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Course: Business Studies

Date: 19 October 2016

The Coca-Cola Company

Founded in 1886, the Coca-Cola Company (NYSE: KO) is the world's largest beverage

company.1 Over the years, the Coca-Cola company is constantly ranking relatively high on

various lists that evaluate corporate success. This fact makes the company extremely interesting

for strategic analysis. The purpose of this paper is to present key items of strategic analysis for

the Coca-Cola Company.

Business at a Glance

The Coca-Cola Company manufactures, distributes and markets nonalcoholic beverage

concentrates and syrups and it is the largest beverage company in the world. The company's

branded beverage products are available to consumers in more than 200 countries through a

network of company-owned or -controlled bottling and distribution operations as well as

independent bottling partners, distributors, wholesalers and retailers. Coca-Cola owns or licenses

more than 500 brands, including diet and light beverages (sparkling or still), waters, enhanced

waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.

The company’s portfolio includes 20 billion-dollar brands, such as Diet Coke, Coca-Cola Zero,

Fanta, Sprite, Dasani, vitaminwater, Powerade, and so on.

In 2015 the company reported $44.3 billion in net operating revenue and $7.4 billion in

net income. It was also ranked by Interbrand as the world’s third most valuable brand, with 2015

1
As of May 2016, the company’s market cap is $192.8 billion. Read more: Forbes. The Most Valuable Brands,
http://www.forbes.com/companies/coca-cola/.
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value of $78.4 billion; its brands account for approximately $1 out of every $4 consumers spend

on nonalcoholic ready-to-drink beverages worldwide (Coca-Cola Company, “Coca-Cola at a

Glance“) The Company's main competitors are: Pepsico, Inc., Nestlé S.A., Dr Pepper Snapple

Group, Inc. DPSG, Groupe Danone, Mondelez International, Inc., Kraft Foods Group, Inc., and

the Unilever Group. In some markets, its competition includes beer companies. Coca-Cola also

competes against numerous regional and local companies and, in certain markets, against

retailers that have created their own store or private label brands (Hoovers, “The Coca-Cola

Company Competition“; GuruFocus, “The Coca-Cola Company“).

Core Business Model and Competencies

The Coca-Cola's core business model revolves around following two key tenets: (1) building

global brands; and (2) leading a supreme global system of bottling partners (Vij, Dec. 2015).

Coca-Cola Company started as a sparkling beverage producer and distributor that

experienced unprecedented global demand for its star product Coca-Cola. The main ingredients

of Coca-Cola and other sparkling beverage variants (e.g. Sprite, Fanta, Diet Coke) are water,

sweeteners and syrups. Key to selling these products is not in the ingredients, but in the

company's marketing and meeting or exceeding customer expectations (Vij, Dec. 2015). The

company has been operating a franchised distribution system since 1889. In this system, the

company only produces syrup concentrate which is then sold to various bottlers. This enables the

company to avoid costs associated with manufacturing, storage, and distribution and to faster

scale its business (Vij, Dec. 2015). Coca-Cola generates revenues by selling concentrates and

syrups to authorized bottling partners, distributors, wholesalers and retailers, as well as by

providing marketing support and selling other beverage brands through licenses, joint ventures
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and strategic partnerships. Core competencies of Coca- Cola can be summed up as follows:

strong brand value, franchise and distribution network, cost controls, and administrative control.

SWOT analysis and the IFAS & EFAS summary

SWOT analysis is a segment of the situation analysis, where the company determines where it

stands on four key strategic areas that shape its internal (strengths and weaknesses) and external

(opportunities and threats) environment (Heflo.com, “The purpose of SWOT analysis).

Strengths. Brand awareness and brand equity are among Coca-Cola’s main strengths.

The Coca-Cola Company is one of the most widely recognized brands in the world. Its

signature logo, red and white colors, and jingles resonate with consumers, and Interbrand’s

rankings continuously confirm the brand’s value. Further, the company’s great financial

resources are crucial for market expansion and customer loyalty. Marketing strategies and

customer loyalty are also well-recognized company strengths. The financial muscle is the key for

great marketing efforts and increased product innovation, which should fuel market cap over the

long run. As mentioned above, the company possesses the world’s largest distribution network,

which enables it to effectively manage costs and quality, rapidly introduce new items into the

market, and saturate various geographic locations. In that light, it is important to note the global

strength from the geographic spread (Euromonitor International, 6; DeFranco, May 2015). In the

past few years, strong CSR and focus on sustainability have also come under the spotlight as

some of the key strengths for future development.

Weaknesses. Water Management is one of the company’s main weaknesses. Water is a main

ingredient in all of the company’s products. On the other hand, water is a scarce, limited resource

in many parts of the world, facing overexploitation risks and events such as pollution and climate
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change. If the quality of available water sources deteriorates significantly, Coca-Cola will bear

higher costs or face capacity constraints that could negatively affect its financial performance in

the long run (DeFranco, May 2015). Heavy reliance on carbonates and the negative image from

“high sugar” carbonates (Euromonitor International, 6) are also company vulnerabilities. As the

consumer agenda is increasingly switching to looking for healthier food and drink options, the

sugar content of Coca-Cola products could hinder the company. Foreign currency fluctuation can

also affect the business in a negative way. Due to its global presence, the company earns

revenues, pays expenses, owns assets, and incurs liabilities using currencies other than the U.S.

dollar. On the other hand, its consolidated financial statements are presented in U.S. dollars.

Therefore, increases or decreases in the value of the U.S. dollar against other major currencies

affect its financial result (Euromonitor International, 6; DeFranco, May 2015). Undiversified

product portfolio was also considered to be Coca-Cola’s weakness. However, in the past few

years the diversification of the portfolio has become a strategic goal for the company and a

diversified portfolio is becoming a competitive advantage for the company.

Opportunities. Since today’s consumers increasingly understand the importance of a healthy

lifestyle, healthier drinking options and nurturing the health and wellness trend are a growing

opportunity for the company. Emerging markets, such as India and China, represent good

volume opportunities. Carbonates, juice drinks and bottled water should be leading products on

these markets. (Euromonitor International, 6). Diversification and building presence in rapidly-

growing beverage categories (coffee, energy, and health drink businesses) is also a lucrative

opportunity in terms of revenues and new customer base (DeFranco, May 2015).

Threats. Strong competition is a continuous threat to Coca-Colas’ business. Pepsico remains a

strong rival in soft drinks and having made the first move in bottler buyouts, it has possibly
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created a crucial advantage in terms of repositioning itself in today’s marketplace (Euromonitor

International, 6). Indirect competition, such as Starbucks and Dunkin’ Brands Group, also pose a

threat to the company’s market share. These chains offer customers healthier and unique

alternatives, as well as customer loyalty rewards that are not easily matched (DeFranco, May

2015). In some cases, Coca-Cola’s brands can sometimes be found in direct competition with

each other and at risk of cannibalization. Cannibalization, especially in low calorie and diet

categories, remains a strategic risk for the company along with various private-label substitutes

(Euromonitor International, 6).

As an extension of the SWOT analysis presented above, table 1 will present the IFAS &

EFAS strategic tool used to analyze the most important internal and external factors. The IFAS

and EFAS summary show the company how important each factor is through the weight that is

assigned to that factor. The weighted score, the total score and the rating assess how responsive

the company is to the external and internal factors.

Table 1
IFAS & EFAS Summary
Internal Factors Analysis Summary (IFAS)
Strengths Weight Rating Weighted Score

Brand awareness and brand equity 0.3 5 1.5

CSR and focus and sustainability 0.08 4 0.32
Financial resources 0.125 3 0.375
Customer loyalty 0.125 4 0.5
Subtotal 0.63 2.695

Weaknesses Weight Rating Weighted Score

Water management 0.065 4 0.26

Heavy reliance on carbonates 0.1 5 0.5
Negative image from "high sugar" carbonates 0.2 5 1
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Foreign currency fluctuation 0.005 2.5 0.0125

Subtotal 0.37 1.7725
Total 1 4.4675

External Factors Analysis Summary (EFAS)

Opportunities Weight Rating Weighted Score
Health and wellness trend 0.3 5 1.5
Emerging markets 0.1 3.5 0.35
Diversification 0.075 3 0.225
Subtotal 0.475 2.075

Threats Weight Rating Weighted Score

Competition (Direct + indirect) 0.3 5 1.5
Healthier product alternatives 0.125 4 0.5
Cannibalization 0.1 3.5 0.35
Subtotal 0.525 Subtotal 2.35
Total 1 4.425
Source: Author.

Investment Recommendations

The final section of this paper provides investment recommendations for the Coca-Cola

Company and its main competitors with respect to a budget of $100,000.00. The example shown

in Table 2 is only a rough outline of the current possibilities. Making informed decisions would

require a deeper analysis, monitoring trends and use of tools, such as the Peter Lynch Chart, etc.

Table 2
Investment Recommendations
Investment Recommendations

„Investment budget“ = $100,000.00

Competitors Stock price $ Number of Standard Broker- Total cost per
(At close: shares E*Trade fee assisted trade transaction
October 19 purchased ($)3 Fee
4:00 PM
EDT)2

2
Information on stock prices was retrieved from Yahoo! Finance, https://finance.yahoo.com.
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The Coca- 42.05 701 9.99 45.00 29,532.04

Cola
Company
(KO)
Pepsico, Inc. 106.26 250 0,32 26,619.99
45.00
(PEP)
Nestlé S.A. 74.65 255 0,375 45.00 19,090.74
Dr Pepper 88.02 280 0,5 45.00 24,700.59
Snapple
Group, Inc.
(DPS)
TOTAL 99,94336
Source: Author.

As of October 14, 2016, the consensus forecast amongst investment analysts covering

The Coca-Cola Company advises that the company will outperform the market. Hence, it is now

wise to invest in the company and buy new shares and / or to hold on the current ones. The same

recommendation is valid for Pepsico, Inc., and Nestlé S.A. In the case of Dr Pepper, the

consensus forecast advises investors to hold their position in the company (Financial Times,

“Equities – Consensus Recommendation”).

While the challenges facing Coca-Cola are abundant, the company’s overall size,

leverage, and financial resources have it well positioned for the future. The company’s brand

appeal and cult-like customer loyalty ensure that it will probably remain a top-tier beverage

provider. Coca-Cola’s vast distribution network should generate better volumes ahead and

success in emerging markets. All in all, conservative investors wanting a reliable source of

income and some capital gains exposure could want to invest in the company (DeFranco, May

2015).

3
E*Trade charges $9.99 for stock trades, with an additional $45 charge for broker-assisted trades. All trades are a
flat-rate $9.99 if making up to 149 trades per quarter, $7.99 (150 - 1499 trades per quarter), and $6.99 (1500+ trades
per quarter). When trading during pre and post market hours, an ECN fee of $.005 per share is added to the regular
commission rate. Read more: Investopedia. E*Trade Brokerage: Commissions / Fee Structure | Investopedia,
http://www.investopedia.com/university/etrade-financial-online-broker-review/etrade-financial-online-broker-
review3.asp#ixzz4NaH7xiep.; Stockbrokers.com. E*Trade,
http://www.stockbrokers.com/review/etrade#commissionnotes.
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Works Cited

DeFranco, Kenneth J. Jr. The Coca-Cola Company: A Short SWOT Analysis. Value Line

Educational Articles, 20 May 2015, http://www.valueline.com/Stocks/Highlights/The_Coca-

Cola_Company__A_Short_SWOT_Analysis.aspx#.WAfRwOCLS01. Accessed 19 October

2016.

Euromonitor International. Passport: Coca-Cola SWOT Analysis, March 2013,

http://www.euromonitor.com/coca-cola-co-the-in-soft-drinks/report. Accessed 19 October 2016.

Financial Times. Equities – Consensus Recommendation, 14 October 2016,

http://markets.ft.com/data/search?assetClass=Equity. Accessed 20 October 2016.

Forbes. The Most Valuable Brands, http://www.forbes.com/companies/coca-cola/. Accessed 18

October 2016.

GuruFocus. The Coca-Cola Company, http://www.gurufocus.com/stock/KO. Accessed 18

October 2016.

Heflo.com. The purpose of SWOT analysis: All you need to know. Heflo Blog, 17 June, 2016,

https://www.heflo.com/blog/swot/purpose-of-swot-analysis/. Accessed 19 October 2016.

Hoovers. THE COCA-COLA COMPANY Competition, http://www.hoovers.com/company-

information/cs/competition.the_coca-cola_company.3f8a006eaf87d773.html. Accessed 18

October 2016.

Investopedia. E*Trade Brokerage: Commissions / Fee Structure | Investopedia,

http://www.investopedia.com/university/etrade-financial-online-broker-review/etrade-financial-

online-broker-review3.asp#ixzz4NaH7xiep. Accessed 20 October 2016.

Stockbrokers.com. E*Trade, http://www.stockbrokers.com/review/etrade#commissionnotes.

Accessed 20 October 2016.

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The Coca Cola Company. Company at a glance, 2016. Web. Accessed 18 October 2016.

The Coca Cola Company. Form 10-K 2015. Web. Accessed 18 October 2016.

Vij, Ravi. How Coca-Cola Company Makes Money? Understanding Coca-Cola Business Model.

Revenues & Profits, 9 December 2015, http://revenuesandprofits.com/how-coca-cola-company-

makes-money-understanding-coca-cola-business-model/. Accessed 19 October 2016.

Yahoo! Finance. Dr Pepper Snapple Group, Inc.,19 October 2016. Web. Accessed 20 October
2016.

Yahoo! Finance. Nestlé S.A., 19 October 2016. Web. Accessed 20 October 2016.

Yahoo! Finance. Pepsico, Inc., 19 October 2016. Web. Accessed 20 October 2016.

Yahoo! Finance. The Coca Cola Company, 19 October 2016. Web. Accessed 20 October 2016.