The soft drink industry is a booming industry that profits billions in revenue each year. New companies attempt to enter this market every year, diversifying itself with new flavors and marketing techniques to interest consumers. The soda drink industry market is flooded with a variety of choices, however, it is dominated by two main soft drink industries. Coca-Cola and Pepsi are the reigning champions of the soft drink industry. The purpose of this case study analysis is to explain the competitive advantages, Coca-Cola has over PepsiCo and the rest of the industry. Pepsi and Coca-Cola are the two largest, oldest, and most well-known archrivals in the carbonated soft drink industry. Financial statements from 2010 to 2011 have showed who is winning in the century long rivalry between the soda giants, are globally known as the Cola Wars. Coca-Cola and Pepsi have held the top spots in the soda industry, but it has not been without internal and external threats, changes in social, environmental, and political factors which has forced the companies to reevaluate their business strategies.
The primary actions of the Coca-Cola Company are the manufacture, distribution and marketing of nonalcoholic beverage concentrates and syrups. Coca-Cola owns, licenses, and markets more than 500 nonalcoholic beverage brands has 3,500 beverage products and sells 1.7 billion servings per day in over 200 countries. Coca-Cola also manufactures a variety of beverages, such as juices, enhanced waters, juice drinks, sparkling teas, coffees, sports drinks, and energy drinks. Coca-Cola permits bottling partners to develop fountain syrups that they sell to fountain retailers such as in convenience stores and restaurants. Fountain retailers use the fountain syrups to produce finished beverages for immediate consumption.
Coca-Cola has emerged the top soda industry by creating business strategies, marketing strategies that have them function and prosper in the global environment. It operates in over 200 countries and sells 400 brands of non-alcoholic beverages. Coca Cola’s mission is to refresh the world, inspire moments of optimism, create value, and make a difference. (Coca-Cola Company, 2013) Coca Cola values create a framework for building their future growth of their company. By following the six p’s: people, portfolio, partners, planet, profit, and productivity, Coca-Cola vision is creating an innovative work environment, expand its portfolio while building lasting relationships with consumers and suppliers, supporting the community, maximizing returns to shareholders, and “be a highly effective, lean and fast-moving organization.” (Coca-Cola Company, 2013)
Strategic Action Plan
Coca-Cola concentrates on the needs of their consumers, customers, franchise partners, and stakeholders. Coca Cola’s marketing teams observes customer behavior, in order to gain a world view, to adapt to the changing consumer base to become the main brand associated with fun and youthful. Their initiatives have changed to become more environmental friendly by taken strides to partake in new marketing schemes. “The success of The Coca-Cola Company revolves around five main factors:
- A unique and recognized brand – Coca-Cola is among the most recognized trademarks around the globe.
- Quality – consistently offering consumers products of the highest quality.
- Marketing – delivering creative and innovative marketing programs worldwide.
- Global availability – Coca-Cola products are bottled and distributed worldwide.
- Ongoing innovation – continually providing consumers with new product offerings e.g. Diet Coke (1982), Coca-Cola Vanilla (2002). (Business Case Studies, n.d)
The Coca-Cola Company’s essential mission is to benefit and refresh all who consume Coca Cola. The marketing plan objectives are centered on 3 factors that include, creating stronger consumer awareness towards new product rollouts, establish brand recognition from market shares within the soft drink industry, and lastly to be the top leader in all drink categorical markets within the forecasted sales. Coca-Cola changed its strategic direction, by changing from just a soda company to total Beverage Company in order to distance itself from its dependence on carbonates or sodas. “In 2006, the company continued its above-the-line campaign promoting all its brands together, with the purpose of communicating to the consumer that it is more than just a carbonates manufacturer.”(Global Market Information Database)
Coca-Cola approaches the market with different business strategies, however, the main business strategy for Coca-Cola is their persistent focus of a low cost strategy that sets out to become the lowest cost provider in order to compete in both the beverage industry and the carbonated drink market. Coca-Cola’s places emphasize on cost-reduction, rather than price-reduction. This strategy works by making Coca-Cola the leader in the soft drink industry. The functional strategy is reliance on their finance, marketing, R&D, and operations department which provide each business unit with information on market change, consumer attitude, and ways to appeal to the trend of non-soda beverages.
Within making a productive business strategy, Coca Cola moves to implement positions within different businesses that achieve the diversification that is needed to position itself in different markets. One of the main factors within the strategy is the decision making process on the specific markets the company should dive into, including what types of categories, products, and how many brands can it handle. In order to make this decision, the increase or decrease of diversification may involve the closing out of lines of business, adding or changing the precedence on some lines of businesses, (LOB). Coca-Cola utilizes various strategies such as The Coca-Cola system. It depends on bottling partners around the world that are responsible for manufacturing, packaging and distributing the products to focus on beverage creation and marketing and advertising of products. IT works by manufacturing the ingredients then distributing them to their bottling partners while maintaining brand ownership. Coca-Cola in turns focuses on marketing, print and television advertising, store displays as well as contests and package designs.
“You need a good strategy to have good execution.” (Favaro, Hirsh, Rangan, n.d) Starting activities to increase the combined performance of the businesses the company has diversified into may involve pursuing the rapid growth strategies that most lines of business’s that keep the business core healthy, initiate turnarounds for weak performing lines, and dropping lines that are no longer profitable or do not fit in Coca Cola’s overall business strategy. In executing their strategy it has to involve the managerial, financial resources, and acquiring merging other companies with existing lines of business. Finding ways in which to capture profitable cross-business strategic plans and turning them into competitive advantages for transferring and sharing technology, operating facilities, distribution channels, customers, and procurement leverage. In order to gain the most profitable lines of businesses Coca Cola must establish an investment priorities that move more corporate resources.
The way that Coca-Cola generates most of its revenues is by selling syrups and concentrates to bottlers that it does not have any ownership or controlling ownership interest. “In 2008, approximately 83% of its worldwide unit case volumes were produced and distributed by bottling partners in which the company did not have any controlling interests.” The bottling partners serve as independent companies are able to make their own decisions, although they sometimes run the risk of not being in line with Coca-Cola’s main interests. The bottling partners also have the right to distribute or manufacture their own products or products from other beverage companies. The bottling partners may choose to take actions that prove to not only be profitable to them in the short run, but costly or detrimental to Coca-Cola’s business operations if Coca Cola is not able to give the right mix of incentives.
Organizational Design Implications
The organizational structure of Coca-Cola begins in the corporate or head office. The head office is responsible for directing the company in the strategic direction and giving support to their regional offices. Some of the main strategic decision are made by an executive committee made up of twelve company members. The executive committee helps to shape the strategic priorities outlined that is helpful in moving the company forward. The figurehead and the person that chairs the board meetings, of the committee is the chair of the executive committee. The chair of the committee also serves as the CEO or Chief Executive Officer, since he is the senior and main decision maker. The other executives have the role and responsibilities of the other key regions that the company operates in. Coca Cola’s organizational structure is broken down into regional segments that conjoin the localization and centralization in order to successfully connect the company with local consumers. The Strategic Business Units or SBUs that Coca Cola geographically operates in are also sub-divided into two divisions. This division are not just centered to United States operations but also throughout the world, where countries are grouped in a division that recognizes that the different markets are geographically separated, income, consumption patterns, consumer behaviors, lifestyles, and taste may differ from region to the region at different stages of development.
Coca Cola’s Corporate Culture
The type of culture that Coca Cola model’s its corporation as is the role culture. The role culture is where each members have a defined role or responsibility to carry out. Role culture is split into different functions that usually hierarchical categorized. The roles and jobs are divided into different functions including production, accounting, marketing, and R&D. The hierarchical categories are broken down into the lead manager, production director, supervisors, operatives, and etc. This work culture is able to function by a combination of rationality and logic. The role culture is used within large corporations or organizations as the main source of power, procedures and protocols, and guidelines are main sources of influence within the organization. Within the IT department however, Coca Cola uses a different approach usually referred to as the task culture, as they department works closely together for a main goal or target. Within an organization if the culture is not functioning it can affect the productivity and operations of the organization. In the case of Coca Cola, the corporate culture must function as a team in order to functionally continue to keep their employees to keep coming to work, recruiting top quality talent, and to keep an atmosphere where everyone is treated with respect. Workers should not have to fear coming to work in the sense that they might be picked or harassed by their other co-workers, this would cause some employees to either be absent, stressed, or leave the company altogether. Coca Cola not only has a responsibility to their consumers but to their employees as well.
Coca Cola’s corporate culture has a direct effect on industrial relations, work relations, and stakeholder relations within the company. The work environment that is established within Coca Coca must breed an environment where mutual disagreements are met with understanding, the genuine nature of the workers being able to be productive, and get along so that creativity and innovation are not stifled is essential in the growth of the organization. The less stress that workers endures when they come to work, they are able to be more motivated to come to work and have a culture where managers and staff area able to get along.
The dynamics of the macro-environmental forces greatly impact any organization. The way that many businesses analyze their macro environmental forces is by doing a PESTEL analysis which factor out to be the Political, Environmental, Social, Technological, Economical, and Legal factors. The six model forces will display the threats or opportunities that either hinder productivity or impact the organization in a positive way. The non-alcoholic beverages fall in the FDA category that allows the government to play a vital role within the manufacturing operations of Coca Cola’s products. The regulation terms have given the government power to set penalties for companies that do not meet the law required standard. Furthermore, these changes in regulations and laws such as the deregulations of monopolies, foreign jurisdictions, the environmental laws, tax laws and requirements, accounting regulations, and other government policies that impact the company within the domestic and foreign governments. However, Coca Cola does a great deal of continuously monitoring the policies and regulations set by the government each year in order to be in compliance with the law.
Within the PESTEL model, the economic factors analyze the national, local, and impact of the world’s economy on the organization. Within the analysis, the factors of interest rates, currency rates, recession, levels of unemployment, income levels, and other economic factors are used. For leading soft drink companies, there has been a vast improvement in the economic development in many global markets in countries like Germany, Japan, and Brazil. The global markets continuously play crucial roles in the success of future growth of companies, success and stable growth for the non-alcoholic beverage industry. The sociological factors the ways which the society affects the companies including, the lifestyles and attitudes of the global market. Many of consumers are getting older and their main concerns have shifted to increasing their longevity in life. The trend is changing the beverage industry to look for healthier alternatives than just soda. The demand for sodas will continue to decrease, Coca Cola’s revenue will reflect the change of the decline. The technological factors are where the emerging technologies and techniques are valued within the organization. The opportunity creates new products and improvements to the value chains, operations, and productivity. The new advances in technology will produce new products that will be introduced within the market.
The legal factors that focus the effects of legislation domestically and globally. Legal aspect factors in the effects of global and domestic legislation. The Coca Cola Company retains all the rights for the nature of each of their businesses, inventions, products, and products in development, which each going through the patented process. The relationships between country’s government and economies impact corporations substantially. Oil companies like the ones in Syria, Libya, Saudi Arabia, and other foreign countries that dwell in political or criminal conflicts usually receive a trade embargo, or a ban on doing businesses with the United States. There sometime other political issues that might hinder operations including parts of Latin America or Asia where the history in colonialism and tyrannical leaders have not netted popular support with the American government or consumers. Particular issues within the environment of politics will profoundly impact business operations. Countries that have unstable governments where the policies dramatically change, and the political get in the way of democracy and trade rules will change without notice. Some governments have problems with corruptions and criminal mischievous that tend to be strict on foreign businesses within their country.
The impact of government entities tends to impact countries that differ in business operations and laws. The contracts between the two must specify the laws that would apply and solutions if problems were to arise. The government entities will have to work out treaties, and define anti-competitive behavior, and issues that might fall outside of their borders. If the agreements, or compulsion entities that violate laws that the United States establish a broad would be able to claim that the local government forced them to, and the violations within the host country are accepted, will not be enough to hold up in a court. The legal systems such in the United States are straightforward in being plainly worded of what the law means. In the changing government entities not only are the laws and regulations necessary, but also the changing trends in attitudes and behaviors of product preferences in non-alcoholic beverages.
Within the United States, the economy is recovering from a recession that has left many smaller businesses grasping at straws trying to grow within their market and compete with bigger corporations. The economy has had negative effects on the employment, costs of living, and inflation while consumers are not able to provide disposable income as before have decreased purchasing power. The bottling companies that Coca Cola contracts around the world to create their beverages have threaten Coca Cola’s stability within the market as the weakened economy has made them dependent on the major corporation. In order to sustain their community of investments they company must remain profitable, the smaller communities within regions rely on the big corporations to contribute to their economy in order to create environmental and social programs that improve their communities.
Sustainability and the Green Movement
The current legislation is affecting his way marketing is playing out within the beverage industry. The legislation is delegating the product being marketed towards consumers, with the fight against obesity over the past years it has changed the way companies have operated. President Obama and Michelle Obama along with other legislators have made obesity especially within youth their main objectives. Schools are now not serving soda beverages, or high sugar drinks within their schools as more consumers and parents are turning to healthier alternatives. Over time although the sales of Coca-Cola have declined slightly if not significantly, but son it will be affected. The soda industry is feeling the impact of getting healthy and starting to open up their portfolio and developing products that answer the demand for drink alternatives.
The environmental factors that play into corporations impact is on not only a local but global scale. Coca Cola monitors the changing environmental laws that are being passed through legislation on key corporations. The changing moods in consumer tastes also affect the environment with a focus on the health concerns dealing with childhood obesity, diabetes, nutritional values, and the growing demand for healthier alternatives.
Coca Cola’s external threats have changed preferences that increased the quantity of competitors within the soda industry. However, PepsiCo is not their only competition, other companies such as Nestle, Kraft Foods, and Unilever that have entered the markets to compete. The company has to take a greater approach to market responsibly, make sound investments, and product developments in order to stay the leading provider in the soda industry. “The Coca-Cola Company is committed to good corporate governance, which promotes the long-term interests of shareowners, strengthens Board and management accountability and helps build public trust in the Company.”(Coca-Cola, n.d)
The issues that impact the company ethically has been the lack of leadership within many areas where there is the organization that is needed. Coca Cola Ethical issues have been a problem for Coca-Cola has not been able to handle the disputes, harassment suits, discrimination suites, and incidents when they occur. In many instances, they were slow to respond to accidents that have caused the company too much backlash. In instances in India, and in other countries Coca Cola was slow to the accusations of lead in the products. Coca Cola’s sustainability goals are rooted in their energy conservation and climate change. They plan to reduce the overall carbon footprint in their operations by 15% by 2020. Their second goal is water stewardship that establishes a water-sustainable operation that will minimize the water use and have a water neutral effect on the surrounding communities. Coca Cola will return their water that they use up manufacturing their products. Establish a water-sustainable operation in which we minimize our water use. Their third goal is to have sustainable packaging and recycling that will reduce the impact of packaging use, and maximize the reusable, renewable, and recyclable resources to recover 100% of packaging used. The fourth goal is a product portfolio and to balanced active lifestyles that will provide beverages for every occasion, and consumers make informed decisions about beverage choices. The last goal is to have a diverse and inclusive culture, that creates a diverse culture where every employee is respected and is a good reflection on the communities they operate in. (Partners in Project Green, n.d)
Coca Cola is a substantial corporation that continues to expand their global reach and their market share. Coca Cola will continue to grow once it diversifies its product portfolio to reflect the growing demand for healthier alternatives. They must take their corporate governance seriously if they want the consumers to take them seriously in their efforts to keep the local communities clean and become a sustainable corporation. In the efforts of making their mission to refresh the world, they must first practice what they preach within the countries that they operate. Coca Cola uses different marketing strategies throughout their various global markets in order to bend to the will of the law in that country, in order for them to keep operations rapidly growing, they must reposition their selves in the market as the leading provider of all beverages including healthy drinks. Coca Cola will continue to thrive as they have adapted to change over the years, and changed their strategies to compete on a global scale with other competitors.
“A global and local strategy of Coca Cola.” Business Case Studies. N.d Web. 25 Apr. 2013. http://businesscasestudies.co.uk/coca-cola-great-britain/creating-an-effective-o
“Annual Report 2010-2011”. Coca-Cola Company. N.d Web. 9 Feb. 2013 http://assets.coca-colacompany.com/b6/f3/ecad445f4fc1819dd37e04e057ad/form_10K_2011.pdf
“Annual Report 2010-2011”. PepsiCo. N.d Web. 9 Feb. 2013 http://www.pepsico.com/annual11/financials/financial-highlights.html
“Company Profile”. “PepsiCo.” 2013. Web. 9 Feb. 2013 http://www.pepsico.com/Company.html
“Corporate Governance.” Coca-Cola Company. N.d Web. 23. April. 2013 http://www.coca-colacompany.com/our-company/governance-ethics/governance-ethics
Bouckley, Ben. “Coke and Pepsi shift bottling assets to build brands in 2013.” Beverage Daily. Com. 29 Jan. 2013. Web. 9 Feb. 2013 http://www.beveragedaily.com/Markets/Coke-and-Pepsi-shifting-bottling-assets-to-build-brands-in-2013-Rabobank-analyst?nocount
“Ch5 Cola Wars”. Cengage Learning Custom Solutions.N.d. Web. 9 Feb. 2013 http://www.custom.cengage.com/makeityours/hitt9e/abstracts/Ch5_Cola_Wars.pdf
“Coca Cola Bottling Company. Corporate Governance.” Project Green Partners. N.d. Web. 23. 2013. http://www.partnersinprojectgreen.com/files/CS_Coke_CSR.pdf
“Company Profile.” Coca-Cola Company. 2013. Web. 9 Feb.2013 http://www.coca-colacompany.com/our-company/
Cooper, Ben, “Report in Focus – Growth in functional drinks set to ramp up.” Just-drinks. 2009. Web. 9. Mar. 2013 http://www.just-drinks.com/analysis/report-in-focus-growth-in-functional-drinks-set-to-ramp-up_id96678.aspx
Favaro, Ken, Evan Hirsh, and Kasturi Rangan. “Strategy or Execution: Which Is More Important?” n.d. 23. April. 2013.
Montague-Jones, Guy. “Coke follows Pepsi into Coconut Water.” Beverage Daily.com. 2009. Web. 9 Feb. 2013 http://www.beveragedaily.com/Manufacturers/Coke-follows-Pepsi-into-coconut-water
McCarty. Kelsey, Kristin Todd Stires” Message in a Bottle.” Baylor Business Review.2012. Web. 9 Mar. 2013. http://bbr.baylor.edu/message.
“Our Story.” Coca-Cola Enterprise. N.d. Web. 9 Mar. 2013 http://www.cokecce.com/about-cce/our-story
“Word from Wall Street”. Beverage World. 2007. Web. 9 Mar. 2013. http://www.beverageworld.com/index2.php?option=com_content&do_pdf=1&id=33014