Republic of the Philippines Tarlac State University College of Business and Accountancy Financial Management Department A.Y.

2013-2014

COCA-COLA COMPANY
CASE STUDY

STRATEGIC MANAGEMENT FM4-1 GROUP 4 CAPILITAN, PEGIE MAE DOCTAMA, SAPPHIRA ERMITANIO, JOHN KENNETH LAGMAN, WALECH LOBO, ELOISA MEA Submitted to: PROF. ROWENA RAMOS

I.

INTRODUCTION COMPANY OVERVIEW

Coca-Cola history began in 1886 when the curiosity of an Atlanta pharmacist, Dr. John S. Pemberton, led him to create a distinctive tasting soft drink that could be sold at soda fountains. He created a flavored syrup, took it to his neighborhood pharmacy, where it was mixed with carbonated water and deemed excellent by those who sampled it. Dr. Pembertons partner and bookkeeper, Frank M. Robinson, is credited with naming the beverage Coca-Cola as well as designing the trademarked, distinct script, still used today. Prior to his death in 1888, just two years after creating what was to become the worlds #1-selling sparkling beverage, Dr. Pemberton sold portions of his business to various parties, with the majority of the interest sold to Atlanta businessman, Asa G. Candler. Under Mr. Candlers leadership, distribution of CocaCola expanded to soda fountains beyond Atlanta. In 1894, impressed by the growing demand for CocaCola and the desire to make the beverage portable, Joseph Biedenharn installed bottling machinery in the rear of his Mississippi soda fountain, becoming the first to put CocaCola in bottles. Large scale bottling was made possible just five years later, when in 1899, three enterprising businessmen in Chattanooga, Tennessee secured exclusive rights to bottle and sell CocaCola. The three entrepreneurs purchased the bottling rights from Asa Candler for just $1.

Benjamin Thomas, Joseph Whitehead and John Lupton developed what became the CocaCola worldwide bottling system. The Coca-Cola Company is the world's largest beverage company, and markets four of the world's top five leading soft drinks: Coke, Diet Coke, Fanta, and Sprite. It also sells other brands including Powerade, Minute Maid, and Dansani bottled water. The company operates the largest distribution system in the world, which enables it to serve customers and businesses in more than two hundred countries. Coca-Cola estimates that more than 1 billion servings of its products are consumed every day. For much of its early history, Coca-Cola focused on cultivating markets within the United States. PAST AND PRESENT DEVELOPMENTS 1894 A modest start for a bold idea In a candy store in Vicksburg, Mississippi, brisk sales of the new fountain beverage called Coca-Cola impressed the store's owner, Joseph A. Biedenharn. He began bottling Coca-Cola to sell, using a common glass bottle called a Hutchinson. Biedenharn sent a case to Asa Griggs Candler, who owned the Company. Candler thanked him but took no action. One of his nephews already had urged that CocaCola be bottled, but Candler focused on fountain sales. 1899 The first bottling agreement Two young attorneys from Chattanooga, Tennessee believed they could build a business around bottling Coca-Cola. In a meeting with Candler, Benjamin F. Thomas and Joseph B. Whitehead obtained exclusive rights to bottle Coca-Cola

across most of the United States (specifically excluding Vicksburg) -- for the sum of one dollar. A third Chattanooga lawyer, John T. Lupton, soon joined their venture. 1900-1909 Rapid growth The three pioneer bottlers divided the country into territories and sold bottling rights to local entrepreneurs. Their efforts were boosted by major progress in bottling technology, which improved efficiency and product quality. By 1909, nearly 400 Coca-Cola bottling plants were operating, most of them family-owned businesses. Some were open only during hot-weather months when demand was high. 1916 Birth of the contour bottle Bottlers worried that the straight-sided bottle for Coca-Cola was easily confused with imitators. A group representing the Company and bottlers asked glass manufacturers to offer ideas for a distinctive bottle. A design from the Root Glass Company of Terre Haute, Indiana won enthusiastic approval in 1915 and was introduced in 1916. The contour bottle became one of the few packages ever granted trademark status by the U.S. Patent Office. Today, it's one of the most recognized icons in the world - even in the dark! 1920s Bottling overtakes fountain sales As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in the U.S. Their ideas and zeal fueled steady growth. Six-bottle cartons were a huge hit after their 1923 introduction. A few years later, open-top metal coolers became the

forerunners of automated vending machines. By the end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales. 1920s and 30s International expansion Led by longtime Company leader Robert W. Woodruff, chief executive officer and chairman of the Board, the Company began a major push to establish bottling operations outside the U.S. Plants were opened in France, Guatemala, Honduras, Mexico, Belgium, Italy, Peru, Spain, Australia and South Africa. By the time World War II began, Coca-Cola was being bottled in 44 countries. 1940s Post-war growth During the war, 64 bottling plants were set up around the world to supply the troops. This followed an urgent request for bottling equipment and materials from General Eisenhower's base in North Africa. Many of these war-time plants were later converted to civilian use, permanently enlarging the bottling system and accelerating the growth of the Company's worldwide business. 1950s Packaging innovations For the first time, consumers had choices of Coca-Cola package size and type -- the traditional 6.5-ounce contour bottle, or larger servings including 10-, 12- and 26-ounce versions. Cans were also introduced, becoming generally available in 1960.

1960s New brands introduced Following Fanta in the 1950s, Sprite, Minute Maid, Fresca and TaB joined brand Coca-Cola in the 1960s. Mr. Pibb and Mello Yello were added in the 1970s. The 1980s brought diet Coke and Cherry Coke, followed by POWERADE and DASANI in the 1990s. Today hundreds of other brands are offered to meet consumer preferences in local markets around the world. 1970s and 80s Consolidation to serve customers As technology led to global economy, the retailers who sold Coca-Cola merged and evolved into international mega-chains. Such customers required a new approach. In response, many small and medium-size bottlers consolidated to better serve giant international customers. The Company encouraged and invested in a number of bottler consolidations to assure that its largest bottling partners would have capacity to lead the system in working with global retailers. 1990s New and growing markets Political and economic changes opened vast markets that were closed or underdeveloped for decades. After the fall of the Berlin Wall, the Company invested heavily to build plants in Eastern Europe. And as the century closed, more than $1.5 billion was committed to new bottling facilities in Africa.

21st Century The Coca-Cola bottling system grew up with roots deeply planted in local communities. This heritage serves the Company well today as people seek brands that honor local identity and the distinctiveness of local markets. As was true a century ago, strong locally based relationships between Coca-Cola bottlers, customers and communities are the foundation on which the entire business grows. A. MANAGEMENT ASPECT VISION STATEMENT Coca-cola Companys vision serves as the framework for Roadmap and guides every aspect of the business by describing what it needs to accomplish in order to continue achieving sustainable, quality growth. People: Be a great place to work where people are inspired to be the

best they can be. Portfolio: Bring to the world a portfolio of quality beverage brands

that anticipate and satisfy people's desires and needs. Partners: Nurture a winning network of customers and suppliers,

together we create mutual, enduring value. Planet: Be a responsible citizen that makes a difference by helping

build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful

of our overall responsibilities. Productivity: Be a highly effective, lean and fast-moving organization

MISSION STATEMENT Coca-Cola Companys Roadmap starts with mission, which is enduring. It declares the purpose as a company and serves as the standard against which we weigh its actions and decisions. To refresh the world... To inspire moments of optimism and happiness... To create value and make a difference.

NEW GLOBAL 2020 GOALS The Companys sustainability frameworkMe, We, Worldand is rooted in three leadership priorities: Women: In our third year, we continue our journey to economically empower 5 million women entrepreneurs across our value chain by 2020 through our 5by20 program. Specifically, this includes the small businesses that work with the Company in more than 200 countries around the world. This initiative aims to help women entrepreneurs, from fruit farmers to artisans, overcome the barriers they face to succeed in business. By the end of 2012, 5by20 programs had enabled 300,000 women in 22 countriesmore than double the number of participants reached by the end of 2011. Water: We are partnering around the world to meet our 2020 water use reduction and replenishment goals. This work has improved our water efficiency by 21.4 percent since 2004 and supported an estimated replenishment of approximately 52 percent of the water we used in our

finished beverage products through 2012. We also recently announced progress in our partnership with DEKA R&D and other partners to deliver 500 million liters of safe drinking water to communities in 20 countries through Slingshot water purification units and EKOCENTER kiosks by the end of 2015. Well-being: In advancing one of our global commitments to help address obesity, we offer more than 800 low- and no-calorie options worldwide nearly 25 percent of our global portfolio. In 2012, we introduced more than 500 new products globally, including portion-controlled options for regular calorie products, and more than 100 new low- or no-calorie options. Since 2000, our average number of calories per serving has decreased by 9 percent globally. In 2012, we supported more than 290 active healthy living programs in 118 countries.

OBJECTIVES The main objectives for the Coca-Cola Company are to be globally known as a business that conducts business responsibility and ethically and to accelerate sustainable growth to operate in tomorrow's world. By having these objectives, it forms the foundation for companies in the decision making process.

COCA-COLA COMPANY EXECUTIVE OFFICERS 1. E. NEVILLE ISDELL- Chairman of the Board/CEO 2. MUHTAR KENT- President and COO 3. IRIAL FINAN- EVP and President Bottling Invest/Supply Chain 4. GARY P. FAYARD- CFO and EVP 5. MARY E. MINNICK- EVP and President MKT Strategy/Innovation 6. AHMET BOZER- President of the Eurasia Group 7. DOMINIQUE REINICHE- President European Union Market 8. ALEXANDER B. CUMMINGS- President of the African Group 9. JOSE OCTAVIO REYES- President Latin America Group 10. GLENN G. JORDAN- President of the Pacific Group 11. GEOFFREY J. KELLY- SVP and General Counsel 12. CYNTHIA P. MCCAQUE- SVP and Director of Human Resources 13. THOMAS G. MATTIN- SVP and Director Public Affairs/Communication 14. DANNY L. STRICKLAND- SVP Consumer Innovation/R&D Officer 15. J. ALEXANDER M. DOUGLAS JR. - SVP and President N. America Group

II.

MARKETING ASPECT PRODUCTS AND BRANDS The following table sets forth our most significant brands in each of our major beverage categories:

SPARKLING BEVERAGES* Juices and Juice Drinks Coca-Cola Sprite Diet Coke / Coca-Cola Light Fanta
5

STILL BEVERAGES* Coffees and Teas Nestea teas

Waters Ciel
1

Minute Maid

Minute Maid Pulpy Hi-C Simply

Georgia coffees

Dasani1 Bonaqua / Bonaqa1

Sokenbicha teas3 Leao / Matte Leao teas Dogadan teas10

Ice Dew8 Kinley11 Glaceau smartwater4

Coca-Cola Zero / Coke Zero Schweppes12 Thums Up13 Fresca Barqs14 Lift Pop18 Inca Kola19 Kuat
20

Dobriy6 Del Valle9 Cappy1

Energy Drinks Burn Relentless15 NOS4 Full Throttle4

Other Still Beverages Glaceauvitaminwater FUZE16

Sports Drinks Powerade1 Aquarius17

* Includes, for each brand, all flavor variations and line extensions. Unless otherwise indicated in a footnote below, products underthe brands are sold in markets across two or more geographic operating groups.
1

In some markets, certain products sold under this brand are sparkling beverages. Nestea products are distributed in the United States under a sublicense from a

subsidiary of Nestle S.A., and in various othermarkets worldwide through Beverage Partners Worldwide (BPW), the Companys joint venture with Nestle S.A. In somemarkets, certain Nestea products are sparkling beverages. The Nestea trademark is owned by Societe des ProduitsNestle S.A.

Sold primarily in Japan. Sold primarily in the United States. In some markets, certain products sold under this brand are still beverages. Dobriy juice products are manufactured, marketed and sold primarily in Russia,

Ukraine and Belarus by Multon, a Russian juicebusiness operated as a joint venture with Coca-Cola Hellenic Bottling Company S.A. Certain products sold under this brand are sparkling beverages.
7

The Company manufactures, markets and sells Leao / Matte Leao teas in Brazil

through a joint venture with our bottling partners.

Sold in China. The Company manufactures, markets and sells juices and juice drinks under the del

Valle trademark through joint ventures with our bottling partners in Mexico and Brazil.
10

Sold in Turkey. Kinley is also a sparkling beverage in certain countries. The Schweppes brand is owned by the Company in some countries (excluding the

11

12

U.S., among others). In some markets, certainSchweppes products are still beverages.
13

Sold primarily in India. Sold primarily in North America. Sold primarily in Australia and Great Britain. Sold in the United States and Canada. In some markets we offer water products or sparkling beverages in addition to

14

15

16

17

sports drinks under the brand Aquarius.

18

Sold in the Philippines. Sold primarily in Latin America (Chile, Ecuador and Peru). Sold in Brazil. COMPETITORS The Coca-Cola Company has two major rivals: PepsiCo and Cadbury Schweppes PLC. Its interesting to note that PepsiCo has more than double the employees as:

19

20

1. PEPSICO PepsiCo is a fierce competitor in the beverage industrys two fastest growing categories: water and sports drinks. The companys portfolio contains the number one water brand, Aquafina, and the leading sports drink brand Gatorade. PepsiCo leads in the bottled tea market with Brisk, co-marketed with Lipton. PepsiCo has its own coffee product, Frappuccino, marketed in a joint-venture with Starbucks. PepsiCo doubled its Gatorade sales in the past five years. PepsiCo obtains 60 percent of its revenues from its snack division. The division has succeeded in these health-conscious times with a campaign called Smart Spot that emphasizes better for you products. These products meet the Food and Drug Administration and the National Academy of Sciences nutritional criteria.

2. CADBURY SCHWEPPES PLC Cadbury Schweppes PLC is the worlds largest confectionery company and has a strong regional beverage presence in the Americas and Australia. The company dates back over 200 years with brands such as Cadbury, Schweppes, Halls, Trident, Dr. Pepper, Snapple, Trebor, 7Up, Bubblicious and Bassett, employing approximately 60,000 associates.

III.

STATEMENT OF THE PROBLEM

This case study emphasizes that the Coca-Cola Company needs to reduce its dependence on carbonated beverage and diversify its product portfolio into the noncarbonated sector to remain competitive. Specifically, it sought to answer the following questions: 1. What are the strengths and weaknesses of Coca-Cola Company? 2. What are the products should the Company produce in addition to its carbonated beverage product? 3. Should Coca-Cola strive to enter the snack business from which its rival PepsiCo derives so much revenue?

IV.

ALTERNATIVE COURSES OF ACTION This study used the descriptive research method to determine the Coca-Colas

strengths and weaknesses, the products to be added by the Company to expand its market in both the beverage and snack food industries and the actions to be taken by the Company. The case study found that: 1. The key strengths of Coca-Cola are its strong brand recognition and its wide geographic coverage across the globe. The company has a leading brand value and a strong brand portfolio. Out of the five leading soft drinkbrands being sold worldwide, the company produces and sells four ofthem namely CocaCola, Sprite, Fanta and Diet Coke. The company hasover 400 brands in its portfolio, representing almost 2,400 beverageproducts. Consumer loyalty to

the company and its products remainhigh, which is evident from the high market acceptance for Coca-Cola'snewly introduced products. Their

consumers come from different parts of the world. Coca-Cola sells finished beverage products bearing the Coca-Cola trademarks in more than 200 countries.

2. The weaknesses of Coca-Cola include the lack of diversification as compared to PepsiCo and the increasing concerns on health issue. Coca-Cola owns or licenses more than 500 brands. However, most of the brands are various kinds of beverages. On the contrary, another soft drink leader, PepsiCo, has a better diversification. Surprisingly, PepsiCos product mix consists of 63% food, and 37% beverages. Lack of diversification of business area will affect CocaColas sales seriously if the demand for beverages decreases. There is an increase concerns on healthy lifestyle, especially in developed countries. "Consumer awareness of health problems arising from obesity and inactive lifestyles represent a serious risk of the carbonated drinks sector" (Data monitor, 2005). These trends suggest that Coca-Cola should differentiate its products in order to increase sales in a stagnant market.

3. William Pecoriello, a leading beverage industry analyst from Morgan Stanley & Co, predicts the carbonated soft drink (CSD) category, The current set of teens may become the lost generation for the CSD category. ... Our latest

survey of 1,550 consumers aged 13-65 supports our view that the US CSD segment is likely to remain under pressure. We maintain a forecast for a 1.5 percent annual volume decline for the CSD segment (Beverage World 2007). In the major market of Coca-Cola, US market, the volume sale of carbonated soft drink dropped more than 8% in 5 successive years, from 2005 to 2009, with 0.2% in 2005, 0.6% in 2006, 2.3% in 2007, 3% in 2008 and 2.1% in 2009. It is likely that the volume will keep declining. If Coca-Cola focuses only on the carbonated soft drink sector competitively, it will weaken or make Coca-Cola lose the market leader in beverage industry. There are many kinds of substitutes for Coca-Cola products. They are bottled water, sports drinks, coffee and tea. As consumers concern more about health, bottled water and sport drinks are increasingly popular. This trend is epitomized in the beverage consumption pattern of the ageing baby boomers.

4. For more than a century, Coca-Cola and PepsiCo have battled in cola war. However, as PepsiCo diversifies it product mix to food, especially healthy food, it overtook Coca-Cola in terms of its market capitalization in December 2006. Coca-Cola feel slight behind at US$97.9 billion to PepsiCos US$98.4 billion. By the end of 2010, Pepsi Co has a higher gross profit than Coca-Cola by US$8.8 billion. Thus, Coca-Cola must invest capital on research & development on snack business. Coca-Cola should focus on beverages business and related

businesses, e.g. bottling, sugar plantation or even tin can and glass recycling business. Coca-Cola should be sensitive of any new trend and position itself as a unique brand in order to keep its competitive advantage.

V.

CONCLUSION The company needs to reduce its dependence on carbonated beverage and diversify its product portfolio into the noncarbonated sector to remain competitive. Coca Cola will find it hard to keep current growth levels and will find it hard to penetrate new markets with its existing product portfolio. Coco-cola Company should adopt diversification strategy. The company should not only deal with beverages and bottled water but it manufacture and distribute its own snacks and other healthy products since the company is known worldwide. This strategy can help Coca-Cola Company address the strong rivalry with PepsiCo and present opportunities for growth.

VI.

RECOMMENDATIONS

Based on the findings and conclusions mentioned above, the researcher offers the following recommendations: 1. The Coca-Cola should invest more capital on research & development to establish whether it is possible for the company to produce carbonated drinks that would have no side effects to the consumers and snack business to address the increasing competition with PepsiCo. 2. Aside from having its own snack business, the Coca-Cola should also acquire other companies especially those engage with the snack or food business to penetrate new markets to increase its growth levels. 3. Coca-Cola should do bottling itself. In this case, Coke can have a better control
distribution and be quicker to market with products - both key as the company keeps up with people's changing tastes. Besides, it can to save at least $350 million per year.