Corporate Strategy: The Coca-Cola Company

Introduction

The international soft drinks market is never complete without the mention of the leading player in the market s Coca-Cola. Over time, it has managed to create a strong corporate brand name and has all the way through by various products across the many markets created strong product brands and consequentially strong brand equity. Since its inception, the company has undergone various phases and stages and has managed to be a leading player in the market. Big companies tend to have a defined growth and expansion strategy but not abstract visions and pathways that today’s entrepreneurs prefer as John, and Williams (2006)warns. The authors say that big multinational corporations have a very clearly defined corporate strategy. He says that a good corporate strategy involves three stages, namely assessment of self and environment, designing of an effective vision, and finally aligning policies and strategies to realize the set vision. The corporate strategy was taken up by any organization. Therefore, it gives a general direction and guidance to the company into the long term and short term future.

Coca-Cola has emerged as a brand name to reckon with globally. Its growth into the international market is a culmination of years and hours of strategic planning (John and Williams, 2006). As an impressive company in the eyes of many business people and a formidable role model for upcoming organizations, this paper discusses the corporate strategy of Coca-cola taking into point what John considers to be an effective corporate strategy dwelling on assessing the business environment (internal and external) and capabilities, envisioning a realistic vision of the company in the industry and formulation and implementation of policies to achieve that.

Company history

The company started as a fountain soft drinks outlet in 1896 in Atlanta, Georgia, under Dr John Styth Pemberton in a pharmacy store. In these early days, the owner could only manage to sell on average nine glasses a day, with one going for five cents, making total annual revenues of $50. The invention of bottling technology gave the industry a boost as it was then capable of operating in a wider area. Bottling of the drink did not develop as an idea of Pemberton but from other entrepreneurs who noticed the potential of the soft drink and the efficiency in bottling (Hays, 2005). By 1909, there were nearly 400 bottlers across s the US supplementing the fountains. Ten years on, and there were over a thousand bottlers in the US alone. In 1900 the company made entry into the British market. Fountains were popular in both markets than the bottles. However, in the late 1920s, the case had reversed, and bottle sales were higher than fountain sales. This marked the popularity and dominance of bottles up to today. Today the company has made alliances with many bottlers across the globe and thus has managed to operate in over 200 countries worldwide. In the US, the company enjoys a 44.3% as of 2002 represented in the market by popular brands such as Coke Classic, Coke Diet, Fanta and Sprite, among many others. The company has also ventured into the non-carbonated soft drink industry in the mineral water segment under the brand Dasani.

Company and industry overview

Today the company engages in cutthroat competition with the other dominant players in the industry. The company operates as a bottler in some international markets and as a carbonated drink maker in terms of concentrate manufacturing and sale. The company has a substantial share of the $60 billion worth US market where an ordinary American is estimated to consume 53 gallons of carbonated soft drink annually Yoffie, (2004). This market has formed the battleground for the Giant Company with one of its main competitors Pepsi. The level of competition is so high that it has been a subject of study and research by many business analysts. Fortunately, the Carbonated Soft Drink (CSD) market has been growing steadily, allowing the rivalry between the two companies to continue. Both Pepsi and Coca-Cola, for example, registered double digits growth between 1975 and 1995. Although the other might contribute to shrinking the market of the other, their competition has been viewed as a contributor towards their growth. A former Pepsi CEO, Roger Enrico, once said, as quoted by Yoffie (2004).

“The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If Coca-Cola Company did not exist, we would pray for someone to invent them. And on the other side of the fence, I am sure the folks at Coke would say nothing contributes as much to the present-day success of the Coca Cola Company than …. Pepsi”.

The 21^st century has seen a decline in consumption of CSD’s in America and the global market. This has been mainly due to decreasing consumer power as inflation and employment tends to reduce consumers real income and disposable income. Increased technological innovation and competition have seen the company re-strategizing in terms of pricing and management in pursuit of the company’s goals and mission.

Brand portfolio

Unknown to many, Coca-Cola owns over 400 brands in the global market spanning from carbonated to non-carbonated drinks as the single most famous brand in the world as Coke, other products in the same name have been developed. This is what Mikel (2007) labels as product line extension. For Coke, there is Cherry Coke, Coke Diet etc. In the case of Fanta, there is Fanta Orange, Fanta Blackcurrant, Passion etc. Other popular brands owned by the company include Mello Yello, Qoo, Lift Apfel, Kapo, Barq’s KMX etc. According to the company’s analysis by brand, Coca-Cola spent $1.9 billion in 2006 for marketing all its brands, making it the highest spender in marketing initiatives globally.

Mission statement

According to the official company website, the company’s mission is expressed in three parts as:

• To refresh the world – in mind, body and spirit.
• To inspire moments of optimism – through our brands and actions, and
• To create value and make a difference – everywhere we engage

The Coca-Cola Company Vision

To achieve our Mission, we have developed a set of goals, which we will work with our bottlers to deliver:

• Profit: Maximising the return to shareowners while being mindful of our overall responsibilities.
• 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 anticipate and satisfy 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.

The Coca-Cola Company Values

Our shared values that we are guided by are:

• Leadership
• Passion
• Integrity
• Accountability
• Collaboration
• Innovation
• Quality

Strategic fit

Strategic fit, according to Drucker (2007), is the matching of the mission statements of an organization to its internal structure and external environment, strategic alliances and mergers and acquisitions and look at how they have played a role in achieving the company’s set goals mission and vision. To achieve the stated vision, the company prides itself in having one of the strongest brand names in the soft drinks market globally. This has been created through excellent marketing and product promotions, plus the use of other marketing tricks. For instance, the company shares its marketing expenditure with the appointed bottlers in different markets. This way, brand awareness is enhanced globally and thereby creating strong brand equity that subsidizes future marketing expenditure. In its marketing efforts, the company has been able t develop an image in the eyes of the consumers that any Coca-Cola branded drink has the capacity to refresh you when you are tired or in low moods. The most current television adverts with the catchphrase “brrrr moments” shows how reenergizing the drink is in driving away the low moments and brings in vitality. The advert features a young man in one case who, after taking a sip of the drink, breaks into a “brrrr” sound shaking his body. In the same advert, a parrot shakes its wings off upon sipping a coke. While this may be just one advert for one of the brands of the product, it goes a long way in creating a long-lasting impression on the mind of the consumer. In other adverts, the same notion is maintained. The other notable one was the Fanta advert which featured the catchphrase “Baamboocha”. While the word might have no meaning and place in the language world, Coca-Cola managed to bring the word into life by creating different meanings in their adverts of which could only be understood after consuming the product (Pendergrast, 2000). This creates a level of curiousness in the uninitiated into the market and consumer the product in order to really understand what is going on. It makes the person not consuming the product feel left out.

In terms of another initiative far away from their products, Coca-cola has been sponsoring soccer and other sports in Europe, Africa and America, among many other regions. In the soccer promotions, the company makes attempts to incorporate a theme affecting the given society in trying to bring optimism in life and other areas.

Recent performance

The company has been faring well in the last few years despite the fact that health concerns n according to the management, has been a threat to the company. Recent findings show that fizzy drinks lead to the weakening of the vertebral structure, and brittle bones have eroded a small fraction of the market. Fortunately, a wide product range to include Dasani water, has done great wonders as the company taps into the market lost in the CSD market. In the 2007 financial year, the company reported total revenue in excess of $28.5 billion as compared to the previous year, which saw revenues of just $24 billion globally. The rise in revenue can only be attributed to inflation as profits have been falling. In 2006 according to the New York Times, the company recorded a 22% fall in profits. Coca-Cola said net income for the third quarter, which ended on Sept. 26, rose to $1.89 billion, or 81 cents a share, from $1.65 billion, or 71 cents a share, a year earlier. The international market registered a 14% increase as of October this year.

Revenue rose 9 per cent to $8.39 billion as sales by volume increased 5%. Volume fell 2 per cent in North America but rose 7 per cent internationally. Coke, which is based in Atlanta, said it was on track for its productivity initiatives to deliver $400 million to $500 million in annual savings by the end of 2011.

Coca-cola has continued to form alliances with bottlers across the globe. As a concentrate producer and brand owner, the company has managed to convince many bottlers to exclusively take up their contracts where the terms of agreement restrict the bottlers from handling the competing product. One of the best examples is the Coca-Cola enterprise which handles 81% of all the bottling for Coca-cola in the US alone.

Pestle analysis

This is a management analysis tool which is an acronym for political, economic, socio-cultural, technological, legal and environmental factors that affect the company.

Political

Its presence internationally exposes the company to varying political climates, which the company has to follow. As such, this affects the harmony of the company and uniformity in management in different markets. This may be a threat to the company in that its management structures will have to configure to fit the requirements of that political region.

Its share in foreign markets has led to politicians being concerned about taxation and reinvestment in their domestic markets (countries).

Another general political issue is political instability in given regions. For example, the skirmishes that rocked Kenya at the beginning of this year saw a total of six Coca-cola distributors warehouses vandalized. The same case was reported in Cameroon, where political disturbances have interrupted with distribution and marketing activities of the company.

Economic factors

The current credit crunch has reduced the company’s market share relatively.

The global high energy prices have increased production costs.

Socio-cultural factors

More health-conscious individuals are shunning these conventional fizzy drinks for more natural products in a fashion euphoria sweeping in many industries globally.

The company’s brand presence for long in the global market does not significantly change, which seems to be a new marketing idea in recent times.

Technological factors

Technological innovations have enabled some companies to have foregone bottling and sell CSD contrite directly to consumers.

Legal factors

The company has to abide by legal issues pertaining to contracts with bottlers and advertising agencies.

The company has to abide by competition laws in different regions and markets.

Environmental factors

The use of plastic containers and bottles is being lobbied against by environmentalists.

The use of plastic in packaging calls for a more involving and costly environmental policy.

Five forces analysis

Mikel (2007) describes this as the ultimate litmus test of a company’s profitability.

The threat of new entrants

Economies of scale and the high capital investments required for starting a new company means that Coca-cola is relatively protected against new entrants in the market. Yoffie (2004) says that the cost of laying out a new typical concentrate manufacturing plant lies between $25 and $50, where such a plant could effectively serve the US market. Such an amount of money is not available to the everyday investor who could think of the CSD market. The relationship between the company and its competitors, in this case, Pepsi Inc, seems to have been accepted and the market already shared out. As earlier said, the competition between Coca- Cola and Pepsi Inc builds the two companies. The franchise relationship with distributors/bottlers to lock them to their services and make them unavailable to competitors has worked for the company in shielding its market share, which is over 50% globally from predation (Richard et al. 2008).

Power of buyers

Current low incomes for the public has forced the company to increase their prices in a small margin other than the appropriate one due to inflation and increased cost of production resulting from high energy prices.

In the case of bottlers being buyers of their company’s concentrate, Coca-Cola realizes that the benefits extended to the bottlers and distributors lock them to their contracts; hence they have very little bargaining power. In fact, bottlers have to consult and receive approval from the company in pricing the products.

Power of suppliers

The company has integrated forward by installing vending machines

The market is segmented into regions and countries since the economic conditions of these markets vary.

Threat of substitutes

The threat of product substitution is high due to conventionally beverages such as non bottled water (tap water), milk and alcoholic beverages.

Again harsh economic times have seen the substitution of expenditure on leisure beverages for more pressing needs that vary from one household to another.

Competitive rivalry

Though the company has created an entry barrier through high investments budgets and strategic alliances, the competition between Coca-Cola and other companies still exists. Other competitors in the market are sprouting up with their eyes trained on imitating the company’s product. This resulted in the registering of the curved Coke bottle shape and the characteristic curled ribbon as trademarks (Yoffie, 2004)

Life cycle

Coca-cola is more than 110 years old. From the humble beginning since its inception, the company has continuously shown growth in all areas to emerge as the most recognized brand worldwide. Management experts predict that the phase of growth is not eternal as companies go through various stages mainly signified by growth and finally decline in performance the same way as living things (Mikel, 2007). Sustained growth is only possible where there is the use of proper management strategies. Growth through collaboration, as is characteristic of Coca-Cola, is identifiable through the use of teams, a diminution incorporates staff, matrix-type structures, the simplification of prescribed systems, an increase in conferences and educational programs, and more refined information systems in gathering data and facilitating management (Mikel, 2007). While (Mikel 2007) does not formally outline a crisis for this prolonged growth phase, he argues any given corporation in this phase will eventually succumb to failure as around the psychological saturation of associates and allies who grow emotionally and physically dis-configured as to feel no longer favoured by existing relationships with a mother company such as Coca-Cola. They, therefore, tend to favour establishing their own units and severe relationships.

Organization structure

The company has its headquarters in Atlanta, Georgia. As a concentrate producer, the company enters into franchised contracts with bottlers in different regions across the globe (Pendergrast, 2000). The bottler receives the concentrate from Coca Cola and does the brewing in their premises. The contract with the bottlers also covers distribution and marketing initiatives in individual markets. In the case of retail marketing of fountains, there is no involvement of franchised bottlers, but the retailing is done through identified outlets and stores. This kind of retailing is only possible in developed countries where the social setting seems to favour fountain vending as well as bottled products.

SWOT analysis

Strengths

• Strong brand name and brand equity
• Heritage of quality products and an effective and involving role in corporate social responsibility
• Good environmental record.
• Strategic alliances with bottlers and distributors
• Strong financial and personnel resources
• Wide product portfolio cutting across any markets
• International presence in many countries
• Consistent brand line extension

Weaknesses

• A wide product portfolio denies the company specialization
• Multinational operations create a threat to harmony in an organization and add an extra cost in running regional offices.
• Has failed to convert increased marketing expenditure into complete dominance of the market.
• The tight association with bottling franchisers links the failures of bottlers in certain markets to the mother company.

Opportunities

• They are changing lifestyles where mineral water bottles have become an accessory among the fashion savvy.
• It increased income levels in developing markets such as India and China.

Threats

• Environmental concerns that threaten the use of plastic packaging
• The increased cost of production
• High inflation rates that lead to high pricing of products hence a fall in demand
• Competition from other players in the industry.
• Political instability in various markets and regions

Future strategy

Core competences

Mikel (2007) says that companies that are set to conquer the future must build on what they have at the moment instead of banking on their expected competencies in future that can not be guaranteed. For Coca-cola, there are clearly identifiable core competencies of the company that if the company focuses on then, the future will be easy to conquer.

Future strategy

Some of the processes within the company are facing challenges due to changing lifestyles and evolving cultures. The company has made the right attempts in innovating new products through the same marketing strategies are used. This has led to low products differentiation among consumers. It would therefore seem appropriate that the company adopted a strategy that will seek full vertical integration. This will increase the trust in the quality that consumers have in the products. As earlier said, the incompetences of bottlers are and might in the future cost the company some market share. Though the company provides quality guideline measures to the distributors, it may be hard to enhance such directives as the bottlers possess considerable powers over the company. This is because there are relatively few bottling companies due to the high cost of installation of production lines. Yoffie (2004) says that a small bottling plant would require over $75 million as of 1998 estimates. The US market alone would require around 100 such plants. Correcting these figures to the present shows that it is quite costly to set up plants; hence the cost restriction limits competition among bottlers; hence they yield high power on other companies seeking their services with very few alternatives. With such thoughts in their mind, they hold the company at ransom. However, if vertical integration was adopted that sought to buy out these bottling companies, and then the company would be fully responsible for the quality of its products. Thus the future of the company lays in owning the bottling companies.

Appendix

Table 1. The Top 10 Soft Drinks Brands in the US in 2007 (Source: Beverage Digest)

Table 2. The Top 10 Bottled Water Brands in the US by wholesale sales in 2003 (Source: Beverage Marketing Corporation)

The Top 10 Soft Drinks Manufacturers in the US in 2007 (Source: Beverage Digest).

Table 3. The Top 14 Non-Alcoholic Beverage Companies in 2003 by worldwide revenues

References

Pendergrast, P. (2000), For God, country and Coca-cola: The Definitive History of theGreat American Soft Drink and the Company that makes it, (New York, Basic books)

Hays, C. (2005), The Real Thing: Truth and Power at the Coca-Cola Company, (New York, Random House) Yoffie, (2004) The Cola war Continues: Pepsi and Coke in the 21^st century, (Harvard business school)

Richard, L. et al (2008), Global marketing, (London, Penguin)

Mikel, L. (2007), Marketing and management basics, (Birmingham, Soul) “Coca-cola rises 14% on international sales” Atlanta business chronicle, 2008

Max, V. (2008), “Management across oceans” International Journal of Cross Cultural Management, Vol 232, No. 4

John, H. and Williams, C. (2006), Modern Corporate strategies, (London, Prentice Hall) Coca-cola company report. Web.

International brands.