case-study   Coca Cola Case Study: SWOT and PESTLE Analysis

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.

According to the latest findings for Q2 of 2018 net revenues of Coca Cola declined by 8%, organic revenues (Non-GAAP) grew 5%. Further, its operating margin expanded more than 950 Basis Points and the comparable operating margin (Non-GAAP) expanded more than 300 basis points.

Here is a detailed SWOT and PESTEL analysis of the soft-drink giant

External Analysis:

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.

Initially, the drink was 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.

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.

Internal Analysis

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.

Here’s a sneak-peek into the company’s important information:

Type

Cola

Country of origin

United States

Area Served

Worldwide

Variants

·         Diet Coke

·         Diet Coke Caffeine-Free

·         Caffeine-Free Coca-Cola

·         Coca-Cola Zero Sugar

·         Coca-Cola Cherry

·         Coca-Cola Vanilla

·         Coca-Cola Citra

·         Coca-Cola Life

Annual Revenue

US $45.63 billion (August 24, 2018))

Key People

Muhtar Kent, Chairman

James Quincey, CEO

( Source: Wikipedia and NYSE)

SWOT Analysis

Strength

 

1.    It is the 4th 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.    It can exert significant power over the suppliers.

 

5.    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.

 

Weakness

 

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.    Coke has faced flak from experts who have criticized the water consumption policy of the company in regions with water scarcity.

 

4.    Finally although Coke sells more than 500 types of product; yet only a few products result in more than 1 billion dollars sales.

 

Opportunities

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.

 

 

 

 

 

 

Threats

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.

 

 

PESTLE Analysis

Political

Trump’s tariffs lead to inflations:

Coca-Cola said on July 27 it would be raising the price of its sodas in the middle of the year.

"There is some broad-based push on input costs that have kind of come in and affected ours and many other industries as well," CEO James Quincey told The Wall Street Journal.

Quincey cited steel and aluminum tariffs announced by Trump earlier this year as one of the causes of increased costs, but did not specify how high the price increase would be.

Economic

Economic recession:

Economic recession can have the greatest negative impact on the company. People tend to cut back on non-essential items like carbonated drinks

Social

Changing lifestyle:

As an initiative to combat the obesity issues in England and also to keep up with the
health conscious
audience’s desire to be fit, the Coca-Cola Company is pushing the fact that it sells more than its best-known brand Coke, as part of a "total beverage" strategy. In November 2017, it advertised its portfolio of drinks on its Times Square billboard in New York City with the line "We are Coca-Cola and so much more." The company has already launched an iced tea and a non-dairy drink in the U.K., and is set to bring its Honest Coffee cold beverage to the country next month, all of which will not be subject to the tax.

Technological

Cutting edge technology and recycling:

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.

Legal

Violation of the “Fair advertising law”:

A Praxis Project lawsuit in 2017, which called for a jury trial, aimed to prove Coke violated the Fair Advertising Law in its marketing and wanted the defendants to fund a “corrective public education campaign to reduce the consumption of sugar-sweetened beverages.” It also called for the defendants to prominently post on their websites the “consumption of sugar-sweetened beverages can lead to obesity, diabetes and cardiovascular disease”—a request that echoes the public health warnings that tobacco makers have been forced to add to their packaging for many years.

Environmental

Misuse of pesticides and water:

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.

Coca cola’s initiatives to save environment:

As Africa confronts water scarcity issues, Replenish Africa Initiative (RAIN) and CARE are championing sustainable and water efficient agriculture through the Pathways Program.

The partners are working to enable farmers, particularly women farmers, to be more livelihood- and food-secure through Water Smart Agriculture (WaSA) technologies and practices, providing the tools and knowledge needed to increase food production in the context of climate variability and limited water resources.

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