Coca Cola Business Plan – Analyzing the Coca Cola Company
Beverage Industry Overview
The beverage industry in which the Coca Cola Company operates is the carbonated beverages market or the carbonated drinks market. This market consists of carbonated drinks, diet colas, fruit juices as well as mixers. The valuation of the market in this industry is conducted according to the retail selling price of the products in the market. “The global carbonated soft drinks market generated total revenues of $146.4 billion in 2006, this representing a compound annual growth rate (CAGR) of 0.4% for the period spanning 2002-2006. Market consumption volumes increased with a CAGR of 1.5% between 2002-2006, to reach a total of 155.4 billion liters in 2006. The performance of the market is forecast to accelerate slightly, with an anticipated CAGR of 0.7% for the five-year period 2006-2011 expected to drive the market to a value of $151.4 billion by the end of 2011.” (‘Global Carbonated Soft Drinks Industry Profile’, 2007).
The buyers in the global carbonated drinks market are the retailers and the whole sellers who buy the drinks in bulk from the manufacturing companies. They operate as per the demand of the customers and trade in stock according to speculation in the market. The outputs in the market therefore are the drinks, while the inputs include fruit juices, milk as well as herbal extracts.
The major portion of the market is dominated by the standard cola segment in the global market for carbonated drinks. This is followed by the fruit flavored carbonated drinks and then the mixers. Based on the regions, in the year 2007 the European and the Asian Pacific market is depicting tremendous growth in the consumption of drinks while the North America and Latin America is the leading market in terms of the consumption of functional drinks. The industry is mostly in the stage of growth going towards maturity as the profit and performance of the industry has been becoming steadier over the period of time.
Main Competitors in the Industry
The competitors in the industry include companies who are new entrants in the market and small business catering to niche markets with specialized carbonated and functional drinks. The main competitors in the market are the three giants of beverages. These include the Coca Cola Company, the PepsiCo Company as well as the Cadbury Schweppes Plc.
The largest and the most powerful player in the carbonated beverages market is the Coca Cola Company. Coca Cola Company has been the market leader in the standard as well as the special cola segment since its inception over a hundred years ago. Aside from this the success of the company has rendered the Coca Cola brand to be one of the most valuable brands in the world, drawing a large loyal consumer following. “The company owns about 400 brands, including diet and light beverages, waters, juice and juice drinks, teas, coffees, and energy and sports drinks. The company markets its products in more than 200 countries. Most of its products are manufactured and sold by bottling partners, who convert them into finished packaged products which they then sell to distributors and other customers. The company sells the concentrates and syrups for bottled and canned beverages to authorized bottling and canning operations.” (‘Global Carbonated Soft Drinks Industry Profile’, 2007) The company is operational in eight regional segments which pertain to North America, South America, Europe, Eurasia, Asia, and Middle East, Africa as well as East Asian and South Asian regions. The products of the company include fruit juices as well as fruit flavored carbonated drinks and the lines of Coca Cola branded carbonated colas. Aside from this the company has also diversified into bottled water as well.
The other significant player in the market is PepsiCo Inc. which is a snack and beverage company operating on a global level. “The company operates through four segments: Frito-Lay North America (FLNA), PepsiCo Beverages North America (PBNA), PepsiCo International (PI), and Quaker Foods North America (QFNA). Frito-Lay North America (FLNA) manufactures and uses contract manufacturers, to market, sell and distribute branded snacks.” (‘Global Carbonated Soft Drinks Industry Profile’, 2007) The main brands which fall under the PepsiCo roof include Pepsi, Mountain Dew, Lipton, Tropicana, Propel, Dole & Gatorade etc. The company also has confounded operations with Unilever and Starbucks for beverages.
The third main player in the carbonated drinks market is Cadbury Schweppes Plc which mostly manufactures confectionary products and non alcoholic beverages. The main products of the company are the gum, candies and chocolates, however the beverage segment of the business significantly string in the region of America and Australia. “The segment’s main carbonated soft drinks brands are Dr Pepper and 7 UP. Cadbury Schweppes owns 7 UP in the US and Puerto Rico only. In North America, Cadbury Schweppes’ carbonated soft drinks brands are manufactured and distributed through company-owned and third-party bottling and canning operations. However, the company announced plans to separate this business in March 2007.” (‘Global Carbonated Soft Drinks Industry Profile’, 2007).
M&A Scenarios
Currently the mergers and acquisitions that have taken place in the industry pertain to the companies of Coca Cola, Nestle & PepsiCo acquiring smaller niche market based operating companies which using innovative technology to manufacture specialized beverages. Aside from this n the past before establishing itself the market PepsiCo had put itself up for mergers and acquisitions specifically to Coca-Cola Company, however after repeated refusal from the Coca Cola Company for acquisition, the PepsiCo started operating on an aggressive level and now is the second leading brand for cola and drinks in the carbonated beverages industry.
SWOT Coca Cola Company
The Coca Cola Company as already mentioned is the market leader for carbonated drinks and beverages in the global market. The company has a strong market presence in the Latin America. The financial reports of the company depict a high revenue and net income per employee. Moreover the company also has a string performance in terms of revenues and profits in Brazil and Central America. The weaknesses of the company include low returns which are being faced by the company for the period 2002 to 2006 on the assets deployed by the company. Aside from this the company has also been facing declining margins on their operating and net profit margins. Additionally the company has also gone into high debt which was reflected in its debt and equity ratio rising well above the industry averages.
In the market the Coca Cola Company has opportunities pertaining to investing in acquisitions and therefore increasing its portfolio of products and markets being targeted. Moreover the company can also grow more in the soft drinks market by investing in the market more heavily which is forecasted to increase by 7 percent in the following years. The bottled water market is also growing which presents an opportunity for the Coca Cola Company to establish itself more firmly in the segment and take advantage of its growth. The threats that are being faced by the company pertain to the increasing prices of raw materials which are due to drive the cots of operations and procurement for the company much hi9gher, further restricting its profit margins. Aside from this the intense competition in all market segments pertaining to fruit juicers, mixers, standard and specialized colas and drinks is also increasing making it much difficult for the company to operate in a domineering manner as it has been able to up till now.
Comparative Financial Landscape
Business Segmentation
The products of the company have been divided according in the categories of sparking beverage sand still beverages. The sparking beverages include carbonated drinks which are the most profitable and demanded products of the company. The still segment includes juices, mixers and coffees and teas which are increasingly becoming popular in the market, which is depicted through the increase in growth as per revenue earned from this segment. Geographically the markets which are most profitable for the company currently are the Latin Americana and the European markets
Revenue Analysis Coca Cola company – 5 year analysis
The gross profit for the company has been increasing steadily over the period of years since $13,081 in 2003 to $18,451 in 2007.
The operating income for the Coca Cola Company has also been increasing over the period of time since 2003 from $5,221 to $7,252 in 2007.
The income before tax for the company however has been fluctuating. In 2003 it was at $5,495, but this figure increased steadily till 2005, after which it decreased to $6,578 in 2006. In 2007, the company managed to recover itself somewhat and depicted earnings before tax amounting to $7,873.
The net income for the company has also been increasing steadily since over the past five years since 2003 from $4,347 in 2003 to $5,981 in 2007 as depicted below.
However the net profit margin for the company has considerably fluctuated and decreased over the same period.
The market capitalization for the Coca Cola company was at 136.14 billion with an earnings per share of 2.66 as per the first quarter results of the company in 2008.
Profitability Analysis Coca cola company – 5 year analysis
In 2007 the gross margin for the company stood at 63.9, while the industry average was at 57.4. The pre tax margin for the company was at 26.9 while the industry depicted a 21.2 average. The net profit margin for the company in 2007 was at 20.6, while for the industry it was 16.5. The five year averages for the above mentioned ratios for the company as well as the industry are depicted in the following table:
The five year analysis of the net profit margin for the company depicted that the company had an NPM of 20.3 in 2002, which increased to 20.8 in 2003, and further accelerated to 22.3 in 2004. However it reduced dramatically to 21.1 in 2005 and remained steady for 2006. since then it has decreased to 20.7 in 2007 depicting a decreasing trend for profit margin and profitability as whole for the company.
Employee Strength and Employee Growth
As mentioned earlier, the revenue per employee and the income per employee for the company is very high for the Coca Cola Company. In the year 2007, the Coca Cola Company depicted that TTM revenue per employee for the company was at $332,961 while the industry average was at $246,062. Similarly the net income per employee for the company stood at $68,718 which was almost twice the industry average of $37,458. This depicts that the productivity for the company is very high and the return per human resource employed is significantly greater than the market averages.
The receivables turnover for the company was at 9.6 while the industry averages were 10.9. Moreover the inventory turnover for the company was at 5.0 while the industry averages depicted an inventory turnover of 6.4. This depicts that the company needs to work on the receivable generation and receivable to revenue cycle in order to increase the over all revenues.
Financial Analysis
The financial strength of the company is depicted by its quick ratio which stands at 0.80, while the current ratio is at 0.96. The long term debt ratio for the company in 2007 stood at 14.15, while the total debt to equity was at 46.3. The TTM or the interest coverage for the company was at 204.38.
The financial analysis depicted that the return on equity for the company stood at 26.33 for 2002, 33.58 for 2003, 32.29 for 2004, 30.18 for 2005, 30.53 for 2006 and 30.94 for 2007.
This depicts that the company has had an incremental growth in return on equity in the period 2002 to 2003, but since then it has been declining till 2006 when the ROE for the company picked up pace on a small but accelerating level.
The debt equity ratio for the company stood at 0.46 in 2007, 0.27 in 2006, 0.35 in 2005, 0.45 in 2004 and at 0.38 in 2003.
This depicts that the company has been taking on high levels of debts which it tends to pay off, but ends up taking more debts again. In depth analysis for this showed, that most of this debt is taken by the company to invest in the assets of the company and finance the operations.
The return on assets for the company stood at 16.30 in 2002 which increased to 16.60 in 2005, however it fell back to 13.80 in 2007 depicting that the company is facing problems in terms of profitability and return on its investment in fixed assets.
The financial leverage ratios for the company for the past five years were as depicted below:
Market Capitalization
In the recent past, Coca Cola Company was the one which had the most market capitalization, which was leveraging its performance, its profitability as well as the market share increase for the company. However in the recent past the company has experienced that PepsiCo is fast catching up to the company. “Today, Pepsi generates about 23% of its worldwide profit from carbonated soft drinks while Coke generates about 85% of its profit from carbonated soft drinks such as Coca-Cola and Diet Coke, Levy says. “Pepsi recognized much earlier than Coke that carbonated soft-drink trends were at risk and that they needed to pursue non-carbs as well as snacks.”” (Howard) The Coca Cola Company is listed amongst the top 100 market capitalization companies standing at number 33 but the PepsiCo Inc is fast on the heels. “On the last trading day of 2005 CCE had a market capitalization of $9.1 billion. The company’s sales revenues were $18.7 billion. On that same day in 2005 the Coca-Cola Company had a market cap of $95.5 billion. The company’s sales were $23.1 billion. Pepsi (PEP) weighed into the fight with a market cap of $97.8 billion and sales of $32.6 billion.” (‘Coke v. Coke’, 2007).
Geographic Presence
The Coca Cola Company is present in more than 60 countries around the world; moreover the company has the dominant market position in more than 30 countries. ACNielsen’s research provided that “the total Coca-Cola brand was number one among beverages at well over US$15 billion in sales, with its two sub-brands, Coke and Diet Coke, being billion dollar brands in their own right. Pepsi Cola and its associated sub-brands, Pepsi and Diet Pepsi (including Pepsi Light, Pepsi Max and Pepsi One), ranked as the number two beverage.” (Stamford, 2001) In terms of the sales growth as well the Coca Cola company was amongst the top five brands, while the as per the regional highlights Coke as well as Marlboro were the top two brands in all the segments researched by ACNielsen.
Over all in the global markets, Coca Cola has the strongest presence in the European region, while the second market leader in the carbonated beverages industry is strong in the North American region. The strong market position of the Coca Cola Company in the diverse markets around the world is beneficial for the company as it increases the loyal consumer base of the company and its key brand. In such a situation “consumers are likely to be strongly influenced by brand, and this weakens buyer power: retailers need to stock brands popular with consumers, even if these are more expensive. Overall, buyer power is moderate.” (‘Global Carbonated Soft Drinks Industry Profile’, 2007)Aside from this amongst its own markets, the Coca Cola Company is strong in the Latin American region. The company has a distribution network which “that reaches approximately 1.7 million points of sale across nine countries in Latin America. The company is a subsidiary of FEMSA, which also owns both the second largest brewery and the largest convenience store chain in Mexico, which further strengthens its market position. Strong market position of the company enables it to attract new customers and generate additional revenues for the company.” (‘Coca-Cola FEMSA SWOT Analysis’, 2007).
The following table depicts the top ten brands categories in order of market dominance and geographic presence in the global market. Coca Coal is depicted as the moist geographically dominant brand.
Key Strengths for Coca Cola
The main key strength of the company is its brand name which has the highest brand equity as reported in 2006. The brand name has been able to leverage the stock of the company in the market and increase its net work by a multiplier effect. The other strengths of the company include the company’s strong presence in the Latin America and its significant loyal consumer base. “The company is also the largest bottler of Coca-Cola trademark beverages in Latin America. Coca-Cola FEMSA distributes about 10% of the worldwide production of Coca-Cola products, making it the second largest Coca-Cola bottler in the world after Coca-Cola Enterprises. The company operates in Mexico, Venezuela, Argentina, Brazil, Columbia, and Central America. It has a distribution network that reaches approximately 1.7 million points of sale across nine countries in Latin America.” (‘Coca-Cola FEMSA SWOT Analysis’, 2007).
Another strength of the company is its high revenue and income per employee. The net income per employee was recorded at $98,686.3 in 2006 while the industry net revenue per employee stood at $ 32,167.1. This was significantly a very string key point in the favor of the company, depicting its performance and profitability as per its human resource and the high level of productivity. Moreover the company has been performing in a strong manner in the Brazilian and the Central American market. The revenues of the company have been increasing in this region on a 19 percent every year which is a huge achievement for the company. This has been the main contributor to the top line growth of the company.
Latest News
Company news
The available company news is that the Coca Cola company has recently undergone acquisitions of partners in Latin America which has significantly increased the revenue as well as the portfolio performance of the company in the region. The key strategic acquisitions by the company have been Glaceau and Fuze in North America and Jugos del Valle and Leao Junior in Latin America. Aside from this the company is also focusing on targeting emerging markets with its product portfolio to increase to further increase its market share as well as profit margins. “In its emerging markets, operating profit was up by 31 per cent in comparable terms to €131.7m over the same period last year. The rise was driven in part by improved sales volumes, in the markets of Russia, Romania, Bulgaria and Ukraine. Russia alone posted lower double-digit volume growth, resulting from growing consumption of the group’s ready-to-drink tea and juice brands, the company said.” (Merret, 2007) The company is also focusing on sustainable growth in the future though launch of non carbonated products like Simple orange Juice to diversify its portfolio.
Industry News
The industry news that is prevalent currently is that the market value of the sift drinks in the carbonated category grew by 0.4 percent in 2006 reaching $146.4 billion, this made the aggregate growth rate for the industry for the past five years to arrive at 0.3 percent. Similarly the market volume increased by 1.3 percent in 2006, with an aggregate five year affect of 1.5 percent. The most lucrative and profitable segment of the carbonated beverage segment is the cola segment which dominates the market with a 43.5 percent volume. This is followed by the fruit flavor carbonated drinks with a market share of 21.9. The Americas are the leading market for the carbonated beverages with 58.5 percent of the industry revenues coming form this segment. Europe follows close behind with a market value of 31 percent. The market for carbonated beverages is dominated by Coca Cola with a 47 percent share however PepsiCo which currently has a 22 percent share is fast acting to increase its market share through acquisitions and increasing its portfolio of markets and the products provided to the consumers. Moreover there is also a significant increase in the in non carbonated segment especially for Pepsi which can be troublesome for Coca-Cola in the future as more and more people are showing interest towards non carbonated dinks.
Outlook
The outlook for the Coca Cola Company is very positive as the company is actively diversifying its product portfolio and investing in emerging markets through acquisitions in order to increase operations for the company and the target market of the company around the across the globe. The CEO of the company Brock mentioned that “in a year characterized by significant cost increases, we have maintained a sharp focus on our key operating objectives and achieved important success in strengthening our brand portfolio, improving our effectiveness and efficiency, and creating a winning and inclusive culture.” (‘Coca-Cola Enterprises Inc.’, 2007) The company is investing heavily in the Latin American and Eurasian and the Asian markets to leverage itself against its competitors like PepsiCo who has been more prudent and applying these strategies for the past few years already.
References
Business News for the Food Industry – Coca-Cola Enterprises Inc. Strengthens 2007 Outlook, Provides 2008 Guidance, Coca-Cola Enterprises Inc., Web.
Coke v. Coke, 2008. Web.
Global Carbonated Soft Drinks Industry Profile, p1, 29p, 2008. Web.
COCA COLA CO. Balance Sheet, Forbes.com, 2008. Web.
Coca-Cola FEMSA, S.A. de C.V. SWOT Analysis, Datamonitor, p1, 8p, 2008. Web.
Coca-Cola Company KO, TRowePrice, 2008. Web.
Coca-Cola Co: Financial Statement, MSN Money, 2008. Web.
Howard, T., Pepsi beats Coke with stock surge, USA TODAY, 2008. Web.
Merret, N., (2007), Emerging markets boost for Coca-Cola brands, Food & Drink Europe. Web.
Stamford, C.T., (2001), ACNielsen Study Finds 43 Brands Have Billion Dollar Global Presence, 2008. Web.
The latest from the Coca Cola Company, 2008. Web.