STRATEGIC MANAGEMENT COHESION CASE:

THE COCA-COLA COMPANY

Source: Excerpted from Pearce, J.A. and Robinson, R.B. (1994).

"Strategic Management: Formulation, Implementation, and Control". Irwing.
Adapted by Diego Medina. Las Palmas de Gran Canaria University

I. COMPANY MISSION AT THE COCA-COLA COMPANY

At the heart of Coca-Cola, especially in its first 100 years, there has been a commitment to
intense marketing and to the preservation of its patented formulas and processes to make its
special syrup. The intense secrecy that always has surrounded Coke's formula has long
fostered an organizational obsession with secrecy pertaining to other information about Coke
and its operations.

In the early 1990s, Roberto Goizueta shared the following mission statement in a booklet
entitled 'Coca-Cola, a Business System toward 2000: Our Mission in the 1990s'.

"Bringing refreshment to a thirsty world is a unique OPPORTUNITY for our Company... and
for all of our Coca-Cola associates... to create shareholder value. Ours is the only production
and distribution system capable of realizing that opportunity on a global scale. And we are
committed to realizing.

With Coca-Cola as the enterprise, ours is a worldwide system of superior brands and services
through which we, our franchises, and other business partners deliver satisfaction and value
to customers and consumers. By doing so, we enhance brand equity on a global basis. As a
result, we increase shareholder wealth over time.

Our GOAL for the 1990s sounds deceptively simple: It's to expand our global business
system, reaching increasing numbers of consumers who will enjoy our brands and products
more and more often.

To succeed we will make effective use of our fundamental RESOURCES: brands, systems,
capital, and, most important, people. Because these resources are already available, one might
assume we need only to draw on them for achieving our goal. Nothing could be more wrong.

The CHALLENGE of the 1990s will be not only to use these resources but to expand them...
to adapt them... to reconfigure them in constantly changing ways in order to bring about an
ever renewed relationship between the Coca-Cola system and the consumers of the world .to
make the best even better.

About brands Increasing globalisation of the communication industry means we can more
effectively expose our advertising and other image-building programs through a worldwide
brand framework. This places a premium on maintaining our traditional excellence as a
premier brand advertiser. Yet we must remember that it is our franchisee network around the
world, which will distribute and locally market our brands. To appropriately leverage these
brands, we must recognize that our franchisees and we are fundamentally in the business of
servicing our customers and meeting the needs, real o perceived, or our customers.
Coca-Cola, in every form... classic, diet, caffeine free, cherry, light... is the most widely
recognized and esteemed brand in the world. Sprite and Fanta are worldwide brands; they
must play a role in our brand strategy. We will continually strive to develop new brands
where the opportunity presents itself.

About systems... Moving closer to the customer both in our own organizational structure and
in timely decision-making will be mandated by the global, yet diverse, marketplace of the
1990s. Structurally, a flatter organization of our Company will be required.

Ours is a multilocal business. Its relative state of development varies dramatically from the
soft drink frontiers of Asia to the sophisticated markets of North America... -At present, our
main product, 'Coca-Cola', is now sold in over 135 countries, and is the leading soft-drink
product in most of these countries.

About capital... Shaping business systems which are close to consumers will require not only
the investment of our capital for new assets but more sophisticated management of existing
ones Existing assets will be evaluated as potential resources for meeting our goal.

About people... We need the right people for the 21st century... We must have people who
use facts and knowledge to add something... to add value to our customers' businesses. In an
age where everyone has basically the same information at the same time, the advantage goes
to people who can take information and quickly put it to effective and profitable use... It
means having people who can create a competitive advantage".

II. FORMULATING LONG-TERM OBJECTIVES AT THE COCA-COLA COMPANY

The four key REWARDS the Coca-Cola Company seeks are:

Satisfied consumers who return again and again to our brands for refreshment.
Profitable customers who rely on our worldwide brands and services.
Communities around the world where we are an economic contributor and welcomed
guest.
Successful business partners.
Shareholders who are building value through the power of the Coca-Cola system.

The Company identifies several long-term objectives that support these reward intentions.
Management's primary objective is to maximize shareowner value over time. The Company
then indicates that the following objectives help accomplish this overarching objective:

"Maximize long-term cash flow by increasing gallon sales, optimising profit margins,
expanding global business systems through investment in areas offering attractive returns.
The principle objective of bottling investments is to ensure the strongest and most efficient
production, distribution, and marketing systems possible, in order to maximize long-term
growth in volume, cash flow, and shareowner value of the bottler and the Company".

The Company pursues several inherent objectives as follows:

Profitability: Double-digit levels annually equal to or exceeding historical levels.
Productivity: Each Coca-Cola facility has as its objective maintenance or improvements of its
operating profit margin.
Competitive position: Coca-Cola seeks to be the market leader in markets in which it
competes.

Technological leadership: Coca-Cola seeks to be the leader in the production and marketing
technologies used in the markets in which it competes.
Coke officials indicate a preference for stating objectives publicly in broad terms. They prefer
to retain key results and timetables for internal consumption only. While this may be quite
appropriate, you should nonetheless be able to recognize that objectives without measurable
results or measurable timetables within which to accomplish them lose a lot of their value in
focusing and directing strategic activities.

III. ASSESSING THE EXTERNAL ENVIRONMENT AT THE COCA-COLA COMPANY

ECONOMIC.

Coca-Cola's products are consumer products, and as such are somewhat sensitive to
consumer's disposable income. Coca-Cola's management report two trends that serve to shape
its planning related to this factor. First, Coke consumers view soft drinks as inexpensive
pleasure. As such, even in a temporary environment of steady or slightly declining disposable
income, Coca-Cola's research suggests that consumers are unlikely to forgo soft drinks.

Second, Coca-Cola monitors disposable income in over 200 countries where it sells soft
drinks. In 1993, this information suggests that disposable income is generally rising around
the world. Coca-Cola interprets this to mean more purchases of consumer products,
particularly in countries where consumer product purchasing has been minimal.

Inflation is another economic factor that influences Coca-Cola's success. Asked about this
recently, Coca-Cola's management offered this comment: "Inflation is a factor in many
markets around the world and consequently impacts the way the company operates. In
general, we believe that we are able to adjust prices to counteract the effects of increasing
costs and generate sufficient cash flow to maintain our productive capacity".

DEMOGRAPHIC/SOCIAL. Consumption of soft drinks has long been inversely correlated

with a person's age. In other words, as you age you drink fewer soft drinks, while younger
people drink most soft drinks. The average age of the populations in the United States and
most European countries is increasing. Outside the United States and Europe, Coke
management observes: "The world is getting younger and young people are the most
enthusiastic purchasers of consumer products".

TECHNOLOGICAL. The world is getting smaller and smaller. Ease of travel and
increasingly sophisticated, instantaneous worldwide communication capabilities drive this
phenomenon. Coca-Cola's management views this as favourable: "As the world has gotten
smaller, a 'global teenager' has emerged. In Germany and around the world, these teenagers
share similar tastes in music, clothing, and consumer brands. With its global scope and the
power of the world's most ubiquitous trademark, the Coca-Cola system is uniquely equipped
to market to this group"

These are a few of the remote environmental factors that influence Coca-Cola's future and
how Coke management views them. Let's now look at some factors within their more
immediate 'industry environment' and see how Coca-Cola's management views these, too.
RIVALRY. The Coca-Cola Company is rather vague on how it assesses rivals. Recent
comments are both brief and generic, such as: "The commercial beverages industry, of
which the soft-drink business is a part, is competitive. The soft-drink business itself is highly
competitive. In any part of the world in which Coca-Cola does business, demand for soft
drinks is growing at the expense of other commercial beverages. Advertising and sales
promotional programs, product innovation, increased efficiency in production techniques,
the introduction of new packaging, new vending and dispensing equipment, and brand and
trademark developments and protection are important competitive factors".

In general, Coke's intense rivalry with Pepsi results in a 'rivalry ante' that virtually eliminates
other, lesser rivals. That intense rivalry (known as the 'cola wars'), unceasing for 20 years,
has resulted in an ever-increasing share of a growing market for both Pepsi and Coke at the
expense of other players. In this 'war', advertising and sales promotional programs are
becoming crucial.

SUPPLIERS. The principal raw material used by the soft-drink industry in the United States
is high fructose corn syrup, a form of sugar, which is available from numerous domestic
sources. The principal raw material used by the soft-drink industry outside the United States
is sucrose. It likewise is available from numerous sources.

Another raw material increasingly used by the soft-drink industry is aspartame, a sweetening
agent used in low-calorie soft-drink products. Until January 1993, aspartame was available
from just one source -the NutraSweet Company, a subsidiary of the Monsanto Company- in
the United States due to its patent, which expired at the end of 1992.

Coke managers have long held 'power' over sugar suppliers. They view the recently expired
aspartame patents as only enhancing their power relative to suppliers.

BUYERS. Individual consumers are the ultimate buyers of soft drinks. However, Coke and
Pepsi's real 'buyers' have been local bottlers who are franchised -or are owned, specially in
the case of Coke- to bottle the companies' products and to whom each company sells its
patented syrups or concentrates. While Coke and Pepsi issue their franchise, these bottlers
are in effect the 'conduit' through which these international cola brands get to local
consumers

Through the early 1980's, Coke's domestic bottlers were typically independent family
businesses deriving from franchises issued early in the century. Pepsi had a collection of
similar franchises, plus a few large franchisees that owned many locations. Until 1980, Coke
and Pepsi were somewhat restricted in owning bottling facilities, which was viewed as a
restraint of free trade. Jimmy Carter, a Coke fan, changed that by signing legislation to allow
soft-drink companies to own bottling companies or territories, plus upholding the territorial
integrity of soft-drink franchises, shortly before he left office.

Also, the three most important channels for soft drinks are supermarkets, fountain sales, and
vending. In 1987, supermarkets accounted for about 40% of total U.S. soft drink industry
sales, fountain sales represented about 25%, and vending accounted for approximately 13%.
Other retailers represent the remaining percentage. While both Coca-Cola and Pepsi
distribute their bottled soft drinks through a network of bottling companies, Coca-Cola uses
its own network of wholesalers for their fountain syrup distribution, and Pepsi distributes its
fountain syrup through its bottlers.
THREAT OF SUBSTITUTES. Numerous beverages are available as substitutes for soft
drinks. Citrus beverages and fruit juices are the more popular substitutes. Availability of
shelf space in retail stores as well as advertising and promotion traditionally have had a
significant effect on beverage purchasing behaviour. Overall total liquid consumption in the
United States in 1991 included Coca-Cola's 10% share of all liquid consumption.

THREAT OF POTENTIAL ENTRANTS. Finally, capital requirements for producing,

promoting, and establishing a new soft drink traditionally have been viewed as extremely
high. According to industry experts, this makes the likelihood of potential entry by new
players quite low, except perhaps in very localized situations that matter little to Coke or
Pepsi. Yet, while this view may reflect conventional wisdom, some industry observers
question whether a new time is coming, with 'new age' beverages selling to well-informed
and health-informed and health-conscious consumers. This issue was beginning to grab the
attention of both Coke and Pepsi in the summer of 1992, when they both were not able to
explain a drop in their June 1992 sales.

IV. INTERNAL ANALYSIS AT THE COCA-COLA COMPANY

A key perspective from which to gauge the strengths and weaknesses at Coca-Cola is via a
comparison of key indicators with PepsiCo. Listed below are the net sales and operating
incomes for 1989 through 1991.

KEY INDICATORS (in billions)

____________________________________________________________________________

Coca-Cola PesiCo
___________________________________________________________________

U.S. Int.'I Total U.S. Int.'I Total

____________________________________________________________________________

Net sales

1991 2,6$ 7,2$ 6,1 9,8$ 8,6 5,1$ 1,7$ 6,9$

1990 2,5 4,8 7,0 5,0 4,6 1,5 6,5
1989 2,2 1,2 5,8
____________________________________________________________________________

Operating
income

1991 0,469 2,1 1,8 2,6 2,2 0,746 0,117 0,863

1990 0,358 1,5 1,9 0,674 0,094 0,768
1989 0,391 0,578 0,099 0,676

OPERATIONS. Over the last 10 years, Coca-Cola has moved to a regional operating strategy
with centralized concentrate production facilities that reduce manufacturing costs. Coke's
main manufacturing activities relate to elaboration of syrup, which is then distributed to
bottling companies.
SALES AND MARKETING. Overall, Coca-Cola has sustained an overall domestic market
share lead versus Pepsi, with 41% versus 31%. Internationally, Coke is always ahead of Pepsi

Pepsi's main strength is in the supermarket area, but Coke maintains a virtually equal portion
of this market. Pepsi has strong sales through the restaurant chains it owns (Pizza Hut,
Kentucky Fried Chicken, Taco Bell) although a recent decision by Burger King to leave
Pepsi for Coke, plus McDonald's continued relationship with Coke, seem to confirm
Goizueta's long-held policy that Coke will not compete with its customers, such as
restaurants, by entering their industry.

Brand loyalty is another major strength for Coca-Cola. In the United States, Coke's mid-
198O's debacle -withdrawing regular Coke in favour of New Coke only to have consumers
react so negatively that regular Coke, the "Coke Classic", was brought back to head off
consumer law suits and other demands- showed Coke the depth of brand loyalty it had
engendered. The net result was greater market share and profitability for Coke as it realized
the depth of its brand loyalty.

DISTRIBUTION. As we mentioned above, while both Coca-Cola and Pepsi distribute their
bottled soft drinks through a network of bottling companies, Coca-Cola uses its own network
of wholesalers for their fountain syrup distribution, and Pepsi distributes its fountain syrup
through its bottlers.

In general, Coke seeks total automation of distribution activities. Consider Coca-Cola

Enterprises (CCE), the U.S. bottling company in which Coca-Cola holds a 49% interest. It
has 1.800 salespeople selling over 150 products to 560.000 outlets along 6.500 routes,
delivering over 2,5 million cases daily. Those sales people now carry handheld computer
terminals, which unload orders to a central dispatch computer, which decodes addresses and
allows CCE dispatchers to experiment with alternate routes, and, in one third the time
previously spent, create routes for the next day that have dropped distance travelled by 8%,
total hours spent on delivery by 13%, and the number of vehicles and delivery people needed
by 14%.

PROCUREMENT. Coca-Cola has followed a strategy of increased ownership of bottling

operations worldwide as a way to make its operations more efficient and also to improve
product availability as well as marketing focus. In some cases, investments represent
minority shares in the bottling company, wherein Coca-Cola is able to help focus and
improve sales and marketing programs, assist in the development of effective business and
information systems, and lend operating expertise. Situations where the current bottler is not
competitive with current competition or system wide sales standards, Coke frequently moves
in to acquire the franchise and quickly turn the situation around.

Coke was weak relative to Pepsi in the early 1980s in terms of the strength of franchisee
bottlers. Coke's bottlers were second- and third-generation family businesses that had been
with Coke from its very early days. Pepsi's franchises, led by what was then world's largest
soft-drink bottler -General Cinema Corporation- had better capitalized and more
sophisticated bottlers in many key urban areas in the United States. But Coke recognized this
and, over the 1980's, became more aggressively involved with its bottlers, including over $2
billion in investment, which makes its bottling network, particularly abroad, a relative
advantage in the 1990s.
HUMAN RESOURCES. Regarding with human resource management, Coca-Cola Company
has a very loyal workforce, minimal turnover, and a strong tendency to promote from within.
Overall, Coke provides attractive compensation; places a major emphasis on employee
training and indoctrination into "the Coke way" so that employees worldwide share a similar
understanding of and appreciation for what the product stands for and seeks to be in the
consumer's mind. Coke places a lot of emphasis on having its people "think globally, but act
locally; respond daily to competitive situations; serve customers and consumers with a
passion".