Professional Documents
Culture Documents
Faculty of Business
Strategic Management
“Coca-Cola Company”
Case Study
STRATEGIC MANAGEMENT
Prepared By
Fathi Salem Mohammed Abdullah
2009
History analysis
• In May, 1886, Coca Cola was invented by Doctor John Pemberton a
pharmacist from Atlanta, Georgia. John Pemberton concocted the Coca
Cola formula in a three legged brass kettle in his backyard.
• Being a bookkeeper, Frank Robinson also had excellent penmanship. It
was he who first scripted "Coca Cola" into the flowing letters which has
become the famous logo of today.
• The soft drink was first sold to the public at the soda fountain in
Jacob's Pharmacy in Atlanta on May 8, 1886.
• Until 1905, the soft drink, marketed as a tonic, contained extracts of
cocaine as well as the caffeine-rich kola nut.
• Until the 1960s, both small town and big city dwellers enjoyed
carbonated beverages at the local soda fountain or ice cream saloon.
Often housed in the drug store, the soda fountain counter served as a
meeting place for people of all ages. Often combined with lunch
counters, the soda fountain declined in popularity as commercial ice
cream, bottled soft drinks, and fast food restaurants became popular.
• On April 23, 1985, the trade secret "New Coke" formula was released.
Today, products of the Coca Cola Company are consumed at the rate of
more than one billion drinks per day.
(proposed)
At Coca Cola we believe our main responsibility is providing customers (1) with
refreshing beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit
any occasion in their day to day lives (6). Our signature product, Coke (7), is a favorite
around the world and a wide variety of our products are sold in over 200 nations (3). We
use the only the most sophisticated equipment (4) to process and make our products to
ensure each glass of Coke product is as good as the last (5). Our employees (9) are fairly
compensated and we practice fair trade in all markets we compete. We value our
responsibility to all communities we serve and support many educational and leadership
programs (8).
1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees
Political
Like most companies, Coca-Cola is monitoring the policies and regulations set by
the government. There are no political issues in this instance.
Economic
There is low growth in the market for carbonated drinks, especially in Coca-Cola’s
main market, North America. The market growth recorded at only 1% for North
America in 2004.
Social
There are changes in consumers’ lifestyles. Consumers are more health conscious.
This affects the Coca-Cola’s sales of the carbonated drinks as consumers prefer
non-carbonated drinks such as tea, juices and bottled drinks. Demand for
carbonated drinks decreases and this leads to a decrease in Coca-Cola’s revenues.
Technological
As the technology advances, new products are introduced into the market. The
advance in technology has led to the creation of cherry coke in 1985 but consumers
still prefers the traditional taste of the original coke.
External Audit
Opportunities Threats
Date Book Value/ Share Debt/Equity ROE (%) ROA (%) Interest Coverage
12/06 $7.30 0.27 30.0 17.0 28.7
12/05 $6.90 0.35 29.8 16.6 25.4
12/04 $6.61 0.45 30.4 15.4 29.1
12/03 $5.77 0.38 30.9 15.9 29.3
12/02 $4.78 0.45 33.7 16.3 27.4
Adapted from www.moneycentral.msn.com
SWOT Strategies
Strengths (S) Weaknesses (W)
Opportunities (O) SO Strategies WO Strategies
SPACE Matrix
Coordinate: (3.6, 2.2)
FS
Conservative Aggressive
CA IS
Defensive Competitive
ES
Financial Strength (FS) Environmental Stability (ES)
Return on Assets (ROA) 6 Rate of Inflation -3
Leverage 6 Technological Changes -2
Net Income 6 Price Elasticity of Demand -2
Income/Employee 6 Competitive Pressure -6
Inventory Turnover 3 Barriers to Entry into Market -3
Financial Strength (FS) Average 5.4 Environmental Stability (ES) Average -3.2
Competitive Advantage (CA) Average -1.4 Industry Strength (IS) Average 5.0
Quadrant II Quadrant I
Weak
Competitive Strong
Position Competitive
Position
Coke
Stars Question Marks
Industry
Sales
Growth
Rate
Medium IV V VI
The EFE Total 2.0 to 2.99
Weighted Score
Coca Cola
QSPM
Strategic Alternatives
Acquire KKD and Produce new diet
GLDC drinks that have
healthier sugar
Key Internal Factors Weight substitutes
Strengths AS TAS AS TAS
1. Product line has over 400 brands. 0.09 2 0.18 4 0.36
2. Strong global presence, located in over 200 0.10 --- --- --- ---
countries.
3. Long history has built excellent brand recognition. 0.06 2 0.12 4 0.24
4. Partnership longevity with established sporting 0.05 --- --- --- ---
events including the Olympics.
5. Industry leader in market capitalization with $112 0.12 4 0.48 3 0.36
billion.
6. Return on Equity yielded 30 percent in 2006. 0.04 4 0.16 3 0.12
7. Leader of dividend yields of 2.6 percent. The
company has had 43 consecutive years of an 0.04 --- --- --- ---
annual dividend increase.
8. Joint venture between The Coca Cola Company
and Nestle has resulted in the establishment of 0.06 --- --- --- ---
Beverage Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with
McDonalds, with McDonalds becoming their 0.10 --- --- --- ---
largest customer.
Weaknesses
1. Product line is limited to beverages. 0.09 4 0.36 1 0.09
2. A failed $16 billion acquisition of Quaker Oats 0.10 --- --- --- ---
hinders long-term growth.
3. Negative publicity in India because of water issues,
has led to poor brand image and hindered growth 0.03 --- --- --- ---
there.
4. Lack of management willingness to place foreign 0.02 --- --- --- ---
products into American markets.
5. Marketing deficiencies due to turnover in
leadership and a 16 percent decrease in advertising 0.05 --- --- --- ---
spending.
6. Coca Cola’s inventory turnover is only 5.4 0.05 4 0.20 1 0.05
compared to Pepsi Co.’s 8.0.
SUBTOTAL 1.00 1.50 1.22
Recommendations
The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and
snack food company) was a better option than producing a new diet soda line made form
more healthy sugar alternatives. Both scores on the QSPM are relatively close and given
the financial condition of KKD and GLDC, it is recommended Coca Cola undertake both
strategic alternatives. The Net Worth of both companies is provided below. It is
estimated it would cost $200 million to research, produce and market the new diet drinks.
EPS/EBIT Analysis
$ Amount Needed: 360M
Stock Price: $58
Tax Rate: 35%
Interest Rate: 5%
# Shares Outstanding: 1,600M
Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000
Interest 0 0 0 18,000,000 18,000,000 18,000,000
EBT 4,000,000,000 6,000,000,000 8,000,000,000 3,982,000,000 5,982,000,000 7,982,000,000
Taxes 1,400,000,000 2,100,000,000 2,800,000,000 1,393,700,000 2,093,700,000 2,793,700,000
EAT 2,600,000,000 3,900,000,000 5,200,000,000 2,588,300,000 3,888,300,000 5,188,300,000
# Shares 1,606,206,897 1,606,206,897 1,606,206,897 1,600,000,000 1,600,000,000 1,600,000,000
EPS 1.62 2.43 3.24 1.62 2.43 3.24
70 Percent Stock 30 Percent Debt 70 Percent Debt 30 Percent Stock
Recession Normal Boom Recession Normal Boom
EBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000
Interest 5,400,000 5,400,000 5,400,000 12,600,000 12,600,000 12,600,000
EBT 3,994,600,000 5,994,600,000 7,994,600,000 3,987,400,000 5,987,400,000 7,987,400,000
Taxes 1,398,110,000 2,098,110,000 2,798,110,000 1,395,590,000 2,095,590,000 2,795,590,000
EAT 2,596,490,000 3,896,490,000 5,196,490,000 2,591,810,000 3,891,810,000 5,191,810,000
# Shares 1,604,344,828 1,604,344,828 1,604,344,828 1,601,862,069 1,601,862,069 1,601,862,069
EPS 1.62 2.43 3.24 1.62 2.43 3.24
References
1. www.moneycentral.msn.com
2. www.coca-cola.com
3. Strategic Management concepts and cases by Fred David 12 edition
th
4. Exploring Corporate Strategy text & cases 8 edition