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Strategic Management: Cocacola Essay, Research Paper Company

Strategic Management: Cocacola Essay, Research Paper

Company History

Dr. John S. Pemberton in Atlanta, Georgia invented Coca-Cola in May 1886.

During the first year, sales of Coca-Cola averaged nine drinks a day, adding up to
total sales for that year of $50.

Today, products of The Coca-Cola Company are consumed at the rate of more than
one billion drinks per day.

The Company is the world's leading manufacturer, marketer, and distributor of

non-alcoholic beverage concentrates and syrups.

The Company and its subsidiaries employ nearly 31,000 people around the world.

Syrups, concentrates and beverage bases for Coca-Cola, the Company's flagship
brand, and over 230 other Company soft-drink brands are manufactured and sold by
The Coca-Cola Company and its subsidiaries in nearly 200 countries around the
world.

Mission statement
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Our mission is to maximise share-owner value over time. In order to achieve this
mission, we must create value for all the constituents we serve, including our
consumers, our customers, our bottlers and our communities. The Coca-Cola
Company and its subsidiaries (our Company) create value by executing a
comprehensive business strategy guided by six key beliefs:

consumer demand drives everything

brand Coca-Cola is the core of our business

we will serve consumers a broad selection of the non-alcoholic ready-to-drink

beverages they want to drink throughout the day

we will be the best marketers in the world

we will think and act locally

We will lead as a model corporate citizen.

The Company's operating management structure consists of five geographic groups

plus The Minute Maid Company. The North America Group comprises the United
States and Canada. The Latin America Group includes the Company's operations
across Central and South America, from Mexico to the tip of Argentina. The Greater
Europe Group stretches from Greenland to Russia's Far East, including some of the
most established markets in Western Europe and the rapidly growing nations of
Eastern and Central Europe. The Africa and Middle East Group encompasses the
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Middle East and the entire continent of Africa. The Asia Pacific Group has
operations from India through the Pacific region including China, Japan, and
Australia.

The Minute Maid Company, the Company's juice business in Houston, Texas, is the
world's leading marketer of juices and juice drinks. The Minute Maid Company's
products include Minute Maid Premium Orange Juice with calcium, Minute Maid
Premium Lemonade Iced Tea, Minute Maid Coolers, Hi-C Blast and Five Alive.

By contract with The Coca-Cola Company or its local subsidiaries, local businesses
are authorised to bottle and sell Company soft drinks within certain territorial
boundaries and under conditions that ensure the highest standards of quality and
uniformity.

CORPORATE OBJECTIVES

The Coca-Cola Company is a publicly held corporation, chartered in Delaware on

September 5, 1919. As of December 31, 1998, approximately 389,000 shareowners
of record held approximately 2.47 billion shares of the Company s common stock.

The Coca-Cola Company stock, with ticker symbol KO, is listed and traded in the
United States on the New York Stock Exchange. Common stock also is traded on
the Boston, Cincinnati, Chicago, Pacific and Philadelphia exchanges. Outside the
United States, Company common stock is listed and traded on German and Swiss
exchanges.

The Coca-Cola Company has a commitment, more than a century old, to social
responsibility through philanthropy and good citizenship. The Company's reputation
for good corporate citizenship results from charitable donations, employee
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volunteerism, technical assistance and other demonstrations of support in

thousands of communities world-wide.

The Coca-Cola Company continues to sponsor the world's most exciting sports
events, including World Cup Football, the National (American) Football League,
National Basketball Association, NASCAR, the Tour de France, the Rugby World
Cup, COPA America and numerous sports teams. The Coca-Cola Company has
sponsored the Olympic Games since 1928.

Resources

Human resources

The company employs nearly 31,000 people in nearly 200 countries. They maintain
a long-standing commitment to equal opportunity, affirmative action and valuing the
diversity of their employees. The Company strives to create a working environment
free of discrimination and harassment with respect to race, sex, colour, national
origin, religion, age, sexual orientation or disability.

Benefits offered employees include health, dental and life insurance; short- and
long-term disability; a retirement plan; a tuition aid program; and participation in the
Company Thrift Plan.

It is the policy of the Company to provide employees with opportunities to develop

knowledge and skills that lead to more effective job performance.

They employ both specialists in the field and people with general skills ranging from
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marketing to finance.

The firm operates a pay-for-performance business environment. Their Total

Compensation programs are structured to drive value creation, to provide
cost-effective rewards that are meaningful to associates, and to encourage
continuous learning, making the Company as successful as it can be. Integral to
their success in the nearly 200 countries where they do business are the people of
the Coca-Cola business system, who remain intensely focused on creating
long-term value for their share owners.

Physical resources

The headquarters of the company is located in Atlanta USA though they have
branches in other countries around the world.

The firm has one of the most diverse beverage brand portfolios in the world.

In the United States, their core brands of Coca-Cola classic, diet Coke and Sprite
are complemented by Barq's root beer, Minute Maid Soda, Nestea, Fruitopia, Citra
and Cherry Coke. Add to that the popular POWERaDE line, Minute Maid juices and
Hi-C, plus the new bottled water, Dasani. Next up: the expansion of frozen
Coca-Cola.

But they also sell Tian Yu Di (teas, waters and fruit juices) in China, Mori no
Mizudayori (mineral water) in Japan, new SONFIL (juice/dairy blend) in Spain, Kuat
(guarana-flavored soft drink) in Brazil and literally hundreds of varieties of local
beverages. Adding Schweppes products last year brought them 39 new brands in
more than 160 countries.
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Bottlers

The company owns Coca-Cola Enterprises the largest soft-drink bottler in the world,
operating in eight countries.

The Company also has business relationships with three types of bottlers: (1)
independently owned bottlers, in which they have no ownership interest; (2) bottlers
in which they have invested and have a non-controlling ownership interest; and (3)
bottlers in which they have invested and have a controlling ownership interest.

They view certain bottling operations in which they have a non-controlling ownership
interest as key or anchor bottlers due to their level of responsibility and
performance. The strong commitment of these bottlers to their own profitable
volume growth helps Coca Cola meet their strategic goals and furthers the interests
of their world-wide production, distribution and marketing systems. These bottlers
tend to be large and geographically diverse, with strong financial resources for
long-term investment and strong management resources.

These bottlers give Coca-Cola strategic business partners on every major continent.

This is useful in gaining competitive advantage as the company has a stake in two
thirds of the bottlers they use hence they can influence them.

Financial resources
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The company believes that it s ability to generate cash from operations to reinvest
in it s business is one of their fundamental financial strengths.

The firm gets its finance from sales, franchising, loans and stock flotation.

Investments

During 1999, the Company's acquisition and investment activity, which included the
acquisition of beverage brands from Cadbury Schweppes plc in more than 160
countries around the world, investments in the bottling operations of Embotelladora
Arica S.A., F&N Coca-Cola Pte Limited, and Coca-Cola West Japan Company, Ltd.,
totalled $1.9 billion.

During 1998 and 1997, the Company's acquisition and investment activity totalled
$1.4 billion and $1.1 billion, respectively.

The Company sponsors and/or contributes to pension and post retirement health
care and life insurance benefit plans covering substantially all U.S. employees and
certain employees in international locations.

In July 1999, they completed the acquisition of Cadbury Schweppes plc beverage
brands in 155 countries for approximately $700 million. These brands included
Schweppes, Canada Dry, Dr Pepper, Crush and certain regional brands. Among the
countries excluded from this transaction were the United States, South Africa,
Norway, Switzerland and the European Union member nations (other than the
United Kingdom, Ireland and Greece).
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In September 1999, they completed the acquisition of Cadbury Schweppes

beverage brands in New Zealand for approximately $20 million. Also in September
1999, in a separate transaction valued at approximately $250 million, they acquired
the carbonated soft drink business of Cadbury Schweppes (South Africa) Limited in
South Africa, Botswana, Namibia, Lesotho and Swaziland.

To meet their long-term growth objectives, Coca-Cola make significant investments

in marketing to support their brands. Marketing investments enhance consumer
awareness and increase consumer preference for the brands. This produces
long-term growth in volume, per capita consumption and their share of world-wide
non-alcoholic ready-to-drink beverage sales.

They heighten consumer awareness and product appeal for their brands using
integrated marketing programs. The firm s integrated marketing programs include
activities such as advertising, point-of-sale merchandising and product sampling.

Intangible resources

The Coca-Cola brand is the most recognised trademark in the world. The bottle and
name can recognised by people the world over. The word coke is used in everyday
language to describe all types of cola drinks. The image of the company is also a
great resource, it is recognised as a charitable organisation and one that offers
great quality.

For example;

They are helping build multigrade schoolhouses in the Philippines to educate

children, to strengthen communities.
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Following floods in Mexico and Venezuela last year, they dedicated their consumer
hotline to connecting people with missing relatives through the Red Cross and
provided water and supply trucks to aid in disaster relief.

Coca-Cola customers are notoriously loyal and almost everyone around the world
sees it as the superior soft drink.

Unique resources

Coca-Colas unique selling point is its name, image and taste. No other brand
enjoys the type of loyalty afforded to Coke. A lot of competitors have tried to capture
the taste or to package their products to look like Coke but to no avail. This
uniqueness is possibly the company s greatest competitive advantage.

The Competitive Environment

There are a lot of competitors in the soft drink industry all of whom have the same
market/customers as Coca-Cola, however none is quite as successful as the firm.

Coca-Cola, the heart of the business, is seen as one of life's simple, affordable and
frequent pleasures.

From the look and feel of the bottle to the sound of effervescence, the tickle of fizz
on the nose and tongue and, of course, the unique flavour, Coca-Cola is a sensory
experience. Wherever the company creates reminders of that experience, such as
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their Sensa-Domes in South Africa where consumers experience a 3-D movie and
special effects to remind them of the pleasure of drinking a Coke they ignite the
brand.

Competition in this industry where one product is virtually the same as the next is in
some cases based on price, advertising and packaging. Supermarket and less well
known brands are a lot cheaper and some even package their products in a similar
packing to coke (i.e. The classic red pack with white writings).

There have been a lot of new entrants into this industry but many never last (e.g.
Buzz Cola). The product differentiation of Coca-Cola and (Pepsi) has hindered the
success of new competition. Consumers regard them of begin of better and higher
value. The consumers are loyal to these brands and only weaver at times of
depression when they are forced to buy cheaper brands.

Coca-Cola has a recognised image which no other brand except it s closest rival
Pepsi can hope to compete with. Virgin Cola tried to sell it s self as the same but
failed.

Pepsi is Coca-Colas greatest competitor. Its products including Diet Pepsi,

Pepsi-One, Mountain Dew, Slice and Mug brands V account for nearly one-third of
total soft drink sales in the United States, a consumer market totalling about $56
billion. Pepsi-Cola beverages are available in about 170 countries.

Pepsi-Cola North America also makes and markets ready-to-drink iced teas and
coffees, respectively, via joint ventures with Lipton and Starbucks.

PepsiCo, Inc. is among the most successful consumer products companies in the
world, with 1999 revenues of over $20 billion and 116,000 employees. PepsiCo
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brands are among the best known and most respected in the world and are
available in about 190 countries and territories.

The company consists of:

Pepsi-Cola Company, the world's second-largest beverage company (second to

Coke)

Frito-Lay Company, the world's largest manufacturer and distributor of snack chips

Tropicana Products, Inc., the world's largest marketer and producer of branded
juices

PepsiCo Mission Statement:

PepsiCo's overall mission is to increase the value of our shareholder's investment.

We do this through sales growth, cost controls and wise investment of resources.
We believe our commercial success depends upon offering quality and value to our
consumers and customers; providing products that are safe, wholesome,
economically efficient and environmentally sound; and providing a fair return to our
investors while adhering to the highest standards of integrity.

PepsiCo's success is the result of superior products, high standards of performance,

distinctive competitive strategies and the high integrity of its employees.
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PepsiCo, Inc. (symbol: PEP) shares are traded principally on the New York Stock
Exchange in the United States. The company is also listed on the Amsterdam,
Chicago, Swiss and Tokyo Stock Exchanges.

Pepsi-Cola products account for about a quarter of all soft drinks sold
internationally. In addition to brands marketed in the United States, major products
include Mirinda and Pepsi Max. Pepsi-Cola North America includes the United
States and Canada. Key Pepsi-Cola international markets include Argentina, Brazil,
China, India, Mexico, Philippines, Saudi Arabia, Spain, Thailand and the United
Kingdom. The company has also established operations in the emerging markets of
the Czech Republic, Hungary, Poland, Slovakia and Russia, where Pepsi-Cola was
the first U.S. consumer product to be marketed.

Pepsi-Cola provides advertising, marketing, sales and promotional support to

Pepsi-Cola bottlers and food service customers. This includes some of the world's
best-loved and most recognised advertising. New advertising and exciting
promotions keep Pepsi-Cola brands young.

The company is well known for it s adverts and the products blue packaging. Unlike
other competitors to Coke who always adopt the red pack and try to be seen as the
same as Coke, Pepsi marketed itself as an alternative, a rival, which I believe is one
of the factors of their success.

The company serves nearly as many countries as Coke has more brands and the
second most successful juice brand in the world. Their brands 7UP and Pepsi are
also just as easily recognisable globally as Coca-Cola brands.

Political Influences
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The company due to it s global span is affected by a lot of Macro Environmental

Influences. Political situations in all the countries they trade in will affect the
company. If the USA is at war or facing other problems with country involved with
Coca-Cola the this will make business very bad for the firm in that particular country.
Natives might take out their feelings towards the USA on the company.

Foreign trade regulations and taxation policies of both the US and the countries they
deal with affect them. Legislation on employment and equal opportunities also
influences the way the firm hires and treats its employees.

There are also Deposit laws which require that beverage bottlers and distributors
charge a refundable deposit on beverage containers.

Environmental protection

The company s commitment to the environment is based on the principle that they
shall conduct their business in ways that protect and preserve our environment.
Furthermore, they promote a philosophy of shared responsibility, where all
participants in the supply chain accept responsibility for the environmental impacts
occurring in their specific part of the chain.

Working together with their suppliers, customers, regulators and our environmental
partners, they can achieve an effective balance between responsible environmental
and economic stewardship. At The Coca-Cola Company it is believed that the best
possible environment for our success is the best possible environment.

To help us meet the opportunities and challenges of a rapidly changing

environmental landscape, The Coca-Cola Company has developed a
comprehensive environmental management system. This system is designed
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specifically for alignment with operations of the Coca-Cola business system and
focuses on environmental issues directly related to their business. Compliance,
waste minimisation, pollution prevention, continuous improvement, and identification
of cost savings are all hallmarks of The Coca-Cola Environmental Management
System (TCCEMS).

At the core of The Coca-Cola Environmental Management System is a simple

overarching principle: we shall conduct our business in ways that protect and
preserve the environment. This principle is supported by a series of policies,
requirements and practices.

Their system supports and encourages a wide array of environmental leadership

initiatives around the world. The purpose of these initiatives is threefold:

To advance their understanding of the environmental issues facing their business

To foster new and innovative solutions to those issues

To serve as a catalyst for constructive dialogue and improved environmental

performance

Economic Influences

Business cycles like recession and booms affect the company. In times of recession
people are more likely to buy cheaper alternatives to their product since it is not an
essential product. Reduced income will mean that people want to spend their cash
on vital things. The rate of interest and the rate of exchange of other countries will
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also affect the company. As a US based firm exporting goods to places like Britain
whose currency have a higher value it will mean more profit for coke.

Inflation affects the way the firm operates in many markets around the world. In
general, they are able to increase prices to counteract the inflationary effects of
increasing costs and to generate sufficient cash flows to maintain their productive
capability.

With approximately 70 percent of the company s 1999 operating income generated

outside the United States, weakness in one particular currency is often offset by
strengths in others over time. Coca-Cola uses derivative financial instruments to
further reduce their net exposure to currency fluctuations.

Euro Conversion

In January 1999, certain member countries of the European Union established

permanent, fixed conversion rates between their existing currencies and the
European Union's common currency (the Euro).

The transition period for the introduction of the Euro is scheduled to phase in over a
period ending January 1, 2002, with the existing currency being completely removed
from circulation on July 1, 2002. The Company has been preparing for the
introduction of the Euro for several years. The timing of their phasing out all uses of
the existing currencies will have to comply with the legal requirements and also be
scheduled to facilitate optimal co-ordination with the plans of their vendors,
distributors and customers. The work related to the introduction of the Euro and the
phasing out of the other currencies will include converting information technology
systems, recalculating currency risk, recalibrating derivatives and other financial
instruments, evaluating and taking action, if needed, regarding the continuity of
contracts; and modifying their processes for preparing tax, accounting, payroll and
customer records.
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New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for
Derivative Instruments and Hedging Activities. The statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes new
accounting rules for hedging instruments. This company will have to change its
process to comply with the above.

Socio-cultural Influences

Things like income distribution, population and life style will affect the firms
decision of whether or not to branch out into a certain region.

Levels of education will decide whether the right staff is available before new
factories are set up.

Technological influences like speed of technological transfer and rate of

obsolescence have to be borne in mind before new expensive equipment is
purchased. The firm can not afford to waste funds on soon out of date equipment,
especially with Pepsi close behind.

Coca-Cola though a multinational organisation operates in a static environment

where the future can be easily forecasted.
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The company s core competence is the brand name and image of Coca-Cola,
though their marketing and distribution channels come a close second.

The company claims to be a corporate citizen whose first duty is to the public and its
customers, however I believe that their first loyalty is to their shareholders and the
board of trustees.

The ultimate objectives of Coca-Cola s business strategy are to increase volume,

expand their share of world-wide non-alcoholic ready-to-drink beverage sales,
maximise our long-term cash flows and create economic-value-added by improving
economic profit.

Coca-Cola has more than 16 million customers around the world that sell or serve
their products directly to consumers. There are nearly six billion people in the world
who are potential consumers of the Company's products. Ultimately, their success in
achieving their mission depends on their ability to satisfy more of the beverage
consumption demands and the company s ability to add value for its customers.

From the above strategic analysis I would say that the company s strengths are

The brand name Coca-Cola Coke

The image of the company/product (the real thing)

Their position in the market

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Their weakness

The fact that the product can be easily substituted (customers will go for a cheaper
alternative if need be since the product is not that dissimilar in taste and appearance
to rival products)

I see their main opportunity as the company forging new markets and their main
threat is the presence and continuing growth Pepsi-Cola.