Coca Cola Economic Position Paper

Running Head: ECONOMIC POSITION Coca Cola Economic Position Paper ECO 365 Coca Cola is the world’s leading manufacturer and distributor in the beverage industry. The economic position of Coca-Cola is determined through careful analysis of the organizations history, market conditions, market trends, and finally the recommendations needed for the future of the organization in their economic position. Overview of the company will consist of the history, industry market, the role of government regulations, and issues or opportunities. History of Organization A pharmacist John Pemberton founded Coca Cola in 1886. Pemberton took the caramel colored concoction to Jacob’s pharmacy and added carbonated water. The initial take on this strange water was so good that Jacob’s pharmacy sold approximately nine glasses a day at 5 cents apiece. After Pemberton’s death in 1888, the colored water went on a century later to sell more than 10 billion gallons of syrup. During World War II, the company established manufacturing for overseas operations and by the end of the war had become an international company. Coca Cola has developed into the largest beverage organization since 1886, an unimaginable dream come true for the founder. Coca Cola operates â€Å"in more than 200 countries and market a portfolio of more than 3,000 beverage products including sparkling drinks and still beverages such as waters, juices and juice drinks, teas, coffees, sports drinks, and energy drinks† (The Coca Cola System, 2010). The core philosophy for the bottling of each product is on building local relationships with customers and communities and is the foundation for growth (History of Bottling, 2010). The mission of Coca Cola is â€Å"To refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference† (Coca Cola, 2010) Market of the Coca Cola Corporation The Coca Cola Corporation operates in vast marketplace, that is to say the company operates on a global platform, expanding 200 plus countries. The Coca Cola Corporation focuses on the non-alcoholic beverage market in the â€Å"drink† industry. Incorporating over 400 brands and over 3,000 other beverage options, the Coca Cola Company is the largest beverage company in the industry. (Coca Cola Corporation, 2008) . The brand, Coca Cola, recognized as the world’s most valuable trademark is bringing in positive cash flows of over 8 billion dollars annually. (Coca Cola Corporation, 2009) . Role of Government Regulations Coca Cola bottlers are presently making non-refillable recyclable plastic bottles in the United States as well as markets around the world. Many bottlers offer refillable containers, which are also recyclable. Coca Cola states, â€Å"Legal requirements have been enacted in jurisdictions in the United States and overseas requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers. † All of Coca Cola’s services in the United States and in other parts of the world are subject to a variety of environmental regulations and laws. In following the laws and regulations within the United States and around the world, Coca Cola has not nor anticipates any adverse affect on the company’s competitive position, capital, or net income. Issues or Opportunities The health issue challenge can disrupt the growth of the soft drink industry. However, opportunities exist for CCE to continue to stay ahead in the beverage industry. For example, penetrating multiple markets around the globe is a strategic move that will allow acquisition opportunities and enhance the market and financial gains of the company. In addition to acquisition efforts, tapping into the existing bottled-water market frenzy is another opportunity Coca Cola has to regain market growth. The beverage segment of bottled water is rapidly on an incline in the United States as more people are becoming aware of the need for a healthy lifestyle. By tapping into the bottled water segment, Coca Cola will strategically position itself for growth. Taste is the ultimate power behind selling a beverage; by offering flavored water to the consumer-markets, new and re-brand, loyalty is increasing. Re-brand loyalty is important because consumer segments that lost interest in soft drinks are looking to live better by a smarter selection of food and beverage. Market Structure _Current _Market Trends The Coca Cola Company (TCCC) operating in an oligopoly is a trend in the carbonated beverage industry not expected to change. This statement, made on the fact that the Coca Cola Company operates not only in the carbonated beverage market, but is a diversified corporation operating in the non-alcoholic drink market. The diversification of TCCC was necessary to continue its competitiveness with market trends in the industry. In recent years, the trends have shown the carbonated drink industry declining in lieu of the health conscious position. Simply stated, the company competes in a variety markets including teas, coffees, energy drinks, and many others facets of the industry. As a result, TCCC competes with only a few corporations in the drink market such as, Nestle and PepsiCo. (The Coca Cola Company, 2009) . TCCC, along with the competitors, operate in collusion with one another in an effort to maintain consistency and sustainability in the non-alcoholic drink market. An important point to note, oligopolistic organizations operate interdependently and are viewed as collusive (cooperating) or noncollusive (not cooperating). Oligopoly market structures have other defining characteristics that differentiate from the monopolistic competition market structure. Figure one provides some of the characteristics that define an oligopoly market structure. Figure one {draw:frame} Impact of New Companies Entering the Market _Current _Market Trends Currently, the carbonated beverage industry has three major corporations that have a strong presence in the market. The Coca Cola Company, PepsiCo, and Dr. Pepper Snapple Group maintain the majority structure of the market share in the industry. The statistics measured in 2008 have the Coca-Coca Company dominating at approximately 40% with PepsiCo and the Dr. Pepper Snapple Group placed at 20. 1% and 8. 5% respectively. The other players to the marketplace compose the remaining 31% (Datamonitor, 2009) . New companies have surfaced in the drink industry and have stirred the competition, at least enough for companies like TCCC and PepsiCo to be observant of their presence. Simply stated, TCCC monitors the newcomer and surveys the public reaction to the product. Figure two {draw:frame} New companies entering the carbonated beverage market would have significant entry costs (advertising and marketing) to compete with the majors previously identified. â€Å"The nature of the market demands an intensive marketing campaign in order to generate and maintain a successful brand image. With Coca Cola Company and PepsiCo so firmly established in this area, even aside from the costs, this acts as a daunting deterrent to potential entrants † (Datamonitor, 2009, p. 18) . Prices Current _Market Trends CCE's trailing-12-month return on capital (ROC) is 11%, compared to a stout 15. 9% for Coca Cola. (Pienciak, 2010) the company is already in a price war and needs to make a change to improve its competitive advantage in the market. For this reason, Coca Cola recently announced that it would obtain the world’s largest bottler of Coca Cola-owned beverages n ames. The merger should improve operations and assist in adjusting to customer preferences. Pienciak (2010) states, â€Å"Essentially, owning the North American bottling business boils down to flexibility—both in product innovation and pricing. Technology _Current _Market Trends Recent movements in technology for Coca Cola improvements and modifications have come from the market trend of cleaning up the atmosphere. Coca Cola is committed to putting as little pollution into the atmosphere as possible and has given a press release that states, â€Å"100 % of their new vending machines and coolers will be hydrofluorocarbon-free (HFC-free) by 2015. Coca Cola is committing to use its scale to aggregate demand and encourage supply as a means of accelerating the transition to HFC-free refrigeration equipment† (News Release, 2010). Productivity _Current _Market Trends Coca Cola offers one of the largest widely distributed products for beverages, in a market, which reaches across the globe. Coca Cola's products are so popular that three million people consume them annually. Its product line has 3,000 varieties (Coca Cola, 2010). Production systems include soda, water, juice, tea, and sport drinks. Productivity includes the system with fixed and variable inputs, including the manufacturing, the branding, the bottling operation, marketing activities, and, of course, one of the most important is the packaging. These market trends change with time as the changing needs, and desires of the consumers change The market trend productivity is on the rise for Coca Cola. In June of 2009, Coca Cola announced a new structure for productivity, the three new structures â€Å"Global Business Services, Global Information Technology, and Transformational Productivity† (Press Center, 2009). Because Coca Cola has created a new structure for productivity, they promoted five new executives, making room for more promotions and new hires. Cost Structure _Wages and Benefits_ _current market trends. _ Fixed and _Variable Costs current market trends. Fixed costs are those such as factories, which do not change regardless of the level of production. Variable costs include such things as cans, bottles, and hourly wages, these things directly relate to the level of production. Because of its vast economies of scale, Coca Cola has very low variable costs. Coca-Cola uses sugar, bottles, cans, and soft drink syr up as inputs. Because it is a very large buyer, it can use its influence to obtain these goods at reduced rates. Coca-Cola creates its own syrup, the recipe for which is a trade secret. TCCC sells Coca Cola Enterprises the syrup, which they use to create beverages, and then distribute. Therefore, in spite of Coca Cola’s relatively good salaries and benefits, its variable costs are a minor consideration. However, its fixed costs are considerable. Each factory costs millions of dollars to build and maintain, as well as the bottling equipment, recycling equipment and vehicles. Price Elasticity of Demand Current Market Trends â€Å"Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price (Colander, 2008, p. 128) . Concerning the Coca Cola Company, price elasticity of demand is, at best, subjective to many areas of business. Geographic location, type of product/brand, and competition are facets considered subjective when speaking to price elasticity of demand. Market trends in price elasticity of demand relative to the â€Å"standard carbonated offering† (cola, sparkling) are concentric. Simply stat ed, the prices are inelastic to reasonable price changes; however, pressure from health groups may influence the future state of price elasticity of demand in the carbonated beverage industry. In recent estimations, â€Å"the price elasticity for all soft drinks is in the range of –. 8 to –1. 0. (Elasticity of –. 8 suggests that for every 10% increase in price, there would be a decrease in consumption of 8%, whereas elasticity of –1. 0 suggests that for every 10% increase in price, there would be a decrease in consumption of 10% )†(Brownell et al, 2009, p. 1602) . Competitors Current Market Trends Coca Cola is a very diverse organization with over 400 brands dividing into approximately 3,000 products. Competition includes companies such as PepsiCo. nd Aquafina; the variety of competitors stretches through the supply and demand chains to include organizations like Starbucks or any store that carries products other than Coca Cola brands Pepsi Co. is the leading competitor for Coca Cola because of the ties with the carbonated beverages for which both companies produce. PepsiCo and Coca Cola have fought a â€Å"Cola War† (Strauss, 2010 ) for decades with their marketing techniques and following the flow of market trends. Supply and Demand Analysis Current Market Trends In a new report from Beverage Digest, a remarkable downturn in the soft drink market is accelerating. Total US sales fell 2. 3% in 2007, which was worse than the 0. 6% drop in 2006, which was, in turn, worse than the 0. 2% decline in 2005. The carbonated soft drink industry has moved from roughly 3% growth in the 1990's to increasing rates of decline in the last three years. Then again, the US is doing its best to keep Coke afloat. Even with the recent declines, the U. S. still has the highest consumption of carbonated soft drink per capita in the world (Kedrosky, 2008). Coca Cola’s expansion into other markets has absorbed the decline in demand for carbonated soda, as the demand increases for their other products in the US. Globally Coca Cola’s demand is still increasing with expansion into newer territories. Impact of Government Regulations Current Market Trends Final Recommendations The analysis thus far of the economic position for Coca Cola is only lacking in recommendations for the future, price, production, and composition of inputs, global competition, and the possibilities of expansion. Government policy, social diversity, and business ethics will be necessary as part of the recommendations for the future status of Coca Cola’s economic position. Price As the world’s largest provider of non-alcoholic beverages CCE has positioned itself in the market as the standard for others to follow. Competitors are constantly knocking at the door and for this reason CCE needs to continue to be innovative with pricing strategies throughout the world market. The trend today is prices on non-alcoholic beverages are increasing, fuel, and electrical cost are higher causing companies to raise prices. CCE can maintain its position as the world leader by reducing costs and pass the savings on to customers. Production The North American and Western Europe markets have been difficult for CCE recently. Both markets have shown a decline due to consumers turning towards healthier non-carbonated beverages. Prices for raw materials that CCE needs to produce its products have become more expensive. To combat these obstacles CCE needs to provide innovative ideas and methods to reduce production cost. CCE could benefit from cutting down on employees and utilizing assets more efficiently. CCE might benefit from new products that are non-carbonated. New products would appeal to the healthier consumers. Composition of Inputs Many different inputs are needed to produce the 3,000 different varieties of Coca Cola products. Figure 3 below shows how some of these inputs work together to produce the final product. Figure 3 {draw:frame} Some of the other inputs are the quality of work performed by employees, and vendors who supply the bottling process. All of these inputs work together to create the most recognizable brand in the world. (Figure 3 provided by Fuzzy Logic Control) Global Competition Global competition is much like national competition and one of the biggest competitors is the neighborly PepsiCo. For Coca Cola, it is vital to watch the competition in its back yard. PepsiCo being from the same country is the biggest competitor. Import and export scenarios are much the same for both companies making production costs in competition, which in turn makes the price of each beverage competitive. The three primary issues TCCC can focus on to keep up with the competition globally are: (1) expansion in countries that are growing rapidly, (2) expansion on lower sugar beverages, and (3) expansion into noncarbonated beverages (Sivy, 2007). All three expansions will help maintain a competitive edge as well as diversify the company making Coca Cola stock more sustainable. The recommendation for Coca Cola is expansion. Analysis of Government Policy, Social Diversity, and Business Ethics on Expansion Government policies result in TCCC being proactive in meeting or exceeding rules and regulations, on a national and global plane. Expansion of operations demand TCCC follow local, state, federal and foreign government policies to ensure cohesion exists between the units to satisfy the objectives of each. The new market trends in the beverage industry indicate a shift to the health-conscious position, thus increasing the need for TCCC to expand into new markets. National and State government policies designed to rid the public school systems of high-calorie beverages create new challenges for carbonated beverage providers, thrusting TCCC to diversify its offerings to support a healthy lifestyle for children. Foreign governments have accused carbonated beverage makers of allowing harmful levels of pesticides in their carbonated offerings, thus increasing the need for higher standards of quality in to be placed into the product. Both challenges have a direct impact on expansion, but also provide for innovation in the carbonated beverage industry. Social diversity is an aspect of expansion directly affecting TCCC in a positive direction. Expansion of operations suggests global implications; meaning more opportunities for a diverse workforce. TCCC operating in a global arena demands the company use diverse workforces to improve its position in the marketplace. The company can both educate while also learning from individuals cultural backgrounds to propel TCCC to greater achievements in the beverage industry. Business ethics are an important feature of expansion. TCCC is committed to performing all business dealings with the highest morals and standards in the industry and is reflective of their Code of Business Conduct in daily operations. Business ethics encompasses a large and often complex set of guidelines to abide by. Expansion often suggests the mitigation of competition through mergers or corporate takeovers. TCCC has the responsibility, in such cases, to act with integrity to its adversary. Conclusion The market trends of the economy will cause changes for Coca Cola; however, the organization is very stable and will often lead the industry into new market trends. All variables will touch Coca Cola at some time but several that affect the organization on a regular basis are new companies, prices, new technology, variable costs, competitors, supply and demand, and globalization. Coca Cola has led the industry in innovation. Through expansion into new markets around the world, Coca Cola will continue to lead the industry. 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