1. 1. Question A : Current Company Situation 1. Current Performance
2. 2. Month Coca-Cola AMBEV Others January 50.60% 16.50% 32.90% February 50.50% 16.10% 33.40% March 50.20% 15.80% 34.00% April 48.90% 16.70% 34.40% May 48.80% 17.20% 34.00% June 49.00% 17.40% 33.60% July 50.40% 16.70% 32.90% August 50.70% 16.50% 32.80% September 50.10% 16.40% 33.50% October 50.60% 16.40% 33.00% November 50.40% 16.70% 32.90% December 50.10% 17.20% 32.70% Average 50.03% 16.63% 33.34%
3. 3. Financial and Strategic Objectives To make the Brazilian subsidiary the largest overseas operation, surpassing Mexico. Financial Objective Improve profitability and regain lost market share. Brazils market was third in sales and 20th in profitability for Coca Cola. Coca Colas combined sales accounted for 50% of the soft drink market in 2003. Coca Colas above average market share Coca Colas combined sales accounted for 50% of the soft drink market in 2003 3/1 to ratio between Coke and Pepsi in overseas sale Coke grew 30% worldwide in 2003 compare to Pepsi 2% Pepsi held 6% of soft drink market in Brazil, while in the Cola segment it was number 2.
4. 4. Coke's sales are growing. Overseas annual growth is 7%. Coke demonstrated continued improvement in its internal performance, processes and per unit cost. Coke expended the output of Guarana Kuat. Renovated production facilities and Planted 200 hectares of guarana to flavor Kuat. Coke's technology, product innovation and delivery of products to customers is better than rivals etc. In 2003, Coke reintroduced returnable glass bottles. The lower price of this made Coke more accessible to class C and D consumers. In partnership with Norsa, Coke regained distribution in several northeastern states. This led to 40% growth in operational profit.
5. 5. Question A : Current Company Situation II. Strategic Posture a. Mission b. Objective c. Strategies
6. 6. Strategic Posture Defensive strategy: In 1999, Coca cola took quick action and cut its price from 1.80 $ to 1.25 $ to stop tubainas growth. Expended the number of brands offered in the market. Coca Cola designed returnable bottles price quite close to tubainas so it appealed and became accessible to class C and D consumers. Mission To gain a maximum market share. To refresh the world - in mind, body and spirit. To inspire moments of optimism - through our brands and actions. To create value and make a difference everywhere we engage.
7. 7. Objectives To improve the subsidiarys profitability, sales and obtain customers loyalty in order to gain market share. Strategies Coca Colas current strategy is in process to switch to Low-Cost provider from Best-Cost Provider. Coca Cola has applied Best-Cost strategy in Brazil with efforts to match the price of tubainas as close as possible. It cut down its cost and final price to the consumer to compete with lowest priced tubainas
8. 8. Acquisition Coca Cola took over some competitive brands to undercut growth of tubainas. Vertical Integration The company promoted changes in its distribution channels, such as buying back franchisee operations. Strategic Alliance Coca Cola entered a partnership with Norsa to regain control of distribution in several northeastern states. It boosted its market share in 2003.
9. 9. Question B. Industry Analysis 1. Competitive Intensity
10. 10. Factors HUFA MUFA Neutral MFA HFA Comment Economies of scale Capital required Access to distribution channels Expected retaliation Even small size companies can compete at low cost A new entrant can easily locally produce and market its product. Several tubainas brands were available in the leading supermarket chain at low prices Coca cola was accused of economic abuse and unfair business practiced by one of the tubaina
11. 11. Factors HUFA MUFA Neutral MFA HFA Comment Differentiati on Brand Loyalty Govt. Action Low differentiation among most competing products. Brand loyalty is very little for the major part of market. Brazilian authorities overlooked tax evasion practiced by existing tubainas competitors.
12. 12. Factors HUA MUA Neutral MA HA Comment Specialized Assets Fixed Cost of Exit Strategic interrelatio nship Governme nt Barriers Assets are easily convertible to other related products Companies do not have to incur significant cost of exit due to the presence of number of small brands Pepsi and Coke both have strategic alliances with local distributors As such no government barriers
13. 13. Factors HUFA MUFA N MFA HFA Comments No. of important Suppliers Switching cost Threat of forward integration No shortage for the sources of raw materials in the market hence low cost of switching reduced supplier power. No such occurrence was reported.
14. 14. Factors HUFA MUFA N MFA HFA Comment Threat of Obsolescence of Industrys product Switching Cost Aggressiveness of substitute products in promotion Perceived No such threat. Consumers were enjoying relatively low cost substitute Substitutes are aggressive in offering lowest cost C and D class buyers were price sensitive. Returnable bottles by Coca Cola still caught their attention C and D class buyers were price sensitive
15. 15. Factors HUFA MUFA N MFA HFA Comments Importance of Buyer industry to suppliers profit Quantity purchased by the industry of suppliers product Suppliers product an important input to the buyers business Cisper welcomed Coca Colas move for returnable bottles as it would increase its sales by 20%. The soft drink company buys in huge quantity and it have long term- stable relationships Beverage and Bottlers had few requirements which are easily available from other suppliers.
16. 16. Factors HUFA MUFA N MFA HFA Comments Number of Important buyers Threat of Backward Integration Switching cost Coca cola's buyers consist of chain of leading supermarkets, stores etc. In 1996, DGB, leading distributor developed Frevo, its own soft drink. No such instance reported again Cost associated concerns by leading supermarket chains give them a bit of edge
17. 17. Factors HUFA MUFA N MFA HFA Comments Profit earned by buyer Importance to final quality of buyers Pr. A quarter of sales through supermarkets Consumers were more inclined to tantalizing taste and lower price than the quality of the soft drinks. This should lead distributors placing low cost products than high quality
18. 18. Factors HU MU N MFA HFA Comments Composition of Competitors Mkt. Growth rate Scope of competition Fixed storage Cost Many small competitors Marketing growing rapidly. Huge market potential Presence of Pepsi and RC Cola with Coca Cola enhanced the scope of competition to global level Soft drinks come with a limited expiration date
19. 19. Factors HU MUFA Neu MFA HFA Comments Capacity Increase Degree of differentia tion Strategic Stake AmBev and Coca Cola had large plants at disposable to compete in the market. Degree of differentiation was little in spite of various major players competing Strategic Stake is high for both local and global competitors
20. 20. Overall Industry Attractiveness Factors Unfavorable Neutral Favorable Entry Barriers Exit Barriers Rivalry among existing firms Power of buyers Power of Suppliers Threat of substitutes
21. 21. Economic Growth Brazil has high market growth rate and potential consumers of Soft drinks. High growth markets included Latin America and Asia as China (29%) and India (17%) and Philippines A new Entrant RC Cola entered the market seeing the growth and potential of the market. A taste backed by consumer preferences in US.
22. 22. Changes in cost and efficiency Coca cola attempted different strategies to undercut Tubainas growth for about a decade. Consumer shifts were observed among the price sensitive Brazilian consumers throughout the cut throat competition with considerable decline in their profitability Strategic Partnerships Partnerships between local companies and global players will ensue more partnerships among new and old competitors which will make the market very competitive on price and distribution, eventually.
23. 23. Question C. Internal Analysis 1. Coca colas financial analysis for the year 2003
24. 24. Liquidity Ratio Current Ratio: Current Assets/Current Liability. 8396/7886 = 1.06 Quick Ratio: Liquid Assets/current Liabilities 3322/7886 = 0.42 Inventory to working Capital Ratio: Inventory/Working capital 1252/812 = 1.54
25. 25. Profitability Ratios Net Profit Margin: Net profit * 100/sales 933843*100/21044 = 16.306 Operating Profit Margin: Operating Income* 100/Sales Revenue 5,221* 100/21,044 = 24.00 Gross Profit Margin: Gross Profit * 100/sales 13282 * 100/21044 = 61.11 Return on Investment (ROI): Net Income/Average total asset 4347/8860 = 0.44 Return on Equity (ROE): Net Income / Average Stockholders Equity 4347/14090 = 0.30 Earning per share: (Net profit after tax Preference dividend) / No. of equity common Shares 4,347/ 25,570 = .17
26. 26. Activity Ratio Inventory Turnover: sales/Inventory of finished goods 21044/1252 = 16.00 Asset Turnover: Sales/total Assets 21044/27342 = 0.70 Account Receivable Turnover: Net Credit Sales/Account Receivable 21044/2091 = 10.06
27. 27. Leverage Ratios Debt to Asset Ratio: Total Debt/Total Assets 2517/27342 = 0.072 Debt to Equity Ratio: Total Liabilities/Equity 2512/29961 = 0.0038 Long Term Debt to Capital Structure: Debts/Share holder Equity + Debts 2517/32478 = 0.047 Long-term debt to equity ratio: Total Long Term Debts / Shareholders Fund 2517/29961 = 0.004 Times Interest Earned: Earning before Interest and Tax/Net Interest Expense 5,495/ 178 = 30.07
28. 28. Other Important Financial Measures Dividend yield on common stock: Annual Dividend per Share / Market Price of the Stock 2166/0.88 = 2401.3 Price/Earnings Ratio: Net income/Total number of shares 4347/2442 = 1.4 Dividend payout ratio Annual Dividend per Share/Earning per Share 2166/.17 = 12741
29. 29. Question C. Internal Analysis 2. Develop IFE Matrix
30. 30. INTERNAL FACTOR EVALUATION MATRIX Weight Rating Weighted Score Strengths 39 Manufacturing Plants-Largest Commercial Fleet 0.1 3 0.3 Market leader in Brazil with 50% MKT Share. 0.09 4 0.36 Product available at one million point of sale 0.15 4 0.6 Strong distribution channel 0.18 4 0.72 Continuous growth in sale 0.05 4 0.2 Strong Financial position. 0.2 4 0.8 Weaknesses Low coke consumption i.e. 80 ounce/person annually 0.06 1 0.06 profitability ranked 20th position 0.07 2 0.14 Price dropped nearly 30% annually 0.1 1 0.1 Total 1 3.28
31. 31. Question C. Internal Analysis 2. Develop EFE Matrix
32. 32. Facts explaining Strategic FactorsKey External factors Opportunities Weight Rating Weighted Score Market size is very large i.e. 180million 0.1 3 0.3 Highest market growth rates in Latin America 0.1 2 0.2 increase purchasing power 0.07 4 0.28 Shortage of vending machine 0.08 2 0.16 Changes in buyer preferences 0.06 3 0.18 Small towns are still untapped 0.1 3 0.3 Threats 0 Low Cost Providers 0.1 3 0.3 Lack of govt. and legal regulation 0.1 4 0.4 Unethical business practices by tubainas 0.09 4 0.36 Competitive pressure by Pepsi and AMBEV partnership 0.1 4 0.4 Competition by RC cola 0.07 1 0.07 shortage of shelf place 0.03 1 0.03
33. 33. Question C. Internal Analysis 3. Develop Tows Matrix
34. 34. Strength Weaknesses 1. 39 Manufacturing Plants 2. Market Leader-50% MKT Share 3. Product available at one million point of sale 4. Strong distribution channel 5. Continuous growth in sales 6. Strong Financial position. 1. Low coke consumption i.e. 80 ounce/person annually 2. In profitability ranked 20th position 3. Price dropped nearly 30% annually Opportunities Threats 1. Market size is very large i.e. 180million 2. Highest market growth rates in Latin America 3. Economic stability plan increase purchasing power 4. Continuous growth in industry by 5% annually 5. Shortage of vending machine 6. Changes in buyer preferences 7. Small towns are still untapped 1. Low Cost Providers 2. Lack of govt and legal regulation 3. Unethical business practices by tubainas 4. Competitive pressure by AMBEV and Pepsi Partnership 5. Competition by RC cola 6. Shortage of shelf place
35. 35. TOWS Strategies SO STRATEGIES Introduce new product in existing market (S1, S2, S3, O2, O6) Enter in new markets with existing product ( S4, S6,O7) WO STRATEGIES Install vending machine to increase the consumption and make drink available to customer at more locations(O5, W1) Enter small towns and earn higher profitability (O7, W2) ST STRATEGIES Introduce different variants to compete against competitors products .(T1,S1) TW STRATEGIES Enter in untapped markets as Low-Cost providers to increase the availability and coke consumption. .(T1,W1)
36. 36. Question C. Internal Analysis 4. Develop SPACE Matrix
37. 37. 3 PRICE RANGE OF COMPETITIVE PRODUCTS -5 BARRIERS TO ENTRY -5 COMPETITIVE PRESSURE -4 PRICE ELASTICITY OF DEMAND - 3 AVERAGE SCORE -23/7=- 3.29 Industry Strength ( IS) Growth Potential 5 Profit Potential 2 Technological Know how 5 Resource utilization 6 Capital Requirement 6 Ease of Entry 4 Productivity, capacity Utilization 3 Average Score 31/7=4.42 Financial Strength (FS) (+) Return on Investment 6 Leverage 3 Liquidity 4 Working capital 3 Cash Flow 3 Ease of exit PRODUCT LIFE CYCLE -3 CUSTOMER LOYALTY -6 COMPETITIONS CAPACITY UTILIZATION - 2 TECHNOLOGICAL KNOW HOW -2 CONTROL OVER SUPPLIERS AND DISTRIBUTORS -1 AVERAGE SCORE 17/7=- 2.42
38. 38. Space Matrix ES (-3.29) + FS (3.71) = 0.42 CA (-2.42) + IS (4.42) = 2
39. 39. Question C. Internal Analysis 5. Identify three alternative strategies. Discuss its pros and cons
40. 40. 1. Coca Cola can make further acquisitions of local soft drinks with financial muscles and threatening market share and increase its market share and profitability in eventually. Pros: It will help in regaining mainly the control of the market share and ease up the downward pressure on price. Cons: It may put strain on the yearly profitability of Coca Colas operation in Latin America and still not prevent new rivals from entering the market.
41. 41. 2. Develop new products for existing market by innovating new variants and products at a rapid pace to outcompete local tubainas producers. Pros: It will help differentiating Coca Colas products from rivals. Products boasting different attributes will bring higher profits and will release competitive pressure on sales. Cons: It may attract big local competitors to introduce new similar products to Coca Colas which may make it an expensive strategic move for Coca Cola in the end
42. 42. 3. Aggressively target with markets consisted of towns and increase its market share and profitability. Pros: It will give Coca Cola first mover advantage in the new markets thus longer sustainability of growth and profitability. Cons: It may require forming partnerships with local supply chain partners to have access to towns away from main urban markets. The new distribution partners may be costly and ineffective in conquering the new geographic areas
43. 43. Make further acquisitions of local soft drinks with threatening financial muscles and market share to increase its market share and profitability.