Coca-Cola Company – 2011

Forest David

A. Case Abstract
Coca-Cola is a comprehensive strategic management case that includes the company’s year-end 2010
financial statements, organizational chart, competitor information and more. The case time setting is the
year 2011. Sufficient internal and external data are provided to enable students to evaluate current
strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia,
Coke’s common stock is publicly traded under the ticker symbol KO.

Coca-Cola is the world's largest nonalcoholic beverage company, owning four of the top five soft-drink
brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Founded in 1886 by Atlanta pharmacist John Pemberton,
Coca-Cola brands today include Minute Maid, Powerade, and Dasani water. In North America the
company sells Groupe Danone's Evian and also sells brands owned by rival Dr Pepper Snapple Group
(Crush, Dr Pepper, and Schweppes) outside Australia, Europe, and North America. Coca-Cola today
produces or licenses more than 3,500 drinks for sale in 200-plus countries.

In late 2010, Coca-Cola Company bought out its leading bottler, Coca-Cola Enterprises (CCE), and
renamed it Coca-Cola Refreshments USA. The company continues to buy out its bottlers worldwide.
Some of Coca-Cola’s $15 billion brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater,
Powerade, Minute Maid, Simply and Georgia. Coca-Cola is the No. 1 provider of sparkling beverages,
juices and juice drinks and ready-to-drink teas and coffees. Through the world's largest beverage
distribution system, consumers in more than 200 countries enjoy the company's beverages at a rate of 1.7
billion servings a day.

B. Vision Statement (proposed)

To maintain our status as the number one beverage company in the world.

C. Mission Statement (proposed)

At Coca Cola we aspire to stay the world’s (3) leader focused on producing and selling superior quality (7)
carbonated beverages in the soft drink industry (2). We strive to treat our employees (9), customers (1), and
our communities with respect (8). We also seek to provide healthy financial rewards to our shareholders
and business partners (5) by using the latest technology (4) and hiring the most skill employees. We always
use ethical practices that assist in displaying Coca Cola’s public image as being trustworthy, loyal, and
honest (6).

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability

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 6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. Customers currently prefer favored soft drinks over colas such as Powerade, Sprite, and Fanta.
2. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively.
3. Customers are becoming more health minded in their food and drink choices.
4. Brazil, India, and Eastern Europe should offer good long term opportunities.
5. China's food and beverage consumption is forecasted to increase by 54.1% by 2014.
6. 25% of Americans eat fast food everyday.
7. Energy drinks hold 62% of the functional beverages market.
8. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade.
9. Weaker US Dollar.

Threats

1. High commodity prices in sugar and tin.

2. Soft drinks are considered discretionary products and don’t perform well in poorer economic times.
3. Increased concern in health and wellness among consumers.
4. Sales are slower in the winter months as the business is seasonal.
5. Retailers are consolidating reducing the number of companies and increasing their bargaining power.
6. Pepsi has a large food stuff business along with beverages.
7. Store brand and private label products still have great appeal among cost conscious customers.
8. Governments are looking to tax sugary drinks.

Competitive Profile Matrix

Dr. Pepper Pepsi Coke

Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.12 3 0.36 2 0.24 4 0.48
Market Penetration 0.06 1 0.06 3 0.18 2 0.12
Customer Service 0.09 4 0.36 2 0.18 3 0.27
Vending Locations 0.10 2 0.20 4 0.40 3 0.30
R&D 0.06 4 0.24 3 0.18 2 0.12
Employee Dedication 0.07 2 0.14 3 0.21 4 0.28
Financial Profit 0.10 2 0.20 4 0.40 3 0.30
Customer Loyalty 0.09 1 0.09 3 0.27 4 0.36
Market Share 0.08 1 0.08 3 0.24 4 0.32
Product Quality 0.09 4 0.36 3 0.27 2 0.18
Top Management 0.04 2 0.08 3 0.12 4 0.16
Price Competitiveness 0.10 4 0.40 3 0.30 2 0.20
Totals 1.00 2.57 2.99 3.09

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 EFE Matrix

Opportunities Weight Rating Weighted Score

1. Customers currently prefer favored soft drinks over colas such 0.07 4 0.28
as Powerade, Sprite, and Fanta.
2. Flavored teas, and bottled water are expected to grow 24 percent 0.07 4 0.28
and 9 percent respectively.
3. Customers are becoming more health minded in their food and 0.07 4 0.28
drink choices.
4. Brazil, India, and Eastern Europe should offer good long term 0.10 4 0.40
opportunities.
5. China's food and beverage consumption is forecasted to 0.10 4 0.40
increase by 54.1% by 2014.
6. 25% of Americans eat fast food everyday. 0.03 4 0.12
7. Energy drinks hold 62% of the functional beverages market. 0.03 2 0.06
8. Coconut water is becoming a popular alternative to sports drinks 0.03 1 0.03
such as Gatorade and Powerade.
9. Weaker US Dollar. 0.03 4 0.12

Threats Weight Rating Weighted Score

1. High commodity prices in sugar and tin. 0.10 2 0.20
2. Soft drinks are considered discretionary products and don’t
0.04 2 0.08
perform well in poorer economic times.
3. Increased concern in health and wellness among consumers. 0.06 4 0.24
4. Sales are slower in the winter months as the business is
0.02 4 0.08
seasonal.
5. Retailers are consolidating reducing the number of companies
0.03 2 0.06
and increasing their bargaining power.
6. Pepsi has a large food stuff business along with beverages. 0.12 1 0.12
7. Store brand and private label products still have great appeal
0.08 2 0.16
among cost conscious customers.
8. Governments are looking to tax sugary drinks. 0.02 3 0.06
TOTALS 1.00 2.97

E. Internal Audit
Strengths

1. Coke is the largest manufacturer, distributer and marketer of nonalcoholic beverage concentrates and
syrups in the world.
2. New “micro-dosing” technology to dispense over 120 beverages from one machine.
3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports
drinks, energy drinks, soft drinks, and others.
4. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every
day.
5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010.
6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world.
7. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies.
8. Coke Zero has yielded double-digit volume growth for four consecutive years.

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9. Coke employees half the people of Pepsi, yet has higher net income.

Weaknesses

1. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010.
2. Coke continues to struggle in North America experiencing zero percent growth since 2009.
3. Coke is focused solely on the beverage business.
4. 45% of sales and revenue rely solely on Coca Cola and Diet Coke.
5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5.
6. Goodwill increased from $4 billion to over $11 billion in 2010 with Coke’s recent bottling acquisitions
and goodwill and intangibles accounts for 87% of all equity.

Financial Ratio Analysis

Growth Rate Percent Coke Industry S&P 500

Sales (Qtr vs year ago qtr) 45.40 30.50 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) 8.10 7.90 47.50
Sales (5-Year Annual Avg.) 8.74 9.85 8.27
Net Income (5-Year Annual Avg.) 19.37 14.68 8.68
Dividends (5-Year Annual Avg.) 9.46 9.67 5.68

Profit Margin Percent

Gross Margin 60.7 56.1 39.9
Pre-Tax Margin 33.6 23.2 18.1
Net Profit Margin 27.7 19.3 13.2
5Yr Gross Margin (5-Year Avg.) 64.4 58.2 39.8

Liquidity Ratios
Debt/Equity Ratio 0.88 0.94 1.01
Current Ratio 1.1 1.2 1.4
Quick Ratio 1.0 1.1 0.9

Profitability Ratios
Return On Equity 41.5 34.6 26.0
Return On Assets 18.8 14.3 8.9
Return On Capital 27.6 20.3 11.8
Return On Equity (5-Year Avg.) 33.0 32.0 23.8
Return On Assets (5-Year Avg.) 16.7 15.2 8.0
Return On Capital (5-Year Avg.) 23.9 20.9 10.8

Efficiency Ratios
Income/Employee 91,289 67,398 126,213
Revenue/Employee 329,484 338,900 1 Mil
Receivable Turnover 10.4 9.7 15.7
Inventory Turnover 6.7 7.5 12.4

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Net Worth Analysis (in millions)

Stockholders Equity $31,003

Net Income x 5 $59,045
(Share Price/EPS) x Net Income $147,884
Number of Shares Outstanding x Share Price $154,360
Method Average $98,073

IFE Matrix

Strengths Weight Rating Weighted Score

1. Coke is the largest manufacturer, distributer and marketer of
0.10 4 0.40
nonalcoholic beverage concentrates and syrups in the world.
2. New “micro-dosing” technology to dispense over 120 beverages
0.02 4 0.08
from one machine.
3. Produced over 400 brads consisting over 3,000 beverage
products including, water, juice, sports drinks, energy drinks, 0.08 4 0.32
soft drinks, and others.
4. Products are sold in over 200 countries and people consume 1.4
0.10 4 0.40
billion Coke product servings every day.
5. Net income increased from $6.8 billion in 2009 to $11.8 billion in
0.07 4 0.28
2010.
6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the
0.08 4 0.32
top 5 soft drink brands In the world.
7. Coke has 5 water brands and just acquired Apollinaris and
0.06 3 0.18
Traficante two European companies.
8. Coke Zero has yielded double-digit volume growth for four
0.06 4 0.24
consecutive years.
9. Coke employees half the people of Pepsi, yet has higher net
0.07 4 0.28
income.

Weaknesses Weight Rating Weighted Score

1. Coke continues to struggle in Europe as a whole; experiencing
0.05 1 0.05
zero percent growth in 2010.
2. Coke continues to struggle in North America experiencing zero
0.08 1 0.08
percent growth since 2009.
3. Coke is focused solely on the beverage business. 0.04 2 0.08
4. 45% of sales and revenue rely solely on Coca Cola and Diet
0.05 2 0.10
Coke.
5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry
0.04 2 0.08
average is 7.5.
6. Goodwill increased from $4 billion to over $11 billion in 2010 with
Coke’s recent bottling acquisitions and goodwill and intangibles 0.10 1 0.10
accounts for 87% of all equity.
TOTALS 1.00 2.99

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F. SWOT
SO Strategies

1. Build 5 new bottling plants in Eastern Europe and China for $100M each (S1, O4).
2. Form agreements to get Coke products into every major fast food chain in the world (S1, S4, O6).

WO Strategies

1. Invest $50M to develop a line of coconut water (W4, O8).

2. Increase presence in Europe by 20% (W1, O9).

ST Strategies

1. Market new water acquisitions in the US (S7, T1, T3).

WT Strategies

1. Invest $200M to start production of a snack division (W3, T6).

G. SPACE Matrix

FP
Conservative Aggressive
7

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

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Internal Analysis: External Analysis:
Financial Position (FP) Stability Position (SP)
Sales 5 Rate of Inflation -2
Debt/Equity 5 Technological Changes -2
Current Ratio 5 Healthy Options -4
ROE 6 Competitive Pressure -6
ROA 5 Barriers to Entry into Market -3
Financial Position (FP) Average 5.2 Stability Position (SP) Average -3.4

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -2 Growth Potential 4
Product Quality -1 Financial Stability 5
Customer Loyalty -1 Ease of Entry into Market 5
Product Variety -1 Resource Utilization 5
Control over Suppliers and Distributors -2 Profit Potential 5
Competitive Position (CP) Average -1.4 Industry Position (IP) Average 4.8

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Coke

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

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I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

3.0 IV V VI

The
EFE
Total Medium
Weighted Coke
Scores

2.0 VII VIII IX

Low

1.0

Segment 2010 Revenues

North America 31.7%
Bottling Investments 23.4
Pacific 14.1
Europe 12.6
Latin America 11.0
Eurasia & Africa 6.9

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J. QSPM

Build new Aquire a

bottling snack
plants company
Opportunities Weight AS TAS AS TAS
1. Customers currently prefer favored soft drinks over colas such
0.07 0 0.00 0 0.00
as Powerade, Sprite, and Fanta.
2. Flavored teas, and bottled water are expected to grow 24 percent
0.07 0 0.00 0 0.00
and 9 percent respectively.
3. Customers are becoming more health minded in their food and
0.07 1 0.07 3 0.21
drink choices.
4. Brazil, India, and Eastern Europe should offer good long term
0.10 4 0.40 3 0.30
opportunities.
5. China's food and beverage consumption is forecasted to 0.10 2 0.20 4 0.40
6. 25% of Americans eat fast food everyday. 0.03 0 0.00 0 0.00
7. Energy drinks hold 62% of the functional beverages market. 0.03 0 0.00 0 0.00
8. Coconut water is becoming a popular alternative to sports drinks
0.03 0 0.00 0 0.00
such as Gatorade and Powerade.
9. Weaker US Dollar. 0.03 0 0.00 0 0.00

Threats Weight AS TAS AS TAS

1. High commodity prices in sugar and tin. 0.10 1 0.10 2 0.20
2. Soft drinks are considered discretionary products and don’t
0.04 1 0.04 3 0.12
perform well in poorer economic times.
3. Increased concern in health and wellness among consumers. 0.06 0 0.00 0 0.00
4. Sales are slower in the winter months as the business is
0.02 2 0.04 4 0.08
seasonal.
5. Retailers are consolidating reducing the number of companies
0.03 0 0.00 0 0.00
and increasing their bargaining power.
6. Pepsi has a large food stuff business along with beverages. 0.12 1 0.12 4 0.48
7. Store brand and private label products still have great appeal
0.08 0 0.00 0 0.00
among cost conscious customers.
8. Governments are looking to tax sugary drinks. 0.02 2 0.04 3 0.06

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 Build new Aquire a
bottling snack
plants company
Strengths Weight AS TAS AS TAS
1. Coke is the largest manufacturer, distributer and marketer of
0.10 4 0.40 3 0.30
nonalcoholic beverage concentrates and syrups in the world.
2. New “micro-dosing” technology to dispense over 120 beverages
0.02 0 0.00 0 0.00
from one machine.
3. Produced over 400 brads consisting over 3,000 beverage
products including, water, juice, sports drinks, energy drinks, 0.08 4 0.32 2 0.16
soft drinks, and others.
4. Products are sold in over 200 countries and people consume 1.4
0.10 0 0.00 0 0.00
billion Coke product servings every day.
5. Net income increased from $6.8 billion in 2009 to $11.8 billion in
0.07 0 0.00 0 0.00
2010.
6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the
0.08 4 0.32 2 0.16
top 5 soft drink brands In the world.
7. Coke has 5 water brands and just acquired Apollinaris and
0.06 4 0.24 2 0.12
Traficante two European companies.
8. Coke Zero has yielded double-digit volume growth for four
0.06 4 0.24 2 0.12
consecutive years.
9. Coke employees half the people of Pepsi, yet has higher net
0.07 2 0.14 3 0.21
income.

Weaknesses Weight AS TAS AS TAS

1. Coke continues to struggle in Europe as a whole; experiencing
0.05 4 0.20 3 0.15
zero percent growth in 2010.
2. Coke continues to struggle in North America experiencing zero
0.08 2 0.16 4 0.32
percent growth since 2009.
3. Coke is focused solely on the beverage business. 0.04 1 0.04 4 0.16
4. 45% of sales and revenue rely solely on Coca Cola and Diet
0.05 1 0.05 4 0.20
Coke.
5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry
0.04 2 0.08 4 0.16
average is 7.5.
6. Goodwill increased from $4 billion to over $11 billion in 2010 with
Coke’s recent bottling acquisitions and goodwill and intangibles 0.10 0 0.00 0 0.00
accounts for 87% of all equity.
TOTALS 3.20 3.91

K. Recommendations
1. Build 5 new bottling plants in Eastern Europe and China for $100M each.
2. Form agreements to get Coke products into every major fast food chain in the world.
3. Invest $400M to start production of a snack division (W3, T6).

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L. EPS/EBIT Analysis (in millions)
Amount Needed: $900M
Stock Price: $66.38
Shares Outstanding: 2,270
Interest Rate: 5%
Tax Rate: 20%

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $6,000 $9,000 $10,000 $6,000 $9,000 $10,000
Interest 0 0 0 45 45 45
EBT 6,000 9,000 10,000 5,955 8,955 9,955
Taxes 1,200 1,800 2,000 1,191 1,791 1,991
EAT 4,800 7,200 8,000 4,764 7,164 7,964
# Shares 2,284 2,284 2,284 2,270 2,270 2,270
EPS 2.10 3.15 3.50 2.10 3.16 3.51

20 Percent Stock 80 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $6,000 $9,000 $10,000 $6,000 $9,000 $10,000
Interest 36 36 36 9 9 9
EBT 5,964 8,964 9,964 5,991 8,991 9,991
Taxes 1,193 1,793 1,993 1,198 1,798 1,998
EAT 4,771 7,171 7,971 4,793 7,193 7,993
# Shares 2,273 2,273 2,273 2,281 2,281 2,281
EPS 2.10 3.16 3.51 2.10 3.15 3.50

M. Epilogue
In November 2011, Muhtar Kent, Chairman and CEO of Coca-Cola Company, pledged $500,000 to the
Atlanta Women’s Foundation (AWF) to support economic empowerment initiatives impacting Atlanta’s
women and girls. Kent made the announcement during his keynote address at “Numbers Too Big To
Ignore,” an annual fundraising luncheon hosted by the Atlanta Women’s Foundation. “As we look ahead,
women will play a transformative role in shaping our global economy and society over the next decade,”
said Kent. “The real drivers of the 21st century will be women. They are already the most dynamic and
fastest-growing economic force in the world. “When we look locally at the very real needs for women’s
economic empowerment and growth in our own community, our goal is to build on previous work with the
Atlanta Women’s Foundation in a way that inspires others,” said Kent.

In November 2011, Coca-Cola announced that it will acquire its Oklahoma City-based Great Plains Coca-
Cola Bottling Co. for $360 million. The deal is expected to close by the end of the 2011. Great Plains is
the fifth-largest independent Coca-Cola bottler in the United States, with territories in Oklahoma and
Arkansas. Great Plains currently runs nine facilities and employs more than 1,200 people. Great Plains
will become an operating unit within Coca-Cola Refreshments, a subsidiary of Coca-Cola Company.

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As part of a marketing campaign aimed at protecting polar bears and their habitat, Coca-Cola Company
recently teamed up with the World Wildlife Fund for the campaign. The special Coke can will be largely
white in color, unlike Coke's traditional red and white can, to promote the cause, according to people
familiar with .

For Q3 of 2011, Coca-Cola Company reported that worldwide volume growth of 5 percent, 6 percent
volume growth year-to-date and volume growth across all five geographic operating groups. North
America organic volume grew 1 percent in Q3 and Q3 EPS was $0.95, up 8 percent, with year-to-date EPS
of $2.97, up 15 percent.

Also for Q3 of 2011, the company’s international volume growth was 5 percent and 6 percent year-to-date.
Worldwide volume growth was led by brand Coca-Cola, up 3 percent in both the quarter and year-to-date.

The company’s Q3 revenues were $12.2 billion, up 45 percent, reflecting solid growth in concentrate sales,
a 5% currency benefit, positive price/mix and the acquisition of Coca-Cola Enterprises' (CCE) former
North America operations in the fourth quarter of 2010. Year-to-date revenues were $35.5 billion, up 44
percent.

The company’s Q3 operating income was $2.7 billion, up 17 percent. The company’s year-to-date reported
operating income was $8.2 billion, up 13 percent.

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