24 coke

Coca-Cola Company – 2011

Forest David

A. Case Abstract

Coca-Cola is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coke’s common stock is publicly traded under the ticker symbol KO.

Coca-Cola is the world's largest nonalcoholic beverage company, owning four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Founded in 1886 by Atlanta pharmacist John Pemberton, Coca-Cola brands today include Minute Maid, Powerade, and Dasani water. In North America the company sells Groupe Danone's Evian and also sells brands owned by rival Dr Pepper Snapple Group (Crush, Dr Pepper, and Schweppes) outside Australia, Europe, and North America. Coca-Cola today produces or licenses more than 3,500 drinks for sale in 200-plus countries.

In late 2010, Coca-Cola Company bought out its leading bottler, Coca-Cola Enterprises (CCE), and renamed it Coca-Cola Refreshments USA. The company continues to buy out its bottlers worldwide. Some of Coca-Cola’s $15 billion brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply and Georgia. Coca-Cola is the No. 1 provider of sparkling beverages, juices and juice drinks and ready-to-drink teas and coffees. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the company's beverages at a rate of 1.7 billion servings a day.

B. Vision Statement (proposed)

To maintain our status as the number one beverage company in the world.

C. Mission Statement (proposed)

At Coca Cola we aspire to stay the world’s (3) leader focused on producing and selling superior quality (7) carbonated beverages in the soft drink industry (2). We strive to treat our employees (9), customers (1), and our communities with respect (8). We also seek to provide healthy financial rewards to our shareholders and business partners (5) by using the latest technology (4) and hiring the most skill employees. We always use ethical practices that assist in displaying Coca Cola’s public image as being trustworthy, loyal, and honest (6).

1. Customers2. Products or services3. Markets4. Technology5. Concern for survival, growth, and profitability

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

D. External Audit

Opportunities

1. Customers currently prefer favored soft drinks over colas such as Powerade, Sprite, and Fanta.2. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively.3. Customers are becoming more health minded in their food and drink choices.4. Brazil, India, and Eastern Europe should offer good long term opportunities.5. China's food and beverage consumption is forecasted to increase by 54.1% by 2014.6. 25% of Americans eat fast food everyday.7. Energy drinks hold 62% of the functional beverages market.8. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade.9. Weaker US Dollar.

Threats

1. High commodity prices in sugar and tin.2. Soft drinks are considered discretionary products and don’t perform well in poorer economic times.3. Increased concern in health and wellness among consumers.4. Sales are slower in the winter months as the business is seasonal.5. Retailers are consolidating reducing the number of companies and increasing their bargaining power.6. Pepsi has a large food stuff business along with beverages.7. Store brand and private label products still have great appeal among cost conscious customers.8. Governments are looking to tax sugary drinks.

Competitive Profile Matrix

Weight Rating Score Rating Score Rating Score0.12 3 0.36 2 0.24 4 0.480.06 1 0.06 3 0.18 2 0.120.09 4 0.36 2 0.18 3 0.270.10 2 0.20 4 0.40 3 0.300.06 4 0.24 3 0.18 2 0.120.07 2 0.14 3 0.21 4 0.280.10 2 0.20 4 0.40 3 0.300.09 1 0.09 3 0.27 4 0.360.08 1 0.08 3 0.24 4 0.320.09 4 0.36 3 0.27 2 0.180.04 2 0.08 3 0.12 4 0.160.10 4 0.40 3 0.30 2 0.20

1.00 2.57 2.99 3.09TotalsPrice Competitiveness

Customer LoyaltyMarket ShareProduct QualityTop Management

Critical Success Factors

Dr. Pepper Pepsi Coke

Employee DedicationFinancial Profit

AdvertisingMarket PenetrationCustomer ServiceVending LocationsR&D


EFE Matrix

Opportunities Weight Rating Weighted Score

1. Customers currently prefer favored soft drinks over colas such as Powerade, Sprite, and Fanta.

0.07 4 0.28

2. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively.

0.07 4 0.28

3. Customers are becoming more health minded in their food and drink choices.

0.07 4 0.28

4. Brazil, India, and Eastern Europe should offer good long term opportunities.

0.10 4 0.40

5. China's food and beverage consumption is forecasted to increase by 54.1% by 2014.

0.10 4 0.40

6. 25% of Americans eat fast food everyday. 0.03 4 0.127. Energy drinks hold 62% of the functional beverages market. 0.03 2 0.068. Coconut water is becoming a popular alternative to sports drinks

such as Gatorade and Powerade.0.03 1 0.03

9. Weaker US Dollar. 0.03 4 0.12

Threats Weight Rating Weighted Score

1. High commodity prices in sugar and tin. 0.10 2 0.202. Soft drinks are considered discretionary products and don’t

perform well in poorer economic times.0.04 2 0.08

3. Increased concern in health and wellness among consumers. 0.06 4 0.244. Sales are slower in the winter months as the business is

seasonal.0.02 4 0.08

5. Retailers are consolidating reducing the number of companies and increasing their bargaining power.

0.03 2 0.06

6. Pepsi has a large food stuff business along with beverages. 0.12 1 0.12

7. Store brand and private label products still have great appeal among cost conscious customers.

0.08 2 0.16

8. Governments are looking to tax sugary drinks. 0.02 3 0.06

TOTALS 1.00 2.97

E. Internal Audit

Strengths

1. Coke is the largest manufacturer, distributer and marketer of nonalcoholic beverage concentrates and syrups in the world.

2. New “micro-dosing” technology to dispense over 120 beverages from one machine.3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports

drinks, energy drinks, soft drinks, and others.4. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every

day.5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010.6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world.7. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies.8. Coke Zero has yielded double-digit volume growth for four consecutive years.


9. Coke employees half the people of Pepsi, yet has higher net income.

Weaknesses

1. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010.2. Coke continues to struggle in North America experiencing zero percent growth since 2009.3. Coke is focused solely on the beverage business.4. 45% of sales and revenue rely solely on Coca Cola and Diet Coke.5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5.6. Goodwill increased from $4 billion to over $11 billion in 2010 with Coke’s recent bottling acquisitions

and goodwill and intangibles accounts for 87% of all equity.

Financial Ratio Analysis

Growth Rate Percent Coke Industry S&P 500Sales (Qtr vs year ago qtr) 45.40 30.50 14.50Net Income (YTD vs YTD) NA NA NANet Income (Qtr vs year ago qtr) 8.10 7.90 47.50Sales (5-Year Annual Avg.) 8.74 9.85 8.27Net Income (5-Year Annual Avg.) 19.37 14.68 8.68Dividends (5-Year Annual Avg.) 9.46 9.67 5.68

Profit Margin PercentGross Margin 60.7 56.1 39.9Pre-Tax Margin 33.6 23.2 18.1Net Profit Margin 27.7 19.3 13.25Yr Gross Margin (5-Year Avg.) 64.4 58.2 39.8

Liquidity RatiosDebt/Equity Ratio 0.88 0.94 1.01Current Ratio 1.1 1.2 1.4Quick Ratio 1.0 1.1 0.9

Profitability RatiosReturn On Equity 41.5 34.6 26.0Return On Assets 18.8 14.3 8.9Return On Capital 27.6 20.3 11.8Return On Equity (5-Year Avg.) 33.0 32.0 23.8Return On Assets (5-Year Avg.) 16.7 15.2 8.0Return On Capital (5-Year Avg.) 23.9 20.9 10.8

Efficiency RatiosIncome/Employee 91,289 67,398 126,213Revenue/Employee 329,484 338,900 1 MilReceivable Turnover 10.4 9.7 15.7Inventory Turnover 6.7 7.5 12.4


Net Worth Analysis (in millions)

Stockholders Equity $31,003Net Income x 5 $59,045(Share Price/EPS) x Net Income $147,884Number of Shares Outstanding x Share Price $154,360Method Average $98,073

IFE Matrix

Strengths Weight Rating Weighted Score

1. Coke is the largest manufacturer, distributer and marketer of nonalcoholic beverage concentrates and syrups in the world.

0.10 4 0.40

2. New “micro-dosing” technology to dispense over 120 beverages from one machine.

0.02 4 0.08

3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, soft drinks, and others.

0.08 4 0.32

4. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every day.

0.10 4 0.40

5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010.

0.07 4 0.28

6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world.

0.08 4 0.32

7. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies.

0.06 3 0.18

8. Coke Zero has yielded double-digit volume growth for four consecutive years.

0.06 4 0.24


0.07 4 0.28

Weaknesses Weight Rating Weighted Score

1. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010.

0.05 1 0.05

2. Coke continues to struggle in North America experiencing zero percent growth since 2009.

0.08 1 0.08

3. Coke is focused solely on the beverage business. 0.04 2 0.084. 45% of sales and revenue rely solely on Coca Cola and Diet

Coke.0.05 2 0.10

5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5.

0.04 2 0.08

6. Goodwill increased from $4 billion to over $11 billion in 2010 with Coke’s recent bottling acquisitions and goodwill and intangibles accounts for 87% of all equity.

0.10 1 0.10

TOTALS 1.00 2.99


F. SWOT

SO Strategies

1. Build 5 new bottling plants in Eastern Europe and China for $100M each (S1, O4).2. Form agreements to get Coke products into every major fast food chain in the world (S1, S4, O6).

WO Strategies

1. Invest $50M to develop a line of coconut water (W4, O8).2. Increase presence in Europe by 20% (W1, O9).

ST Strategies

1. Market new water acquisitions in the US (S7, T1, T3).

WT Strategies

1. Invest $200M to start production of a snack division (W3, T6).

G. SPACE Matrix

7

6

5

4

3

2

1

-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7-1

-2

-3

-4

-5

-6

-7

IPCP

Defensive

AggressiveConservativeFP

CompetitiveSP


Internal Analysis: External Analysis:Financial Position (FP) Stability Position (SP)

5 -25 -25 -46 -65 -3

Financial Position (FP) Average 5.2 Stability Position (SP) Average -3.4

Rate of InflationTechnological ChangesHealthy OptionsCompetitive PressureBarriers to Entry into Market

SalesDebt/EquityCurrent RatioROEROA

Internal Analysis: External Analysis:Competitive Position (CP) Industry Position (IP)

-2 4-1 5-1 5-1 5-2 5

Competitive Position (CP) Average -1.4 Industry Position (IP) Average 4.8

Growth PotentialFinancial StabilityEase of Entry into MarketResource UtilizationProfit Potential

Market ShareProduct QualityCustomer LoyaltyProduct VarietyControl over Suppliers and Distributors

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Coke

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV


I. The Internal-External (IE) Matrix

4.0 I II III

High

3.0 IV V VI

TheEFETotal Medium

Weighted Coke

Scores

2.0 VII VIII IX

Low

1.0

Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

The Total IFE Weighted Scores

Segment 2010 Revenues North America 31.7%Bottling Investments 23.4Pacific 14.1Europe 12.6Latin America 11.0Eurasia & Africa 6.9


J. QSPM

Opportunities Weight AS TAS AS TAS1. Customers currently prefer favored soft drinks over colas such

as Powerade, Sprite, and Fanta.0.07 0 0.00 0 0.00

2. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively.

0.07 0 0.00 0 0.00

3. Customers are becoming more health minded in their food and drink choices.

0.07 1 0.07 3 0.21

4. Brazil, India, and Eastern Europe should offer good long term opportunities.

0.10 4 0.40 3 0.30

5. China's food and beverage consumption is forecasted to 0.10 2 0.20 4 0.406. 25% of Americans eat fast food everyday. 0.03 0 0.00 0 0.007. Energy drinks hold 62% of the functional beverages market. 0.03 0 0.00 0 0.008. Coconut water is becoming a popular alternative to sports drinks

such as Gatorade and Powerade.0.03 0 0.00 0 0.00

9. Weaker US Dollar. 0.03 0 0.00 0 0.00

Aquire a snack

company

Build new bottling plants

Threats Weight AS TAS AS TAS1. High commodity prices in sugar and tin. 0.10 1 0.10 2 0.202. Soft drinks are considered discretionary products and don’t

perform well in poorer economic times.0.04 1 0.04 3 0.12

3. Increased concern in health and wellness among consumers. 0.06 0 0.00 0 0.004. Sales are slower in the winter months as the business is

seasonal.0.02 2 0.04 4 0.08

5. Retailers are consolidating reducing the number of companies and increasing their bargaining power.

0.03 0 0.00 0 0.00

6. Pepsi has a large food stuff business along with beverages. 0.12 1 0.12 4 0.487. Store brand and private label products still have great appeal

among cost conscious customers.0.08 0 0.00 0 0.00

8. Governments are looking to tax sugary drinks. 0.02 2 0.04 3 0.06


Strengths Weight AS TAS AS TAS1. Coke is the largest manufacturer, distributer and marketer of

nonalcoholic beverage concentrates and syrups in the world.0.10 4 0.40 3 0.30

2. New “micro-dosing” technology to dispense over 120 beverages from one machine.

0.02 0 0.00 0 0.00

3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, soft drinks, and others.

0.08 4 0.32 2 0.16

4. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every day.

0.10 0 0.00 0 0.00

5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010.

0.07 0 0.00 0 0.00

6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world.

0.08 4 0.32 2 0.16

7. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies.

0.06 4 0.24 2 0.12

8. Coke Zero has yielded double-digit volume growth for four consecutive years.

0.06 4 0.24 2 0.12


0.07 2 0.14 3 0.21

Build new bottling plants

Aquire a snack

company

Weaknesses Weight AS TAS AS TAS

1. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010.

0.05 4 0.20 3 0.15

2. Coke continues to struggle in North America experiencing zero percent growth since 2009.

0.08 2 0.16 4 0.32

3. Coke is focused solely on the beverage business. 0.04 1 0.04 4 0.164. 45% of sales and revenue rely solely on Coca Cola and Diet

Coke.0.05 1 0.05 4 0.20

5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5.

0.04 2 0.08 4 0.16

6. Goodwill increased from $4 billion to over $11 billion in 2010 with Coke’s recent bottling acquisitions and goodwill and intangibles accounts for 87% of all equity.

0.10 0 0.00 0 0.00

TOTALS 3.20 3.91

K. Recommendations

1. Build 5 new bottling plants in Eastern Europe and China for $100M each.2. Form agreements to get Coke products into every major fast food chain in the world.3. Invest $400M to start production of a snack division (W3, T6).


L. EPS/EBIT Analysis (in millions)

Amount Needed: $900MStock Price: $66.38Shares Outstanding: 2,270Interest Rate: 5%Tax Rate: 20%

Recession Normal Boom Recession Normal Boom

EBIT $6,000 $9,000 $10,000 $6,000 $9,000 $10,000Interest 0 0 0 45 45 45EBT 6,000 9,000 10,000 5,955 8,955 9,955Taxes 1,200 1,800 2,000 1,191 1,791 1,991EAT 4,800 7,200 8,000 4,764 7,164 7,964# Shares 2,284 2,284 2,284 2,270 2,270 2,270EPS 2.10 3.15 3.50 2.10 3.16 3.51

Common Stock Financing Debt Financing

20 Percent Stock 80 Percent StockRecession Normal Boom Recession Normal Boom

EBIT $6,000 $9,000 $10,000 $6,000 $9,000 $10,000Interest 36 36 36 9 9 9EBT 5,964 8,964 9,964 5,991 8,991 9,991Taxes 1,193 1,793 1,993 1,198 1,798 1,998EAT 4,771 7,171 7,971 4,793 7,193 7,993# Shares 2,273 2,273 2,273 2,281 2,281 2,281EPS 2.10 3.16 3.51 2.10 3.15 3.50

M. Epilogue

In November 2011, Muhtar Kent, Chairman and CEO of Coca-Cola Company, pledged $500,000 to the Atlanta Women’s Foundation (AWF) to support economic empowerment initiatives impacting Atlanta’s women and girls. Kent made the announcement during his keynote address at “Numbers Too Big To Ignore,” an annual fundraising luncheon hosted by the Atlanta Women’s Foundation. “As we look ahead, women will play a transformative role in shaping our global economy and society over the next decade,” said Kent. “The real drivers of the 21st century will be women. They are already the most dynamic and fastest-growing economic force in the world. “When we look locally at the very real needs for women’s economic empowerment and growth in our own community, our goal is to build on previous work with the Atlanta Women’s Foundation in a way that inspires others,” said Kent.

In November 2011, Coca-Cola announced that it will acquire its Oklahoma City-based Great Plains Coca-Cola Bottling Co. for $360 million. The deal is expected to close by the end of the 2011. Great Plains is the fifth-largest independent Coca-Cola bottler in the United States, with territories in Oklahoma and Arkansas. Great Plains currently runs nine facilities and employs more than 1,200 people. Great Plains will become an operating unit within Coca-Cola Refreshments, a subsidiary of Coca-Cola Company.


As part of a marketing campaign aimed at protecting polar bears and their habitat, Coca-Cola Company recently teamed up with the World Wildlife Fund for the campaign. The special Coke can will be largely white in color, unlike Coke's traditional red and white can, to promote the cause, according to people familiar with .

For Q3 of 2011, Coca-Cola Company reported that worldwide volume growth of 5 percent, 6 percent volume growth year-to-date and volume growth across all five geographic operating groups. North America organic volume grew 1 percent in Q3 and Q3 EPS was $0.95, up 8 percent, with year-to-date EPS of $2.97, up 15 percent.

Also for Q3 of 2011, the company’s international volume growth was 5 percent and 6 percent year-to-date. Worldwide volume growth was led by brand Coca-Cola, up 3 percent in both the quarter and year-to-date.

The company’s Q3 revenues were $12.2 billion, up 45 percent, reflecting solid growth in concentrate sales, a 5% currency benefit, positive price/mix and the acquisition of Coca-Cola Enterprises' (CCE) former North America operations in the fourth quarter of 2010. Year-to-date revenues were $35.5 billion, up 44 percent.

The company’s Q3 operating income was $2.7 billion, up 17 percent. The company’s year-to-date reported operating income was $8.2 billion, up 13 percent.


24 coke

Documents

poorer economic times

atlanta womens foundation

revenue rely solely

private label products

considered discretionary products

digit volume growth

tax sugary drinks

cost conscious customers