PESTLE and SWOT analysis of Coca Cola 2017
- For PepsiCo Pestle and Swot analysis, see PepsiCo Pestle & Swot.
- For Unilever Pestle and Swot analysis, see Unilever Pestle & Swot.
The Coca-Cola Company is an American based multinational corporation that is engaged in the manufacture, retailing and marketing of more than 500 non-alcoholic beverage brands including the iconic Coca Cola. Founded in 1892, the company is headquartered in Atlanta, Georgia overseeing a franchised business model where it makes the famed Coca Cola syrup concentrate which it then sells to more than 300 bottling partners located around the world. Revenue for the year ended 31st December 2016 was US$41.863billion on operating income (before tax) of US$8.136billion. Of the more than 500 brands The Coca-Cola Company owns, 21 generate annual retail revenue in excess of US$1billion (Annual Review 2016). Interbrand, the global brand consultancy ranked the Coca Cola brand 3rd in the 2016 rankings for “Best Global Brands” after Apple and Google assigning it a brand value of US$73billion (Interband 2016).
2.0 Coca Cola PESTLE analysis 2016-2017(Opportunities and threats)
2016 was a challenging year for the carbonated soft drinks (CSD) market in the US which has declined for nine straight years, largely due to a decline in soda sales, part of a long-term trend that has seen total sales and volume of sugary sodas consumed decline for 11 consecutive years, as consumer worries over use of high calorie sugars and artificial sweeteners escalate (Kell 2017). Even sales for diet sodas, supposed to be the industry saviours, continue to dip primarily due to increased scepticism of artificial sweeteners such as aspartame, a controversial artificial sweetener often used in diet colas (Kell 2017). Diet sodas sold by both The Coca-Cola Company and rival Pepsico posted steep volume declines last year as consumers opted for healthier options. 2016 sales for Diet Coke fell by 4.3% from the previous year while Diet Pepsi was down by 9.2% (Kell 2017).
With carbonated drinks losing market share to non-carbonated drinks especially bottled mineral water, Coca-Cola is seeking to remake its portfolio under new CEO James Quincey, with strategic emphasis being placed on what American consumers are actually drinking such as bottled water or very small mini soda cans.
In the following section, we will thus identify the major drivers of change behind Coca Cola’s external environment looking at the general trends driving the soft drinks industry in general. This will help us understand how The Coca Cola Company can utilise its brand competencies so as to take advantage of macro environmental opportunities while at the same time neutralising emerging threats that are chipping away at its success.
2.1 Political environment
Coca Cola and other soft drinks companies like Pepsico are currently embroiled in a battle over proposals across many US states to introduce a soda tax on artificially sweetened beverages such as diet soda. The soda tax which was first introduced in Berkeley in 2015 was also adopted by Philadelphia taking effect from January 2017. The tax, which raises soda prices by 3 cents per ounce in Philadelphia, has recently been successfully passed in four other state cities including San Francisco, Oakland, Seattle in Washington and Boulder Colorado (Esterl 2017). If more states successfully follow through with similar proposals designed to reduce soda consumption, it will hurt Coca Cola sales at a time when unit case volume sales are already in decline as carbonated drinks lose their popularity among health-conscious consumers. Soda taxes have already been shown to reduce soda consumption, with a UC Berkeley study in August 2016 showing a 26% drop in the consumption of soda among low-income Berkeley neighborhoods after the Californian city introduced the tax (Anwar 2016; Cohen 2016).
The early part of 2017 also the introduction of a Muslim travel ban by the Trump administration. Coca Cola Chairman Muhtar Kent joined a swath of more than 1000 CEOs in publicly condemning the ban which he said would impact the company’s long standing policy that values diversity and mobility of its global employees and customers (Kaplan 2017).
2.2 Economic environment
Staggering declines in soda consumption in the broader US market have unfortunately hurt Coca Cola sales with the company recording revenue of US$41billion in 2016, its lowest since 2010 (See figure 1 below). The declining sales are due to a combination of both economic and social trends that are changing the beverages people drink today across the US and Europe. Such trends are responsible for the US firms decision to cut 1,200 jobs later this year, a 22 per cent reduction of its 5,500 corporate staff (Rodionova 2017).
Figure 1: Coca-Cola's revenue and income 2009-2016 (in million U.S. dollars)
2.3 Social environment
The macro social environment can include changes in people’s lifestyles, fashion, labour composition, social mobility and other demographic trends that have the potential to either threaten Coca Cola or avail opportunities to them. One such lifestyle change with future potential to affect Coca Cola sales dramatically is consumer-focus on healthy beverages. With soda consumption in the United States falling to a 30 year low in 2016 (Sun 2017), bottled water consumption finally managed to overtake soda to become the largest beverage category by volume (see figure 2). Americans are now drinking more bottled water than sugary drinks amid increased concern over their impact on health, in particular Type 2 diabetes and obesity rates, which have risen to among the highest levels in the world (Purdy 2016).
Figure 2: US beverage market growth 2015-2016
2.4 Technological environment
When it comes to the technological macro environment affecting The Coca Cola Company, it is the digital revolution especially the emergency of online marketplaces, that is having a revolutionary impact on the way the company has always transacted with its consumers (Annual Review 2016). The pace of retail technological change especially the growing acceptance of digital bots, artificial intelligence, driverless delivery networks, 3-D printing and other technologies with a focus on speed, convenience and ubiquity are enabling shoppers to operate seamlessly across and between all retail channels. For companies like Coca Cola, this changing retail landscape provides incredible new opportunities to create stronger relationships with their retail customers and shoppers, many of whom are now just a click’s reach of desire from their beverage brands.
2.5 Legal environment
Coca Cola is currently the subject of a lawsuit filed in a California district court by non-profit group Praxis Project. The lawsuit alleges that Coca Cola deliberately deceives consumers, misleading them about the health risks of drinking sugary drinks and sodas. The lawsuit, which also includes the American Beverage Association (a trade group funded by US beverage firms) as defendants, aims to prove that Coca Cola has been violating the Fair Advertising Law in its marketing and wants the defendants to face marketing restrictions similar to those faced by Tobacco companies. If successful, the lawsuit could shake the entire soft drinks industry. It may force Coca Cola to advertise public health warnings— e.g. "consumption of sugar-sweetened beverages can lead to type 2 diabetes, cardiovascular disease and obesity"—on their sodas, similar to health warnings tobacco makers have been forced to add to their packaging for decades (Kell 2017b).
2.6 Environmental factors
The transition to a low carbon and resource-efficient future is underway, affecting almost every sector of the global economy. However, for the world’s biggest drinks brand, the biggest environmental issues it continues to grapple with are local environmental considerations especially the impact of its waste from all its plastic bottles and aluminium cans. According to Elmore (2017), The Coca Cola Company produces more than 100bn plastic bottles annually, much of it ending up in the world’s oceans rather than plastic recycling systems.
The Coca Cola Company recognizes the current trends in consumers and governments demanding businesses to increase waste recycling. In its 2016 Annual Review, it committed to raising the amount of recycled plastic it uses in bottles from 40% to 50% by 2020. But environmental groups such as Greenpeace and Friends of the Earth have criticized Coca Cola’s proposal calling it merely ‘PR spin’. They are instead calling for all plastic drinking bottles to be made of 100% recycled plastic in addition to the introduction of an industry-wide deposit return scheme so that fewer plastic bottles end up outside plastic recycling systems (Taylor and Laville 2017).
Figure 3: The Coca Cola Company pestle analysis 2016-2017
3.0 Coca Cola BCG Matrix 2017
3.1 Cash Cows
Coca-Cola as a beverage is crowned as the cash cow because given the mature carbonated soft drink market, Coca-Cola has attained a high market share of 48.6% with a total revenue of 34410 million dollars in 2017 (Statista 2018). Coca-Cola has invested in the development of companies such as Dasani water, Minute Maid, Powerade, among others. Bottling companies in different countries ensure to market Coca-Cola’s finished products enabling it to get high revenues. However, given its mature market, Coca-Cola does not need to invest a lot in the brand to maintain high sales because the unit has already captured a large market to generate stable revenue.
Coca-Cola’s brand of mineral water Dasani is classified as a Star of the company because given the evolving bottled water market where increase in population attributes to increase in bottled water consumption, Dasani is more likely to grab a larger market share in the bottled still water market. It currently has a market share of 9.4% in the U.S bottled water market with sales amounting to $1082.02 million in the U.S in 2017. Even though Dasani water has been recalled due to complaints that it contains tiny plastic particles, it still has an opportunity to grow therefore Coca-Cola should heavily invest in Dasani water so that it can mature to a cash cow with stable revenue (Brueck 2018).
3.3 Question Marks
Coca-Cola’s juice brand Minute Maid is categorized as a question mark for the company because given its market share of 6.5% in the US refrigerated orange juice market, Minute Maid has failed to attain significant revenue. Even though it has generated generous sales amounting to $192.56 million dollars in the US, it has failed to gain popularity like Coke. However, Minute Maid’s US sales increased by 1.79% in 2017 therefore, given that the juice industry is growing further investment in the company will facilitate its development into a cash cow with stable revenue (Statista 2018).
The energy drink market majorly dominated by Red bull has matured over the years resulting in minimal market growth and growth of non-aseptic sports drinks. Powerade, a non-aseptic sports drinks that is a Coca-Cola brand is categorized as a dog for the Coca-Cola company. Given its market share of 3.3% of the non-aseptic sports-drinks market in the US with sales amounting to $171.69 in the US, Powerade has failed to grow due to limited market growth. However, given large capital investments, Powerade can flourish to become a star for the Coca-Cola company (Statista 2018).
4.0 The Coca Cola Company SWOT analysis 2017
- Strong brand reputation. The Coca Cola brand was ranked 3rd in the 2016 “Best Global Brands” Interbrand rankings after Apple and Google.
- Boasts 21 brands that earn annual retail revenue in excess of US$1billion
- Strong and creative brand marketing.
- Growing product portfolio with more than 500 new product lines in 2016 alone.
- Coca Cola has a less diversified portfolio that is too focussed on beverages compared to rival Pepsico which has a much broader product diversification that includes snack brands in addition to beverages (Walsh 2016).
- Consumption of carbonated sodas has been in decline steadily over the years in the US reaching a 30 year low in 2016 (Walsh 2016; Kell 2017). This is reflected in Coca Cola’s revenues which have been in decline too since 2012.
- The final divesture of its Chinese bottling operations in November 2016 will help the company focus better on the more profitable syrup manufacturing business which offers more opportunity for future profitability. This also explains why the company has refranchised many of its bottling operations in the US (Annual Review 2016).
- The creation of Coca-Cola Beverages Africa will and launch of Coca-Cola European Partners are key strategic moves in important and valuable markets.
- Growth in lower-calorie beverages such as value-added bottled water (e.g. sparkling, flavored, and "vitamin" waters), coffee, teas and other high growth healthy beverages.
- Coca Cola recently lost a lucrative NBA sports sponsorship deal to Pepsico at a time when soda consumption is not only declining but when Coca Cola is aalso losing US market share of non-carbonated drinks to its biggest rival (Walsh 2016).
- Lots of US cities and states are reviewing proposals to implement a soda tax, a tax that already has been shown to reduce soda consumption wherever it’s introduced.
- Coca Cola is currently the subject of a lawsuit filed for misleading consumers about the health risks of drinking sodas. If successful, the lawsuit could force beverage firms to display public health warnings on their sodas, similar to those tobacco makers add to their packaging for decades.
Figure 4: Coca Cola SWOT analysis 2016-2017
5.0 Coca Cola Porters Five Forces Analysis 2017
5.1 Bargaining power of buyer
According to Grant (2010), buyers can dictate the prices they pay for products depending on two factors: their price sensitivity and bargaining power relative to the firms within the industry. Price sensitivity is mainly determined by factors such as importance of the product to the buyer, product differentiation, competition to buy the product among buyers and how critical the industry product is to the quality of a buyer’s product or service. Similarly, relative bargaining power of customers depends on size and concentration of buyers relative to suppliers, buyer’s information about the market and ability to integrate vertically meaning ability of buyers to make their own products. Considering the above factors, we can conclude that the bargaining power of individual Coca-Cola customers for Coca-Cola products is low because they buy products in small quantities. Also, competitors like Pepsico have similar products with similar price ranges making switching prices low and low level of product differentiation. However, Coca-Cola has loyal customers due to the unique taste of its products and modern consumers want to have relationships on an individual basis with brands they choose to spend their time and money with which has facilitated its sales (Russell 2017).
However, large retailers like McDonalds, Walmart, have moderate bargaining power because they purchase coke products in very large quantities and can make their own drinks. For example, McDonalds being coke’s largest restaurant consumer has the power to demand Coca-Cola to have its coke syrup delivered in special stainless-steel containers rather than the run-of-the-mill plastic packaging that most retailers use hence making their Coke taste way better and attract more customers (Petter 2017).
5.2 Bargaining power of suppliers
The bargaining power of suppliers has similar determinants like the bargaining power of buyers in an industry, according to Grant (2010). The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The ease with which the firms in the industry can switch between different input suppliers determines the bargaining power of each party. Considering the above factors, we can note that the bargaining power of Coca-Cola’s suppliers is low due to the many existing suppliers in the beverage Industry with less competitive pressure. Therefore, existing suppliers fear to lose their business contracts with one of the world’s largest companies giving Coca-Cola the power to purchase products from suppliers at extremely low costs to maximize its profit margins. For example, according to Coca-colacompany.com suppliers’ policies and practices must comply with Coca-Cola’s Supplier guiding principles for business contracts with suppliers to be considered.
5.3 Competitive Rivalry
According to Grant (2010), competition among firms determines the overall state of competition and level of profitability in an industry. In some industries, ﬁrms compete aggressively to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. While in other industries, price competition is muted, and rivalry focuses on advertising, innovation, and other nonprice dimensions. Competition intensity is determined by factors such as seller concentration, diversity of competitors, product differentiation together with excess capacity and exit barriers according to Grant (2010). Considering the above factors, we can note that Coca-Cola faces a high threat of competition from its major rival Pepsico while other beverage companies like Anheuser-Busch InBev do not impose a major competitive threat. Pepsico and Coca-Cola have similar products within the same price range making the switching products low with a very low level of product differentiation. This gives the customers power to easily switch between their products. This high competition has led to intense advertising of products, manufacturing of new products like ready to drink teas and coffees, and the recurring cola wars (Monica and R 2018).
Also, Grant (2010) explains that barriers to exit are costs associated with capacity leaving an industry and can act as barriers to entry into an industry. Where resources are durable and specialized, and where employees are entitled to job protection, barriers to exit may be substantial. Considering the food and beverage industry, the barriers to exit are extremely high forcing companies like Coca-Cola and Pepsi to stay and compete with other existing companies.
5.4 Threat of new entry or barriers to entry
If an industry has large profit margins, it will attract more ﬁrms from outside the industry and if the entry of new ﬁrms is unrestricted, then the rate of proﬁt will fall toward its competitive level. However, the ease with which new entrants can access a market depends on barriers to entry and the effectiveness of barriers set my existing companies like Pepsico and Coca-Cola. The major barriers to market entry across industries are capital requirements, economies of scale, absolute cost advantages, product differentiation, access to channels of distribution, government and legal barriers, retaliation and effectiveness of barriers to entry according to Grant (2010). Considering the above factors, this can be perceived as a low threat by Coca-Cola because starting a new beverage company would require very large capital investments, resources and abundant time to fully establish the brand and compete with existing companies like Coca-Cola and Pepsico which have steadily captured most of the market with many unique products. Also, existing beverage companies buying brands from other companies to increase market shares has proven to be very expensive. For example, Pepsico failed to purchase Niche Beverage brands because they are too expensive for Pepsi (Berman 2017).
In addition, an industry where products are differentiated like Coca-Cola’s products, established ﬁrms possess the advantages of brand recognition and customer loyalty. And considering economies of scale, industries that are capital or research or advertising intensive, efﬁciency requires large-scale operation. The problem for new entrants is that they are faced with the choice of either entering on a small scale and accepting high unit costs or entering on a large scale and bearing the costs of underutilized capacity according to Grant (2010). Also, setting up major distribution channels for new entrant products would be challenging. For example, Coca-Cola uses top retailers like Walmart, large food chains like McDonalds and other channels to distribute its products which would be impossible for a new entrant to achieve. Coca-Cola and McDonalds have also partnered to make bottled coffee (Caballero 2017).
5.5 Threat of substitutes
The price that consumers are willing to pay for a product depends on the availability of substitutes for the products. If there are no substitutes for a product in the market, then consumers are insensitive to price. However, the existence of close substitutes means that customers will switch to substitutes in response to price increases for the product. The extent to which substitutes depress prices and profits depends on the propensity of buyers to substitute between alternatives which also depends on their price-performance characteristics. Considering the above factors, we can note that threat of substitutes is low for the Coca-Cola company products since it offers a wide range of products with substitutes mainly being alcoholic drinks. For example, Coca-Cola alone offers nearly 4000 drink options through its 500 brands in over 200 countries (Stash Invest 2017). However, to reduce on its threat of substitutes, Coca-Cola has ventured in the production of an alcoholic drink called Chu-Hi that is made with distilled Japanese drink shochu, sparkling water and flavoring which is available as a canned liquor in Japan (Handley 2018). In addition, customer loyalty and the Coca-Cola’s ability to evolve with changing social trends and new generations of consumers has helped it maintain the highest market share in the beverage industry (Curtis 2017).
2016 was a challenging year for the carbonated soft drinks (CSD) market in the United States. Total sales and volume of sugary sodas consumed have declined for 11 consecutive years, driven by consumer worries over use of high calorie sugars and artificial sweeteners. Even sales for diet sodas, supposed to be the industry saviours, continue to dip primarily as consumers turn to non-carbonated drinks especially bottled mineral water, which has overtaken soda to become the largest beverage category by volume. The Coca-Cola Company is now seeking to remake its portfolio under new CEO James Quincey with strategic emphasis being placed on lower-calorie beverages such as value-added bottled water, teas and other high growth healthy beverages. As healthy-consciousness continues to become the major driver of change in the soft drinks industry, The Coca Cola Company will need to diversify its portfolio in a similar way rival Pepsico has done, and utilize its brand strength to help it take advantage of emerging opportunities in low calorie beverages. This is the best way the company can neutralize emerging threats such as new sugary drinks legislation that could chip away at its long term success.
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