Business Audit: Coca Cola
Business Audit: Coca Cola
This report takes a look at the business audit of the Coca-Cola Company. After introducing the audit, a brief background of the company is given. This is followed by a macro-analysis of the company. This analysis deals with the management tool i.e. PESTLE which details Coca Cola’s political, economic, social, technological, legal and environmental analysis. This is followed by a micro-analysis i.e. the financial data relating to Coca Cola. The competitor analysis of the company is next in line. This includes the strategic groups in Coca Cola’s line of business. A perceptual mapping of Coca Cola with its competitors is also provided along with a brief discussion of the same. This is followed by a SWOT Analysis of Coca Cola to bring forth its strengths, weaknesses, opportunities and threats. To conclude the essay, the strategies which are important for the existence and pre-eminence of Coca Cola in the future are also discussed in detail.
This report does not look at auditing from the narrow accounting sense; rather it is an audit in the wider sense of examining the strategies of a corporate entity. The example taken here is the US market of the multinational giant Coca Cola in the case of non-alcoholic beverages. Different management tools are used to analyse the company so that one understands the context in which Coca Cola behaves in a particular manner or reacts to a particular situation. The broader analysis brings to light important facets of Coca Cola which helps to place it in its present business context. Given the cut throat competition in the modern era, such an analysis gives a deep insight into the company that is Coca Cola.
Coca Cola was created by Jon S Pemberton in 1886. The first ad of Coca Cola called it a ‘delicious and refreshing beverage’. Asa Candler acquired Coca Cola from Pemberton by 1892. The first dividend of the company was given in 1893. It was purchased by Ernest Woodruff in 1919 for US $25 million. Coca Cola was responsible for creating the popular image of Santa Claus as a big, red, jolly old man.
(Source: 125 Years of sharing happiness, Booklet Coca Cola)
The Coca Cola Company (NYSE:KO), global headquarters being Atlanta, GA in the US is the largest international beverage seller with more than 500 brands. It sells in over 200 countries and has over 1.9 billion servings daily. Latin America with 29% sale is the largest consumer of the company followed by Asia Pacific at 22% and North America at 20%. It has over 700,000 system associates all over the world (Official website of Coca Cola Company). It estimates 5 million women among its ranks by 2020 and is known for corporate equality due to the employees being from diverse communities.
It has over 3,800 products worldwide and ranks first globally in sparkling and still beverages. It is also the leader in ready to drink juices and coffee, and also in juice drinks. 18 out of 20 of its brand have low or no calories, or have their own alternative to the same effect. In 2015, Interbrand ranked it as the third most valuable brand.
Its 20 brands of a billion dollars include Diet Coke, Coca-Cola Zero, Fanta, Sprite, Dasani, vitaminwater, Powerade, Minute Maid, Simply, Del Valle, Georgia and Gold Peak. It has 250 bottling partners and 900 plants. It also has 24 million retail customer outlets.
(Source: Coca Cola Sustainability update 2015-2016)
A PESTLE analysis of Coca Cola is provided so that the bigger picture of the company comes to light.
1. Political factors
If Coca Cola is to conduct its business of selling beverages, it must follow the rules and regulations as laid out by the government of the US. It is answerable to the FDA. Change in laws may hamper its sales. Such laws could be for instance, related to environment, taxation, accounts, labour which can affect Coca Cola’s operations.
2. Economic factors
Coca Cola has equity of over $80 billion and roughly 30% of its income is earned in foreign countries. Rejecting Coca Cola’s products can be a dangerous proposition for the company which is why Coca Cola has many low or no sugar alternatives.
3. Social factors
Coca Cola caters to the culture of different regions. For instance, Americans are health conscious. They prefer drinks with less sugar in it. Coca Cola also has low and no calorie versions for the same.
4. Technological factors
Coca Cola has state of the art technology that it uses for creating the beverage and bottling it in plants across various locations. This has also allowed the company to cater to growing demand. Moreover, technology allows it to deliver the bottles from the plants to the sale outlets in a timely fashion.
5. Legal factors
Coca Cola has patented its successful formula and will not part with it at any cost. However, there are lawsuits filed against it over different issues.
6. Environmental factors
The major ingredient of Coca Cola is water and it cannot function without adequate supply of fresh water. Climate changes, less ground water table etc. make thing difficult for the company. Coca Cola is bound by the ecological practices and laws in the US for smooth operations.
The Coca-Cola Company owns and markets four of the world’s top five non-alcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. The company manufactures and sells beverage concentrates, and syrups, including fountain syrups which is the company’s ‘concentrate business’ and finished sparkling and still beverages which forms the ‘finished product business’. Usually, the finished products operations generate higher net operating revenues and concentrate operations generate higher gross profit margins.
Coca Cola sells the concentrate and syrups to bottling partner who combine these with ingredients and sell them to retailers or to wholesalers who sell them to retailers. Similarly, in the finished product business, the company has its own bottling agents as all these activities are under it. The sales are made to wholesalers or retailers likewise. In the US, Coca Cola also manufactures fountain syrups which are also sold in a similar manner.
The following is financial data pertaining to Coca Cola for the year 2015 in comparison to that of the previous two years. The values are in million US dollars. The total comprehensive income has been 2,951 in 2015, 4,774 in 2014 and 8,576 in 2013. Correspondingly, the total income attributable to shareowner is 2,954 in 2015, 4,753 in 2014 and 8,537 in 2013. This shows a declining trend over the last three years for a company which is at the pinnacle in world beverage sales. The balance sheet stands at 90,093 in 2015 and 92,023 in 2014. The cash flow at the end of the year shows that the balance is at 7,309 in 2015, 8,958 in 2014 and 10,414 in 2013. This figure too shows a decreasing trend.
(Source: Coca Cola 2015 Annual Report)
The concept of strategic groups was put forward in 1972 by M Hunt. The assumptions of this theory are firstly, a group of firms in a certain industry exist such that they have similar strategies. Secondly, firm performance depends to some extent on the strategic group to which a firm belongs (Barney, Hoskisson, 1990, p. 188). The concept of strategic groups is gaining popularity in the field of marketing again.
In case of Coca Cola, we can include a company like Pepsi which has a global reach like it. Both have similar strategies since they work on an international scale. Moreover, both are active in the non-alcoholic beverage market. There are other smaller players who are competitors to Coca Cola and Pepsi. However, it would not be fitting to include players such as Dr Pepper Snapple Inc., Monster Beverage Corp., and Suntory Beverage & Food Ltd as their scale of operations is much smaller. However, if one or more of these companies were to grow to the level of Pepsi, for instance, they can be included in the same strategic group.
Perceptual Maps are a contribution of marketing to the field of strategic management. They are plots of customers’ perceptions by analysis of many variables (Biggadike, 1981, p. 621). If one perceives a company to be below par, one can examine the situation further to find out the remedial action needed. It helps to know what a consumer thinks of rival brand. Hence, preferences and change thereto can easily be tracked. Regular uses of the maps can help track preferences, and observe changes as they happen. Market segments can be defined and it can identify gaps where a new product can be introduced. The map uses two variables usually. However, it may not be practical in many situations where more than two variables may be involved. Moreover, what a business offers and what a customer thinks the company offers need not be the same. Using surveys for gathering data can be difficult.
Perceptual Maps in the Beverages Industry
Age wise Perception Taste wise Perception
(Source: Google Images)
The beverage industry like all other global industries is a fluid one. Different competitors emerge on the scene and also leave the scene regularly. As per Mintel report “Carbonated Soft Drinks - Canada - July 2014”, Coca Cola’s ‘customisable carbonate machine (Keurig Cola)’ has clearly helped the company to be diverse with products and thereby ensure sustainable growth in the coming years. It is difficult to predict the contours of competition even in the near future.
PepsiCo started in 1965 when Pepsi-Cola merged with Frito-Lay. Its present Chairman and CEO is Indra Nooyi. It is the nearest rival of Coca Cola in the US. It has the following successful 22 brands viz. Pepsi, Lay’s, Mountain Dew, Gatorade, Tropicana, Diet Pepsi, 7Up, Doritos, Quaker Oats, Cheetos, Mirinda, Lipton, Ruffle, Tostitos, Aquafina, Pepsi Max, Brisk, Mist Twst, Fritos, Diet Mountain Dew, Ready to drink Coffee Beverage and Walkers.
All of the above mentioned 22 brand have had an annual sale of US $ 1 billion. It has 6 main divisions that look into the work of the organisation. One of the main highlights of PepsiCo is the diversification that has been effected. Unlike Coca Cola, the company has a judicious mix of both food and drink in its product portfolio.
The two cola majors have been at loggerheads since the 1980’s when they started a cola war in term of advertising and promotion. This war even extended up to the cyber world. Earlier the two were even launched into outer space. Like Coca Cola, PepsiCo also had its fair share of ecological problems. There were environmental concerns like depletion of ground water in parts of the world.
Dr Pepper Snapple Group (DPS) bottles and distributes Dr Pepper soda and Snapple drinks. It serves Canada, Mexico, and the US. The company includes a wide set of non-alcoholic beverages which are of the types viz. flavoured, carbonated and non-carbonated soft drinks. DPS also provides ready-to-drink non-carbonated teas, juices, juice drinks, and mixers. Its brands include Dr Pepper and Snapple, A&W Root Beer, Hawaiian Punch, Mott's, and Schweppes. It has some mass following in brands such as Vernors, Squirt, and Royal Crown Cola.
Monster Beverage Corporation is based in Corona, California. It is a holding company which conducts business through its consolidated subsidiaries. The Company markets and distributes energy drinks. These include “Monster Energy® energy drinks, Monster Energy Extra Strength Nitrous Technology®” etc. (Monster Beverage Corporation).
Market Share, Valuation and Distribution
Coca Cola dominates with 42% of the beverages industry in USA. The company is valued at $83.84 billion. It has an excellent distribution network.
Strong brand image
Coca Cola is the third largest brand in the world and people are highly aware of it. It is present all over the world and is immensely popular.
Investment in marketing and advertising
Coca Cola employs unique strategies for which it invests in marketing and advertising engage customers. Viral marketing videos, social media campaigns etc. have been used. Sponsorship and other methods have been used to gain publicity.
Low product diversification
Though it has introduced some low and no calorie brands, it still continues to depend on its popular brands. People increasingly prefer health drinks. Hence, its product offering needs more options.
The pressure from its closest competitor Pepsi has only grown stronger. However, Coca Cola has not risen up to the challenge with commensurate measures.
It has not been able to come clean on the lawsuits that it has had to face. There are cases against its quality. The furore over the use of pesticide has not died down yet. These issues damage the reputation of the company.
Coca Cola should get into markets where it does not have much of a presence. It can learn from PepsiCo which bought a local brand since it could not beat it. This was the case with Wimm-Bill-Dann Foods in Russia in 2012 (Radulescu & Tîrla, 2014, p. 481)
Coca Cola should strongly bring in new and innovative brands in the health segment. Like Pepsi, it can branch out into food products too.
Competition from lesser known brands
Apart from Pepsi, smaller brands such as Dr Pepper Snapple Inc., Monster Beverage Corp., and Suntory Beverage & Food Ltd have also increased their sales pitch in the market.
Labour and raw material costs
The cost of production is increasing day by day. Labour is costlier than before. The cost of water is increasing due to the scarcity of fresh water.
Movement towards health drinks
Customer are moving away from cola and preferring healthier alternatives. Coca Cola has a very weak brand presence in this segment.
It is evident from the foregoing discussion that the company cannot rest on its laurels. This report can be concluded by giving the Strategic Priorities that Coca Cola Company should focus on in the year 2017.
1. Health Products
The company should take the threat of health drinks seriously. It had a dream run since the ill effects of aerated drinks were not known so far. The total retail sales of carbonated soft drinks (CSDs) in the US have remained flat from 2015 to 2016. People prefer ‘better for you’ (BFY) beverages (Mintel, Sisel, 2016) .The company should present innovative products in an improved health line of Coca Cola product and steal a march over its rivals.
2. Food Items
Like Pepsi, it should diversify into food and not be restricted only to beverages. It will then have the flexibility of bundling food and drink into a single package. It can also offer low calorie food items to complement the health drinks. The food industry is a growing one and offers infinite possibilities.
The company should improve its marketing initiative and expand into newer media like social media which it can use without too much cost unlike the traditional media. It also needs to publicize its health offering in a massive way if the image in the consumer’s mind is to change. Smaller competitors are using novel ways to market their products from which Coca Cola has a lot to learn.
4. Water management
Given the complaint regarding depletion of the water table, Coca Cola should initiate replenishment measures so that there would be no resistance to the setting up of bottling plants. Locals should form the bulk of the work force at any unit if political interference of any sort is to be warded off. This becomes even more important as more people move away from Carbonated Soft Drinks to bottled water as a healthier alternative (Mintel, Water Market, 2016).
5. Legal Issues: Coca Cola has been dealing with many lawsuits over various issues. While some cases deal with the environment, others concern racism. Black and Hispanic employees complain about the racial environment at Coca Cola. Lawsuits not only drain the company of finances, they also take up too much time. Moreover, the company’s reputation nosedive and it takes a beating at the stock market.
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Official website of Coca Cola Company. Available at: www.coca-colacompany.com
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