It is rare to find any staple of American life that has its roots in the preceding century. This is one facet of the Coca-Cola Company that makes it very interesting. From its very meager beginnings, to a multinational fortune five hundred company that has the distinction to serve over one billion people in the course of a day. Dr. John Stith Pemberton founded the Coca-Cola Company in 1886. The first batch was mixed in a three legged brass kettle in his back yard.
He then distributed it at the local pharmacy. That first year sales of Coke averaged nine drinks a day, and grossed $50. Since it actually cost $70 to produce the entire supply of product for that year money was actually lost.
Expansion was quick to follow to keep pace with growing demands for Coke. Its interesting to note that this growth was under direction of Asa G. Candler who purchaed Coca-Cola Corporation in its entirety for the sum of $2,300. It was also under his direction that the unique contoured bottle was developed. This has remained a distinct feature of this product and effectively separated it from its lesser competitors. A few years later in 1919 the Company was again sold. However, by this time it was sold for the very sizable sum of $25 million.
The buyer, banker Ernest Woodruff and a group of investors decided that this was a prime time to bring the company public. The initial offering was $40 per share and if the dividends were
reinvested, one share of stock today would be worth a very respectable $6.7 million. This can be marked as the point where Coke became a financially viable company. An investment in Coke is a solid one, and does not appear to be a high-risk company. Another point of note is that historically, Coke has paid a dividend four times a year since 1920. This is only a year after the initial stock offering. Coke stock has also split ten times in its lifetime. Although there is no formula for determining when Coke will allow their stock to split the proof that it does is very evident. Even the United States government has sponsored Coke. During World War II, Coke dedicated itself to get every man in uniform a Coke for five cents no matter what the cost. Concurrently the United States government ordered three million bottles of Coke and the equipment to bottle, wash, and refill each of those bottles twice monthly. This is a similar strategy to the one that Gillette used in providing samples to the United States army and then having it followed by a very substantial order.
The 1960’s are the next dates of notice. This is when the Coca-Cola Corporation made one of their largest acquisitions. Minute Maid Company are producers of high quality fruit juices and complemented the Coke family of products very nicely. Today Minute Maid is the largest producer of concentrate orange juice in the world. The Sixties were also the time when the metal cans that were shipped to the troops in Korea were available on the shelves of your local grocery store. This was the birth of the can of soda. Life has not always been clear sailing for coke. During the mid 1980’s, Coke decided that it needed a more modern flavor, New Coke was born. The product flopped due to a public out cry and out pouring of loyalty to the beverage that had become an American institution. The result of this was a return to the original formula. Coca-Cola Classic was born. Cherry Coke was also introduced at this time. The health conscience Eighties also brought about another revolution in the soft drink industry. Suddenly a large segment of the market segment that previously drank soda with a high sugar content wanted a drink with the same taste but not the same sugar content. Thus, Diet Coke became another staple beverage of the American people. This willingness to change is a factor that will keep Coca-Cola viable and in touch with the people. The bright history that has preceded Coke’s success is nothing but the tip of iceberg, the best days for this company are yet to come.¨ Dr. John Stith Pemberton first introduced Coca-Cola in 1886.¨ Atlanta Georgia was the Birth City of this company.¨ Coke was first sold from a jug for five cents a glass at the local Pharmacy.¨ Asa G. Candler bought Coke-Cola for $2,300 in 1891.¨ In 1895 Coke is consumed in every state and territory of the U.S.¨ Canada and Mexico were added to the Coke market in 1898.¨ Coke implements a regional bottling system to supply its growing market.¨ The distinctive contoured bottle is introduced as a Coke trademark in 1915.¨ Ernest Woodruff and some investors purchased Coke for $25 million.¨ Coke’s stock was first offered to the public at $40 a share.¨ One share purchased then would now be worth $6.7 million if dividends were reinvested.
¨ The company’s stock ticker symbol is “ko”.¨ Coke’s foreign division is a subsidiary called The Coca-Cola Export Corporation.¨ Coke carries $3.3 million in net debt.¨ This company currently posts a profit of $3.53 Billion in net profit.¨ Coca-Cola is a proud sponsor of the Olympic games.¨ Coke sells 1 billion servings of product per day. Up from 9 per day when the company was founded.¨ The company’s current chairman is M. Douglas Ivester.¨ He is the tenth chairman of the board in the company’s history.¨ Coke offers $1.9 million in scholarships to graduating high school students.¨ Coke employs 30,000 people in its facilities worldwide.¨ The Coca-Cola Company offers a full range of benefits to their employees, including a tuition aid program.¨ Coke’s company web site can be found at www.coke.com .¨ Stock can be directly purchased form the Coca-Cola if the buyer has a preexisting hold in the company.¨ The Company pays dividends four times a year: April 1, July 1, October 1, and December 15.¨ The Company has paid quarterly dividends since 1920.¨ Stock of the Coca-Cola Company has split 10 times since 1919.¨ The Company’s most recent stock split was a two-for-one split in May of 1996.¨ Coca-Cola Corporation also owns Minute Maid Corporation.¨ Ten strategically aligned business partners of the Coca-Cola Company bottle Coke. They are the anchor bottlers.
¨ Anchor bottlers are a group of select companies throughout the Coca-Cola bottler
¨ The Coke bottlers are also traded independently from the parent company.¨ Coca-Cola recently acquired the Cadbury-Schweppes Co.¨ Coke pulled its add dollars from the World Wrestling Federation, due to its violent content.¨ Coke has produced 27 different varieties of soft drinks in its history.¨ Coke’s subsidiaries produce over 160 different brands of soft drinks for other companies.¨ Coke’s Minute Maid Corp. is the world’s leading marketer of premium fruit juices and juice drinks.¨ Coke invests greatly in advertising. Their slogans include “Coke is it” and “It’s the real thing.”
The problem is to develop a three-year strategic plan for Gillette Co. By far one of Coca-Cola’s largest strengths is their strong advertising campaign. In 1998, Coke had the most recognized trademark in the world (Ivester). The catchy slogans that they roll out every few years consistently become a household commonality. When the average American hears the phrase “it’s the real thing” they automatically think Coca-Cola. Also during the Christmas season Coke’s clever ads with the polar bears needn’t even be identified specifically as a Coke commercial in order for the viewer to recognize the product. Advertising alone doesn’t make a company product. Production also plays a large part in Coca-Cola’s strategy. Their product is produced by ten bottling subsidiaries that are totally controlled by Coke (Ivester). All ten of these bottles are publicly traded independently of Coca-Cola. Coke also licenses local bottlers to produce their product. Coke utilizes this method in order to maintain their public image as local company in contrast with their global reality (Coke web site). Actually 70% of Coca-Cola’s business comes form outside the United States.
Due to the vastness of Coke’s worldwide empire the consistency that they maintain is nothing short of a minor miracle. After all, with one billion servings sold a day that’s a lot of volume of soda per year to produce, distribute, and sell. Coca-Cola’s management structure is divided into five geographic groups plus the Minute Maid group. This diversity of the management structure allows each group to tightly control all of the functional areas. With an operation of this size this system is of great value. If the corporate structure was that of a single head overseeing the entire operation it is conceivable that the head would lose touch with the arms.
“The way we see it, we would much rather manage a business in nearly 200 countries than try to build a business in nearly 200 countries” (Ivestor). This statement was included as part of a letter to the share holders in Coca-Cola Co. In recent years, due to the changing global economies Coke has taken a less aggressive stand in the market place. Despite this stance, Coke stock and market share has continued to rise. A company should always remain dedicated to building a better business. This is the promise that a company makes to its stockholders everyday. They promise to do the best that they can to increase the profits of their business. Coca-Cola really needs to reconsider the impact of this statement and re-evaluate its goals for the future. Although Coca-Cola’s decentralized management structure can be a strength, it can also be a weakness. The company currently does not set common corporate goals. Instead, each management region sets it own goals. In the more economically developed countries this systems works very well. In economically challenged regions where Coke is not established as a daily staple, Coca-Cola needs to change its internal management structure in order to deal with this problem. Perhaps a company wide common goal of supporting the regions where this problem exists with more resources from the other regions and from corporate headquarters.
Another slight problem that exists in the Coca-Cola empire is the relationship that Coke has with their independent bottlers. The contract with the bottlers is under constant negotiations. This has led to some tension in the past. Granted that Coke has a vested interest in the bottlers and the product that they produce
Coca-Cola posts a very sizable net profit this year, nearly $3.5 billion. In light of this it seems strange that such a cash rich company should carry $2.2 million in long term debt. The advantages of carrying this debt for tax purposes do not out weigh the advantages of having a company that is totally debt free.
The possible opportunities available to Coca-Cola are limitless due to their strong market position and the healthy profits that they consistently turn. “Coke has begun to realize that they are capable of expanding into other markets besides that of the soft drink. This is the focus of the Minute Maid group. The worldwide juice beverage business is growing, with sales of more than $40 billion annually. The destination of The Minute Maid Company is to be The Coca-Cola Company of juices, worldwide, and capture category growth with global brands, premium products and a superior business system” (Ivestor). This is a very good opportunity for Coke to move into the next millennium where consumers are becoming more heath conscious. European markets also offer tremendous potential for growth. “One statistic underscores our enormous opportunity in this group: On average, each of the 866 million consumers in the 49 countries of the Greater Europe group drinks our products less than twice a week. We’ve set an aggressive goal of reaching a per capita of 200 within the next decade” (Ivestor). In this case the lack of a strong customer base is actually a great opportunity. Coke has realized that they are deficient in this area and are taking the appropriate step to attempt to secure for them a place in this market. Similar to the place they hold in the United States and other regions of the world as well. Strategically speaking this is a good idea, and Coke knows from prior experience in their 113-year history how to break into a new market. China and the Far East also show a very large potential for growth. China is currently the world’s most populous country. By default China is also the largest consumer of food and beverage. This plays very nicely into Coke’s attempts to gain market shares in this region. ” With 60 percent of the world’s population, this group has a huge opportunity to increase per capita consumption of our products. Of the 3.6 billion potential consumers here, each is currently drinking less than one serving of our products every two weeks on average” (Ivestor).
One of the largest threats that is facing Coca-Cola today is the regional economy in some of the geographic areas in which the company operates. Coke has voiced concerns that the down turn in these economies has had a negative effect on their business in the last year. Coke holds the position that it is a long-term company and that this is just a temporary downturn. This could have a negative effect on the company if this so-called temporary downturn turns into a regional recession. People today are attempting to live a healthier life style than their parents did in the past. One of the first things that people tend to cut out of their diet are complex sugars such as those found in the high fructose corn syrup. In order for Coke to stay viable they are again going to need to develop a new product that would both address the health concerns of the people and also maintain the taste and texture of the original Coke. A flaw in this plan could be the lost faith that the American public has in Coke after the “New Coke” product flop of the mid 80’s. The facts remain though that eventually the consumers will turn from this old product that is high in sugar and promotes tooth decay to a healthier alternative. In Belgium after an incident where a bottler used the wrong type of carbon dioxide to bottle the product all Coca-Cola was removed from the shelves pursuant of a government ban enacted by the Minister of Health. The carbon dioxide that was used was mixed with a fungicide and was meant to treat wooden pallets against mildew. A hundred or so people were rendered sick by this mistake,
mostly small children. The product was also removed from the shelves in the Netherlands, and France. Coke has taken steps to try to win back their customers. Some of these steps include trying to assure the people in the European market place that the bottling plant in question was thoroughly cleaned and tested, and also that the tainted product was destroyed. Coke needs to strongly assure the Belgium people that their product is safe, and also take steps to make sure that an incident like this has no chance what so ever of happening again. Coke does hold a majority of the market share in the soft drink industry. Pepsi Corporation is attempting to cut into this lead. They are doing this through a very aggressive marketing campaign that is targeted mainly at the younger 13-25 year old demographic. Pepsi’s plan is not to make customers out of Coke drinkers but is to make new customers out of people who currently don’t have a cola preference. Pepsi is also attempting to match Coca-Cola country for country in a global battle for control. The generic soda products that many stores seem to have are digging a small hole in Coca-Colas profits. These stores’ strategies are to offer a similar product of similar quality at a much lower cost.Sometimes the cost is less than half that of brand name colas such as Coke. This is a marketing strategy known as market penetration. This strategy allows a product at a lower price to reach a larger market due to its lower cost. Fortunately these generic store brands do not have the brand recognition that Coke has, therefore these generic brands should not be a very serious threat to the overall stability of the Coca-Cola empire. But this issue is also one that Coke would be wise to watch just so they don’t get taken by surprise if there happens to be a swing in the markets to these generic brands. The Minute Maid group has its own competition that is unique to their particular market. The new players in this game are the Florida Orange Growers Co-op. This is a group of growers that are collaborating in an effort to produce a very high quality juice for a competitive price. The grass roots promotions that this group is using appeals directly to the heartland of this country. And is stealing market share in the orange juice industry by the month. Coke should attempt to counteract this by either launching its own grass roots ad campaign such as it uses to sell Classic Coke or possibly talk to the growers and work a deal with the that allows then higher profits and more credit.
As mentioned before Coca-Cola is a very cash rich company that carries very little debt and turns a very sizable net profit. Currently Coke has limited itself to the beverage industry. This in the past has been a very safe move that has been good for Coke. However the face of the global economy is changing on a grand scale. If Coke were to found a venture capital group to invest in new ideas and companies that show extraordinary potential for growth. Coke could staff this small group with the best business and technical minds that it can find. Coke would be well served to follow the guidelines on diversification set out in the book Management by Dr. Zivic. This book has a section that covers in great detail the reason why a company should diversify and how such a plan could be implemented. The New division could share the management infrastructure of Coca-Cola and their financial resources. In return by investing in the newest technologies and ideas this new division would have the potential to become even larger than its soft drink counterpart. The justification for this is that gaining market share in the soft drink is very difficult. Conversely, in high technology fields gaining market share is as simple as having the best product.
Coke would be well served to invest in an idea similar to this. All of the components are there for them to become a major player in the high technology field. The only piece of the puzzle that they are missing is the foresight to diversify into such an area. In the interest of credibility Coke would be wise to name this group something not identifiable with the parent company.
On the soft drink side of the business Coke should continue along the road to success that they started on over 100 years ago. It has been successful to this point and appears that it will remain successful well into the future. Places where it may be better to modify this plan to sell more products are in the European and Asian markets. Currently this plan is not selling as much product as it is in other sections of the world. A solution to this could be to research what the consumer wants in these regions and then act on this research to give the consumer exactly what they want. Recovering natural disasters have always sponsored a time of community and kinship from among those affected. Many large companies such as Philip Morris spend a good deal of money assisting in any way that they can when a situation like this happens. If a company was to put together a natural disaster recovery team to go in and aid in the recovery of the affected people, Coke may be able to change their image from corporate giant into a carrying member of the global community. The key for this program is for it to be truly sincere, not a publicity stunt. This could be accomplished by Coke showing up and helping in a very big way, but not advertising that they did assist. They could even downplay their involvement. The more modest the company is about their involvement the more positively responsive people will be toward Coke. The way that this team would operate is that when a natural disaster occurs the team would mobilize three large cargo planes that would be filled with construction equipment, emergency medical supplies and food. When the team arrives at their destination they would unload and setup camp. They would then assist in any capacity that is required of them and they are equipped to handle. The initial capital expense for such a project would be very high. But the potential public relations benefits that would result are immeasurable.
Another plan that could improve Coke’s market position over the next three years is if they were to reorganize their global management structure. Coke’s large size can be a burden when they are attempting to sell products to many very different demographics of individuals. If the company’s bulk was divided by regions empowered to make major market and production decisions without the consent of the corporate headquarters. This would push each region to be more aggressive in their attempt to manage their regions. Dr. Zivic covers global management in detail in the book “Management”. Coke needs to realize that the face of their market is bound to change. They need to make absolutely sure that their management matches their market.www.coke.com (1998). The Coca-Cola company website.Ivester, M. Douglas. (1998). Gillette company annual Report.Zivic, Louis.(1998). Management, Primus publishing.www.cnn.com (1999) Coke faces problems in Belgium.
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