unique customs and cultures in communities where they operate. Company has always endeavored to conduct business responsibly and ethically. Company respects international human rights principles, including the United Nations Declaration of Human Rights and the International Labor
Organization’s Declaration on Fundamental Principles and Rights at Work. They actively participate in the United Nations Global Compact. These corporate values are formalized in the Company’s Human Rights Statement and Workplace Rights Policy. Acknowledgment of these international principles is consistent with dedication to enriching the workplace, respecting all human rights, preserving the environment and strengthening the communities where they operate.
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3.
Corporate Governance
3.1
Board of Directors
Board of Directors is elected by the shareowners to oversee their interest in the long-term health and overall success of the Company and its financial strength. The Board serves as the ultimate decision-making body of the Company, except for those matters reserved to or shared with the shareowners. The Board selects and oversees members of senior management, who are charged by the Board with conducting the business of the Company. As of December
31, 2013, the Board was comprised of 17 Directors, 16 of whom are not employees of the
Company.All executive officers serve at the pleasure of the Board of Directors. There is no family relationship between any of the Directors or executive officers of the Company.
Muhtar Kent, 61, is Chairman of the Board of Directors, Chief Executive Officer and
President of the Company.
Herbert A. Allen, 74, has been director of The Coca-Cola Company since 1982. Mr. Allen is
President, Chief Executive Officer and a Director of Allen & Company Incorporated, a privately held investment firm, and has held these positions for more than the past five years. He previously served as a Director of Convera Corporation from 2000 to 2010.
Ronald W. Allen, 71, Ronald W. Allen has been a Director of The Coca-Cola Company since
1991. In November 2012, Mr. Allen was appointed Chairman of the Board of Aaron’s, Inc., where he has served as a Director since 1997. He is also a Director of Aircastle Limited.
Ana Botin,
53, Ms. Botín has been a director of The Coca-Cola Company since July 18,
2013. Ms. Botín is Chief Executive Officer and a Director of Santander UK plc, a leading financial services provider in the United Kingdom and subsidiary of Banco Santander, S.A., and has held these positions since December 2010.
Howard G. Buffett , 59, Howard G. Buffett has been a Director of The Coca-Cola Company since 2010. Mr. Buffett is President of Buffett Farms, a commercial farming operation, and has held this position since 1986.
Richard M. Daley , 72, Richard M. Daley has been a Director of The Coca-Cola Company since 2011. Mr. Daley was the Mayor of Chicago from 1989 to 2011. Mr. Daley is the
Executive Chairman of Tur Partners LLC, an investment and advisory firm focusing on
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sustainable solutions within the urban environment, and has held this position since May
2011.
Barry Diller, 72, has been a Director of The Coca-Cola Company since 2002. Mr. Diller is
Chairman of the Board and Senior Executive of IAC/InterActiveCorp, a leading media and
Internet company.
Helene Gayle , 58, Dr. Gayle has been a director of The Coca-Cola Company since April 24,
2013. Dr. Gayle has been President and Chief Executive Officer of CARE USA, a leading international humanitarian organization, since 2006.
Evan Greenberg , 59, has been a Director of The Coca-Cola Company since 2011. Mr.
Greenberg is the Chairman and Chief Executive Officer of ACE Limited.
Alexis Herman , 66, has been a Director of The Coca-Cola Company since 2007. Ms. Herman is the Chair and Chief Executive Officer of New Ventures LLC, a corporate consulting company, and has held these positions since 2001.
Robert A. Kotick , 51, Robert A. Kotick has been a Director of The Coca-Cola Company since
2012. Mr. Kotick is President, Chief Executive Officer and a Director of Activision Blizzard,
Inc., an interactive entertainment software company, and has held these positions since 2008.
Maria Elena Lagomasino , 64, Maria Elena Lagomasino has been a Director of The Coca-
Cola Company since 2008. Ms. Lagomasino is the Chief Executive Officer and Managing
Partner of WE Family Offices, a global family office serving high net worth families, and has held these positions since March 2013.
Sam Nunn , 76, Sam Nunn has been a Director of The Coca-Cola Company since 1997. Mr.
Nunn is Co-Chairman and Chief Executive Officer of the Nuclear Threat Initiative, a position he has held since 2001.
James D. Robinson III ., 79, James D. Robinson III has been a Director of The Coca-Cola
Company since 1975. Mr. Robinson is Co-Founder and General Partner of RRE Ventures, an early stage technology-focused venture capital firm, and has held this position since 1994.
Peter V. Ueberroth, 76, Peter V. Ueberroth has been a Director of The Coca-Cola
Company since 1986. Mr. Ueberroth is an investor and Chairman of the Contrarian Group,
Inc., a business management company, and has held this position since 1989.
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3.2
Committees of the Board of Directors
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3.3
Ownership of Equity Securities of the Company
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3.4
Compensation
4.
External Environment
4.1
Natural Environment
4.1.1 The Coca-Cola System
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To understand sustainability strategies and programs, it helps to understand system. Company is a global business that operates on a local scale in every community where they do business.
They are able to create global reach with local focus because of the strength of the Coca-Cola system, which comprises Company and more than 250 bottling partners worldwide. The
Coca-Cola system is not a single entity from a legal or managerial perspective, and the
Company does not own or control most of bottling partners. While many view Company as simply “Coca-Cola,” system operates through multiple local channels. Company sources ingredients; manufactures and sells concentrates, beverage bases and syrups to bottling operations; owns the brands; and is responsible for consumer brand marketing initiatives.
Bottling partners manufacture, package, merchandise and distribute the final branded beverages to customers and vending partners, who then sell products to consumers. All bottling partners work closely with customers—grocery stores, restaurants, street vendors, convenience stores, movie theaters and amusement parks, among many others— to execute localized strategies developed in partnership with company. Customers then sell products to consumers at a rate of more than 1.9 billion servings a day.
4.1.2 Sustainability Commitments
4.1.2.1 Water Stewardship
The projects company engage in typically have at least one of four objectives:
• To improve access to water and sanitation
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• To protect watersheds
• To provide water for productive use
• To educate and raise awareness about water issues, including engagement on water policy.
Inside every bottle of Coca-Cola is the story of a company that understands the priceless value of water, respects it as the most precious of shared global resources and works vigorously to conserve water worldwide. Company can’t imagine treating water any other way. Clean, accessible water is essential to the health of communities. It is critical to ecosystems and indispensable for economic prosperity.
And it is essential for business. Water is the main ingredient in company’s beverages, central to manufacturing process and necessary for growing the agricultural products they use as ingredients. They have a particular interest in protecting the water sources that sustain communities because the communities that host bottling plants are also consumer base; they sell products where they make them. If those communities stay strong, business will stay strong; if the watersheds shared with them are conserved, those communities, and business, can thrive. So, in addition to the ethical and ecological imperatives that drive water stewardship, company also have a vested business interest in conserving and improving local water sources. Company’s global system is working to replenish, or balance, the water used in finished beverages—an estimated 52 percent so far, with an ultimate goal of being water-neutral by 2020. System is becoming more efficient in its water use by reducing the amount used per liter of product, even as production volumes increase. And Coca-Cola bottling plants around the world are recycling wastewater, treating it to stringent standards and returning it to nature at a level that supports aquatic life—sometimes returning it cleaner than found it. Though they share concern about water sources and increasing water stress in many parts of the world, they believe the world contains enough water to meet everyone’s needs—but only if everyone works together to better manage water resources. As a consumer of water and as a company with a presence that is both global and local, they have a particular obligation—and a unique opportunity—to be a responsible steward of water.
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4.1.2.2 Sustainable Packaging
Packaging plays an essential role for company’s business in meeting consumer needs and preventing waste by protecting products during delivery. In fact, inside every one of bottles— and in cans and other packages, too— is the story of a company trying to make its packaging more environmentally and economically sustainable. Company works to deliver the quality beverages consumers expect in the most efficient way possible, with a key focus on recyclability, minimizing resources and increasing the use of recycled and renewable materials.
Additionally, company supports programs that encourage consumers to recycle used beverage packaging. Approximately 85 percent of unit case volume is delivered in recyclable bottles and cans, and because the majority of packaging is fully recyclable, they are working to maintain and grow this percentage. As they do so, they consider environmental concerns along with need to protect the safety and quality of products and to transport them efficiently.
They also take into account the different preferences of consumers around the world. Working to make packaging more sustainable is more than just the right thing to do, it is smart business. They work to employ sustainable packaging innovations that not only delight consumers but also are efficiently produced and readily recovered or recycled. By taking into account all aspects of packaging development, from raw materials and development to transport and recovery, they are able to mitigate risks in production that could both erode profitability and negatively impact brand equity. Such risks include cost fluctuations or supply chain disruption of packaging materials such as petroleum or aluminum and also potentially being viewed as a contributor to global pollution—even though a significant percentage of packages are recovered and recycled. All in all, strategic approach to developing moresustainable packaging enables company to meet the needs of consumers and reduce business risk along with impact on the environment.
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4.1.2.3 Climate Protection
Inside every bottle of Coca-Cola is the commitment of a company that is deeply concerned about climate change. Company concern is based on the scientific consensus that global climate change is occurring and that human-caused greenhouse gas emissions are a contributing factor.
The implications of climate change on planet are profound and wideranging. Public health, agriculture, biodiversity and water sources may all be negatively affected. The potential effects on people, communities and ecosystems are sobering to consider and demand immediate action.
Of course, climate change also poses risks to company’s business as well. More frequent and intense droughts and floods can harm global agriculture, limiting the supply or increasing the cost of ingredients they use in their products. Extreme weather could impair their bottling plants, disrupt supply chain and affect consumer demand. Perhaps most seriously, climate change could significantly limit water resources for operations, for supply chain and for the communities served. Company’s system generates greenhouse gas emissions by consuming energy through manufacturing, by consuming fuel in global delivery fleet and by chilling products for optimum refreshment. Broader supply chain, which includes the manufacturing of packaging and the farming that grows their ingredients, generates millions of additional tons of greenhouse gases. Growing their business without increasing greenhouse gas emissions is a tall order, but it is a process they are committed to. They believed that they have made progress. But, like much of the world, they need to do more—and soon.
4.1.2.4 Sustainable Agriculture
Inside every bottle of Coca-Cola—indeed, in most of products—are ingredients that get their start on a farm. Company buys many tons of sugar, fruit, corn, tea, coffee and other ingredients every year.
Company’s business depends on the long-term availability of these products. At the same time, the future of the planet may depend on
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crops being grown more sustainably. As longtime partner World Wildlife
Fund (WWF) and others note, unsustainable agricultural practices have serious impacts on people and the environment. According to WWF, agriculture uses about 69 percent of the world’s fresh water. It is the leading source of pollution in many countries, a primary driver of deforestation and one of the largest producers of greenhouse gas emissions contributing to climate change. Half the planet’s topsoil has vanished over the last 150 years due in part to poor farming practices. In company’s value chain, agriculture accounts for the largest share of water use and the third-largest share of carbon missions, after packaging and refrigeration. If growers are to provide the food necessary to support the over 9 billion people expected to inhabit the planet by 2050, they must find ways to make agriculture more efficient and aligned with ecological limits—and change must happen soon. Promoting agricultural sustainability is also a socioeconomic imperative. Agriculture is the world’s largest industry, producing $1.3 trillion in food annually and employing over 1 billion people. Company adds that for three-quarters of the world’s extremely poor people, farming is the only viable way to make a living. Company believes that farming in the 21st century must protect the rights and livelihoods of agricultural workers and support strong, healthy communities. For all of these reasons, they have worked with suppliers for several years to make their supply chain more sustainable.
4.2
Societal Environment
4.2.1
Economic
Following economic variables can have impact on The Coca-Cola Company:
Economic downturns in a country are going to have a negative impact on sales of
Coca Cola. The impact on the company would be especially huge since its products are non-essential.
Various macroeconomic factors such as inflation and labor prices would impact operations of Coca-Cola.
Countries with high-income per capita would have more to spend on products such as beverages.
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The Federal Reserve is doing all that it can help the economy recover. They have cut the interest rate ten times this year. The rate now lies at a 40-year low of 2%.
Lowering the interest rates will ultimately excite consumer demand in the economy.
Companies will expand and increase use of debt as a result of the low borrowing rates.
Coca-Cola can borrow money for investing in other products as the interest rates are low. It can use the borrowing on research of new products or technology. As researching for new products would cost less the Coca-Cola Company will sell its products for less and the people will spend as they would get cheap products from
Coca-Cola.
Before the attacks on September 11, 2001, the United States was starting to see the economy recover slightly and it is only just recently that they achieved the economic levels. Consumers are now resuming their normal habits, going to the malls, car shopping, and eating out at restaurants. However, many are still handling their money cautiously. They believe that with lower inflation still to come, consumers will recover their confidence over the next year.
The non-alcoholic beverage industry has high sales in countries outside the U.S.
According to the Standard and Poor's Industry surveys, "For major soft drink companies, there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany." These markets will continue to play a major role in the success and stable growth for a majority of the non-alcoholic beverage industry.
4.2.2
Technological
Following technological variables can have impact on The Coca-Cola Company:
Coca-Cola’s strength is marketing and new marketing and advertisement channels have a big impact on the company. Coca-Cola has been quick to embrace new mediums that have developed over the years – radio, television and now Internet. It is important for the company to connect to the customers through different channels.
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Different type of packaging has helped Coca-Cola drive sales. Apart from the original glass bottle, the beverages are now available in plastic bottles and cans. These are easier to store and transport.
New machines and processes impact the manufacturing operations. Adoption of new technology allows a company to manufacture more efficiently, with better quality and in greater quantity.
The beverages need to be cooled before consumption. Therefore, consumption is limited to the places that can provide the facility of cold storage.
The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media. They make some products look attractive. This helps in selling of the products. This advertising makes the product attractive. This technology is being used in media to sell their products.
4.2.3
Political and Legal
Coca-Cola is subjected to strict regulations since its products come under food category.
However, few changes in law are expected to impact Coca-Cola. Following political and legal variables can have impact on The Coca-Cola Company:
The issue of negative impact of Coca-Cola manufacturing plants on environment has been highlighted in many countries. Laws for environment protection and stringent regulations in this regard can impact the production process. Coca-Cola can work towards minimizing this impact by improving the efficiency of its processes and reducing wastage.
Government changes, civil unrest, military takeover and other disturbances in a country can affect sales and operations of Coca-Cola in that country.
Expansion to a new country depends on the political conditions of that area. Coca-
Cola was abstained from Israel for many years because it wanted to protect the Arab market which was quite large.
Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions.
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Changes in the non-alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors.
Their ability to penetrate developing and emerging markets, which also depends on economic and political conditions, and how well they are able to acquire or form strategic business alliances with local bottlers and make necessary infrastructure enhancements to production facilities, distribution networks, sales equipment and technology.
4.2.4
Social
Following social variables can have impact on The Coca-Cola Company:
The company has witnessed oppositions from social groups in some countries due to the environmental issues surrounding its production.
Social and culture of a country has a huge impact on food habits of its citizens and this would impact the portfolio that Coca-Cola can introduce in the country.
Many U.S. citizens are practicing healthier lifestyles. This has affected the nonalcoholic beverage industry in that many are switching to bottled water and diet colas instead of beer and other alcoholic beverages. The need for bottled water and other more convenient and healthy products are in important in the average day-to-day life.
As a result, Coca Cola’s demand for carbonated beverages has decreased and the revenues also decreased. Thus, Coca Cola diversify the products by adding production lines in tea (Nestea), juices (Minute Maid), mineral water (Dasani and Ades), and sport drinks (Powerade), and others.
Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition.
There is a large population of the age range known as the baby boomers. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic beverage industry by increasing the demand overall and in the healthier beverages.
4.3
Task Environment
4.3.1 Threat of New Entrants
Threat of new entrants is very low in this industry and the following factors are responsible:
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Brand Name : It has taken these companies decades to build their brand and it’s not easy for a new company to emulate that.
Distribution Channel: The two existing companies have wide distribution channel across the world and it’s difficult to match up to that.
Huge Initial Investment: The high cost of setting up manufacturing plants, transportation channel and distribution channel is a big barrier for new entrants.
Economies of Scale: Both the existing companies enjoy large economies of scale that help in keeping the costs down. A new entrant would not be able to match the cost of the biggies and would be forced out of the business.
4.3.2 Threat of Substitute Products
The threat of substitution is high for soft drink industry with products like bottled water, juices, tea and coffee readily available. To take care of this, The Coca Cola Company has increased its presence in these sectors as well. For people who take soft drinks for its caffeine, tea and coffee can be easy substitutes. In some cases, alcoholic beverages such as beer can be a substitute as well. It costs nothing for a customer to substitute a soft drink with another drink and hence there is a high threat of substitution. Many people are moving towards healthier drinks and substituting soft drinks with juices etc.
4.3.3 Bargaining Power of Buyers
In case of The Coca Cola Company, the bottling units are the buyers since the company sells the syrup to them and rest of the activities are undertaken by them independently. But the company owns many of the bottling plants and in such a case, buyers are the retail outlets.
Bottling partners have low degree of bargaining power with Coca Cola. Though the company is dependent on bottlers for selling their product to the end consumers, they can replace the bottling partners. To start the business, the bottling company has to invest a lot and this creates a lock in for them, reducing their power.
The power of mass retailers is moderate. On one hand, the brand of Coca Cola is very strong and the retailers have to store the product to satisfy the customers. On the other hand, the retailers can switch to other drinks without any cost and stop storing the products of Coca Cola.
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4.3.4 Bargaining Power of Suppliers
Supplier power is low in case of Coca Cola. Following are the suppliers for the company:
Raw materials such as sugar and water are standard and the suppliers can be easily replaced without any problems.
Bottling equipment manufacturers are suppliers for Coca Cola since the company owns stake in many bottling units. These equipments can be supplied by many companies and hence they have low bargaining power.
Other factors such as labor, power etc would not be a problem for the company. For all the inputs, Coca Cola has higher bargaining power since it enjoys economies of scale and orders in huge quantities from the suppliers.
4.3.5 Rivalry among Existing Firms
Rivalry among existing firms is high.
The largest competitor for Coca Cola is Pepsi Co. They compete in almost all the markets worldwide. Coca Cola has higher sales worldwide, though Pepsi Co dominates the US market.
There are other players like Dr. Pepper in various beverages category, but none of them as large as Coca Cola or Pepsi Co.
The new competition in the industry is to increase the product portfolio and introduce new variants of carbonated drinks and non-carbonated drinks. Most of the strengths and weaknesses of Pepsico are similar to those of Coca Cola.
Pepsico enjoys good brand value as well as economies of scale. At the same time, it also has come under criticism for health and environmental issues.
While Coca Cola operates almost exclusively in beverages segment, Pepsico derive a big share of total revenues from non-beverages category such as chips and oats. This can potentially provide opportunities to Pepsico to take advantages of synergy among various products.
5.
Internal Environment
5.1
Corporate Structure
The Coca-Cola Company has a corporate (Head Office) segment that is responsible for giving the Company an overall direction and providing support to the regional structure. Key strategic decisions at The Coca-Cola Company are made by an Executive Committee. The
Chair of the Executive Committee acts as a figurehead for the Company and chairs the board meetings. He is also the Chief Executive Officer (CEO) and as such he is the senior decision
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maker. Other executives are responsible either for the major regions (e.g. Asia) or have an important business specialism e.g. the Chief Financial Officer. Regional structure that combines centralization and localization. As a company whose success rests on its ability to connect with local consumers, it makes sense for The Coca-Cola Company to be organized into a regional structure. Coca-Cola’s corporate structure is broken into 6 operating segments; the company refers to the first five as strategic business units. The Company operates five geographic operating segments - also called Strategic Business Units (SBUs) - as well as the corporate (Head Office) segment. Each of these regional SBUs is sub-divided into divisions.
Take the Europe, Eurasia and Middle East SBU, for example. This structure forms the basis for the company’s internal financing reports. The heads of each strategic business unit reports to the Chief Operating Officer who then reports to the Chief Executive Officer and Chairman of the Board of Directors, Muhtar Kent.
The Corporate Governance Guidelines, along with the Charters of the each of Board
Committees and the key practices of the Board provide the framework for corporate governance at Coca-Cola.
5.2
Corporate Culture
Coca-Cola's culture is distinctive and commendable. Its community consists of talented people guided by common ethics. The global Coca-Cola community consists of employees, distributors, wholesalers, and bottlers and comes from every part of the world. Keeping this diverse group of people together and unified in purpose is no easy task. Organisational and reward systems help but cannot substitute for Coca-Cola's values and global image that span many cultures and beliefs. Leadership, passion, integrity, accountability, collaboration, innovation and quality represent core values that define the way Coca-Cola views it. These values form an invisible bond that ties together Coca-Cola's numerous subsidiaries and relationships around the world. The working environment is very comfortable and wideranging which makes it easier to get tasks completed. The employees take pride in doing things the right way. Those working for Coca-Cola share many of the same qualities that allow Coca-Cola to continue to grow. Coca-Cola's employees are smart, avid, dedicated, inventive, and risktakers. At every level, Coca-Cola has world-class people that contribute to every day successes. They are loyal in attempting to make Coca-Cola the best consumer products company in the world in every aspect of its business. The company exists to benefit and refresh everyone who is touched by its business. The purpose is to retain and convey the
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enthusiasm of being part of a vibrant, results oriented company, with prevailing brands and world-class people.
5.2.1
Diversity
The Coca-Cola Company's global diversity mission is to mirror the rich diversity of the marketplace they serve and be recognized for leadership in Diversity, Inclusion and Fairness in all aspects of business, including
Workplace, Marketplace, Supplier and Community, enhancing the Company’s social license to operate.
Diversity is at the heart of company business. Company strives to create a work environment that provides all associates equal access to information, development and opportunity. By building an inclusive workplace environment, seek to leverage global team of associates, which is rich in diverse people, talent and ideas. They see diversity as more than just policies and practices. It is an integral part of who they are as a company, how they operate and how they see future.
5.3 Corporate Resources
5.3.1 Marketing
5.3.1.1 Marketing Mix
5.3.1.1.1 Product
The Coca-Cola Company has over 3500 products and serves over 200 countries. The packaging of the products varies massively, too, due to the sizes of the drinks. Sizes include
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300ml, 600ml, 1.25 liters, 1.50 liters, 2 liters, 2.50 liters and also cans (usually 375ml). One of the most well-known products by the company is Coca-Cola itself; recognized by over
94% of the population. It holds an amazing reputation on the market.
5.3.1.1.2 Price
The price of Coca-Cola brands will vary on the size and the product. The population readily accepts the prices offered by the firm. This is due to the increase in the rate of demand for the products.
5.3.1.1.3 Place
Coca-Cola is a leading brand that is easily available across the world. You will find the product in nearly all shops due to the huge rate of demand for it. Anywhere, at whatever time, you'll have access to the brand because of strategies implemented by Coca-Cola.
5.3.1.1.4 Promotion
Coca-Cola is commonly known all over the world because of their great marketing strategy. It includes variety of methods to present their product:
Uses famous people to advert their product
Advertising in TV and magazines
Sponsorship activity
5.3.1.2 STP Analysis (Segmentation – Targeting – Positioning)
5.3.1.2.1 Segmentation
The Coca Cola Company segments the customers based on the following criterias:
Geographic Segmentation : Coca-Cola has segmented the worldwide market on the basis of geographies. There are various divisions created for major regions of the world and heads of each division report to the parent company. Lot of autonomy is given to each division to run the operations.
Place of Consumption : Coca-Cola segments the market on the basis of the place of consumption of the beverage. Most of the consumption takes place on premise such as cinemas, railway station, restaurants etc, while rest of it takes place in homes.
Product Type : Coca-Cola segments the market on the basis of the type of products bought by customers. The market is divided into Cola products and non cola products.
Cola products currently provide majority of the revenues, but the proportion of non cola products is increasing.
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Demographics : Coca-Cola segments the market on the basis of demographics. The segmentation is on the basis of age as well as income.
5.3.1.2.2 Targeting
Coca-Cola targets different segments with different ads. Primary market of Coca-Cola is younger people in the age bracket 10-25 with people from 25-40 comprising of secondary market. Cola products are targeted towards people who want strong flavor, while diet cola and its variants are targeted towards the sub segment that is health conscious.Coca-Cola uses non cola beverages to target the health conscious segment of the market. Some of the products such as Sprite specifically target teens and college going youth while others target young working population.
5.3.1.2.3 Positioning
Coca-Cola positions its products as refreshing and thirst quenching. The products are associated with having a good time with friends and family and enjoying everyday life. The products are also marketed as consistent and of high quality.
The Coca-Cola business encompasses the production and sale of products that are sold to the company’s authorized independent and company-owned bottling/canning operations, and fountain wholesalers. Coca-Cola offers more than 3,500 beverages that vary from diet and regular sparkling beverages to still beverages such as 100% fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk-and- soy- based beverages all around the globe. The marketing and sales activities at Coca-Cola can be categorized into 1)
Consumer marketing and 2) Customer and commercial leadership.
Coca-Cola products are found on every retail outlet store in the world. The company’s brand name can be easily recognized by customers in all places. Coke products are not only offer in convenient places; they are also sold at low- affordable prices. For that reason, Coke consumers can range anywhere from low to high income levels.
Marketing and sales activities at Coca-Cola include advertisement, promotion, product mix, pricing, distribution channels, working with whole sales and sales force issues. Marketing is vital in helping Coca-Cola to determine the competitive scope of its value adding activities.
Some of the key competencies of the marketing and sales department of Coca-Cola are a highly motivated and competent sales force, innovative approaches to promotion and
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advertising, selection of the most appropriate distribution channels, proper identification of customer segments and needs and effective pricing strategies.
Marketing investments are designed to enhance consumer awareness and increase consumer preference for Coca-Cola brands. This produces long-term growth in unit case volume, per capita consumption and the share of worldwide nonalcoholic beverage sales. Through the relationships with the bottling partners and those who sell Coca-Cola's products in the marketplace, Coca-Cola creates and implements marketing programs both globally and locally. In developing a strategy for a Company brand, Coca-Cola conducts product and packaging research, establishes brand positioning, develop precise consumer communications and solicits consumer feedback. Coca-Cola's integrated global and local marketing programs include activities such as advertising, point-of-sale merchandising and sales promotions.
On the commercial leadership part, The Coca-Cola system has millions of customers around the world who sell or serve the products directly to consumers. Coca-Cola focuses on enhancing value for its customers and providing solutions to grow their beverage businesses.
Coca-Cola's approach includes understanding each customer's business and needs, whether that customer is a sophisticated retailer in a developed market or a kiosk owner in an emerging market. Coca-Cola focuses on ensuring that its customers have the right product and package offerings and the right promotional tools to deliver enhanced value to themselves and the company. Coca-Cola is constantly looking to build new beverage consumption occasions in its customers' outlets through unique and innovative consumer experiences, product availability and delivery systems, and beverage merchandising and displays.
In addition to conducting their own independent advertising and marketing activities, company may provide promotional and marketing services or funds to bottlers. In most cases, company does this on a discretionary basis under the terms of commitment letters or agreements, even though they are not obligated to do so under the terms of the bottling or distribution agreements between company and the bottlers. Also, on a discretionary basis in most cases, company may develop and introduce new products, packages and equipment to assist the bottlers. Likewise, in many instances, company provided promotional and marketing services and/or funds and/or dispensing equipment and repair services to fountain and bottle/can retailers, typically pursuant to marketing agreements. The aggregate amount of
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funds provided by company to bottlers, resellers or other customers of company’s products, principally for participation in promotional and marketing programs, was $6.9 billion in 2013.
5.3.2 Finance
5.3.2.1 Financial Statements Analysis
Based on 2012 vs. 2013 consolidated FY results.
5.3.2.1.1 Income Statement
Net Operating Revenues
The following table illustrates, on a percentage basis, the estimated impact of key factors resulting in the increase (decrease) in net operating revenues for each of operating segments:
Gross Profit Margin
As a result of finished goods operations, which are primarily included in North America and
Bottling Investments operating segments, the following inputs represent a substantial portion of the Company’s total cost of goods sold: (1) sweeteners, (2) metals, (3) juices and (4) PET.
The Company recorded losses of $120 million, $110 million and $54 million during the years ended December 31, 2013, 2012 and 2011, respectively, in the line item cost of goods sold in consolidated statements of income. Company does not currently expect changes in
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commodity costs to have a significant impact on 2014 gross profit margin as compared to
2013.
Selling, General and Administrative Expenses
Other Operating Expenses
Operating Income and Operating Margin
Information about operating income contribution by operating segment on a percentage basis is as follows:
Information about operating margin on a consolidated basis and by operating segment is as follows:
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5.3.2.1.2 Balance Sheet Statement
The table above includes the impact of the following transactions and events:
• Cash and cash equivalents, short-term investments and marketable securities increased
$3,717 million, or 22 percent, as a combined group. This increase reflects the Company’s overall cash management strategy. A majority of the Company’s consolidated cash and cash equivalents, short-term investments and marketable securities are held by foreign subsidiaries.
• Assets held for sale decreased $2,973 million, or 100 percent, and liabilities held for sale decreased $796 million, or 100 percent, due to the Company completing the deconsolidation of its Philippine and Brazilian bottling operations in January 2013 and July 2013, respectively.
• Equity method investments increased $1,177 million, or 13 percent, primarily due to the sale of a majority ownership interest in previously consolidated Philippine bottling operations in
January 2013 and the deconsolidation of Brazilian bottling operations in July 2013, partially offset by the consolidation of innocent which had previously been accounted for under the equity method of accounting. The Company now accounts for ownership interests in the
Philippine and Brazilian bottling operations under the equity method of accounting.
• Other assets increased $1,076 million, or 30 percent, and other liabilities decreased $1,970 million, or 36 percent, primarily due to the reclassification of certain pension plans’ net asset balances out of other liabilities as a result of actuarial gains, higher returns and incremental funding during 2013.
• Accounts payable and accrued expenses increased $897 million, or 10 percent, primarily due to the Company receiving notification that put options it had issued in 2007 to minority shareholders of German bottling and distribution operations to sell their respective shares
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would be exercised in January 2014. As a result, the related liability was reclassified out of the line item other liabilities into the line item accrued expenses in consolidated balance sheet.
In addition, accounts payable and accrued expenses increased due to the timing of marketing and restructuring accruals.
• Long-term debt increased $4,418 million, or 30 percent, primarily due to the Company’s issuance of long-term debt net of early retirements during 2013.
• Deferred income taxes increased $1,171 million, or 24 percent, primarily due to the impact related to the net changes in the Company’s U.S. pension plan assumptions as well as a deferred tax liability recorded as a result of the Company’s equity investment in the newly combined Brazilian bottling operations.
5.3.2.1.3 Cash Flow Statements
Cash Flows from Operating Activities
Net cash provided by operating activities for the years ended December 31, 2013, 2012 and
2011 was $10,542 million, $10,645 million and $9,474 million, respectively.
Cash Flows from Investing Activities
Cash flows provided by (used in) investing activities are summarized as follows (in millions):
Cash Flows from Financing Activities
Cash flows provided by (used in) financing activities were as follows (in millions):
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5.3.2.1.3 Financial Ratios
Financial ratios shows that Coca-Cola has excellent financial performance. A high percentage of Return on Equity (ROE), Return on Assets (ROA), and Return on net Assets (RONA) indicate that Coca-Cola is a highly profitable company. An impressive financial performance
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is a result of high efficiency in money management over its available assets, equity and capital. The company is also working well in the generation of profits, as it has shown a very high percentage of gross margins. The profit of the company is also high, and shows that the company is good in pricing strategy and in controlling its operation costs. The "asset turnover ratio" section shows that asset turnover is very low which means sales generated per dollar of assets are low but the company was doing well in inventory turnover. The higher number means the company has lower inventory stocks, which has both advantages and disadvantages to the company. The good point is the company does not have to invest much money in inventory but on the other hand the product may short when demand is high. However, the
"Leverage Liquidity Ratios" section shows the weakness of the company. Coca-Cola seems to be a risky company from the very high percentage of debt to assets and debt to equity. This data shows that it has less in assets that may not be enough to pay for its debt. The financial analysis of Coca-Cola may conclude that the company is in a very strong financial position.
However, at a global level, stagnation in carbonates will affect volume growth for Coca-Cola.
5.3.3 Research and Development
The research and development activities principally involve development of new products, increasing the quality of current product portfolio, improvement and modernization of production process and implementation of the latest technological advances. The core R&D has not changed significantly at Coca-Cola over the past few years. It continues to be driven by the consumer value proposition. The implementation of the strategy has been modified recently to allow more freedom to local operating divisions. Therefore, there is now more
R&D work being performed in the local markets to address consumer needs in each individual market where Coca-Cola products are available -- currently over 200 countries worldwide.Coca-Cola does not outsource R&D, but it does work jointly with development partners in many technology areas. Coca-Cola believes joint developments allow the company to leverage its beverage expertise in connection with certain technology areas key to the business, such as packaging and vending equipment.
5.3.4 Operations and Logistics
Operations in Coca-Cola are activities and procedures that transform raw materials into finished products. The production process at the Coca-Cola Company is depicted in figure below.
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The company essentially produces syrups and concentrates and then sells them to authorized bottling and canning operations that package and distribute the final product. The bottlers combine the syrup with carbonated water or combine the concentrate with sweetener and water and/or carbonated water (depending on the product) to produce a finished beverage.
Finally the beverage is packaged in cans or bottles and then transported to warehouses or to customer locations. Bottlers are a critical local link. Bottlers sell and market Coca-Cola brands to businesses and institutions -- retail chains, supermarkets, restaurants, small neighbourhood grocers, sports and entertainment venues, schools and colleges. Some of the key initiatives taken in operations include efficient plant operations to minimize costs, an appropriate level of automation in manufacturing, quality production control systems to reduce costs and enhance quality and efficient plant layout and workflow design. Success in managing and improving upstream operations over time represents a critical source of leverage in building or reinforcing Coca-Cola's ability to compete in a sustained manner.
Important factors to consider in Coca-Cola's operation include relative age of equipment, type of technology and the size of plant, economies of scale, production levels and wage rates. lnbound logistics deals with the handling of raw materials and inventory received from various suppliers. The operational procedures and tasks surrounding inbound logistics include warehousing, storage and control of raw materials used for concentrate and syrup manufacturing. lnbound logistics are a primary activity because they represent the beginning of Coca-Cola's value adding conversion of inputs. Several initiatives are taken to streamline inventory control, storage and material handling. Some of the initiatives implemented are optimized such as the location of distribution facilities to minimize shipping times, material and inventory control systems, IT systems to reduce time to send "returns" to suppliers and warehouse layout and designs to increase efficiency of operations for incoming materials.
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These initiatives will dramatically improve Coca-Cola's cost position in this activity. Failure to reduce storage and inventory cost can result in significant competitive disadvantage. lnbound logistics require significant capital investment.
Outbound logistics refers to the transfer of concentrate to different bottling plants. The focus in outbound logistics is on managing the flow and distribution of concentrate to the bottlers.
Activities and procedures associated with outbound logistics include inventory control, warehousing, and storage and transportation of finished product. The outbound logistic department perform an exceptional duty in Coca-Cola which includes effective shipping processes to provide quick delivery and minimize damages, efficient finished goods warehousing processes, shipping of goods in large lot sizes to minimize transportation costs and quality material handling equipment to increase order picking.
5.3.5 Human Resources
The Human Resource department is responsible for recruiting, training, compensation, payroll, benefits and administration, Organizational Development, Employee Relations and
Compliance and Occupational Health. Coca-Cola takes a holistic view of all the elements to reward and recognize employees to ensure a complete, comprehensive package of pay, benefits and learning and development programs, including Coca-Cola University-all designed to unleash the employee's full potential. Coca-Cola University (CCU) is a virtual global university representing a one-stop shop for all learning and capability building activities across The Coca- Cola Company. CCU aims to provide experiences that equip people with practical skills and knowledge to win in the marketplace. Employees can take classes in a range of areas including People Leadership, Franchise Leadership, Consumer
Marketing and Customer/Commercial Leadership. Additionally, CCU conducts best practice research and provides coaching/consulting services with a view to transfer learning between different parts of the Coca-Cola franchise system. The Coca-Cola Company values the health and well-being of its employees and provides a variety of market-competitive benefits programs to address employees' benefits needs. The total benefits package is highly regarded and is designed to meet employees' basic and life-changing benefits needs. As market dynamics evolve, the Company regularly assesses the benefits programs to ensure employees receive those benefits they value and are provided with diverse options that address the issues of individuals and families and promote healthy lifestyles.
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5.3.6 Information Systems
IT services in Coca-Cola range from installing applications to designing computer networks and information databases. Other key services provided by the IT group include data management, database system design, management information systems and system management. Coca-Cola has heavily invested in a SAP-ERP system that provides the following functionality: Financial management, manufacturing and supply chain management, human resource management and materials management. The scope of the SAP implementation plan was grand: 15,000 users, 45 countries, 175 legal entities and 18 languages. SAP'S NetWeaver capabilities will be utilized to get everything integrated on the global scale and to get all of the bottlers to adopt the SAP systems. SAP'S NetWeaver platform includes a repository of services that bottlers' in-house development teams and other software vendors can weave together to create processes, such as one that handles procure-topay, or the process that begins with procuring raw materials and ends with payment to suppliers. Coca-Cola, which spends $1 billion a year on IT for business interactions with its bottlers, believes that commonality will make its supply chain more efficient and reduce costs.
The goal isn't a single ERP instance across all bottlers, but rather common processes for finance, purchasing, manufacturing, sales & distribution, and human resources by means of a common platform.
6.
Analysis of Strategic Factors (SWOT)
6.1
Strengths
Brand : The Company has a very strong brand across the globe. The brand has been recognized as one of world’s leading brands by various studies conducted by
Interbrand, Businessweek and other experts. Apart from Coca Cola, the company owns other top beverages brands such as Fanta, Sprite and Diet Coke. The Company has spent huge amount of money over more than a century to build a brand that has a high customer recall and is the most recognized one. It also allows the Company to go for brand extensions and introduce various types of beverages.
Economies of scale : The Coca Cola Company is the largest manufacturer and marketer of non alcoholic beverages in this world. The company sells its products in more than 200 countries. The large scale of operations ensures that the company is able to invest in new markets and reap benefits when the business grows profitable there.
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The Coca Cola System : The whole supple chain of Coca Cola and its bottling system is a big strength for the company. It allows the company to target various markets globally and take the bottlers’ help to gain knowledge about the local market. It also allows the company to expand rapidly to new markets without a big upfront investment.
Franchise Leadership: Company must continue to improve franchise leadership capabilities to give Company and bottling partners the ability to grow together through shared values, aligned incentives and a sense of urgency and flexibility that supports consumers’ always changing needs and tastes. The financial health and success of bottling partners are critical components of the Company’s success. They work with bottling partners to identify processes that enable them to quickly achieve scale and efficiencies, and share best practices throughout the bottling system. With bottling partners, they work to produce differentiated beverages and packages that are appropriate for the right channels and consumers. They also design business models for sparkling and still beverages in specific markets to ensure that they appropriately share the value created by these beverages with bottling partners. Company will continue to build a supply chain network that leverages the size and scale of the Coca-
Cola system to gain a competitive advantage
6.2
Weaknesses
Criticisms regarding Health and Environmental Issues : Products of the Coca Cola
Company are considered to be high in calories and harmful for health. Various groups have advocated healthier drinks over carbonated ones. In 2006, the Company was involved in a controversy in India when government agencies alleged that Coca Cola contains pesticides and is dangerous for health. Such negative publicity can cause a lot of damage to the company, especially in international and growing markets.
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Dropping Sales in Several Countries : In recent years, the company has witnessed zero or negative growth in various key markets. The performance of the company has been weak in North America, which is its largest market, in last few years. The company’s performance has been weak in Japan, Latin America and South East Asia
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as well. This could prevent Coca Cola from being aggressive in marketing and prevent the company from higher growth overall.
6.3
Opportunities
Inorganic Growth and Acquisitions : The Coca Cola Company has been acquiring various local beverages companies aggressively over the last decade. Also, the company has increased its stake in major bottling operations. This has given the company more control over the entire value chain and allows it to align the goals of these bottling operations with those of the company. The company acquired other companies in almost all major markets around the world. These acquisitions gave head start to Coca Cola in the international markets and allowed the company to diversify its revenue stream.
Growing Healthy Drinks and Bottled Water: The market for carbonated drinks is getting saturated in many Western countries and the trend is to move towards healthier drinks. Also, the market for bottled water is increasing fast globally. Coca Cola has developed and acquired various brands catering to these two segments. Coca Cola can use its strong brand position in carbonated water to increase its presence in other beverages category and take advantage of these growing markets.
6.4
Threats
Dependence on Third Party Bottling Partners: The Coca Cola system of bottling partners, which is a strength for the company, is potentially a threat as well. The company does not have the ownership in most of the bottling operations and makes money by selling syrup to these bottling companies. The interest of The Coca Cola
Company can be different from the bottling companies as each of them try to maximize their profits. The major dependence on independent third party vendors is a major risk to the company.This threat is being addressed by vertical integration as well as entering into long term partnerships with the bottling companies.
Changing Trends: In carbonated drinks, Pepsico is the only real competitor of Coca
Cola. But the trend is to move towards healthier drinks and there is a big threat of substitution facing Coca Cola. Possible substitutes include coffee, tea, milk, juices and energy drinks. The company has already taken steps to address this issue by launching products in the category of healthy drinks.
Competition: Pepsico competes fiercely that cannot let down its guard.
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7.
Strategic Alternatives and Recommended Strategy
7.1
Strategic Alternatives
Diversification
The Coca-Cola Company currently follows differentiation strategy. Coca-Cola spends enormous amounts of money in advertising to differentiate and create a unique image for their products. It provides different products to the customers and has been very much successful in gaining a leading position among the competitors.Carbonated beverages are the company’s bread and butter business so that the company. is heavily relied on their sales. William
Pecoriello, a leading beverage industry analyst from Morgan Stanley & Co, makes his prediction on the carbonated soft drink (CSD) category where he notes, "The current set of teens may become the "lost generation" for the CSD category. . . . Our latest survey of 1,550 consumers aged 13-65 supports our view that the US CSD segment is likely to remain under pressure. We maintain a forecast for a 1.5 percent annual volume decline for the CSD segment" This implies that the company needs to increase awareness and sales on other drinks, such as bottled water, juice, ready-to-drink tea, and even Asian specialty drinks since the consumer preferences are changing. Moreover, in order to maintain their share of sales in the increasing competitive market, Coca-Cola has to continue to strengthen their brand loyalty, innovation, and expand into other product categories in the beverage industry.
Acquisition Targets in Developed Markets
With the strong penetration power in the mature soft drinks industry, the Coca-Cola
Company’s revenue growth can be generated from secondary markets or new markets.
However, in developed markets, an acquisition option is limited because of market consolidation. The company has a long history of acquisitions. Coca-Cola acquired Minute
Maid in 1960, the Indian cola brand Thums Up in 1993, and Barq's in 1995. In 2001, it acquired the Odwalla brand of fruit juices, smoothies and bars for $181 million. In 2007, it acquired Fuze Beverage from founder Lance Collins and Castanea Partners for an estimated
$250 million. However, it is challenging for the company to make large acquisitions in all markets especially at the right time and at the right place.
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7.1.1
Matrixes
7.1.1.1
TOWS Matrix
7.1.1.2
External Factors Evaluation Matrix (EFE Matrix)
External
Strategic
Factor
Weight Rating Weighted
Score
Comments
OPPORTUNITIES
Strong and diversified product
0.13 4 0.52 Due to the strong and diversified product portfolio the company is not affected by the any new invention in the market.
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Packaging 0.08 4 0.32 The arrangements made by the company relating to the cola packaging are most advantageous for the company for enhancement in the whole world.
The acceptance of the new projects in the company
0.03 4 0.12 The acceptance of the new projects in the company has been stared in the industrial level that increases the demand for the company’s product.
New technology 0.14 4 0.56 New technology should be introduced by the company in order to improve the performance and efficiency of the work.
Niche market could be focused.
0.05 3 0.15 The company can focus on the niche areas of the market that generates and improves the sales of the products within the company.
Advertisement of unpopular products
Gap between competitors
0.03 2
0.04 2
0.06
0.08
There is an opportunity for the coca cola company to advertise its product that is not much popular among the customers or the people and it is beneficial for the company to stable their low profit generating products.
There is the great opportunity for the company to overcome the gap between them and their competitors.
Great number of successful brands
0.14 3 0.42 The coca cola company has lots of brands that continue and pursue it to the great success.
Health conscious people
0.04 4 0.16 Although the coca cola company is attaining almost about 18 % control over the entire beverage market but due to the factor of health conscious people attitude the company can be affected badly and affects the sales of the company.
The factor of lawsuits
0.06 4 0.24 The factor of lawsuits is also the threat for the company that causes decline in the wealth and popularity and also affects the sales of the company.
Falters showing the unhealthy side of the product
0.09 3 0.27 The success and sales of the coca cola company were threaten by the falters showing the unhealthy side of the product and also the health minister take action as the
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threat.
Competitors (Pepsi) 0.07 4 0.28 The major threat for the company is its competitor especially Pepsi which is selling most similar product same as the coca cola and also the various sorts of the branded juices, coffee and milk are threat for the company.
Economical changes 0.08 3
Increase in demand of substitutes.
0.02 3
0.24
0.06
Economical changes and impacts are also playing adverse role in the success of the company and the growth that is among the sales.
The increase in the demand of the production of the non carbonated products like juices and nectars etc can affects the growth of the company.
Total Weighted
Score
1 3.48
The large numbers of substitutes regarding the company’s product are also available in the market that reduces the demand.
Based on the above calculations it has been concluded that the company’s Total Weighted
Score is 3.48 which shows that the company is hugely successful in utilizing its opportunities and minimizing the threats around it.
7.1.1.3
Internal Factors Evaluation Matrix (IFE Matrix)
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Based on the above calculations it has been concluded that the company’s Total Weighted
Score is 2.86 which shows that the company is hugely successful in utilizing its strengths and minimizing the weaknesses around it.
7.1.1.4
Grand Strategy Matrix
As figure identify that Coca-Cola Company falls into 1 st
quadrant. The company management must focus on current market and achieve growth by adopting product development, market development and market penetration strategies. The company has abundant resources and competitive advantage through which it can achieve growth by adopting the backward and forward integration strategies. Coca-Cola Company can also adopt the related diversification strategy to reduce its risk with broad portfolio or product line through diversification strategy.
Coca-Cola can afford to take benefit of external opportunities in many areas. It can also take risks being aggressive when necessary.
7.1.1.5
Competitive Profile Matrix
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Competitiveness of the firm can be measured on the basis of industry key success factors and firms strengths. If variation between the final score is found among the rivals; than with the higher score getter has the greater net competitive advantage and vice versa for lower score getter. The final scores showed that the Coca Cola is a strong company in respect of its competitors. The Pepsi and Cadbury Schweppes stayed on the second and third position with scores 3.48 and 2.88 respectively. Coca Cola has highest score in the industry in terms of industry key success factors.
7.1.1.6
Space Matrix
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Coca Cola’s directional vector is positioned in the aggressive vector (upper-right quadrant) of the matrix, it shows that a firm is in an outstanding position to utilize its Internal Strengths
(IS) to surmount internal weaknesses, obtain the advantage of external opportunities, and evade external threats. As a result, market development, market penetration, product development, forward, backward and horizontal integration, concentric, conglomerate and horizontal diversification or a mix of strategies can be employed, depending on the particular environment that the firm is practicing at the time.
7.1.1.7
Quantitative Strategic Planning Matrix
We see that it is more attractive to outsource distribution networks rather than launch a diet line of products. This is in line with their current strategic direction, and will allow fortifying their market reach before introducing new products that will be harder to push through the distribution channels.
7.1.1.8
IE Matrix
Cell V suggest the hold and maintain strategy. In this case, tactical strategies should focus on market penetration and product development.
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7.2 Recommendations
Looking towards the future, the most important recommendation to Coca-Cola is continuing product innovation and expansion of their product line. The soft-drinks industry is fully saturated with competitors. Also, the industry is no longer expanding, and market share is actually decreasing as more consumers are looking to healthier options. By continually introducing new products, Coca-Cola will be able to increase their profits and allow the company to continue to grow. Also, having a diverse product line will make the corporation very stable, which is appealing to investors and creditors. A second recommendation would be to sustain or increase the global market share. Coca-Cola is very well-established globally, and is the global soft-drinks leader. This is very important to sustain because it is the source of the majority of their profits. If they lose global market share, their profits will decline dramatically. Another recommendation for Coca-Cola is to maintain and try to increase their brand loyalty. Diet Coke has the second highest brand loyalty of all the soft-drink competitors’ brands, and solid advertising campaigns will help maintain the brand loyalty.
They can also strive to obtain higher brand loyalty in all other brands, not solely Diet Coke.
The brand loyalty is important because it will allow Coca-Cola to sustain profits and maintain their market share.
Moreover, Coca-Cola Company should try to emphasis more on providing their infrastructure in the market to facilitate their customers. Marketing team should try to increase the availability of Coke in rural areas. They should also focus the old people. Now young generation has a trend to drink coke 2 regular bottles at same time, so providing more satisfaction to them company should introduce ½ liter disposable bottle.
Furthermore, It is quite evident from analysis that the carbonated soft drink sector is simply too large and lacking in positive health attributes to be able to succeed in an increasingly health conscious market place. If Coca-Cola focused only on the carbonated soft drink sector competitively, it would be unable to continue to be a market leader in the beverage industry.
PepsiCo now commands 50 percent of market share in noncarbonated drinks in the US, because it adapted the strategy of competing in the noncarbonated sector in the late 1990's.
Coca-Cola was a distant second at percent because of its continued focus on the carbonated sector. PepsiCo owns the leading brand in nearly every noncarbonated drink category in the
United States: bottled water (Aquafina); sports drink (Gatorade); enhanced water (Propel); chilled juice (Tropicana); bottled tea (Lipton, a joint venture) and readyto-drink coffee
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(Starbucks, a joint venture). The key recommendation for Coca-Cola is to compete aggressively in the new age beverage sector to make its mark in the booming global and domestic market for energy drinks, bottled water and other noncarbonated drinks. Competing outside the carbonated soft drink sector will make Coca-Cola competitive in the growth sector of the industry. Coca-Cola must change with the times to adapt to the needs of new generations of young consumers and health conscious consumers. Competing aggressively in the noncarbonated sector will ensure victory for Coca-Cola in the Cola wars of twenrt-first century.
It is very clear from analysis and survey of literature that health and wellness continues to be a major trend sweeping across the global beverage market, especially in Europe and North
America. PepsiCo is moving forward with commitment to provide industry leadership in the health and wellness arena. The recommendation for Coca-Cola is to move forward with commitment to provide industry leadership in the health and wellness arena. Coca-Cola should do a better job of staying in touch with shoppers and consumers and in the process of innovating and creating value. This is absolutely essential for value creation in the beverage industry. Two key segments of the market, the baby boomers and the young generation are shaping the future of the beverage industry. The aging boomer generation is more focused on preventing certain health conditions, and is more likely than other generations to increase its consumption of healthy foods and beverages, and avoid problematic ingredients such as sodium and sugar. On the other hand, the younger generation demands new age sport drink and energy drink. Coca-Cola's failure to understand this market need resulted in missing the opportunity to buy Gatorade brand.
As the cola war continues into the twenty-first century, Coca-Cola faces very stiff competition from PepsiCo. The issue is a very serious threat to Coca-Cola because of PepsiCo's dominance in the growing noncarbonated beverage sector. Moreover, for the first time in their long, competitive history, PepsiCo overtook Coca-Cola in terms of its market capitalization – a change that industry experts credited to PepsiCo's policy of diversification and investment in new health conscious brands. The recommendation for Coca-Cola is to develop strategies to win the cola war in this century. Winning the cola war in twenty-first century is critical for
Coca-Cola to maintain its industry leadership position and to be a total beverage company.
The recommendation for Coca-Cola is to address this issue through senior leadership negotiations and discussion immediately because the bottlers are a critical local link to the
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consumers. Bottlers sell and market Coca-Cola brand products to businesses and institutions, retail chains, supermarkets, restaurants, small neighbourhood grocers, sports and entertainment venues, schools and colleges. These customers in turn sell the Coca-Cola brand products to the consumer. Working with bottlers as one Coca-Cola System will enable the company to fulfil the concept of "one face to the customer".
Increased competition from the key players and a more health aware consumer base reflects the current constantly changing market condition in the beverage industry. Coca-Cola, the market leader in the beverage industry has been criticized widely for not taking an active role in leading this industry change because of failure to innovate. Coca Cola has attempted some diversification into different products. For the most part, however, success has arguably cannibalized some of the company's own sales. There are more than 11 types of Coke on sale including vanilla, lemon and lime flavours. However, brand extension achieves only more choice for the same consumer. Coca-Cola's attempt to introduce the Dasani brand in the UK and Powerade in North America, has not been very successful. PepsiCo, on the other hand, has successfully moved into snacks, energy drinks and bottled water. When PepsiCo realized that its own cola was failing to compete with Coca-Cola, it implemented a strategy that was flexible to the demands of the market. With sports drink Gatorade, Aquafina water and
Tropicana fruit juices in its portfolio, PepsiCo has most bases covered. Further, it takes advantage of its move into snacks with its Frito-Lay product by arguing it can offer better margin and profit potential to large supermarkets, thereby demanding more shelf-space.
Looking toward the future, a key recommendation to Coca-Cola is continuing product innovation and expansion of its product line. The soft drinks industry is a mature industry and saturated with competitors. Also, the industry is no longer expanding, and market share is actually decreasing as more consumers are looking to healthier options. By continually introducing new products, Coca-Cola will be able to increase its profits and allow the company to continue to grow. Also, having a diverse product line will make the corporation very stable, which is appealing to investors and creditors. Coca-Cola should recognize that innovation leads to value creation. Innovative ideas can be in merchandising, supply chain innovations or new products, packages or services.
Despite Coca-Cola's reputation as a socially responsible corporate citizen, the company has faced its share of controversy worldwide surrounding its products safety records. Coca Cola is implementing the Coca Cola Quality System (TCCQS) throughout the system to address the
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food safety and regulatory issues. TCCQS has been developed by a global, cross-functional team and endorsed by senior management and the bottling partners. It is a framework around which Coca-Cola's system coordinates and guides its activities, drives continuous improvement and relentlessly strives for quality. The recommendation for Coca-Cola is to take food safety and regulatory issue seriously because Coca-Cola is the world's most trusted brand. People around the world invite Coca-Cola's beverages into their lives more than 1.9 billion times a day. Moreover, in an age of instantaneous communication, Internet availability and satellite media coverage, the amount of information and the speed at which customers can be informed of a perceived or actual problem have increased exponentially. The prevailing media trend is to accentuate the negative rather than the positive aspects of situations.
Addressing the food safety and regulatory issues will increase the brand value of Coca-Cola and allow Coca-Cola to continue to be the stewards of food safety in the beverage industry.
8.
Implementation, Evaluation and Control
Overall report suggests the following issues are to be the most important to be evaluated.
Their implementation and control processes identified for each issue to be evaluated are as follows:
Obesity concerns may reduce demand for some of products: Consumers, public health officials and government officials are highly concerned about the public health consequences of obesity, particularly among young people. Increasing public concern about obesity; possible new or increased taxes on sugar-sweetened beverages by government entities to reduce consumption or to raise revenue; additional governmental regulations concerning the marketing, labeling, packaging or sale of sugar-sweetened beverages; and negative publicity resulting from actual or threatened legal actions against them or other companies in industry relating to the marketing, labeling or sale of sugar-sweetened beverages may reduce demand for or increase the cost of sugar-sweetened beverages, which could adversely affect profitability.
Water scarcity and poor quality could negatively impact the Coca-Cola system’s production costs and capacity: Water is the main ingredient in substantially all of products, is vital to company manufacturing processes, and is needed to produce the agricultural ingredients on which business relies. As the demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, the Coca-Cola system may incur higher production costs or face
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capacity constraints that could adversely affect profitability or net operating revenues in the long run.
Increased competition and capabilities in the marketplace could hurt business:
The nonalcoholic beverage segment of the commercial beverage industry is highly competitive. Company competes with major international beverage companies that, like Company itself, operate in multiple geographic areas, as well as numerous companies that are primarily regional or local in operation. In many countries in which they do business, including the United States, PepsiCo, Inc., is a primary competitor.
Other significant competitors include, but are not limited to, Nestl´e, DPSG, Groupe
Danone, Mondel¯ez, Kraft and Unilever. If company does not continue to strengthen capabilities in marketing and innovation to maintain brand loyalty and market share while selectively expand into other product categories in the nonalcoholic beverage segment of the commercial beverage industry, business could be negatively affected.
Product safety and quality concerns, including concerns related to perceived artificiality of ingredients, could negatively affect business: Company success depends in large part on ability to maintain consumer confidence in the safety and quality of all of products. Company has rigorous product safety and quality standards which they expect operations as well as bottling partners to meet. If company or its bottling partners fail to comply with applicable product safety and quality standards and beverage products taken to the market are or become contaminated or adulterated, company may be required to conduct costly product recalls and may become subject to product liability claims and negative publicity, which could cause business to suffer.
Fluctuations in foreign currency exchange rates could affect financial results:
Company earns revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the euro, the Japanese yen, the
Brazilian real and the Mexican peso. -Therefore, increases or decreases in the value of the U.S. dollar against other major currencies affect net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies. In addition, unexpected and dramatic devaluations of currencies in developing or emerging markets could negatively affect the value of earnings from, and of the assets located in, those markets.
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If interest rates increase, net income could be negatively affected: Company maintains levels of debt that they consider prudent based on cash flows, interest coverage ratio and percentage of debt to capital. They use debt financing to lower cost of capital, which increases return on shareowners’ equity. This exposes to adverse changes in interest rates. When and to the extent appropriate, they use derivative financial instruments to reduce exposure to interest rate risks. If credit ratings were to be downgraded as a result of changes in capital structure; major bottlers’ financial performance; changes in the credit rating agencies’ methodology in assessing credit strength; the credit agencies’ perception of the impact of credit market conditions on them or their major bottlers’ current or future financial performance and financial condition; or for any other reason, cost of borrowing could increase.
Company relies on bottling partners for a significant portion of business. If they are unable to maintain good relationships with their bottling partners, business could suffer: Company generates a significant portion of net operating revenues by selling concentrates and syrups to independent bottling partners. As independent companies, bottling partners, some of which are publicly traded companies, make their business decisions that may not always align with company interests. Such actions could, in the long run, have an adverse effect on profitability.
Increase in the cost, disruption of supply or shortage of energy or fuels could affect profitability: CCR, North America bottling and customer service organization, and other Company-owned or -controlled bottlers operate a large fleet of trucks and other motor vehicles to distribute and deliver beverage products to customers. In addition, company use a significant amount of electricity, natural gas and other energy sources to operate concentrate plants and the bottling plants and distribution facilities operated by CCR and other Company-owned or -controlled bottlers. An increase in the price, disruption of supply or shortage of fuel and other energy sources in North
America, in other countries in which they have concentrate plants, or in any of the major markets in which CCR and other Company-owned or -controlled bottlers operate that may be caused by increasing demand or by events such as natural disasters, power outages, or the like could increase operating costs and negatively impact profitability.
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Increase in the cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials could harm business: Company and its bottling partners use various ingredients in business, including HFCS, sucrose, aspartame, saccharin, acesulfame potassium, sucralose, ascorbic acid, citric acid, phosphoric acid and caramel color, other raw materials such as orange and other fruit juice and juice concentrates, as well as packaging materials such as PET for bottles and aluminum for cans. Substantial increases in the prices of bottling partners’ ingredients, other raw materials and packaging materials, to the extent they cannot be recouped through increases in the prices of finished beverage products, would increase and the Coca-
Cola system’s operating costs and could reduce profitability.
If they are unable to protect information systems against service interruption, misappropriation of data or breaches of security, operations could be disrupted and reputation may be damaged: Company relies on networks and information systems and other technology (‘‘information systems’’), including the Internet and third-party hosted services, to support a variety of business processes and activities, including procurement and supply chain, manufacturing, distribution, invoicing and collection of payments. Like most major corporations, the Company’s information systems are a target of attacks. Although the incidents that they have experienced to date have not had a material effect on business, financial condition or results of operations, there can be no assurance that such incidents will not have a material adverse effect in future.
Litigation or legal proceedings could expose to significant liabilities and damage reputation: They are party to various litigation claims and legal proceedings. They evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses.
Based on these assessments and estimates, they establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. Improper conduct by associates or agents could damage reputation in the United States and internationally or lead to litigation or legal proceedings that could result in civil or criminal penalties, as well as disgorgement of profits.
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Climate change may have a long-term adverse impact on business and results of operations: There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit the availability or increase the cost of key agricultural commodities, such as sugarcane, corn, beets, citrus, coffee and tea, which are important sources of ingredients for products.
If they are unable to renew collective bargaining agreements on satisfactory terms, or bottling partners experience strikes, work stoppages or labor unrest, business could suffer: Many of company associates at key manufacturing locations and bottling plants are covered by collective bargaining agreements. If they are unable to renew collective bargaining agreements on satisfactory terms, their labor costs could increase, which could affect profit margins. In addition strikes, work stoppages or other forms of labor unrest at any of major manufacturing facilities or major bottlers’ plants could which could reduce net operating revenues and could expose to customer claims.
Global or regional catastrophic events could impact operations and financial results: Because of global presence and worldwide operations, business can be affected by large-scale terrorist acts, especially those directed against the United States or other major industrialized countries; the outbreak or escalation of armed hostilities; major natural disasters; or widespread outbreaks of infectious diseases. Such events could impair ability to manage business around the world, could disrupt supply of raw materials and ingredients, and could impact production, transportation and delivery of concentrates, syrups and finished products.
Most of the information used in this report is quoted from: http://www.coca-colacompany.com/
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