An analysis of the strategies of Coca-Cola company in the African market

Introduction:

The strategy of a company requires constant updating. With the changing conditions of market and industry it is important for an organisation to keep its strategy in tact with the changing environment. An out dated strategy cannot fulfil the needs of today’s global environment. In order to go through the updating process the organisations should carry on an audit to analyse which aspect requires improvement. It also specifies what strategy is necessary to support the business operations, the information people use currently and the gaps in these functions and the business goals.

For the Coca Cola Company, the African market for beverages was an ideal market for the Company given the fact that there are fewer global competitors operating in the African market. Of interest to the Company about the new emerging African market, is the fact that there is a ready market occasioned by the hot climate experienced in most of the African continent.

By assessing the knowledge possessed by an organisation about its competitors and market environment the managers can effectively take decisions in order to find the most feasible way for their businesses to maximise profits and improve market share. It is also important to calculate the extent to which change needs to be introduced to the organisation. Although the identification of the problem is a big issue but finding a solution making sense with business world is the main purpose of change in the organisation. (Armstrong, Arthur & John, 1997).

“Back in 1970 Alvin Toffler in Future Shock (Toffler, A. 1970) describes a trend towards accelerating rates of change. He illustrated how social and technological norms had shorter life spans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations, periods of change were always punctuated with times of stability. This allowed society to assimilate the change and deal with it before the next change arrived.” (Rigby & Chris, 2002).

In the volatile business environment of the 21st century the most important requirement of today’s business is constant changing and updating with the external conditions. Change can be referred to as Internal, External, and business process re-engineering and transformation programs.

The purpose of this paper is to analyse the strategy of the Coca-Cola Company in the African markets with an aim of finding the strengths and weaknesses and to suggest measures.

Company Background: “The Coca-Cola Company competes in the beverage manufacturing industry and is one of the world’s largest non-alcoholic beverage manufacturers.  The company was founded in 1892 and is based in Atlanta, Georgia with approximately 50,000 employees worldwide. The company’s primary business (about 86% of revenues) is the manufacturing of soft drink concentrates and syrups (Coca-Cola, Diet Coke, Sprite).  In addition to soft drinks, the company also sells juice products (Minute Maid), sport drinks (Powerade), water (Dasani), teas and coffees, with 400 brands in all, sold in over 200 countries.

However, the company has been careful in introducing some of its brands into the African market due to unfavorable economic environment. However, this is bound to change with the successful entry of Dasani water in the African markets having been recorded as a success by the Coca-Cola Company. The Company also maintains an extensive bottling network, 58% of which Coca-Cola holds a non-controlling interest, 25% are independently owned bottlers, and 7% of which the company has a controlling ownership interest.

The remaining 10% are fountain and finished beverage operations. Concentrates and syrups are sold to these bottlers and distributors and the company also supports these partners with the marketing and distribution of these products.

The Coca-Cola’s stock symbol is “KO” and trades on the New York, Boston, Chicago, National, Pacific, and Philadelphia stock exchanges. The company’s closing stock price was $41.64 on December 31, 2004.  Its price-earnings ratio was 20.8 versus the S&P 500 price-earnings ratio of 19.

The company’s global sales and assets in 2004 were $22 million and $31.3 million, respectively. The five-year compound annual growth rate was 2.1%, 2.3%, 0.7%, 1.6%, and 2.6% for 2004, 2003, 2002, 2001, and 2000, respectively.  In terms of market share, Coca-Cola leads in the African market with about 69% share. Pepsi holds the second largest share with 18%.” (Mazumder, Stianchi & Perler, 2006).

Mission:

The Coca-Cola Company has the following Mission

To Refresh the World… in body, mind, and spirit. To Inspire Moments of Optimism… through our brands and our actions. To Create Value and Make a Difference… everywhere we engage. Vision To achieve sustainable growth; the company has established a vision with clear goals.

Profit: Maximizing return to shareowners while being mindful of our overall responsibilities. People: Being a great place to work where people are inspired to be the best they can be. Portfolio: Bringing to the world a portfolio of beverage brands that anticipate and satisfy peoples’ desires and needs. Partners: Nurturing a winning network of partners and building mutual loyalty. Planet: Being a responsible global citizen that makes a difference. Critique the Mission Statement

Coca-Cola Mission/Vision Statement Critique Using the Nine Essential Components of a Mission Statement Mission Statement Vision Statement Customers Products and Services   Markets   Technology  Concern for survival, growth and profitability   Philosophy  Self-concept  Concern for public image  Concern for employees The mission statement of Coca-Cola caters for all the aspects from stockholder’s share values through maximizing returns to corporate responsibility by making them responsible citizens that make a difference throughout the globe.  On the other hand, the mission of the Company is also to take care of the employee’s wishes by being a great place to work so that the employees can become more productive and efficient and can help the company in achieving the highest position in the market by introducing new products and improved services. The philosophy of the company includes moments of optimism through the strong brand, value creation and customer satisfaction all over the world.

Values

Coca-Cola has also strong values, which provide the Company with a significant position in the beverage industry. The values practiced by the company are mentioned as under:

Leadership: "The courage to shape a better future" Passion: "Committed in heart and mind" Integrity: "Be real" Accountability: "If it is to be, it’s up to me" Collaboration: "Leverage collective genius" Innovation: "Seek, imagine, create, delight" Quality: "What we do, we do well" Corporate social responsibility policy

Coca-Cola has policies outlined in social responsibility and good corporate governance. Corporate social responsibility has been viewed narrowly by some people as giving back to the society in Coca-Cola it is different. Giving such a narrow definition to corporate social responsibility carries the risk of treating corporate social responsibility as a negative constraint to the resources of the organization, which are usually scarce and hard to come by.

Coca-Cola has been in the forefront in giving back to the society the African market. This has been demonstrated by the Company sponsoring sport events as well as sponsoring environmental programs. Corporate social responsibility therefore if utilized well can greatly contribute to the improvement of performance and productivity and Coca-Cola has greatly benefited from this, in its penetration of the African market.

On its part, strategic thinking serves to prepare the organisation to face the future, which is usually uncertain, and only the organisation that utilises analytical tools to its advantage emerges victorious even in the advent of uncertainty in the market. (Trott, 2005). Considering the usually unstable political environment in most African countries, the Company has had to strategically plan for turbulent political environment, which negatively affects business performance. It is worth noting that, today’s technological advances in terms of information technology as well as the advent of globalization have had an influence on how organizations perform in the market.

Modern business organizations such as retailing businesses are faced with the challenge of competing in crowded markets. Any modern business must keep in step with new business trends.  Any modern business keen on remaining on business must keep on reinventing itself in terms of product and service development. Actually every move, investment, risks or decision Coca-Cola makes is based on informed intelligence.  Modern businesses have their key source of intelligence as the research tools at their disposal.

Any modern business, which fails to engage in corporate social responsibility before making key managerial decisions, is bound to fail. Therefore, there is a need for good corporate social responsibility towards the customer, given the fact that the organization products or services are made for the consumption of the customers/public and in the event whereby the customer fails to consume the products, there is the danger of the organisation becoming irrelevant or redundant because it would no longer need to carry out any more production.

In order to analyse the strategic situation, first of all SWOT analysis have been undertaken, which is presented as under:

SWOT Analysis of the Coca-Cola Company in the African market.

STRENGTHS

·  Strong Brand name.

·  Extended customer in more than 200 countries.

·  Use of SAP R/3 Enterprise Resource planning software

·  Low threat of new entrants.

·  Continuous training programs for employees.

·  High budgets of advertising and promotion.

·  Good relations with media.

·  Web based presence.

WEAKNESSES

·     Low ROE as compare to its close rival Pepsi.

·     Subsidiaries create legal and territorial problems.

·     Lack of funds for regional bottlers to continue expansion

·     Old image still exists.

·     Inconsistent marketing message. OPPORTUNITIES

·   Expansion in shape of introduction of new and innovative products.

·   Expanding market due to globalisation.

THREATS

·      Current economic climate.

·      Over reliance on the bottlers.

·       Results to be achieved in future can be less than projected

“The Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is an important matching tool that helps managers develop four types of strategies: SO Strategies, WO strategies, ST Strategies, and WT Strategies.

SO strategies use a firm’s internal strengths to take advantage of external opportunities.

WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats.

WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats.” (David, 180-181).

SWOT Matrix:

External Opportunities (O)

1. Double-digit growth rate in beverage market in Africa.

2. Increased consumption of Coke products per capita annually.

3. Increased new packaging system at depots.

4. Market competitor is decreasing production annually.

External Threats (T)

1.      Moderate threat of substitutes.

2.      Mecca Cola brand has gained market share recently.

3.      Lack of funds for the distributors.

4.      One of the important competitors Pepsi increased its advertisement program.

5.   The trend towards healthier drinks in general, has been increasing the list of substitute products.

Internal Strengths (S)

1 Coca-Cola has remained a major investor in Africa further establishing production facilities, distribution networks, sales equipment, and technology.

2. Coca-Cola has a worldwide employee base of 50,000.

3.Continuous improvement in the Company by research and communication of Company with consumers.

4. The Company does a fairly good job of disclosing its true drivers of performance.

5. Coca-Cola has a number of intangible assets, consisting of trademarks, goodwill, and franchise rights.

6. Coca-Cola is one of the many organizations that use SAP R/3 Enterprise Resource planning software. This software allows all members of the Coca-Cola organization to access the information at any time wherever they are in the world. This is a major advantage considering that, not very many organizations have access to this software. The geographic view of Coca-Cola can be termed as global.

Internal Weaknesses (W)

1. Coca-Cola showed a relatively low ROE as compared to its close rival Pepsi.

2. Relationship with subsidiaries creates legal and territorial problems.

3. Lack of funds for regional bottlers to continue expansion.

4. Old image still exists.

5. Inconsistent marketing message.

SO Strategies 1.      Increase in investment in the creation of own supply chain. (S1, W2, W3)

2.      Add more employees to spend up the production process. (S2, O4)

3.      Keep quality standards above the competition for more revenue. (S4, S5, O5)

WO Strategies

1.      Continuous introduction of new products in different directions with the changing demands of consumers. (W1, O4)

2.      Introduction of technology in advertisement. (W5, O1, O2)

ST Strategies

1.      Advertise more about our top selling products instead of just high end products. (S4, S5, T1, T4, T5)

2.      Advertise the products that we are able to get mass quantities year round. (S4, S5, T1, T4, T5)

3.      Keep the product price competitive by keeping updates about the price policy of competitors. (S3, S4, T2)

WT Strategies

Obtain a more reliable information management system for the company all over the world. (W2, T3)

1.      Having contacts with the subsidiaries offering low supply chain cost and efficient services. (W5, T3)

“The Strategic Position and Action Evaluation (SPACE) Matrix is another important stage 2 matching tool with four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organisation. The SPACE Matrix represents two internal dimensions; financial strength (FS) and competitive advantage (CA), but also represents two external dimensions; environmental stability (ES) and industry strength (IS).” (David, 184).

SPACE Matrix:

            Internal Strategic Position                                            External Strategic Position

            Financial Strength (FS)                                                  Environmental Stability (ES)

            Competitive power                                                        Product pricing

            Return on investment                                                   Liability consequences

            Net profit                                                                    competitive pressure

            Operational resources                                                 Rate of inflation

            Liquidity                                                                     Price elasticity of demand

Risk of market                                                              Technological changes

Competitive Advantage (CA)                                      Industry Strength (IS)

Quality of product                                           Potential expansion

Customer service                                                        Potential profit

Product life cycle                                                        Market stability

Market share                                                  Technology advances

Advertisement strengths                                              Resource exploitation

Know competition’s operations                                   Productivity

Financial Strength (FS)                                                                       Ratings

The Coca-Cola Company has had a strong return on equity (ROE)     2.0

for the past 5 years.

Coca-Cola’s net equity 32.1%                                                           3.0

Coca-Cola’s sustainable growth rate 16.1% in 2004.                          3.0

Coca Cola’s Gross Profit Margin 52.6%                                            4.0

                                                                                                          12.0

Industry Strength (IS)

Coca-Cola has the largest share in the industry revenue                       2.0

Advertisement increases competition in the beverage industry. 3.0

Increasing share of Company in bottled water                         4.0

                                                                                                          9.0

Environmental Stability (ES)

Coca-Cola is in a high volume and relatively low cost products

market with a short life cycles, operating efficiencies .              -3.0

Technology changes has created competitive struggles             -4.0

Increased competitive insecurity due to company expansion     -4.0

                                                                                              -11.0

Competitive Advantage (CA)

Coca-Cola has strong supply chain relying on subsidiaries.                  -2.0

Coca Cola has a large employee base with up to date information       -3.0

The bottled water industry is becoming more popular

and more competitive.                                                                        -4.0

                                                                                                          -9.0

Conclusion

ES Average is -1.0 / 3 = -3.667                      IS Average is +9.0 / 3 = 3.0

CA Average is -9.0 / 3 = -3.0                         FS Average is +12.0 / 3 = 4.0

Directional Vector Coordinates: x-axis -3.667 + (+3.0) = -.667

                                                   y-axis -3.0 + (+4.0) = 1.0

The Competitive strategies of Coca-Cola need constant updating.

“The Boston Consulting Group (BCG) Matrix is designed specifically to enhance a multidivisional form’s efforts to formulate strategies. This matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate.  This matrix allows a multidivisional organisation to manage its portfolio of business by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organisation.” (David, 188).

Construction of IFE Matrix for Coca Cola

The evaluation of the strengths and weaknesses of the Company’s performance in factors, which are significant for the analysis of Company’s performance, has resulted in the shape of the following IFE matrix.

 Internal Factor Evaluation -IFE Matrix Strengths Weight Rating weight score 1 Strong brand name and worldwide leadership in beverage industry. 0.10 4 0.40 2 Promotion oriented strategy 0.10 4 0.40 3 High level staff recruitment 0.10 4 0.40 4 Product Differentiation 0.05 4 0.20 5 Strong supply chain 0.05 2 0.10 6 Value retention 0.05 4 0.20 Weaknesses 1 Low ROE as compare to Pepsi 0.10 1 0.10 2 Old image still exists 0.10 2 0.20 3 Relation ship with subsidiaries create legal and territorial problems 0.10 2 0.20 4 Inconsistent Marketing message 0.10 1 0.10 5 Lack of funds for regional bottlers to continue expansion 0.10 1 0.10 6 Product, operation, service planning too complicated 0.05 2 0.10 Total 1.00 Score 2.50 “The Grand Strategy Matrix is a popular tool for formulating alternative strategies.  All organisations can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants. This Matrix is based on two evaluative dimensions: competitive position and market growth. Firms in quadrant

I are in excellent strategic position, firms in quadrant II need to evaluate their present approach to the marketplace seriously. Firms that are located in quadrant III compete in slow growth industries and have weak competitive positions, whereas firms in quadrant IV have a strong competitive position but are in a slow growth industry and these firms have the strength to launch diversified programs into more promising growth areas.” (David, 192).

The Grand Strategy Matrix:

                            Rapid Market Growth

                        Quadrant II                                         Quadrant I

                        1. Market growth                                1. Market growth

                        2. Market dispersion                           2. Market dispersion

                        3. Product development                       3. Product development

                        4. Technology advances                      4. Technology advances

                        5. Horizontal incorporation       5. Horizontal incorporation

                        6. Liquidation                                      6. Advance arrangement

                                                                                  7. Backwards integration

                       Weak                                                              Strong

                       Competitive                                                     Competitive

                       Position                                                           Position

                        Quadrant III                                                    Quadrant IV

                        1. Economizing                                    1. Related diversification

                        2. Related diversification                                  2. Unrelated diversification

                        3. Unrelated diversification                              3. Combined Ventures

                        4. Liquidation

Slow Market Growth

According to the performance analysis of Coca-Cola Company, the Company stands in quadrant I. It maintains the no. 1 position in the beverage industry by capturing the highest profit margin. The company has adopted all the promotion tactics in order to capture a wide range of consumers. As the market is extending, the company is also extending its product line by introducing new products. The large budget and promotion activities of Coca-Cola keep the new entrants away from entering the market.

The Company has adopted a positive and up to date strategy, which has helped the Company to stay on the leadership position in the industry. The wide range of the products, a futuristic strategy, applied by Coca-Cola compared to the competitors, has given the Company a competitive edge in the African market. Coca-Cola has always offered more than what has been expected from the Company but still, there is a potential for cutting edge products.

References Abhijit Mazumder, Rob Stianchi & Jenn Perler. 2006.  Business Analysis Using Financial Statements. PP.4-12.

Armstrong, Arthur G., & John Hagel. III. 1997. Net Gain: Expanding Markets Through Virtual Communities. Harvard Business School Press. PP.87-92.

Fred R. David, Strategic Management Concepts and Cases, Eleventh Edition, pp.165-166.

Rigby, Darrell K. & Chris Zook. 2002. Open Market Innovation. Harvard Business Review. PP.17-26.

The Coca-Cola Company, Mission, Vision and Values, available at http://www2.coca-cola.com/ourcompany/mission_vision_values.html

Trott, P. 2005. Innovation Management and New Product Development. 3rd Ed. Pearson Education Ltd. PP.113-118.