Coca-Cola is a global multibillion-dollar company with decades-long history and a universally recognizable logo. As of 2021, its beverages are sold in over 200 countries, with several subsidiary fizzy drinks’ brands being included under the company umbrella. Sugar-free alternatives Diet Coke and Coke Zero, Fanta, Fuzetea, and, of course, the familiar taste of the original drink can satisfy a wide range of customers’ preferences and cravings. However, even for an industry-dominating company like Coca-Cola, threats of new entrants and substitutes should be considered and planned for. These threats, alongside supplier power, buyer power, and competitive rivalry, are examined in this analysis through Porter’s Five Competitive Forces framework.
Porter’s Five Competitive Forces
Porter’s Five Competitive Forces Framework is based on the analysis of threats and opportunities that arise for the organization in the external setting. The forces in question include threat of new entrants, threat of substitutes, supplier power, buyer power and competitive rivalry. Despite specifics of competition evolving massively since model’s publication in 1979, the framework remains an optimal way of studying competitors to seek new opportunities for the business development (Bruijl, 2018). Porter’s framework allows the company to dissect the factors that shape the areas and intensity of its competition. The following sub-sections of the analysis are dedicated to examining Coca-Cola’s position in relation to each of the five forces.
Corporate Threats of New Entrants
The beverages industry has significant barriers to entry: a few large companies dominate the market, and large-scale investments are required to set up mass production. Furthermore, Coca-Cola is a multinational corporation which market share amounts to 43.7 percent as of 2019 (Bedford, 2020), and it is unlikely that emerging competitors could significantly affect its sales. However, despite the threat of new entrants not being Coca-Cola’s main priority at the moment, it might be essential to consider the general direction of consumers’ preferences. As the public moves towards more balanced food and beverage choices, several new companies entering the market with healthier alternatives might affect Coca-Cola’s bottom line.
Corporate Threat of Substitutes
The marketing war between Coca-Cola and Pepsi is a well-known phenomenon that will be addressed in more detail in the following sections of the analysis. Pepsi beverages are, undoubtedly, the closest substitute to the Coca-Cola products, but considering the temp of market changes it is important to look wider. When it comes to analysing the threat of substitutes, it is important to account for specific reasons consumers usually purchase a Coca-Cola drink. Usually, the main reason is a craving for a refreshing drink but buying a Coke to consume caffeine is also common.
In the first area main substitutes for Coca-Cola drinks are fruit juices and fresh smoothies, which, again, fit better into the health-consciousness trend of the modern consumption. In the second area Coca-Cola beverages are secondary to the growing coffee drinks market, which makes the company’s investment into a coffee firm’s shares an interesting and arguably strategic decision. Furthermore, fruit seltzers keep gaining popularity in the United States, which has informed Coca-Cola’s other investments and is discussed in greater detail of the SWOT section of the analysis.
As the main ingredients for carbohydrate drinks are popular and widely available chemicals, suppliers have little to no bargaining power when it comes to Coca-Cola. Any supplier can be replaced quickly and easily due to the materials being neither unique no scarce. Additionally, it is highly likely that for most of its suppliers, Coca-Cola is the largest or one of the largest clients, and therefore by definition holds greater amount of power in any negotiations. It is reasonable to say, that out of the Porter’s Five Forces, supplier bargaining power is the least relevant to Coca-Cola.
The factor of the buyer power is difficult to evaluate in Coca-Cola’s case due to the company’s consumers being generally divided into two separate categories: individual buyers and corporate buyers. As individual buyers purchase Coca-Cola beverages in small volumes their bargaining power is naturally low, considering the market share the company holds. At the same time, much of Coca-Cola’s revenue is generated from its long-term partnerships with fast-food restaurant chains and retail outlets. Therefore, we can conclude that bargaining power of corporate buyers is relatively high.
For the purpose of the fifth force’s analysis Pepsi can be considered a focus point, as Coca-Colas main competitor and the closest substitute. Their rivalry, titled by some marketing scholars “The Cola Wars” (Amer, 2020) has repeatedly manifested itself trough comparison-based advertisement campaigns and simultaneous exploration of the new market segments. The level of differentiation between the two brands is low and therefore price competition is a widespread tactic. Coca-Cola’s executives are greatly aware of the intensity of this rivalry and take it into account when making marketing and budgeting decisions. A good example of that might be the company prohibiting a partnering fast-food chain to sell Pepsi beverages trough contract regulations. Despite the less intense competition with smaller industry players, competitive rivalry significantly affects Coca-Cola’s overall strategy.
The SWOT Analysis
The SWOT analysis is the business tool that is widely utilized by organizations in their strategic planning. The abbreviation stands for strengths, weaknesses, opportunities and threats and the framework itself deals combines the examination of internal and external positives and negatives for the firm. Strengths and weaknesses apply to the internal mechanisms of the firm, with the first focusing on the aspects that grant competitive advantage and the second on those that bring disadvantage. Opportunities and threats are related to the company’s environment and relationships with competitors and stakeholders from outside the firm. Despite being occasionally criticized for being too formulaic, SWOT’s matrix structure allows companies to effectively profile themselves and move forward accordingly.
Coca-Cola’s main strengths are directly tied to its corporate brand power as a multi-national company with global presence. The firm is, undoubtedly, the leading producer in the beverages industry, as well as one of the most recognizable and successful brands overall. This allows Coca-Cola to utilize the economies of large-scale production, maintain effective distribution networks and achieve low operational costs (Ciafone, 2019). Due to having access to large sums in budget, Coca-Cola is able to conduct a wider, more detailed and more up-to-date market research then most of its competitors. Its beverages formulas are carefully refined before manufacturing and the end products always maintain consistent taste, which allows customers to know what they pay for and never remain disappointed.
The company’s main weakness at the moment is the lack of options available for health-conscious customers. As a result of Coca-Colas partnerships with fast-food restaurants, fizzy drinks are associated with junk food and unhealthy lifestyle. This issue is intensified by the negative publicity carbohydrate beverages have been receiving in the last few years (Mann, Taylor & Cutfield, 2017), particularly links to obesity and diabetes. Availability of sugar-free alternatives does little to resolve the problem, as research has also identified potential for health risks in artificial sweeteners. Furthermore, as the strong association between Coca-Cola and fast-food has been established, the healthier beverages market might prove difficult for the company to penetrate. Additionally, as of 2020 the company has been displaying lack of innovation, mostly trying to catch up with trends in the industry.
Addressing the aforementioned crisis of the carbohydrate soft drinks is, despite brand image-related barriers to entry, a major opportunity for Coca-Cola. The company has begun to partner with and acquire firms that produce healthier beverages, such as the premium sparkling water brand Topo Chico. (10-K, 2017). As the flavoured seltzer sector in the U.S. continues growing, penetrating it would allow the company to get quick returns on investment due to the fast expansion of the market. Acquisitions and partnerships with other contain a big earning potential for Coca-Cola as those might provide the company with access to previously unprofitable demographics. Another major opportunity lies in developing and introducing new flavours. “Diet Coke” line particularly is known for its fruity variations of the classical sugar-free taste. Finally, Coca-Cola might continue to increase its commercial presence worldwide and access new markets in the developing countries with, potentially, even lower production costs.
Local substitutes for the markets outside of the United States remain one of the most significant threats for Coca-Cola. Due to the company being represented on a variety of markets all around the world, its Research & Development department is faced with analysing drastically different landscapes and contexts. In implementing these perspectives into production and marketing process, some of the local trends are bound to be lost. In contrast, Coca-Cola’s local competitors operate on a much smaller scale and have the opportunity to fully focus their resources on the customers from the particular region. Recently more and more customers opt for buying from small businesses due to feeling greater personal connection and experiencing emotional gratification from their purchases potentially being impactful.
Therefore, despite Coca-Cola being the international leader of the soft drink industry, it can be significantly threatened by smaller local firms, particularly when entering new countries. Additionally, differences in tax regulations and import laws might result in potential fines and other financial losses for the company. These external dangerous factors should be considered by Coca-Cola management team when undertaking a new expansion or managing foreign markets.
As the worldwide leader of the non-alcoholic beverages industry, Coca-Cola is a force to be reckoned with in the modern commercial landscape. However, despite its global corporate presence, large scale of operations and established market of loyal customers, as any business it has a potential for improvement and further development. The growing awareness of health-consciousness across most consumer demographics becomes more apparent every year and local brands grow in popularity. The difference in market shares is so overwhelming, that these emerging competitors do not pose a significant threat to Coca-Cola’s prosperity at present. Nevertheless, it is crucial for the company’s management to regularly conduct Porter’s Five Forces analysis and SWOT analysis. When equipped with the most relevant information about the firm, these frameworks are exceptionally effective in researching the current competition and outlining the direction for the strategic planning respectively.
10-K. (2017). ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016: The Coca-Cola Company (p. 29). Washington DC. Web.
Amer, A. (2020). Analysis Study of The Economic War Between Cola and Pepsi. Al-Qurtas Journal for Human and Applied Sciences 7. 2-15. Web.
Bedford, E. (2020). Coca-Cola Company’s market share in the US 2004-2018. Web.
Bruijl, G. (2018). The Relevance of Porter’s Five Forces in Today’s Innovative and Changing Business Environment. SSRN Electronic Journal, 1-21. Web.
Ciafone, A. (2018). Counter-Cola: A Multinational History of the Global Corporation. University of California Press.
Mann, J., Taylor, R. & Cutfield, W (2017). The Diabesity Crisis. New Zealand Medical Journal 130, 82-85.