Analysis of cocacola company

This model evaluates the business climate in a certain industry in terms of competition. Therefore, the elements of this model play a role in the microeconomic surroundings of an organization. The five forces determine whether a sector is appealing to businesses or not. Vertical and horizontal forces are divisions of the forces. The threat of substitutes, the threat of long-standing rivals, and the threat of new entrants are examples of horizontal pressures. The purchasing power of consumers and suppliers together make up vertical forces (Dobbs, 2014).

The possibility of replacement goods

few of the many beverage options available in the soft drink and beverage market energy drinks, juices, and coffee, among others. The many options available to buyers have eaten into the Coca-Cola market share to some degree. The biggest threat of substitutes has been health conscious alternatives to Coca-Cola. However, Coca-Cola remains a favorite brand with a global presence. Coca-Cola needs to be cognizant of these new developments while strategizing on the future.

The threat of existing competitors

Pepsi is arguably the most outstanding competitor for Coca-Cola. Their competition has been ongoing for decades, and their products are also relatively similar in terms of ingredients and taste. They have both invested in soda and non-soda soft drinks. Pepsi too has invested outside the soft drinks industry through some popular snacks brands. To this end, Coca-Cola has not diversified as much, which leaves it exposed if the market goes against the soda industry.

The threat of new entrants into the industry

The Coca-Cola Company has invested a lot in creating a brand well-known all over the world. A new entrant coming in to reach such a position is a monumental task that would require massive financial investment and strategic marketing. It is quite rare that such a situation would occur.

However, new entrants could come in with a different strategy in which Coca-Cola falls short and invest in health products with respect to soft-drinks. Even though one such entrant would be inadequate to challenge Coca-Cola, several of them would be quite a challenge for Coca-Cola (Kukalis, 2009).

The bargaining power of the suppliers

The company is big in size and operations which means it has several contracts with multiple suppliers. The cost of operations is often affected by the price of various commodities such as sugar. The company has limited control over such factors. Due to the management of the company, the company is able to make contracts with suppliers which secure the prices of some raw materials. Therefore, the bargaining power of suppliers has a moderate effect on the operations of the company.

The bargaining power of the customers

The soft drinks market is elastic to price which means that the consumers of Coca-Cola are sensitive to price changes. The company tries to keep the price at the optimal level, but the challenge is that it does not sell directly to the buyers. Selling through distributors leaves limited room for them to dictate the price that retailers charge for their products. Therefore, Coca-Cola has to sell its products at a price low enough to accommodate the fluctuations of cost for retailers and distributors, and this affects their profitability (Dobbs, 2014).

Strengths of Coca-Cola Company

Key financial ratios are evaluated to examine the financial strength of the company. The primary areas for assessing financial performance include the return on equity, profitability ratio, and liquidity ratio. The five-year net profit margin is approximately 17% which is above the industrial average at 12%. The five year average of the return on equity is about 25% which is slightly below the industrial average at 27%. The total debt to equity ratio is approximately 225% which is slightly below the industrial average at 228%. The ratios show a relative financial health of the company (Tracy, 2015).

Coca-Cola has a robust marketing that has been instrumental in the success of the brand. For instance, the company makes customized advertisements for every region or market segment. This shows a high level of cultural competence which has played a prominent role in endearing the Coca-Cola brand to many people around the globe.

The process of hiring in Coca-Cola is usually merit-based which has enabled the company put together a highly competent, creative and innovative team that has steered the company above its rivals for decades. The company has a broad range of incentive programs aimed at motivating its employees and increasing job satisfaction. This helps to attract and retain top talents in the company.

The company has sophisticated operations with the most extensive franchising model in the world. Coca-Cola has licensed several bottlers around the world to produce its products under its brand. This operating model has helped to widen the scope of distribution to the widest area possible. Franchising is a cheaper alternative to production as compared to building factories from scratch.

The company has a dedicated team of External Technology Assessment (ETA) that is in charge of identifying the latest technologies that Coca-Cola can adapt to improve efficiency and cut back on cost. The ETA team has been a vital resource technology-wise and has enabled Coca-Cola to keep up with the best practices in the business environment.

Coca-Cola is one of the biggest multinationals with operations at the local scale in almost all countries in the world. A well structured organizational structure has helped in the management of one of the world’s largest distribution chain (Peng, 2016).

Weaknesses of Coca-Cola Company

Its competitors have overtaken the financial performance of Coca-Cola based on the financial ratios of the industry vis-à-vis those of Coca-Cola. For instance, the return of equity at 25% is below the industrial average at 27%. Furthermore, the company is highly geared basing on its liquidity ratio at 225% in respect to total debt to total equity ratio.

Low product diversification is hampering the marketing of the Coca-Cola brand. This has shown a degree of inefficiency in marketing strategies.

The franchising model of operations has exposed the company to negative publicity as they sometimes have no control over the end product. Any substandard product produced under the Coca-Cola brand hurts the company’s image (Kukalis, 2009).

SWOT Analysis

Strengths

The popular brand name of Coca-Cola gives the product a head-start over competitors in terms of market share.

The company has leveraged on technology to spur its growth through the ETA program. This has brought in the aspect of creativity and innovativeness which has helped keep Coca-Cola on top.

Weaknesses

The company is highly geared which means the company has a high financing cost paid out as interest which diminishes the profits.

There is low diversification for Coca-Cola’s products which puts it at risk of loss if the market shifts from carbonated drinks.

Opportunities

The company has huge financial muscles which it can use to diversify its product lines into the health products sector.

The company has a good reputation and a popular brand name which is an excellent opportunity for Coca-Cola to market any new product that they launch.

Threats

The rising trends of health-conscious consumers who are avoiding sodas are a threat to the company’s future.

Their products are not so much differentiated with respect to competitors which makes the products easily substitutable.

Conclusion

The Coca-Cola Company has both strengths and weaknesses. We, however, note that the strengths are more than the weaknesses. The tenacity exhibited by the company for decades in its operations confirms that the strengths outweigh the weaknesses. Despite the weaknesses in financial health and low diversification, the company has a popular brand name, financial muscles, and competent human resource (Peng, 2016).

The company has already reached the peak of prosperity, and as such has been slow to innovate as compared to its competitors. This shows that the threat of other players overtaking the company is quite high. Therefore, the threats of other players overtaking Coca-Cola are quite high.

Finally, the competitive advantage of Coca-Cola comes from its strong brand and good reputation. This makes it easy to market all over the world. The existing distribution infrastructure is also an added advantage when the company may wish to launch a new product.

References

E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Kukalis, S. (2009). Survey of recent developments in strategic management: Implications for practitioners. International Journal of Management, 26(1), 99.

Peng, M. W. (2016). Global business. Cengage learning.

Tracy, B. (2015). Business Strategy (The Brian Tracy Success Library). AMACOM Div American Mgmt Assn.