The Coca-Cola Company is one of the biggest business corporations all over the world today. According to the company sources, it operates in around 200 countries all over the country, and products trademarked with the company form a huge sales volume. The company listed as KO in the NYSE has a worldwide employee strength of more than 90,000 and recorded massive revenue of $31.9 billion for the fiscal year 2008. The firm has its headquarters located in Atlanta, Georgia. The beverage branded as Coca-Cola, a fizzing non-alcoholic beverage is the frontrunner in the firm’s product line and is sold at shops, eateries, cafes, and through soda machines across the globe. Other brands under which the firm operates are Coca-Cola, Sprite, Fanta, Coke Zero, Dasani bottled water, Glaceau Vitamin Water, POWERade sports drinks, Minute Maid To Go juices, Aquarius sports drinks, and Nestea.
Just like other major businesses, the company faces some major challenges. The firm is a U.S.-based company and thus records its earnings in US Dollars. The firm draws 75% of its operational capital from business outside America. Thus, fluctuations in currency exchange rates impact its performance. In addition, the varying prices of commodities used in production also heavily influence business operations. However, the most important challenge that the company faces at this moment is the gloomy economic situation in America and the rest of the world.
This report aims at finding a proper viable plan, which may help the company emerge out of the recession as a better and stronger business house. It identifies key issues. It also highlights them and it makes useful recommendations for the company. Additionally, it may be used as a guideline while designing a plan to tackle the recession.
The Coca-Cola Company is one of the most recognized firms across the world owing to its huge international presence and large-scale operations. It is the world’s biggest beverage company and an undoubted leader in the beverage industry. It is also a leading producer, distributor, and marketer of non-alcoholic drink concentrates and syrup and one of the major players in the corporate sector in the United States of America. The firm has its headquarters located in Atlanta, Georgia, the place where it was first invented.
At the onset, The Coca-Cola Company was instituted as the J. S. Pemberton Medicine Company, a collaborative effort of Dr. John Stith Pemberton and Ed Holland. The primary product of the company is Coca-Cola, a fizzing non-alcoholic beverage sold at shops, eateries, cafes, and soda machines across the globe. The original Coca-Cola formula was conceived in Columbus, Georgia at a drugstore by American druggist John Pemberton, initially in the form of a coca-wine called Pemberton’s French Wine Coca in the year 1885. (Anderson & Wen-yeh 2006)
The firm operates through a franchised distribution network in place since 1889. The Coca-Cola Company just fabricates the syrup concentrate, which is subsequently dispatched for sale to different authorized Coca-Cola bottlers across the globe. The bottling firms, engaged in exclusive territorial agreements with the firm, bring out the final marketable product packaged in cans, glass, plastic, or aluminum bottles after adding filtered water, sweeteners, and other ingredients to the concentrate. They, subsequently sell, dispense and undertake various other trade operations with retail chains and vending machine authorities. The Coca-Cola Company also provides the concentrate to leading restaurants and food distributor networks. (Stewart 2008)
Just like any other major business corporation, The Coca-Cola Company faces its share of risks, threats, and operational difficulties. Apart from the regular pressures like the competition it faces from its rivals, there are difficulties which include health issues, commodity cost fluctuations, and the more recent recession brought about by the slowdown of the U.S Economy. (Shane, Loudon, Stevens, Wrenn 2004)
Strategic Review of Operations
As mentioned before The Coca–Cola Company operates through a franchise distribution business model. The firm only produces syrup concentrate and sells it to various bottlers. These bottlers have exclusive territorial rights based on an authorized contract with the Coca-Cola Company. They acquire the syrup concentrate and thereafter it is their responsibility to fabricate the finished product. They add filtered water, sweeteners, and various other ingredients; carbonate the beverage; package the beverage in cans or bottles and provide the ready-to-drink product. Subsequently, they sell their products to various retail shops, vending machines, restaurants, and other sub-distribution channels. These bottlers include names Coca-Cola Enterprises, Coca-Cola FEMSA, and Coca-Cola Hellenic Bottling Company. A notable case where the firm bypasses the bottlers in its sales operations is when they make direct sales to the fountain syrups wholesalers or retailers. (Rubenstein 2006)
The company listed as KO in the NYSE is one of the leading corporations in the entire world, with worldwide employee strength of more than 90,000 and recorded massive revenue of $31.9 billion for the fiscal year 2008. Over a period, the brand equity of the Coca-Cola trademark has brought the firm a well-recognized status in the non-alcoholic beverage business and led to a constant high profit and gain margin.
As per the firm’s 2005 Annual Report, the corporation provides for beverage product demands in over 195 nations. The report goes on to state that 1.5 billion beverage servings bearing the Coca-Cola trademark are served each day across the world out of the approximately 50 billion servings consumed. The 2007 Annual Report documents that, the gallon sales under the Coca-Cola trademark were distributed as 37% in the United States alone, 43% in Mexico, Brazil, Japan, and China combined and the remaining 20% was attributed to the rest of the world. (Eng 2007)
The carbonated Soft Drinks (CSD) segment constitutes the primary facet of the Coca-Cola Company’s range of beverage products, contributing approximately 78% to the entire sales volume in the financial year 2008. Within this segment, the firm provides other sweetened drinks as well as diet brews. Products bearing the Coca-Cola trademark account for approximately 82% of entire CSD sales. The key brands that make up Coca-Cola Company’s CSD collection, accounting for more than $1 billion in annual sales, are Coca-Cola, Diet Coca-Cola, Sprite, Fanta, Barq’s Root Beer, and Coke Zero. The majority of the company’s products in the carbonated soft drinks category are offered in a number of varieties with diverse flavors, different caloric values, etc. (Pressey & Selassie 2007)
The rest of the company’s product line is constituted by the non-Carbonated Soft Drink category, which contains a range of other beverages such as fruit juices, packaged mineral water, energy drinks and tea. The major brands under which the company operates in this category are Dasani bottled water, Glaceau Vitamin Water, POWERade sports drinks, Minute Maid and Minute Maid To Go juices, Aquarius sports drinks, Nestea and Sokenbicha.
However, there are a number of challenges that the firm faces. In the recent times, the biggest of them all can be identified as the economic slowdown in the United States that has driven the nation into a recession. The situation is further aggravated due to the fact that the firm draws around 75% of it earnings from outside North America and the entire world economy is in turmoil. (Katsikeas & Theodosiou 2006)
Other challenges include increasing health concerns in the U.S. with respect to carbonated drinks and health issues with some of the other ingredients, which directly affects the company’s target market. Another major issue in operations is the fluctuating prices of commodities such as Aluminum, corn and PET resins. These elements directly influence production costs and that in turn impacts the profit figures. (Pettijohn 2001)
The Challenge to be Addressed
The slowing down of the U.S. economy and the spread of the economic disorder across the world has affected the business operations of all major U.S. multinational companies largely. The Coca-Cola Company was not established to make it recession-proof. Thus, it is not an exception in this scenario. The firm faces its share of heat due to the recession. The company’s fourth-quarter profits in the year 2008 declined by 18 percent as it came along tackling the worldwide recession and instability in the international currency markets. However, to assure its investors and the markets the company chief executive Muhtar Kent had to come out with a statement quoting, “Our performance in the fourth quarter was very solid”. The firm has been forced to accelerate proposal to further the cost-saving initiative for $500 million in savings by the year 2011. (Collins 2006)
The company’s income was recorded as $995 million, i.e., 43 cents on each share, for the fourth quarter in the 2008 financial year. This result shows a considerable decline from the 2007 earnings declaration, which was recorded at $1.21 billion, i.e., 52 cents on each share. A 3 percent decline in revenues has been observed, recorded at $7.13 billion, down from $7.33 billion in 2007. The firm’s operating capital, which is dependent on sales outside the U.S. to a great extent, was pulled down 9 percent due to currency variations. The company incurred restructuring costs along with asset write-downs, which further impaired the performance results. Unit case volume was observed to be growing at 4 percent in the fourth quarter, among which the Coke trademark volume increased by 2 percent. For the whole of 2008, yields declined by 3 percent standing at $5.81 billion, i.e., $2.49 for each share as compared to the $5.98 billion, i.e., $2.57 for each share recorded in 2007. (Shervani & Frazier 2007)
It is true that the economy plunging into a recession has brought many difficult challenges along with it. However, it is important not to crumble under or give into these pressures. Instead, it should be looked upon as an opportunity to strengthen company, cut out the loose ends and emerge as a stronger and a more formidable company out of the recession-laden environment. It must be seen as an opportunity to improvise, innovate, strike better deals, and take the company to a better position in the long term. Horizons must be widened and a broader view must be adopted. The firm should realize that decline in growth rates, profit curves and immediate sales in such an economic environment it is natural. However, these effects are all short-term impacts of the recession. Thus, adopting and concentrating on a long-term strategy to improve the stature of the company becomes extremely important. (Kavussanos & Nomikos 2006)
Bottom fishing is a term in the field of strategic investment operations that has been popularized in this present economic slump. It refers to the strategy of investing in assets, which are not so popular, but if utilized in a proper way can bring in lots of long-term benefits. It is highly recommended that the firm should channelize its investment flow in a manner, which seeks to obtain newer assets, technology, and strengths, which may not provide immediate results but are conducive in the long run. It may be unconventional but has the potential to provide massive benefits and a greater competitive edge or advantage. (Pierce 2009)
The most important aspect of any business is the consumer. Maintaining a transparent, lucid and healthy relationship with the customer is of immense importance. Attending to personal customer needs and demands is a key function, as the company cannot afford to loose out on its existing customer base. The recession allows the customers to whine and complain but the company has to handle the situation patiently. In fact, it should try to reach the customers on a much more personal note and try to capitalize on the openings, which the recession has created to penetrate under-capitalized markets to increase its market share. The company needs to focus on its strengths as well as diversify its operations. According to sources, more than one billion people will become urbanized and join the middle-income league by the year 2020. This is a major opportunity for the company as this would increase the target customer segment and if properly reached would boost the sales of its products. (Slater & Olson 2001)
Over a period of time there have been different stances taken by the company and its bottlers over various issues. This has resulted in a distance being created between the company and the authorized bottlers. In a recession laden economic environment the company stands to loose a great deal if such gaps persist. The support of the distribution networks must be sought and the relationship with the bottling companies must be renewed. This would provide the company with a cohesive operation structure and also would be beneficial in the long term. It would also help the company react positively by providing a better value proposition for the retailers and consumers in a tightening consumer environment. (Alizadeh & Koekebakker 2007)
The emergent markets like India and China may be a lucrative option for the company at this time. Enhancing the strong international presence, which the company has already established, can do wonders to the profit curve. Even in the recession market, operations have significantly grown in countries like China and India. Taking an in-depth look at case volume growth globally, a rise of 29% in Chinese markets, 28% in Indian markets, and a notable growth in Eastern European markets can be easily observed. Thus focusing on these markets may not only be helpful in recovering the economic slack but diversifying operations in these markets can be rewarding in the longer term. (Collins 2006)
The company’s dedication to pursue the cost-saving initiative of saving $500 million by 2011 is a welcome and correct approach. However, employing different means in order to achieve the goals can be tricky. It should be understood that cutting jobs unnecessarily might not be a viable option for the company. It may needlessly demoralize the workforce, which in turn may have a negative impact on the productivity of the company. The middle tier and the top-level management who are heavily pampered with huge salary packages by the company should step forward and volunteer for a distributed sacrifice. Salary cuts and cutting back on extensive luxurious spending can be an efficient means of cost savings. Integrating operations can also be an added advantage in this effort. (Pierce 2009)
Finally, promotion initiatives should be strategically calculated. Cutting back on advertising budgets can be an apparently beneficial means of cost savings and may provide immediate success in this kind of a tight economic environment. However, this report strongly recommends not doing so. In this economic slump, most companies decide to cut down on their advertising budgets. Thus, the various advertising media are left with a high volume of unengaged and unutilized inventory. This brings down the advertising rates, charges and the total cost of promotion. This should be efficiently capitalized on. Promotion initiatives should be designed in such a manner, which allows the company to communicate with the target customer base and inform them about the current market situation and the company’s innovations and efficiency in handling the situation. This would generate and enhance trust and reliability of the company amongst the consumers, which would be beneficial for the firm in the longer run. (Mudambi 2008)
This report after considerable analysis identified the main challenges to the company as finding out means to deal with the recent economic slowdown, the instability in the currency markets, varying and fluctuating prices of commodities such as Aluminum, corn and PET resins in addition to the ever-competitive scenario in the domestic as well as international markets. At the present moment, dealing with the pressures of the recession impacted market scenario has been deemed as the most challenging aspect amongst all the various challenges the firm is pitted against.
This report also provides a number of recommendations for the company, which may help the company, come out of the ills of recession. It strongly advices the management to adopt a broader perspective and develop a long-term strategy instead of focusing too much on short term plans. The declining nature of Sales curves, profit margins and decreased rate of growth can be attributed to the recession and may be consider being quite natural in the present instable economic conditions. However, this should not be a reason to panic and make hasty decisions, which may bring about adverse effects and outcomes and may ruin the company. On the contrary, it should be seen as an opportunity to strengthen and stabilize the company right from its roots. Indeed, recession can be considered an opportunity to innovate, utilize, and take advantages of the openings created by the economic slump. (Dobrev 2008)
Investing in assets, technologies and strategies, which might appear unorthodox and unconventional superficially, but may have the potential to be beneficial in the longer run, can play a significant role in helping the firm emerge out of the recession as a more formidable business corporation. This is called bottom fishing and the report recommends the firm to channelize its investment towards such assets and technologies after analyzing their potentials and feasibilities.
It also strongly advised to be true and faithful to the company’s customer base. Maintaining a strong relationship with the customer can be beneficial to the company at all times and needs special attention during these tough economic crunch. Apart from customer relations, supplier and distributor relations should also be cordially upheld. The company should look at improving the weakening relationship between itself and the coca-cola authorized bottlers who are the primary source of distribution. This would result in a much more cohesive and integrated operation framework, reduce operational costs and increase the efficiency of the system as a whole. (Srinivasan & Bass 2004)
Investing in emerging markets like India and China, which demonstrate significant growth opportunities, is surely a viable option for the company. It increases the customer reach and enhances the brand diversity. Capitalizing on the openings, which these emerging markets offer, can be a boost to the company, particularly when domestic markets in the United States are not performing too well.
Cost-saving initiatives, which aim at saving $500 million by 2011 as planned by the company, should be carefully implemented. It should be taken care that no such steps are taken which demoralize the workforce or else the company risks the productivity and efficiency of the workforce operations. Salary cuts and operations that are more integrated may prove to be competent cost cutting measures. (Weaver 2007)
Lastly, the report advises the firm to calculate promotional initiatives as the recession may have created a lot of opportunities in this field. While other companies and competitors look at cutting down advertisement spending, the report strongly discourages such measures. On the contrary, it believes that if properly utilized, this channel could work wonders for the company not only in the short term but also in the longer run.
Dealing with the pressures of the recession needs a coordinated and planned effort. Taking any hasty steps and making any instinctive decisions is strongly discouraged. To come out of the recession as a better company, rationalizing the situation and adopting a calculative approach is imperative. (Randers & Göluke 2007)
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