If your assignment is Coca-Cola’s external environment analysis, you are on the right page! Below you will find the company’s external & internal environments analysis, the reveal of the major factors affecting Coca-Cola’s Performance, and other questions.
Executive Summary
Coca-Cola’s global business is profitable, and the company has one of the largest distribution networks in the world. It has operations in 200 countries and faces the challenge of managing local, external market conditions to fit its global strategies for dominating the beverage industry. Its main external factors are taxation rules for different countries, corruption, an increase in social media use, improvement in production and communication technologies as well as overall growth in incomes and the size of the middle class. On the other hand, in the industry, the power of buyers and the power of sellers is low. Industry rivalry is very high, and the threat of new entrants is low. The threat of substitutes is also high relative to the industry, but for Coca-Cola, it is limited, due to the size of the company’s portfolio and distribution networks. The SWOT analysis reveals internal and external factors affecting the company and presents four potential strategies that the company can follow. This report recommends that strengths and opportunities (SO) strategy is the most appropriate for Coca-Cola to follow.
Introduction
Coca-Cola is a global beverage company with operations in 200 countries, and its main competitors are PepsiCo Inc., Unilever, Kraft Foods Inc., Nestle, and many others. It was one of the most valuable brands in 2015 (Statista, 2015). The company had a net operating revenue of 45.998 billion and an operating income of 9.708 billion in 2014. 46.7% of the company’s revenue comes from North America. Its product portfolio market share globally is as follows. Juice/Juice drinks make up 38%, sparkling makeup 24%, Ready-to-drink coffee, and teas make up 16%, and water makes up 11%, while sports drinks, energy drinks, soy, and value-added dairy all make up less than one percent in market share. This is concerning competing products for the respective categories around the world (Statista, 2015). The company spent 231 million dollars on advertising in 2014, and its brand valuation is 79.21 billion dollars. Its products are largely provided in PET material, which represents 57% of total packaging options (Statista, 2015).
Coca-Cola External Environment Analysis
Five Forces Analysis
Power of buyers
Buyers are organized into large retailers and, therefore, are able to command significant attention and bargain power from the companies in the industry. However, they are easily influenced by the largest player to force the smaller players to match operating margins for them. Organized buyers include large retailers, institutions, and chained food outlets. On the other hand, direct consumers have significantly low power and are susceptible to marketing. Bottlers offer retailer’s price options and then enter into supply agreements that bind the buyers to particular price ranges and cost factors, which leave more power to the supplier rather than the buyers (Coca-Cola, 2015).
Power of suppliers
In this industry, almost all commodities are available on the market, and respective companies patent specific formulations for drinks such that they not reliant to suppliers. Suppliers only provide goods to the market and the companies are free to enter into agreements with available suppliers. Companies operating in the industry have low switching costs, and most suppliers are offering their goods at the market prices, which reflect changes in demand. The case is true in the global market. At local markets, labor suppliers may have some power against the companies. The situation occurs when they are organized in unions, but in the context of overall supply costs, and supply options, they are not significant.
Threat of substitutes
Other than taking soft drinks, consumers can go with milk products, water-based products, and other beverages like coffee and iced tea. The power of substitutes has been very high in this industry in the past few years. The current companies like Coca-Cola have tried venturing into varied beverage products and launching new variations of their common brands such as Coke light and coke zero. The threat continues to be posed by the emerges of new entrants in the substitutes market that are coming up with innovative marketing and product development strategies seeking to make aware some of the market share belonging to soft drinks and other Coca-Cola products.
The threat of new entrants
In the global soft drinks market, only two brands are established. They are Coca-Cola and Pepsi. However, in the respective markets served by Coca-Cola, there are many country-specific market conditions that make it hard or easy for start-up companies to enter the industry. Coca-Cola’s hand the other dominant companies have the advantage of well-structured distribution systems and a franchise system that is established. They do not face significant threats from the new entrants. New entrants have to spend millions in advertising and setting up networks to upset the existing companies.
Industry rivalry
Rivalry in the soft-drinks market and other non-alcoholic beverages is very high. Although there are a few players, they are very aggressive with marketing and product launches given that the industry is at a mature stage. The room for growth is mainly through taking up market share from other rivals. Therefore, Coca-Cola and other companies have to work very hard at attracting and retaining customers.
PEST Analysis
Political
Civic conflict and governmental changes that affect regulation, taxation, and accounting standards are the main political factors affecting the external environment of Coca-Cola. Its ability to penetrate and dominate emerging and developing markets depends on the ability of the company to form strategic business alliances with the local bottlers. Issues such as corruption and the rule of law affect the outcomes that Coca-Cola will have on the respective markets. They will also affect the acceptance of new technology, development of distribution networks and setting up production amenities.
Economic
Global growth in gross domestic products and per capita incomes about the cost of living increase the market potential for the beverage industry. Besides, the overall economic growth in strong Coca-Cola markets such as North America is also helping increase company revenues. Other economic factors include the increase in the number of alternative bottling and other operations around the world due to improvement in the economic competitiveness of countries where Coca-Cola has operations.
Social
Coca-Cola concentrates on the segmentation of its markets along demographic dynamics. It has brands targeting youthful niches in its traditional markets. It also has the classics for the overall markets and as a way to keep its heritage and avoid alienating a core segment. Cultural factors across the world vary and present various opportunities and threats for Coca-Cola. Nevertheless, the brand has successfully marketed itself as a celebratory drink and a mandatory food accomplishment. Meanwhile, the world is moving more towards a global culture of eating out and spending time in restaurants and similar establishments. Coca-Cola is aggressively marketing and positioning its beverages in this market area. Social events recognized globally, such as the football World Cup continue to give Coca-Cola and its rivals a global platform for reaching consumers. Increase in social media use across the world is also offering new opportunities for marketing and consumer relationships, especially in corporate citizenship campaigns across the world (Coca-Cola, 2015).
Technological
Bottling technology stayed content for several years, but key improvements are in energy use in various operations of the company. The combination of environmentally green choices and improvement in speed and communication are helping companies in the global beverage industry to cut costs. However, investment in technology is costly and takes the time to pay off, which is one of the barriers affecting new entrants.
Coca-Cola Internal Environment Analysis
Strengths Opportunities
In this strategy, Coca-Cola is making most of its strength and capitalizing on opportunities. One of the biggest strengths for Coca-Cola is its brand valuation and recognition around the world. The company can easily take up new opportunities for marketing new products into existing markets and help push the products with its branding strategies, already established marketing programs and partnership as well as its distribution networks. As a result, the company has been entering other beverage markets such as coffee and teas in ready-to-drink packages seeking to gain more market share. However, it has also to combine other strengths, include a strong corporate culture around its divisions in the world and its customer loyalty to increase marketing efforts such that it can match the expectations of consumers and other market demands in the twenty-first century (EuroMonitor International, 2014, p. 8).
Given its strong cash position and high profits for its global operations, Coca-Cola can buy rival brands and aggressively push them to global dominance. It can even market competing brands under its portfolio to give consumer choices and continue to take up a new market share as it responds to changes in consumer preferences.
Strength Threats
In this combination strategy, Coca-Cola is making its threat potential to diminish. Coca-Cola is also in a position to use its strengths to overcome threats in the market. Its biggest threats are changes in consumer tastes and a strong dollar that makes its earnings in other markets very weak. The company has to establish an agile strategy in its distribution such that can shift costs from strong dollar markets to weak dollar markets. On the other hand, it must also be able to increase its marketing budget for the strong dollar market such that it increases earnings significantly to offset exchange balances. On the other hand, the company must limit its financing options to periods of recession when the cost of loans goes down. This will enable it to avoid the high cost of dollar loans that arise when interest rates in the U.S. go up as they currently are. For Coca-Cola, relying on past strategies is a convenient way of dealing with the high value of the dollar. As it has done in the past, the company can withhold its overseas profits and continue relying on the bond market in the United States to boost its cash position for covering short-term operations costs (Richards & Craig, 2014).
Weakness Threats
This is a minimization strategy for both weaknesses and threats. The aim is to use efforts that do not expose the company’s weaknesses and also help it to avoid threats. It is a survival strategy for the company when it is not seeking aggressive growth and does not face significant threats. The weaknesses here are negative publicity and an undiversified product portfolio while threats are the decreasing profit margins in maturing markets and competition from its biggest rival PepsiCo despite product diversification (Kretzmann, 2014). The company has to continue with aggressive marketing efforts, but only in its already established market, where the aim it to prevent market erosion. It has to consider also improving its marketing on promising products that it has introduced in other markets around the world. This strategy is market specific as the local factors affecting the company’s growth are varied.
Weaknesses Opportunities
Opportunities offer a chance for the company to minimize its weaknesses. Aggressive marketing and proper distribution efforts, as well as new partnerships in emerging markets, can offset decreasing profit margins (McKinsey & Company, 2012). Besides, the emerging markets can also help to help the company lower its focus on carbonated drinks. The company will also use new product launches and rebranding efforts for its existing products such that it does not have to suffer additional impacts of negative publicity. It will be combining new launches or relaunches as an avenue for public relations management to cater for some negative publicity that it has suffered in the past.
Conclusion
Coca-Cola enjoys a favorable position in its market globally. With a highly valued brand and extensive distribution networks that are innovative, it is in a position to use its strengths to take advantage of opportunities that arise. However, in its main beverage segment of soft drinks as well as juices, the market in most countries is mature. Growth comes from taking other companies market share, and that requires aggressive marketing campaigns. This report recommends that Coca-Cola continues to enhance its dominant market position by using its strengths to capture new opportunities in both emergent marketing at its dominant North American market.
Appendix: SWOT Analysis of Coca-Cola
Strengths
- Globally recognized brand.
- Global dominance in beverage market share of 25% (Statista, 2015).
- A strong marketing and advertising portfolio and strategy.
- Most extensive distribution channel for beverages in the world.
- High level of customer loyalty.
- Partnerships with other beverage manufacturers.
Weaknesses
- The company is reliant on carbonated drinks – a major percentage of the revenues for Coca-Cola come from carbonated drinks. Growth in awareness of health in many markets is causing the demand for this segment to diminish.
- Negative publicity – problems with bottling and other quality errors are highlight exposed by media, which affects company reputation.
- There are many Coca-Cola brands that do not contribute much to revenue and add operations costs.
- The company is not very responsive in its marketing strategies and has relied on existing practices for long.
Opportunities
- Increase in demand for alternative drinks demand like coffee, teas and bottled water.
- Growth in market size for emerging markets.
- Increase in the number of smaller brands with significant local market share that are ready for acquisitions.
- Increase in consumer awareness about health beverages.
Threats
- Increasing value of dollar against other currencies, affecting costs of product and profit repatriation.
- Changes in consumer tastes and preferences in the beverage market globally and in respective countries.
- Changes in legal requirements for bottling and marketing of foods to warn consumers on unhealthy ingredients.
- Competition from rivals especially PepsiCo.
References
Coca-Cola. (2015). Shaping out future – 2014 year in review. Web.
EuroMonitor International. (2014). Passport: Coca-Cola Co The, SWOT analysis, in soft drinks (world). Web.
Kretzmann, D. (2014). Why the Coca-Cola partnership bodes well for monster beverage. The Motley Fool. Web.
McKinsey & Company. (2012). Winning the $30 trillion decathon: going for gold in emerging markets. Web.
Richards, K., & Craig, J. (2014). Offshore corporate profits: the only thing “trapped” is tax revenue. Center for American Progress. Web.
Statista. (2015). Statistics and facts on the coca-cola company. Web.