Company Background and Business Summary
The Coca Cola Company (www.cocacola.com) is the leading non-alcoholic beverage company, as well as one the world’s most recognized brands. The company is a 16 billion dollar empire, including four of the top five soft drinks, including Coca-Cola, Fanta, Diet Coke, and Sprite (Coca Cola, 2014).
Other brands produced by the company include PowerAde, Minute Maid, and vitamin water. Coca Cola owns or licenses and markets more than 500 beverage brands, mainly nonalcoholic sparkling drinks but also juice drinks, waters, sport and energy drinks, and ready-to-drink coffees and teas. As the world’s largest beverage distributor, Coca Cola has a global reach in more than 200 countries (Coca Cola, 2014). An Atlanta pharmacist John Pemberton invented Coke in 1886 (Coca Cola, 2014). The company has its headquarters in Atlanta, Georgia and the current CEO is Muhtar Kent.
Statement of Purpose
The purpose of the company is to create value for its partners, customers and employees through its business by serving, with focus and passion. The Company strive to ensure high quality and efficient customer satisfaction. The firm achieves this by developing partnerships with local businesses who sell directly to customers. To maintain quality, Coca Cola ensure that it provides concentrates and syrups required to make the beverages to ensure uniformity and quality.
Strategic Management
Strategic management refers to the process of identifying objectives of an organization, developing policies and plans of achieving them, and allocating resources required to implement plans (Coulter, 2005). Strategic management provides overall direction for the whole organization. It the highest level of managerial function, usually implemented by the firm’s Chief Executive Officer (CEO) and executive. International strategic management is a complete continuous planning process meant to formulate and implement strategies that enable an organization compete on globally. The process entails goal setting, strategy formulation, strategy implementation and strategy monitoring (Coulter, 2005).
Goal setting enables a firm to articulate its visions, identify need to be accomplished, define short-term and long-term objectives, and relate them to organizational needs (Coulter, 2005).
Vision, Mission, and Vision
According to Kotler, a mission statement defines the purpose of an organization, it essentially refers to what it plans to accomplish in a wider context (Kotler, 2000). Company vision on the other hand is an inspirational description of what an organization aspires to achieve in the short-term or long-term future. The mission statement of Coca Cola is to sell soft-drinks, motivate people and create value. (Coca Cola, 2014):
Company vision (Coca Cola, 2014)
The company aims at ensuring a workplace that inspire and motivate people. They also aim at maximizing shareholder benefits by developing a wide product portfolio and establishing relationship with partners.
Future accomplishments
While the company remains at the top controlling almost 51 percent of the global carbonated soft-drink business segment compared to Pepsi’s 22 percent, Coca Cola still take time to reflect in order to even progress further (Coca Cola 2014). Coca Cola has clearly defined plans on how it will continue to retain its position as the world’s leading beverage manufacturer. The firm plans to double its system revenue to $200 billion in 2020 from $95 billion in 2012 (Coca Cola, 2014). Coca Cola also plans to increase exponentially the number of servings of their products. Speaking on behalf of the company, Mr. Kent maintains that the firm will focus on endeavors aimed at targeting their consumers with innovative products.
SWOT analysis
Strengths
Coca Cola is the best global brand in terms of value. The company is the most valued at $77,839 billion in the world, and holds the largest beverage market share in the world. Coca Cola operates in more than 200 countries and still growing (Coca Cola, 2014). Coca Cola has operations in one of the fastest growing market share in the world, and with the growing middle class in these regions, more people will have the income to purchase the company’s products. The company is the world leader in beverage industry. The company started paying quarterly dividends in 1987, and has consistently done so and raises its dividends since the implementation. The stock of the company is relatively not volatile, with a Beta of 0.51.
The company invests heavily on marketing and advertisement. Coca Cola also enjoys a large customer base in the markets it serves. It also has bargaining power over suppliers. The firm is the largest beverage producer in the world and wields significant power over suppliers to receive lowest price available in the market. The company is also increasing its Corporate Social Responsibility (CSR) programs, such as energy conservation, recycling, active healthy living, water stewardships among others, which boost social image of the company and result in competitive advantage over competitors. In 2013, the company suspended its brand advertising in the Philippines to donate the entire advertisement budget to typhoon relief efforts (Goldberg, 2013).
Weaknesses
The company faces slower market growth in some market such as Europe and North America, and these markets weigh on the overall growth of the company as 37 percent of its business comes from these two markets. Additionally, the firm still focuses on selling carbonated drinks, including Fanta, Coke, Sprite and other carbonated drinks. This strategy may work in the short-term, as the consumption of carbonated drinks will grow in the emerging market but will decline as the fight for obesity intensifies and people shift towards consuming healthier drinks and food. The company also suffers from high debt level due to acquisitions. The recent $8 billion acquisition of CCE significantly increased Coca Cola’s debt level, borrowing costs and interest rates. There are many ongoing acquisitions by the company, which may further affect the profitability of the company in the short-term. In many occasions, the company has received negative publicity. The firm has received criticism for high water consumption in water-scarce regions and use of harmful ingredients to produce drinks. Coca Cola has also suffered from brand failures due to introduction of brands with insignificant amount of revenue. While the firm sells more than 500 brands, only a few earn revenues of more than $1 billion. Additionally the success of the company in introducing new brands is weak.
Opportunities
Reports released by Beverage Marketing Corporation (BMC) indicates that the overall consumption of bottled water increased by 6.2 percent and sales of bottled water increased by 6.7 percent in 2013 (Team, 2014). Owing to the many programs to address obesity, the demand for healthy beverages and food has increased drastically. This presents the company with the opportunity to expand its products offerings to include drinks and foods with low amount of sugar and calories. Another opportunity is the significant increase in consumption of soft drinks in emerging markets, especially BRIC countries, where the firm could increase and maintain its share of beverages market. Coca Cola will have trouble keeping current growth levels and find it hard penetrating new markets with its existing portfolio. However, it can address this easily by acquiring other companies.
Threats
The growing concern over water scarcity around the globe and increase both in cost and criticism for the firm over large amount of water in production will affect the company. The company receives more than 60 percent of its income from outside the United States. The income of the company may decline due to strong dollar performance against other currencies. Some of the firm’s carbonated drinks pose harmful health effects. Consequently, many governments consider passing legislations requiring disclosure of such contents on product labels. Such information on product labels may lead to loss of customers due to negative perception. Coca Cola also faces intense competition from PepsiCo over market share in emerging markets, especially India. The firm significantly relies on the sales of carbonated drinks, which pose a threat to Coca Cola, as the carbonated drinks market is neither growing nor declining.
Financial Analysis
Summary of Ratios
Profitability ratios
Source; Based on data from Coca Cola Company Annual Reports
Gross Profit Margin
Source; Based on data from Coca Cola Company Annual Reports
2009 Calculations
Gross profit margin = Gross profit ÷ Net operating revenues ×100
= 19,902 ÷ 30,990 ×100 = 64.22%
Gross profit margin indicates a firm’s financial health. The gross profit margin of Coca Cola weakened from 2011 to 2012 but then improve from 2012 to 2013 not reaching the 2011 level.
Operating Profit Margin
Source: Based on data from Coca Cola Company Annual Reports
2009 Calculations
Operating profit margin = Operating income ÷ Net operating revenues × 100
= 8.231 ÷ 30,990 = 26.56%
Operating profit margin is a profitability ration calculated by dividing operating income by revenue. Coca Cola’s operating profit margin improved from 2011 to 2012 but slightly declined from 2012 to 2013 not reaching the 2011 level.
Net Profit Margin
Source: Based on data from Coca Cola Company Annual Reports
2009 Calculations
Net profit margin = Net income attributed to shareholders ÷ Net operating revenues × 100
= 6,824 ÷ 30,990 × 100 = 6.96%
Net profit margin is an indicator of profitability calculated as net income divided by revenue. The net profit of the firm improved from 2011 to 2012 but deteriorated from 2012 to 2013.
Return on Equity (ROE)
Source: Based on data from Coca Cola Company Annual Reports
2009 Calculations
ROE = Net income attributed to shareholders ÷ Equity attributed to shareholders × 100
= 6,824 ÷ 24,799 × 100 = 27.52%
ROE is a profitability ration calculated as net income divided by shareholder’s equity. Coca Cola’s ROE improved from 2011 to 2012 but deteriorated significantly from 2012 to 2013.
Return on Assets (ROA)
Source: Based on data from Coca Cola Company Annual Reports
2009 Calculations
ROA = Net income attribute to shareholders ÷ Total assets × 100
= 6,824 ÷ 48,671 × 100 = 14.02%
ROA is a profitability ratio calculated as net income divided by total assets. The company’s ROA declined from 2011 to 2012 and from 2012 to 2013.
Organizational Structure and Culture
Structuring an organization entail organizing both internal and external relationships. Coca Cola has a good structured relationship with a range of external bottling partners. The firm’s primary business consists of manufacturing and selling beverage syrups and concentrates in addition to some finished beverages to bottling and canning operation and other distributors. The syrups and concentrates are sold by bottling partners, which are authorized to manufacture, distribute and sell branded products. This system of operation between Coca Cola and its partners is referred to as the 'the Coca-Cola system'. This relationship between Coca Cola and its partners is a key source of strength. The firm work together with them to ensure smooth running of the products to consumers around the world with unmatched quality and service.
Every organization has its own culture, which describes the typical way of doing things, including patterns of relationships and behavior. An important aspect of Coca Cola’s culture includes emphasis on teamwork and empowerment. Motivated employees provide the energy to drive the company’s growth. Coca Cola organizes its employees into teams, for example, sales, marketing or product team, which encourages people to fell valued. The company encourages employees to air their concerns if they feel something could be done. By creating a friendly innovative culture, the company is able to depend on a high quality workforce that helps it maintain brand leadership across the globe. Coca Cola’s open communication channels provide a platform to support a culture based on relationships.
Social Responsibility
Coca Cola engages in various activities that positively impact the lives of the people who live in the markets they serve. Some of the corporate social responsibilities (CSR) include water conservation, packaging and recycling, providing health, investing in alternative sources of energy, and serving communities. The company has initiated water conservation measures including India where it has constructed 110 recharge shafts that collect rainwater. The firm initiated drinking water projects in Gujarat and Maharashtra to provide potable water to the local community. Coca Cola has also enacted measures aimed at reducing energy consumption and emissions of GHCs by appliances such as refrigeration. The company introduce eKOfreshment cooler that uses technologies devoid of hydro-flourocarbons.
Reason for choosing Coca Cola
I choose this company because it is profitable and market leader in the beverage industry. I wanted to learn the business strategy they use that has enabled it stay ahead of competition in the global landscape. Additionally, the company is recognized globally, which makes it easy to study and learn more about its operations. I am also considering seeking employment opportunity in the company. This motivated me to learn more about the company in an attempt to know the type of jobs that they offer, as well as learn about their work environment.
References:
Cavale, S. (2014). Coke revenue misses estimates as soda sales slow. Reuters. Retrieved from http://www.reuters.com/article/2014/02/18/us-cocacola-results-idUSBREA1H0WH20140218
Coca Cola. (2014). Coca Cola. http://us.coca-cola.com/home/
Coulter, M. (2005). Strategic Management in Action. (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Goldberg, E. (2013). Coke suspends Ad campaign for best reason you could imagine. The Huffington Post. Retrieved from http://www.huffingtonpost.com/2013/11/25/coke-ads-philippines-_n_4338746.html
Kotler, P. (2000). Marketing management. Upper Saddle River, N.J: Prentice Hall.
Team, T. (2014). Coca-Cola eyes growth in the sparkling bottled water market. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/01/14/coca-cola-eyes-growth-in-the-sparkling-bottled-water-market/
The Coca Cola Company (2013). Coca Cola Journey. Retrieved from http://www.coca-colacompany.com/
