COCA COLA IN 2011:

In search of a New Model

Group A 5
B18011 Ankur Jaiswal
B18023 Harshit Malhotra
B18035 Pathikreet Banerjee
B18047 Shaunakraj Mukund Deshpande
B18059 Vedika Murdia
 A Brief of Important Events
Evolution of Strategy over the Years

Aggressive expansion Abrupt change in

in US and abroad leadership causing
under new multiple failed
leadership business decisions &
falling stock prices

1886 1916 1981 1997 2010

Invented by John Pe Goizuetta takes over, Coke reemerges
mberton and acquire expanding product from slump and
d by Asa Chandler in lines and curates acquires CCE under
1891 formation of CCE in new CEO Muhtar
1986 Kent
Competitive Advantages of Coke
VRIO Framework

Your Text Here

Contents
 Valuable

Dense Distribution Network Secret Formula

01 Valuable ubiquitous presence

with just CCE controlling 350 04 The ingredients of the beverage is
a closely guarded secret and is
outlets and 55000 vehicles in USA very valuable to the firm

Large Product Range Brand Image

02 Valuable array of diverse
products with over 800 beverages
05 Marketing acumen by large spending
($400 million in 2007) on promotions
in its portfolio makes the brand valuable

Financial Depth Operational Efficiency

03 Coke had amassed nearly $73
billion in assets by 2010 which
06 Profit margins of 33% in 2010
(PepsiCo at 11%) shows valuable
held value in acquiring strategic expertise
assets
 Rarity

Unparalleled Brand Image Secret Formula Marketing Strength

Distribution

Coca Cola A formula that

Very few Very few other
has built a has been
companies in companies
brand image closely
this domain possess the
that incites guarded since
have a marketing
strong brand 1890’s and is a
distribution as focus and the
loyalty in its rare asset in
widespread quantum of
customers terms of the
and ubiquitous investment of
which is a rare brand value it
as Coca Cola Coca Cola
asset creates
 Inimitability

Brand Secret Marketing

Image Formula Strength
• One of the most • A closely kept • Carefully trained
valuable brand secret since personnel and
names in the inception, this intensive
world and is formula is marketing for
almost impossible impossible to decades has built
to imitate on this imitate by a fearsome
front definition reputation
 •The organisation is well placed
Global Distribution to exploit this asset Thus, the competitive
advantages can be classified
as:
•The firm exploits this asset by
Brand Image maximising its visibility
Sustained Competitive
Advantage
Organisation

Brand Image
•The firm continually spends Secret Formula
huge amounts on marketing
Marketing Might and utilises this to earn higher Marketing Strength
margins

Temporary Competitive
•The firm utilises the power of this Advantage
Secret Formula formula to inspire brand loyalty
Dense Distribution Network
Financial Strength

•Utilises its financial might by

Financial Might controlling its bottlers and
investing in R&D Competitive
Parity
Large Product Range
•Uses its plethora of product lines Operational Efficiency
Diverse Product to target maximum segment of
Range customers
 VALUE CHAIN ANALYSIS
Primary Activities

Entire operations now • Major Marketing Strategy

combined from done by company.
concentrates to • Bottlers for local marketing.
bottling. • This has to be aligned now.
INBOUND OUTBOUND
Operations MARKETING SERVICES
LOGISTICS LOGISTICS
• Raw Materials bought by the • Retailers Bottlers individually
company to produce at a • Direct Shelving responsible for sale
Central Concentrate plant. (DSD) quality in its jurisdiction.
• Further distribution to bottler • Fountains The entire company
happens. • Key Accounts liable after the merger.
• This activity remains • Walmart
unchanged.
 VALUE CHAIN
Insert the title Support Activities subtitle Here

INFRASTRUCTURE HRM TECHNOLOGY PROCUREMENT

• The BIG created to • No Programmer
strategy yet. • Varied Machines for Programmer
• Negotiations on
Programmer Programmer
help ailing bottlers. • Various CEO role different SKUs by behalf of bottlers with
• Getting rid of excess churns independent Bottlers. major suppliers of
capacity now. • Succession plan for • The Anchor Bottler sugar, aluminum and
combined entity debt ridden. plastic.
needed. • One such supplier
being Ball and
Rexam
KEY STRATEGIC ISSUES

Pursuing contrasting strategies

With the acquisition of CCE and forming the combined

entity of CCR, the company is challenged with balancing
two generic strategies at the same time
• Differentiation – Currently followed by Coca Cola
• Cost Leadership - Followed by the CCE Bottlers

Managing a perfect blend would be a key challenge as

• Competitive Regional Pricing
• Increasing the Margins
• Mission 2020 of Doubling Revenues
• Maintaining all channels such as Supermarkets, Fountains,
Key Accounts, Convenience Stores
KEY STRATEGIC ISSUES

Efficiency vs Grass Root Touch

• After the acquisition the company wants to merge its

bottling business with the CCE Bottling business to
remove excess capacity.
• However, there is a debate on the number of plants to
be kept.
• Larger plants would be more efficient and would be able
to drive material costs down. However, transportation
costs, especially to the southern smile states, would be
higher.
• Smaller local plants would be inefficient but would
ensure closer customer relations credited with Coca
Cola’s rise in the first place.
KEY STRATEGIC ISSUES

UNDIVERSIFIED PORTFOLIO

• The Coca Cola Company started the advent into still

drinks at a very late stage.
• It has garnered a share of 32% in still drinks vis a vis Pepsi’s
43%.
• The increase in Market Share has largely been Inorganic
with a spate of recent acquisitions.
• A lot of underutilized brands such as Minute Maid and
Odwalla Juices.
• Company on the back foot due to bottlers’ inability to
automate and acquire new machines.
 PESTLE
Challenges from External Environment

POLITICAL RISK TECHNOLOGICAL RISK

01 • Possibility of Contamination
leading to bans 04 • Variety of technologies needed for
different SKUs (stilled drinks)
• US Government regulation for tax • Paucity of funds with bottlers for
evasion and Channel Stuffing capital heavy automation
ECONOMIC RISK LEGAL RISK
02 • Weaker Consumer Demands
• Material Costs (Aluminum, Sugar) 05 • Protracted Bottler and Company
Disputes
• Oil Price shocks and transportation • Litigations for Misleading Adverts
costs (Customers and Competitors)
SOCIAL RISK ENVIRONMENTAL RISK
03 • General Move towards Natural
and Healthier options 06 • Possible curbs on water usage by
Bottlers
• Possible regulations to stem • Regulations on use of Plastic
obesity in International Markets Bottles
 STRENGTHS
 Lion’s share in Fountain Business
O T
 Brands topping charts in market
share of CSDs
 Strongest Position in World Markets
 Loyal Customer Base and Strong
Brand Equity
 Non imitability and Guarded Formula
 Extensive Beverage Distribution
OPPORTUNITIES
S W
 Potential to diversify brand portfolio
similar to Pepsi (snacks)
 Capitalize on demand for healthier
drinks and bottled water as per
current market trends
 Underutilized Still Drinks Brand can
be made profitable by leveraging
strong brand recognition of Coke
WEAKNESSES
 High focus on CSDs resulting in
undiversified portfolio
 Negative impact on the perceived
brand image due to use of harmful
ingredients
 Decreasing Gross Margins of Bottlers
THREATS
 Increase in transportation costs due
to expected hike in oil prices
 High commodity prices expecting to
increase Coke’s cost by $400 million
 Saturation of CSDs in market due to
change in consumer preferences
 Severe competition from competitors
 PORTERS FIVE FORCES
Bargaining Power of Buyers
LOW

Bargaining Power of Suppliers Threat of New Entrants

LOW LOW

Industry Rivalry Threat of Substitutes

High High
• Anheuser-Beusch’s beer distribution
• 600 independent distributors in US

• Implementation in Coca Cola

The
• One entity to manage scope
• Other to manage scale
• Licensing trucks and distribution
Beer
• Problem: Are Margins for only distribution enough to motivate
Model
• Current Role of distributors:
• Bottling with fixed price concentrate
• Distribution and delivery
• A say in final price

• Current margins for Bottler: $0.36 per case ( 8% of revenue )

 DU PONT ANALYSIS

Return on Equity = Net Profit Margin * Total Asset Turnover * Financial Leverage

=
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
*
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
*
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
The
Year
2007
ROE
27.64 %
NPM
20.73 %
TAT
0.67
FL
1.99
Beer
2008
2009
27.86 %
27.06 %
18.18 %
22.02 %
0.79
0.64
1.94
1.92
Model
TAT indicates the efficiency of the firm.
Positives Negatives
• Vertical integration • Distributers will ask higher margins
• Higher Profit Margins • Might increase inefficiencies
• Greater Control on quality • CSD market decreasing
• Conflict of interest for the two
entities
• Communication between the two
entities
• The model centers around two steps
• Vertical Integration
• Spinning Off
Refranchise
• Current State of Global Economy (as of 2010-11) Model
• Economic
• Global Recession
• Increasing Stock prices for Coca Cola Co.
• Decreasing Stock Price for Bottler industry
• Only upside possible in GDP

• Cultural
• Shift from Soda/Sparkling based beverages to still beverages (fruit
juice, energy drinks)
• Cost sensitive
• Implementation in Coca Cola’s Case

• Buy Bottlers, Reasons-

Refranchise
• Available at cheaper valuations
• Higher future valuation of bottlers Model
• Improve efficiencies
• Economies of Scale and Scope implementation
• Greater operational control in times of changing taste dynamics

• Post Improvement in Economy (Global and US)

• Spinoff/ Sell Bottlers at increased market valuation

• Capital gains due to asset appreciation
• Can be considered as investment – Financial & Strategic
• Stable economy will not require greater control over bottlers
• Lean and Asset Light Structure – More money for Marketing
• Marketing >>> operational improvement – stable economy
 Comparison
Positives Negatives
Refranchise
• Short term • Short Term
• High Debt on Books
Model
• Better Operational Control • Low financial capacity
• Faster strategy • Exposure to commodity prices
implementation • Decreased Local Expertise &
presence
• Long Term

• Acts as an investment
• Financial
• Operational
• Focus on Marketing
• Better Cost structure –
Renewed Contracts
Thank You!

Questions?