Company Analysis: The Coca-Cola Company

Introduction

In the current competitive business environment, firms are under immense pressure to develop effective ways of meeting the needs of their customers. Technological changes in the fields of transport and communication have transformed the world into a global market, making it easy for large corporations to operate in different countries. According to Kamp and Hunter (2019), when a company is operating in the global market, it is essential for the management to regularly assess both internal and external environmental forces. Analysis of the external environment makes it possible for the company to understand changing trends in the market, including threats and opportunities in a given country. On the other hand, the internal analysis of the firm enables the management to understand strengths and weaknesses that may enhance or inhibit the organization’s capability to overcome market challenges and take advantage of the opportunities presented. Such steps are taken to ensure that there is a continuous growth of the firm despite the growing competition and other challenges that may exist in the market. In this paper, the focus is to conduct a market analysis of the Coca-Cola Company.

The Overview of the Company

The Coca-Cola Company is a multinational beverage company that has its headquarters in Atlanta, Georgia. The company was founded in 1892 and has grown rapidly to become one of the largest companies in the world (The Coca-Cola Company, 2019). The Coca-Cola brand has emerged as one of the most valuable ones in the world over the past years, which is an indication that the management is taking the right steps to strengthen its position as a global leader in the beverage company. Recent market studies have shown that the brand is one of the most known ones in both developed and developing economies. Founded by John Stith Pemberton and Asa Griggs Candler the company is currently under the leadership of James Quincey who is the board chairman and chief executive officer of the company. It employs over 86,000 people from all over the world (Chapman, 2019). The management has been keen on widening its market coverage beyond the traditional cola products as a way of increasing its revenues, profitability, and sustainability.

Internal Environmental Analysis: SWOT Analysis

The beverage market is one of the most competitive ones, especially because of the emergence of different players targeting the same customers. The ability of a firm to remain sustainable depends significantly on its internal environmental forces. Tuten (2019) explains that healthy competition is essential for the growth of a firm and an industry. It promotes creativity and enhances cost reduction as companies struggle to deliver the best to customers at the lowest cost possible. However, firms that often succeed in such an environment are those that have internal capabilities, making them unique. In this section, it is necessary to analyze the internal environment of the Coca-Cola Company using the SWOT model.

Strengths

The ability of the Coca-Cola Company to achieve great success in the highly competitive global market can be attributed to various factors that can be considered strengths of the company. One of the main strengths of this company is its strong and highly valuable brand. In 2011, the brand was ranked top of any other brand in the world, with a valuation of 71.9 billion dollars (Rohrs, 2019). It has remained one of the most valuable brands in the world, making it a popular choice among its global clients. The strength of a firm’s brand is one of the most important factors that define its ability to achieve growth and sustain competition in the market. This company’s brand name and other attributes are widely known both in the developed and developing world, a fact that has boosted its sales in the market.

The top management team of this firm is comprised of diversified and highly qualified individuals capable of understanding the emerging market trends and introducing necessary adjustments. According to a report by Love (2019), the Coca-Cola Company has developed a reputation as one that is keen on hiring and retaining highly talented individuals to hold various management positions in the firm. The firm has been able to perform marketing functions effectively because of this team of dynamic leaders. They understand the fact that competition can only be managed by embracing change brought about by emerging technologies. The firm has created a communication platform meant to ensure that these leaders can easily engage their subordinates to find the best way of achieving growth.

The company’s marketing efforts are another area of strength that has facilitated its growth. The management has been making heavy investments in market research to enable it to understand changing tastes and preferences of clients. It has been using an outward-in approach to product development, where the company conducts market research to identify the needs of customers before developing appropriate products. The firm has performed these functions so well and has introduced new products such as water, which is seen as healthier than cola drinks. The ability to respond to market needs has enabled it to entrench its position as a market leader in this industry.

Weaknesses

The company has weaknesses that may affect its ability to achieve sustainable growth in the highly competitive beverages market. The cola products still account for over 60% of the sales of this company. At the top is Coca-Cola at 26%, Diet Coke at 17%, and Coke Zero at 14% (Ciafone, 2019). Health experts have warned against excessive consumption of coke products. However, the company is yet to make a major shift in its products portfolio to ensure that these products account for a smaller portion of what it offers in the global market. It continues to receive criticism because of this inability to respond appropriately to emerging health concerns.

The Coca-Cola Company has been accused of being insensitive to environmental concerns in some of its major markets. In India, the company has been blamed for using much of the water that people need for domestic use (Love, 2019). People living in some of the informal settlements in major cities across India struggle to access water because most of it is used by this firm. Such criticisms have been affecting the image of its brand not only in India but also in other parts of the world. It creates an image of a firm that is not concerned about the wellbeing of people as long as it makes the needed profits. The management of this firm is yet to find a way of addressing these environmental and public concerns in some of its most attractive markets.

Opportunities

The market presents various opportunities that the Coca-Cola Company can take advantage of as it seeks to achieve growth in the market. One of the opportunities in the growing global population, which increases the market size. According to recent data, the world’s total population is currently estimated to be over 7.8 billion people (Marr, 2019). As the population continues to grow, the market size is also growing, expanding the market share for cola products. The population growth is highest in the developing economies, especially in Africa and parts of Asia, where the popularity of cola products is still high despite the health concerns that some experts have raised.

Technological advances are another area that offers the company a huge growth opportunity in the global market. Advancements in the field of communication have made it possible for companies to coordinate their global operations with ease and at lower costs (Calkins & Tybout, 2019). Technology also enables this company to conduct complex research meant to improve its products to meet health requirements. Some of the beverage companies around the world have been forced out of the market because of the effect of the COVID-19. These events present the Coca-Cola Company with the opportunity to expand its market share rapidly.

Threats

It is important to acknowledge the numerous threats that the company faces as it operates in this market. One of the main issues that the Coca-Cola Company faces is the growing concerns about the health effect of cola products. Health experts have warned against regular consumption of these drinks, which may negatively influence the sales of the company. It means that this company will need to find alternative products which are considered healthier. Competition is another major threat that the management cannot afford to ignore. Globally, PepsiCo is the single-most powerful rival that this firm has had to face (Love, 2019). In each of the individual markets, this company faces other regional or national brands offering a wide range of soft drinks. Government policies in some of the global markets may also affect the company’s success in the market.

External Environmental Aspects: PESTEL Analysis

The external market analysis enables the management to understand forces that the company has to deal with to achieve the desired growth. The external environmental analysis helps a firm to plan its activities appropriately based on what has to be overcome in the market. The Coca-Cola Company operates in the global market and as such, the external environmental factors must capture this fact.

Political Environment

The political environment has a significant impact on the operations of an entity in a given market. As an American firm, the Coca-Cola Company has enjoyed a long period of political stability in the United States. Most political leaders often avoid any direct interference with individual companies as long as they operate within the law (Rohrs, 2019). The same political stability has been witnessed in most of the European and Asian countries. However, it is important to note that some challenges have emerged in a few countries in Africa and Asia because of political instability. The growing democracy and political stability in the world promises greater growth opportunities for the firm. However, the management must ensure that it avoids political controversies, especially in countries such as China where government closely controls the business community.

Economic Environment

The economic environment is another major factor that defines a firm’s growth within a given market. The Coca-Cola Company, just like many other firms around the world, was negatively affected by the 2008 global economic recession. As the purchasing power of its customers reduced, its sales dropped significantly as the number of people consuming cola products reduced. The company then enjoyed a long period of recovery from 2009 to 2019 as the world’s economy registered continued growth. However, the major outbreak of COVID-19 in the global society in 2020 has had a devastating impact on its growth. Many countries were forced to shut and people were instructed to stay indoors in major cities around the world. The effect was that the purchasing power of its customers was reduced and accessibility of these products was also compromised.

Social Environment

The social environment in which a company operates is critical in determining its growth. The social environment involves the beliefs and practices of a given people that define their purchasing pattern. The cola market has enjoyed a long period of non-conflicting culture in terms of the acceptance of their products. These products have become universally acceptable irrespective of one’s race, religion, age, or any other demographical classification. However, Love (2019) warns that this may change as a new culture emerges based on health consciousness. People are becoming sensitive to what they consume, and a new culture where people avoid sugar products or others classified as being unhealthy is gaining popularity. The management of this company has responded effectively by introducing other products to meet this emerging niche such as bottled water. Such a level of efficiency and ability to respond to these market changes has enabled the company to protect its market share.

Technological Environment

Technology is also proving to be another major influence in a firm’s operations. As technology continues to evolve, entities have to find ways of adjusting their ways of operations to meet emerging needs. In the beverage industry, technology has redefined products and ways of production. New effective technologies of processing these beverage products have emerged, helping in cutting down the cost of operation and improving the quality of products offered. Some of the new products that the company offers are a result of changing technologies in this industry. Chris (2019) notes that companies have to monitor changes in technology and determine when it is appropriate to shift from the current practice to the next.

Ecological Factors

The ecological factors have become increasingly significant in the current business environment as it is one of the three main pillars of sustainability. The beverage industry has come under strict scrutiny around the world for its usage of water. The Coca-Cola Company has particularly been criticized for its excessive use of water at the expense of the masses in India (Calkins & Tybout, 2019). The beverage industry also has to face the issue of environmental degradation from their wastes. Many countries around the world have enacted tough laws to ensure that industrial effluents and other wastes do not pose any threat to the environment. Organizations in this industry have a responsibility to ensure that their wastes are properly managed based on these rules and regulations.

Legal Factors

Legal factors that dictate how a company should run its operations in the market should also be given priority by the Coca-Cola Company in its global markets. In the United States, the government has enacted laws that govern the operations of firms in this industry, including competition laws, customer protection laws, environmental laws, corporate tax laws, labor relations laws among others (Butler & Tischler, 2016). These same laws exist in other countries around the world with variations that the management has to understand to avoid litigations. In each of the countries where the company has its branches, it is necessary to understand laws and policies that regulate the activities of the business. The Coca-Cola Company has been successful in China and India, some of the most important markets outside the United States, because of its ability to understand and operate within the law.

Ethical Issues

Ethical issues, although it is outside the standard PESTEL model, have also gained the attention of the business community. Business ethics have become closely intertwined with the legal environment. Issues previously considered an ethical responsibility of a firm such as protecting the interests of employees and the environment have become entrenched in the law. Rohrs (2019) explains that companies still have the responsibility to behave ethically even if it is not defined in the law. In the beverage industry, issues of the health effects of some of the drinks have emerged. It is the responsibility of this company to ensure that its products are as healthy as possible. In case there is a miscommunication in the market, it is an ethical requirement for the management to provide accurate information that will address customers’ concerns.

Global Issues

Operating in the global market often presents unique challenges that a firm has to address to enhance its ability to achieve success. The business environment in the United States is significantly different from that in Saudi Arabia or South Africa. For a business that operates globally, it is essential to understand how to classify its markets in different regions based on the purchasing power of customers, socio-cultural beliefs, and the political environment. As Ciafone (2019) observes, while these operations are global, the firm has to understand local forces and how they affect its operations. These factors will define the ability of this company to operate successfully both in the United States and the international market.

Recommendations

The analysis of the Coca-Cola Company reveals that the firm is making impressive progress in the market despite the numerous challenges that exist. However, the current performance can be improved if the management can put into consideration the following recommendations:

• The management should consider increasing its product portfolio, focusing more on products that are considered healthy. The market for non-cola products is growing both in the United States and the global market:
• The firm should invest more in research to help address misconceptions about cola products and their impact on health
• The management of the company needs to address ethical concerns about its massive consumption of water at the expense of poor families in some developing economies such as India;
• The company should strengthen its brand in the global market through effective marketing using both mass and social media platforms.

Conclusion

The Coca-Cola Company is one of the most successful beverages companies in the global market. The firm has one of the most valuable brands and has a marketing unit that understands the changing tastes and preferences of customers in different segments. The analysis of the firm’s internal environment shows that its experience, financial capacity, and a team of dynamic managers have enabled it to overcome numerous challenges that it faces in the market. The external environmental forces present both strengths and opportunities that should be monitored and managed effectively. The political, economic, social, technological, ecological, and legal environments in which this firm operates influence its ability to achieve success in different ways as discussed in the paper. The report has also analyzed the financial performance of the company for the financial year that ended in December 2019 before the COVID-19 started affecting the global market. The analysis revealed that the company is in a healthy financial position and with a strong book value per share that is attractive to potential shareholders.

References

Butler, D., & Tischler, L. (2016). Design to grow: How Coca-Cola learned to combine scale and agility and how you can too. Simon & Schuster.

Calkins, T., & Tybout, A. M. (2019). Kellogg on branding in a hyper-connected world. John Wiley & Sons.

Chapman, C. (2019). Empower your investing: Adopting best practices from John Templeton, peter lynch, and Warren Buffett. Post Hill Press.

Chris, B. (2019). Marketing is finance is business. Gatekeeper Press.

Ciafone, A. (2019). Counter-Cola: A multinational history of the global corporation. California University of California Press.

The Coca Cola Company. (2019). Our company. Web.

The Coca Cola Company. (2020). Balance sheet. Web.

Kamp, C., & Hunter, D. (Eds.). (2019). A history of intellectual property in 50 objects. Cambridge University Press.

Love, J. K. (2019). Soda goes pop: Pepsi-Cola advertising and popular music. University of Michigan Press.

Marr, B. (2019). Artificial intelligence in practice: How 50 successful companies used artificial intelligence to solve problems. John Wiley & Sons.

Rohrs, A. (2019). Become an accelerator leader: Accelerate yourself, others, and your organization to maximize impact. Gatekeeper Press.

Tuten, T. L. (2019). Principles of marketing for a digital age. SAGE.

Appendices: Financial Analysis

Liquidity Ratio

Liquidity ratios are used to assess a firm’s capacity to meet its debt obligation without the need to get assistance from external sources. In the analysis of the Coca Cola Company, it was necessary to conduct a current ratio for the firm for the financial year that ended on December 31, 2019.

• Current Ratio= (Current Assets) ÷ (Current Liabilities)
• ​= 20,411 ÷ 26973
• = 0.76 or 76%

The analysis shows that the company has the capacity to meet 76% of its current liabilities (The Coca Cola Company, 2020). The number shows that the company has a healthy financial performance

Debt Ratio

Debt ratio helps in determining the proportion of a firm’s assets which are funded through debt. In this analysis, the debt ratio was calculated using the formula below:

• Debt ratio= (Total debt) ÷ (Total assets)
• ​​= 62,999 ÷ 86,381
• = 0.73 or 73%

The analysis shows that the debt ratio for the company is 0.73. As Ciafone (2019) explains, a debt ratio that is greater than 1.0 or 100 percent is an indication that the company has more debt than assets. The outcome of the analysis shows that the Coca Cola Company had more assets than debt in the financial year that ended in 2019.

Activity Ratio

This financial metric is used to assess the efficiency of a company in leveraging its assets to generate cash and revenue. In this case, the total asset turnover ratio analysis was conducted. The following formula was used in this analysis:

• Total Assets Turnover Ratio = Total Sales ÷ Total Assets
• = 28,198 ÷ 86,381
• = 0.33

The ratio above shows that the company is not moving its products in the market fast. The slow sales may be caused by various factors such as the current COVID-19 pandemic.

Profitability Ratio

Profitability ratios are popular because they are used by investors to assess the capacity of a firm to generate profits from its sales. In this case, the analysis will focus on gross profit margin.

• Gross profit margin = (Revenue – COGS) ÷ (Revenue)
• = (28,198-11,053)/28,198
• = 0.61

The analysis shows that the Coca Cola Company’s operations in the market are profitable.

Market-value Ratio

The metric is used to analyze the share price of a public company’s stock. The following formula was used in the analysis:

• Book value per share = Stockholders’ equity ÷ Number of shares outstanding
• = (86,381,000,000 – 62,999,000,000) ÷ (4,273,000,000)
• = 23,382,000,000/4,273,000,000
• = 5.47

The book value per share of this company shoes that it has an attractive market value.