THE COCA-COLA COMPANY

Oscar Abraham Ramos Chacon

SID: 20227796 | NOV 15, 2016

 TABLE OF CONTENTS

EXECUTIVE SUMMARY……………………………………………..3

BACKGROUND SECTION……………………………………………4

SWOT ANALYSIS……………………………………………………..5

ALTERNATIVES SECTION…………………………………………..6

CHOICE AND IMPLEMENTATION SECTION……………………...7

FINANCIAL STATEMENTS…………………………………………..8

APPENDICES…………………………………………………………14

REFERENCES………………………………………………………...17

2
Executive Summary

The Coca-Cola Company has performed like no other beverage company in the industry, they
know the business better than anyone. They created and nurtured their brand to more than 200
countries worldwide. This company currently faces hard external and industrial challenges but
continues building their reputation on its powerful strengths and opportunities. According to
Forbes, financially they have maintained a stock price in the same pricing range over the last
decade as well a stable market capitalization evaluation. Coke currently operates more than 20
billion dollar brands worldwide and is the world leader beverage distributor, but it’s time for this
company to open their wings to new adventures. More specifically, alternatives are being
presented; a blue ocean strategy and a corporate level strategy, diversification. After a
comparison of both alternatives, the recommended strategic plan alternative is to diversify the
business into the chips/food industry due to a significant increase in the consumption of potato
chips for the next five years (See figure 4). This plan is supported by a SWOT analysis,
marketing plan, and included appendices such as alternative cost estimates, and current beverage
industry trends. The Coca-Cola Company aims to put into action various financial and
investment activities to fulfill this business objective in the next five years with an approximated
budget of 6 billion dollars.

3
 Background

The Coca-Coca Company (Coke) is the world’s largest beverage enterprise and competes within
the Consumer Package Goods (CPG) industry along with its famous rival, Pepsi. Coke
manufactures, retails, and markets non-alcoholic ready to drink beverages across the globe.
Coke’s brand is one of the most valuable brands in the world with a market cap value of 192.8
billion dollars. This company’s purpose is to refresh the world in mind, body, and spirit by
inspiring moments of happiness through Coke brands and actions.

Current History
The Coca-Cola formula started in Atlanta, Georgia back in 1886 when pharmacist John
Pemberton created the now iconic Coca-Cola drink. Then, an American businessman, Asa
Griggs Candler bought the business rights and founded The Coca-Cola Company in 1888. For
decades, Coca-Cola has been recognized as one of the most popular drinks on earth, but also has
received huge criticism for its sugar levels in some Coke products. This company is frequently
associated as the best in marketing efforts due to its superb advertising campaigns and stunning
slogans. Over the years, this company has reached thirsty consumers in more than 200 countries
as well as sharing market share with long-time competitors such as PEPSICO and NESTLE.
Furthermore, it is estimated that 94% of the world’s population recognize the Coca-Cola red &
white logo.

Current Operations
As the largest beverage company, its portfolio includes 20 iconic billion dollar brands including
four of the top five soft-drinks: Coke, Sprite, Fanta, Diet Coke, and Coca-Cola Zero. It operates
in seven segments: Eurasia & Africa, Europe, Latin America, North America, Asia Pacific,
Bottling Investments and Corporate. Muhtar Kent is the current Chief Executive Officer and
Chairman of a 15-person Board. Coke has been recognized for ranking among the world’s top 10
private employers with more than 700,000 system employees from all cultural backgrounds.
Today Coke’s objectives are summing up efforts to bring purified water to the thirsty, creating
better sustainable packaging, and reaching the 2020 vision which consists of both Coke and
bottling partners working together to refresh the world. Being the soft-drink world leader has
also challenges due to growing signs that consumers in many parts of the world are cutting back
on soda in response to rising obesity and diabetes rates. Coke has taken action and introduced
many brands that meet the strictest consumers.

Recent Financial
Coke is not doing well financially. Since the year 2016 started, Coke’s stock increased from
$41.51 to $46.22, but it started to slowly decrease since April and now Coke’s stock is valued at
$42.11. Although the stock prices are decreasing, annual dividends have consecutively increased
for the last 53 years which gives a certain relief to the operating committee and shareholders.
However, last year’s quarter net profit fell 4.8% to $1.48 billion and revenue dropped 4% to
$10.28 billion. For 2016, net revenue declined 4%, global volume grew 2%, and gained global
market share in the non-alcoholic ready to drink division. Kent is confident that the right
strategies are in place and focus on the global transformation of The Coca-Cola Company.

4
SWOT Analysis
Introduction
Over its 130 years in the beverage industry, The Coca-Cola Company has taken unique
opportunities to move the company forward into more markets and increasing profit channels. On
the other hand, being the world leader in beverages is definitely a competitive advantage but as
society develops, threats regarding sugar levels and obesity hit Coke’s way of making drinks.

Strengths
Coke’s brand name is iconic and worldwide recognized. Their brand plus its talented marketing
and advertising capabilities allow Coke to penetrate different markets with confidence and
understanding. This company has fought its entire company life to have the best beverage
distribution system, and they have. By partnering with some of the best bottlers across the world,
Coca-Cola can suffice its extravagant demands. Regions such as Latin America, North America,
Asia, and Western Europe are important target markets for the company. Coke creates multiple
types of drinks to precisely serve what each region likes the most; for example, Africa is
characterized by Coke as a region with high levels of sugar acceptance/satisfaction. Therefore,
Coca-Cola creates more sugary drinks in Africa than in other regions. History and tradition are
key factors for millions of people who have experienced the taste and feeling of a Coca-Cola.
These people may or may not advocate for the brand, but enjoy its diverse portfolio of products
and convenience to the public.

Weaknesses
Reliable internal information sharing with general administration and different departments around
the world has been an issue that Coca-Cola is currently addressing. Also, some technology and
systems development are often outsourced leaving Coke depending on a third-party if something
goes wrong with the system. For example, Salesforce and other agencies support Coke’s
information sharing, financial, and working activities. In some countries, the usage of old
equipment operations produces enormous non-ecofriendly plastic worldwide. This particularly is
not good for the company’s sustainability image and CSR.

Opportunities
Diversifying/entering into the food industry is also a great opportunity for the Coca-Cola
Company. According to LinkedIn, many professionals in the (CPG) industry agree that it’s time
for Coke to enter new territories. Also, Millennial consumers demand for healthy organic foods
and beverages. Figure 2 and 3 shows the inverse relationship with the water and soft drink
consumption. Trends demonstrate that People are leaving the soft drinks. Multiple eco-friendly/
CSR actions worldwide require research and development to preserve the environment.

Threats
Water management is one of the toughest challenges for Coca-Cola. Nowadays, high
environmental and regulations in the US make things more bureaucratic and longer when it comes
to launching a new product. Furthermore, competitors, new entrants, and substitute products
steadily joining the beverage business. This forces Coke to always stay on top of everything.
Obesity rates are on the rise, unfortunately, Coke has received bad publicity from these trends.
Also, global currency fluctuations due to economical/political forces affect Coke’s stock price

5
Alternatives Section

Based on the current operations already explained in the background section, Coca-Cola is not
doing financially fine. There have been major external environment threats that have challenge the
company such as water management across the world and declining trends in the sparkling sector.
The following presents two alternatives for the Coca-Cola Company.

The proposed conservative adjustment strategy consists of pushing a blue ocean strategy. Coca-
Cola needs to focus on supporting/enchaining the drinking experience whether a person is drinking
coffee, coke, water, juice, etc. Coke is the leader in this industry, therefore is their responsibility
to create top-notch devices in order to make people drink its products. The alternative cost estimate
is 5 million dollars. Coca-Cola will sell a 5 million corporate bond to finance the research and
labor of the straw technology. This blue ocean strategy tailor’s entrepreneurship at its best. There’s
no big competitor in the beverage industry that focuses in straws. Assuming Coke finds this idea
interesting and possible, the mission will be developing an innovative and powered straw that can
be purchased at the Coca-Cola store, Amazon, Walmart, etc., that will provide with unique features
to consumers. Unique features will range from thermometer indicator, amount of liquid consumed,
and thermostat. This alternative supports current technological initiatives that Coke is currently
working on, they now have to support the drinking experience and not only provide it. The Coca-
Cola brand is iconic, but to even take it to the next level, as Apple and Google currently does, is
to utilize the existing brand love and capitalize on it by giving consumers valuable and relevant
gadgets to increase user experience. This plan is scheduled to proceed late 2017 and conclude
early 2019. If Coke produced exceeds expectations, their revenues will go up and positioning will
turn positive in the innovative cluster. This is the best time to use technology and innovation for
the well-being of society and to enhance consumer satisfaction. See figure 5 for the cost estimates.

The proposed major change strategy consists of a corporate level strategy, diversification into the
food industry. Many experts in the field recommend Coke to once and for all let the brand do its
work and try new ways to elevate revenues and the stock price that has been in the $40’s over the
last decade. This plan recommends going into the chips industry since it will be the most eloquent
decision. If Coke enters this market, PEPSICO will Quaker, and other competitors will possibly
face high competition threats. According to Statista in figure 4, confirms that the chip industry will
actually have an increase in demand, therefore is not a bad idea to push forward this major change
strategy for Coke. Utilizing a separate family brand name strategy will prevent negative
connotation to the Coca-Cola brand if any unfortunate circumstances happen. Coke then can
follow a similar Procter and Gamble strategy by creating a set of products, marketing them
uniquely, and pushing forward with a focused differentiation plan. Also, PEPSICO will react
fiercely to this threat, but thanks to Coke’s iconic history, there should not be an impenetrable
barrier to start the diversification process in the chip industry. Certainly, if everything goes well,
this strategy will help Coca-Cola in their bottom line, market capitalization, and brand love.
Financial estimations for this major change at Coca-Cola escalate from three to possibly 10 billion
dollars in the next five years during the implementation process. The funds will be proportionally
raised from corporate bonds, immediate strategic alliances resources, and investment activities. In
today’s market, consumers want corporations to engage with the community and to follow a
responsible eco-friendly approach, therefore, positioning these new brands of chips around these
two key dimensions will undoubtedly support the development and sustainable profit growth of
this business objective. See Figure 6 for the cost estimates.

6
Choice and Implementation
The selected alternative will be to diversify the Coca-Cola Company into the food business. Coke’s
marketing capabilities and brand recognition are two very important factors of this strategy. But
first, this is the reason why a blue ocean strategy won’t be the ideal plan. Even though is
fundamental to continue the innovation in the beverage department, creating technological straws
will only create a short-term low impact in revenues. Coke’s SWOT analysis presents higher
positive expectations for a diversification strategy rather than a blue ocean tactic. For example;
Coke must utilize its vast and world leader distribution knowledge to outplay PEPSICO’s as well
as use its iconic brand to empower current Coca-Cola products with the new diversified portfolio,
in this case, chip products along with soft drinks. A blue ocean strategy can definitely benefit the
company if Coke’s mission were linked to innovation or technology, however, that’s not the case,
so then a diversification move will bring new possibilities and most importantly, a sustainable
competitive advantage for the years to come.

For the proposed diversification strategy, a marketing plan as well as other important factors will
suffice its implementation process within the next 5 years.

Product: Chips will fundamentally serve as the primarily offered good to the target market. In
depth market research and studying Lay’s organizational structure will serve as initial starting
point to discover the best flavors, packages, distribution channels, supply chains, operations, and
alternatives in order to smoothly dominate market share in this industry. These new brands of chips
will be aligned into the eco-friendly sector where potatoes are harvested in the best sustainable
farms to help the environment and give special value to shareholders as a whole.

Place: Coca-Cola’s relationship with the people of Mexico is magnificent therefore using this
country as a pilot test for the first two years will reveal potential opportunities and threats of such
implementation. After the pilot test, an evaluation of the resources used will determine the budget
for similar countries and give legit insights to be used in different ways.

Price: Starting with a cost leader strategy for the two year will guarantee initial market share
penetration. Then, price will later adjust to what the market demands, also sales promotions and
trial activities will be added to the plan to increase brand awareness in consumers.

Promotion: Coca-Cola must Integrate all of its communications efforts to better reach its
objectives. Recommended channels for a good integrated marketing communication strategy are
Customer Relationship Management, heavy digital marketing on mobile, TV ads, and event
marketing.

Positioning: It is important to follow a separated family brand name strategy conduct towards
marketing because the target market must create a relationship with the product of Coca-Cola not
directly with the brand Coca-Cola as compared to Coke’s beverages which directly have a
relationship with the Coca-Cola brand. Effective advertisement will ensure that this message is
concrete and specific based on this particular choice alternative.

7
Financial Statements – The Coca-Cola Company (Coke)

(Amounts in $Millions)
As of 2015-12-31 Coke had $90,093 in total assets, $33,395 in total
current assets, and $60,699 in total long-term assets. They also had $7,309
in cash and $2,902 in inventory. Coke had $12,571 of Property, Plant and
Equipment. Their total liabilities were $68,330, their total current
liabilities were $26,930 and their long-term debt was $28,407.

Between 2015-01-01 and 2015-12-31 Coke had $44,294 in revenues, and

their cost of goods sold was $17,482. In the same period their sales,
general and administrative expenses were $16,427. During this period
Coke had a net interest income of $877, and paid taxes of $2,239.

For the year 2017, Coke expects their sales volume to increase by 50%,
but with a 9% decline in their average sales price. They expect their cost
of goods sold volume to increase by 17%, but with a 5% decline in
average costs. They expect their selling administrative expenses and other
operational expenses to increase by 15%. Interest expense to increase by
15% as well. Depreciation will remain the same, but their income tax
increased by 16%.

Cash as a percent of Total Assets = 7.77%

Debt Ratio = Total Liabilities/Total Assets = 72.62%

ROA = Net Income / Total Assets = 7.83%

8
 Balance Sheet for The Coca-Cola Company as of December 31st, 2015
(2015 Form 10-K Release)
in $Millions

Cash $7,309

Inventory $2,902

Other current assets $23,184

Total current assets $ 33,395 35.50%

Property, Plant and Equipment — net $12,571

Other long-term assets $48,128

Total long-term assets $60,699 64.50%

Total assets $ 94,094 100%

-------------------------------------------------------------------------------------
Total current liabilities $26,930

Long-term debt $28,407

Other liabilities $12,993

Total liabilities $68,330 72.62%

Owner’s equity $25,764 27.38%

Total liabilities and owner’s equity $94,094 100 %

9
 Income Statement for The Coca-Cola Company
for the period Jan. 1st, 2015 to December 31st, 2015.
(2015 Form 10-K Release)
in $Millions

Revenue $44,294 100%

COGS $17,482

Gross Profit $26,812 60.53%

Selling and Administrative Expenses $16,427

Other operating charges $1,657

Total $18,084

Operating Income $8,728 19.70%

Net Interest income $877

Income before Taxes $9,605 21.68%

Taxes $ 2,239

Net income $7,366 16.63%

10
 Projected Income Statement for The Coca-Cola Company
in $Millions

Sales (44,294 * 1.5 * 0.91) $60,461.31

Cost of goods sold (17,482 * 1.17 * 0.95) ($19,431.24)

Gross Profit $41,030.07

Selling and administrative expenses:

Selling and administrative expenses (16,427 * 1.15) $18,891.05

Other operating expenses (1,657 * 1.15) $1,905.55

Total $20,796.6

Income from operations $ 20,233.47

Interest expense (877 * 1.15) ($1008.55)

Income before taxes $19,224.92

Income tax (2239 * 1.16) ($2,597.24)

Net income $16,627.68

11
 Projected Cash Flows for The Coca-Cola Company
in $Millions

Coke’s ending cash for 2015 was $7,309. Their projected net income
for 2017 is $16,627.68; but this is not the same as expected cash from
operations because it includes $3,500 in depreciation. Because of the
increase in sales volume, Coca-Cola expects inventory to increase by
$25,000, but they don’t expect any changes in any other non-cash
working capital accounts.

Since Coca-Cola will allocate resources for the Corporate-Level,

diversification strategy, they expect to invest a Billion dollars for
investment activities needed to construct facilities in Mexico and
other parts of South America. Financial activities will go close to two
Billion dollars due to high banking involvement with EY. Coke also
will sell bonds at 20% interest. They’ve decided to pay $300 million
on dividends.

12
 Projected Cash Flow Statement for The Coca-Cola Company
in $Millions

Cash from:

Operating Activities (+16,627.68 net inc. + 3,500 depr - 25,000 inv) (4,872.32)

Investing Activities (1,000,000)

Financing Activities (2,000,000 – 300 Dividends) 1,700,000

Net Change in Cash $695,127.68

Beginning Cash $7,309

Change in Cash $695,127.68

Ending Cash $702,436.68

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 Appendices
STRENGTHS
• Coca Cola’s brand name is probably one of the
single most recognized labels in the world.
• Operates the largest beverage distribution system
across more than 200 countries.
• Advertising, marketing, and service capabilities
are exceptional.
• Extensive and diversified billion-dollar product
portfolio.
OPPORTUNITIES
• Millennial consumers demand for healthy organic
foods and beverages.
• Diversification into the food or medicine industry.
• Eco-friendly and corporate social responsibility
actions worldwide. Africa and other low-
developed locations need clean water.
• Research and Development on plastic technology
Figure 1. SWOT Analysis
Figure 2. Per capita consumption of bottled water in the United States from 1999 to 2015 (in
gallons).
WEAKNESSES
• Global internal information sharing with different
units around the world.
• Technology and Systems Development are often
outsourced leaving Coke depending on a third-
party if something goes wrong with the system.
• The usage of old equipment operations producing
enormous non-ecofriendly plastic worldwide.
THREATS
• High environmental regulations in the US
• Competitors, new entrants, and substitute products
steadily joining the beverage business.
• Obesity rates are on the rise, especially in the
United States the need for health or diet products
is sky rocketing.
• Foreign Currency Fluctuations.
• Water Management across the world.
• Increasing legal regulations in the beverage
industry
14
Figure 3. Per capita consumption of soft drinks in the United States from 2010 to 2014 (in
gallons).

Figure 4. U.S. population: Consumption of potato chips from 2011 to 2020.

15
Figure 5.

Figure 6.

16
 References

Coca-Cola 2015 Annual 10-K Form

http://coca-cola-ir.prod-use1.investis.com/~/media/Files/C/Coca-Cola-IR/documents/financial-
reports/2015-annual-report-on-form-10k.pdf

DeFranco, Jr., K. (2015, May 20). Value Line - The Most Trusted Name in Investment Research.
Retrieved November 07, 2016, from http://www.valueline.com/Stocks/Highlights.aspx

H. (2016, August 6). SWOT of Coca Cola - SWOT analysis of Coca cola. Retrieved November
07, 2016, from http://www.marketing91.com/swot-coca-cola/

Jurevicius, O. (2016, October 19). Coca Cola SWOT analysis 2016. Retrieved November 07,
2016, from https://www.strategicmanagementinsight.com/swot-analyses/coca-cola-swot-
analysis.html

Schurman, L. (2015, October 8). Coca-Cola: SWOT Analysis | Lauren Schurman | LinkedIn.
Retrieved November 7, 2016, from https://www.linkedin.com/pulse/coca-cola-swot-analysis-
lauren-schurman

Statistica Per capita consumption of bottled water in the United States from 1999 to 2015 (in
gallons)
https://www.statista.com/statistics/183377/per-capita-consumption-of-bottled-water-in-the-us-
since-1999/

17