Coca Cola is the leading manufacturer and retailer of non-alcoholic beverage in the world. The company is best known for its flagship product, Coca-Cola, a non-alcoholic carbonated drink, loved throughout the world by kids and adults alike. Coca-cola or Coke as it is known by people around the world can be found in more than 200 countries with 1.8 billion drinks being served each day. Here is a SWOT and PESTEL analysis of the soft-drink giant.
The drink was originally manufactured as a patent medicine by John Pemberton who got addicted to morphine after being wounded in the civil war and was looking for a substitute drink.
The drink was originally developed as a cocoa wine and was registered as a non-alcoholic version of Pemberton’s other famous invention, French Cocoa Wine Tonic. He claimed that the drink had medicinal properties and could cure a host of diseases.
In 1892, the Coca-Cola company was formed which started manufacturing the drink on a commercial basis.
Outdoor advertising started in Georgia in 1894. Since then advertising has played a major role in the promotion of Coke.
According to 2005 report, the beverage is currently sold in 200 countries with 1.8 billion drinks being sold every day.
According to the 2007 report of the company, almost 50 percent of the sales come from USA, followed by Third World countries of India, Mexico and China which contribute 37 percent of the sales and finally by the rest of the world which accounts for about 20 percent of the sales.
The company is a publicly traded company and is listed in New York Stock Exchange and Dow Jones Industrial Average. Coke stocks are considered to be one of the most important stocks in the world and their performance at the markets usually determines the performance of the stock markets as well. Holding a stock of the company is considered to be a lucrative enterprise with a single stock brought with 40 dollars way back in 1919 being valued at 9.8 million dollars at the current market rates.
Coke is the top selling aerated beverage in the world. However, it is not unrivalled. Its main competitors are Pepsi-Cola or simply Pepsi owned by the Pepsi Company and RC Cola owned by Dr. Pepper Snapple Group. In some markets, Pepsi outsells Coke.
Besides the iconic Coke brand, the company sells almost 500 branded products in more than 200 countries. Some of the important varieties are Diet Coke (low calorie drink directed towards the female population), Fanta (a product originally developed in Germany during the war years), Sprite (Coke’s answer to the highly popular 7 Up), flavored cokes (vanilla, cherry etc) and Coke Zero (another version of diet coke directed primarily targeting the male).
Advertising is the principal channel through which the company reaches out to its customers. Coke Ads have left a profound impact on American culture and the company is credited with introducing the red and white Santa.
The company has been associated with a number of sporting events and the iconic Coke bottles have featured in numerous films and other cultural representations. This is how the company has build up its legendary public image.
1. It is the best global brand in the world in terms of revenue, profits, stock market performance and brand image.
2. The company holds the largest market share (almost 40 percent) of the cola industry.
3. It has the most extensive marketing and distribution network in the world with presence in more than 200 countries with 1.8 billion drinks being sold every day.
4. Strong advertising presence with more than 3 million dollars being earmarked every year.
5. It can exert significant power over the suppliers.
6. The company is increasing focusing on CSR programs like energy conservation, water recycling, packaging etc. This has helped it to build a socially responsible image of the company.
1. The principle focus of the company is aerated beverages like Coke, Sprite and Fanta. However, this limited focus might prove detrimental for the company if the world is moving towards healthier drinks.
2. The product portfolio of Coke unlike that of Pepsi is highly undiversified. While Pepsi has diversified in both food and beverages, Coke has concentrated only on drinks. This singular focus on carbonated drinks may cost the company if markets for such drinks shrink in future.
3. The company has 8 billion dollars of debt in the market which is another negative point.
4. Coke has faced flak from experts who have criticized the water consumption policy of the company in regions with water scarcity.
5. Finally although Coke sells more than 500 types of product; yet only a few products result in more than 1 billion dollars sales.
1. Consumption of packaged drinking water and aerated beverages is expected to grow every year in Third World countries.
2. With the new trend of fitness and health gaining grounds, the company will benefit a lot from the promotion of low calorie and low sugar drinks like Diet Coke and Coke Zero.
3. Another significant way the company can expand its market is to acquire companies already existing in the Third World and BRICS nations.
4. Entry into packaged food is another way the company can expand its markets.
1. One of the serious threats comes from the popular perception that sugar based drinks lead to various health problems. The company will not prosper if this perception battle is not won.
2. More than 60 percent of the revenue comes from foreign markets. Weak currency performance of other countries will hamper the sales of the company.
3. Water resources continue to be a problem.
4. Rising raw material cost may lead to higher production costs and low profit ratios.
5. Pepsi and RC cola have given stiff competition in emerging markets.
6. Finally markets in developed countries are already saturated.
The boycott of Coke, the most potent symbol of American capitalism, by the Arab League in wake of the Iraq war declined the company’s sales in Middle Eastern countries.
Economic recession can have the greatest negative impact on the company. People tend to cut back on non-essential items like carbonated drinks. As such recession of 2008-2010 had a deep impact on the sales of Coco Cola.
As mentioned before, the perception battle is the hardest which Coke has to fight. More and more people are turning to healthier food and drinks and Coke being a high sugar and high calorie drink is fast losing the support of health conscious people.
Technological advancement in television and the internet means that the company can reach more people than before by using these innovative channels of communication. On the other hand, recycling plastic bottles and tin cans can lower the cost of production.
Coca Cola was sued for racial discrimination in the late 1990s when it was found out that the black employees were discriminated against in the company. This led to a massive face loss.
Two of the most significant environmental factors are pesticides and the water problem. It has been alleged that Coca Cola’s products in India contains toxins such as Lindane, DDT, Malathion and Chlorpyrifos. These toxins have been associated with cancer and breakdown of the immune system. Use of water for distillation and processing in areas of acute water shortages have been criticized by environmental activists.
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TNC - A transnational corporation that operates in more than one country across the world - tend to be large weathy organisations.
Reasons for Coca Cola to locate factories in India?
- Lower labour costs in LEDCs (low labour costs = higher profits)
- Reduces transport cost (low transport cost = higher profits)
- Working conditions are less strict (relaxed legalisation = lower overheads = more profit)
- Countries try to encourage multinational companies to invest in them (Indian states offered subsidized water, lower tax rates and financial incentives.)
- Widens market (more consumers = more profit)
- Brand status is raised
- Can adapt product to fit in with local market making it more 'local'
GLOBAL INCREASES PROFIT
Evidence Coco Cola is a TNC
- Headquarter is in a MEDC country - Atlanta, USA.
- Owns over 400 brands in over 300…