Coca Cola Case, Research Paper Example

Executive Summary

Coca Cola (Coke) is the largest player in the global non-alcoholic, ready-to-drink (NARTD) market, with Pepsi being its closest competitor. The company has traditionally controlled concentrate manufacturing while franchising bottle and distribution services to third parties. The model has served the company well by ensuring a healthy balance sheet as well as rapid growth without huge capital investments but the market dynamics have changed. The competitive pressures now require greater operating efficiency as well as faster responsiveness to evolving market circumstances. The company is now faced with a tough choice regarding its business model. Coke may have a diverse product portfolio but it could expand into other product categories such as snack foods which complement its beverages portfolio. The recommended strategy to Coke is to maintain bottling operations while re-franchising distribution activities.

Findings and Analysis

A thorough analysis of the case revealed several critical issues facing the company which need to be addressed in order to preserve and possibly improve Coke’s competitive position. The most important critical issues that should be addressed on a priority basis are as follows:

Outdated business model

This is a critical issue because a company’s business model determines all aspects of its operations and could prove to be either a valuable asset or a huge liability. I have chosen Coke’s business model as a critical issue because it is apparent that Coke’s current business model is preventing it from achieving efficiencies in several aspects of its operations including marketing and distribution. Addressing this issue will not only help the company become more responsive to changing market conditions but will also significantly improve its profitability.

Historically, Coke has concentrated on concentrate manufacturing and marketing while delegating most of the bottling and distribution activities to franchisees. This model had allowed the company to maintain healthy balance sheets as well as benefit from local knowledge of the franchisees. But now this model is becoming a liability because franchisees’ interests are often in conflict with Coke’s interests. Franchisees often do not upgrade their production equipment so as to maintain high profitability. Similarly, Coke’s other products such as still beverages compete against sparkling sodas distributed by franchisee bottlers which often lead to resentment.In addition, the changing competitive landscape now demands greater responsiveness from Coke which is not being delivered by its current fragmented bottling and distribution system.

Market characteristics

This is a critical issue because a company cannot devise an effective competitive strategy until it has studied market’s characteristics such as consumers’ preferences, income levels of targeted consumer segments, and current and emerging trends. The competition has been increasing and it is even more important now for Coke to monitor the market. I also have chosen this issue because I believe Coke could have done a better job of monitoring the markets and identify emerging trends as compared to its closest rival Pepsi.

Even though sparkling beverages still account for a major portion of Coke’s revenues, they are losing share to still beverages. In addition, consumers have greater choices now and competitive pressure has forced NARTD players to be more responsive to evolving market characteristics. The competition has also been growing due to the entry of new players such as retailers’ private labels and other small companies, many of whom are targeting the market for still beverages. Coke’s management has also made several blunders in the past that could have significantly strengthened its competitive position against Pepsi such as losing the opportunity to acquire Quaker Oats and South Beach Beverage Co.

Alternatives/Recommendations

Corporate Level Strategy

Coke’s current business structure is built around concentrate production and with acquisition of CCE’s entire bottling operations in North America, Coke has also assumed greater role in bottling operations. But CCE’s deal has also caused the company to lose some control over its bottling operations in Europe. In addition, company’s overall global bottling operations continued to be dependent on franchisees who produce and deliver 72 percent of worldwide volume.Coke now has three options available to it:

1. Keep the bottling operations and maintain control over the entire value chain
2. Re-franchise the bottling operations

• Maintain partial control over value chain by keeping bottling operations and re-franchise distribution

Coke should opt for third strategy which is to maintain control over bottling operations and re-franchise distribution. This strategy will allow the company to tackle underutilization of some bottling plants and will also make enable it to update equipment that could support both sparkling and still beverages.

Competitive Strategy

Coke is a major player in the sparkling and still beverages and its closest competitor is Pepsi in NARTD market. But while Pepsi is also a major player in the market for snacks with brands such as Frito-Lays and Doritos, Coke is largely absent. While Coke does have diverse product portfolio, it lacks diversity when it comes to product categories. Almost all of its products are beverages some of whom compete with products from Coke itself but there is lack of complementary products in the company’s product portfolio. Coke has two options now

1. Maintain focus on existing product lines
2. Expand into other product categories such as snack foods

The recommended strategy is to expand into other product categories such as snack foods. The snack foods often serve as complementary products to sparkling and still beverages and it will enable the company to provide better value proposition to its consumers. The company may develop new brands in-house but a better strategy may be to acquire other companies with well-known snack food brands. Such a strategy will help Coke quickly enter the snack foods market and will also provide instant brand recognition, thus, reducing the need to invest huge resources in marketing.

Implementation

One of the major implementation issues if Coke takes charge of bottling operations may be deterioration of its balance sheet. This is because bottling plants would require huge capital investments and for a company the size of Coke, that may mean numerous bottling plants. Another issue is that the economics of bottling locations is determined by oil prices to a great extent and these factors are outside company’s control. Another issue is a possible opposition from some individuals in the management team who may be of the opinion that Coke should maintain the franchisee model because some of the franchisees have been in business for generations and they understand their local conditions better than company could ever understand.

There are several measures the company could take to increase the success of its implementation plan and reduce the negative impact of external factors. First of all, the company may sell low-performing bottling plants and only focus on the top-performers. The sale of less-productive assets will also generate funds that could be invested in current or new bottling plants. The company will also attempt to build as few plants as possible in order to take advantage of economies of scale and the plants will be scalable. Instead of choosing several distributors, the company will contract with few large-scale distributors and focus on developing long-term relations with them. Large-scale distributors already have efficient distribution network as well as the resources and experience to respond to changing market conditions.

When investing in bottling plants, the company will ensure that the production equipment has the flexibility to accommodate production of both sparkling and still beverages. Coke will study the flexible production techniques adopted by companies in other industries to determine whether certain best practices could be imported into its own production facilities.

Instead of raising funds for capital investment into new bottling plants through debt only, the company may use multiple funding sources including equity issue. The company may also allocate some of the funds from its marketing budget to bottling plants. Because internet advertising is growing in importance and it is relatively cheaper than TV advertising, the company could allocate some of the advertising budget to investments in bottling plants without significantly hurting marketing objectives.