University of Jordan Faculty of Business Strategic Management “Coca-Cola Company” Case Study STRATEGIC MANAGEMENT
Prepared By Fathi Salem Mohammed Abdullah Abdullah
2009
History analysis •
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•
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In May, May, 1886, Coca Cola was invented by Doctor John Pemberton a pharmacist from Atlanta, Georgia. John Pemberton concocted the Coca Cola formula in a three legged brass kettle in his backyard. Being a bookkeeper, bookkeeper, Frank Robinson also had excellent penmanship. It was he who first scripted "Coca " Coca Cola" Cola" into the flowing letters which has become the famous logo of today. today. The soft drink was first sold to the public at the soda fountain in Jacob's Pharmacy in Atlanta on May 8, 1886. Until 1905, the soft drink, marketed as a tonic, contained extracts of cocaine as well as the caffeine-rich kola nut. Until the 1960s, both small town and big city dwellers enjoyed carbonated beverages at the local soda fountain or ice cream saloon. Often housed in the drug store, the soda fountain counter served as a meeting place for people of all ages. Often combined with lunch counters, the soda fountain declined in popularity as commercial ice cream, bottled soft drinks, and fast food restaurants r estaurants became popular. popular. On April 23, 1985, the trade secret "New Coke" formula was released. Today, products of the Coca Cola Company are consumed at the rate of more than one billion drinks per day.
Vision Statement (actual) To maintain our reputation as the leading lead ing cola company in the world.
Mission Statement (actual) Everything we do is inspired by our enduring endu ring mission: bod y, mind, and spirit. To Refresh the World... in body To Inspire Moments of Optimism ... through our brands and our actions. To Create Value and Make a Difference ... everywhere we engage. (proposed) At Coca Cola we believe our main responsibility is providing customers (1) with refreshing beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit any occasion in their day to to day lives (6). Our signature product, Coke (7), is a favorite around the world and a wide variety of our products are sold in over 200 nations (3). We use the only the most sophisticated equipment (4) to process and make our products to
ensure each glass of Coke product is is as good as the last last (5). Our employees (9) are fairly compensated and we practice fair trade in in all markets we compete. We value our responsibility to all communities we serve and support many educational and leadership programs (8). 1. 2. 3. 4. 5. 6. 7. 8. 9.
Customer Products or services Markets Techn chnology Concern for survival, survival, profitabil profitability ity,, growth growth Phi Philosophy ophy Sel Self-co f-conc ncep eptt Conce Concern rn for for pub publi licc ima image ge Conce Concern rn for for empl employ oyees ees
The Five Forces Framework Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market include: •
Bottling Network: Both Coke and PepsiCo Pe psiCo have franchisee agreements with their existing bottler’s who have rights in a certain geographic area in perpetuity. These agreements prohibit prohibit bottler’s bottler’s from taking on new competing brands for similar products. Also Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product.
The other approach approach to try and build their bottling bottling plants would be very capital-inten capital-intensive sive effort effort with new efficient plant capital requirements in 1998 being $75 million. •
•
•
Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and their bottler’s. bottler’s. The average advertisement spending per point of market share in 2000 was 8.3 million (Exhibit 2). This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility. visibility. Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customer’s all over the world. This makes it virtually impossible for a new entrant to match this scale in this market place. Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 15-20% on these soft drinks for the shelf space they offer. These margins are quite significant for
their their bottom-l bottom-line. ine. This This makes makes it tough for the new entrant entrantss to convince convince retailer retailerss to carry/substitute their new products for Coke and Pepsi. •
Fear of Retaliation: To enter into a market with entrenched rival behemoths like Pepsi and Coke is not easy eas y as it could lead to price wars which affect the new comer.
Suppliers: •
Commodity Ingredients: Most of the raw materials needed to produce concentrate are basic commodities like Color, flavor, caffeine or additives, sugar, packaging. Essentially these are basic commodities. The producers of these products have no power over the pricing hence the suppliers in this industry are weak.
Buyers:
The major channels for the Soft Drink industry (Exhibit 6) are food stores, Fast food fountain, vending, convenience stores and others in the order of market share. The profitability in each of these segments clearly illustrate the buyer power and how different buyers pay different prices based on their power to negotiate. •
•
•
•
Food Stores: These buyers in this segment are some what consolidated with several chain stores and few local supermarkets, since they offer premium shelf space they command lower prices, the net operating profit before tax (NOPBT) (NOPBT) for concentrate concentrate producer’s producer’s in this segment is $0.23/case Convenience Stores: This segment of buyer’s is extremely fragmented and hence have to pay higher prices, NOPBT here is $0.69 /case. Fountain: This segment of buyer’s buyer’s are the least profitable profitable because of their large amount of purchases hey make, It allows them to have freedom to negotiate. Coke and Pepsi primarily consider this segment “Paid Sampling” with low margins. NOPBT in this segment is $0.09 /case. Vending: This channel serves the customer’s directly with absolutely no power with the buyer, hence NOPBT of $0.97/case.
Substitutes: Large numbers of substitutes like water, beer, coffee, juices etc are available to the end consumers but this countered by concentrate providers by huge advertising, brand equity, and making their product easily available for consumers, which most substitutes cannot match. Also Also soft soft drink drink compani companies es divers diversify ify busine business ss by offer offering ing substi substitut tutes es thems themselv elves es to shield shield themselves from competition. Rivalry:
The Concentrate Producer industry can be classified as a Duopoly with Pepsi and Coke as the firms competing. The market share of the rest of the competition is too small to cause any upheaval of pricing or industry structure. Pepsi and Coke mainly over the years competed on differentiation and advertising rather than on pricing except for a period in the 1990’s. This prevented a huge dent in profits. Pricing wars are however a feature in their international expansion strategies.
PEST Analysis The PEST Analysis Analysis is an analysis to examine the macro-environment of CocaCola’s Cola’s operations (Johnson, Scholes and Whittington, 2008). Political
Like most companies, Coca-Cola is monitoring the policies and regulations set by the government. There are no political issues in this instance. Economic
There is low growth in the market for carbonated drinks, especially in Coca-Cola’s Coca-Cola’s main market, North America. America. The market growth recorded at only 1% for North America in 2004. Social
There are changes in consumers’ lifestyles. Consumers are more health conscious. This affects the Coca-Cola’s Coca-Cola’s sales of the carbonated drinks as consumers prefer non-carbonated non-carbonated drinks such as tea, juices and bottled drinks. Demand for carbonated drinks decreases and this leads to a decrease in Coca-Cola’s Coca-Cola’s revenues. Technological
As the technology advances, new products are introduced into the market. The advance in technology has led to the creation of cherry coke in 1985 but consumers still prefers the traditional taste of the original coke.
External Audit Opportunities
1.
Bottled water consumption has increased 11 percent.
2.
According to the S&P Industry Survey , consumers are drawn to new smaller beverage brands that are not sold on a mass scale.
3.
Word Economic Forum’s annual Davos, Switzerland gathering grants international voice.
4.
Less developed countries are in desperate need to improve community water supplies.
5.
Energy drink sales are expected to increase 7 to 8 percent in 2007.
6.
Disposable income has increased 6.2 percent.
7.
Consumers are striving to drink and eat their way to better health than pervious generations.
8.
EPS is expected to rise 7 to 8 percent in 2007.
CPM – Competitive Profile Matrix
Threats
1. Cons Consum umpt ptio ion n of Amer Americ ican an beverages is denounced by foreign officials in areas where conflicting interest exist. 2. Multip Multiple le lawsui lawsuits ts against against the new Enviga beverage for calorie burning claims in advertising 3. Smalle Smallerr, less lesser er known known bran brands ds are turning to major beer distributors for bottling. 4. Overal Overalll carb carbonat onated ed drink drink sales sales have been flat due to links of sugar to obesity and high fructose corn syrup to heart disease. 5. Peps Pepsii is more more div diver ersi sifi fied ed offering beverage and food products. 6. High High cost cost of commod commoditi ities es such such as sugar, and metals used in production of cans. 7. Many Many sma small ller er com compa panie niess are are fierce competitors around the world in their local markets.
Critical Success Factors
Weight
Market Share Price Comp Financial Position Product Quality Product Lines Customer Loyalty Employees Marketing Total
0.15 0.10 0.12 0.15 0.15 0.15 0.11 0.07 1.00
Coca-Cola Rating Weighted Score
4 3 4 3 4 4 3 3
0.60 0.30 0.48 0.45 0.60 0.60 0.33 0.21 3.71
Pepsi Rating Weighted Score
3 3 4 3 4 4 3 3
Cadbury Schweppes Rating Weighted Score
0.45 0.30 0.48 0.45 0.60 0.60 0.33 0.21 3.56
2 3 3 3 3 3 3 3
0.30 0.30 0.36 0.45 0.45 0.45 0.33 0.21 2.85
External Factor Evaluation (EFE) Matrix Key External Factors Opportunities 1. Bottl Bottled ed water water cons consump umpti tion on has has increa increased sed 11 11 percent. 2. Acco Accorrdin ding to to th the S&P Industry Survey , consumers are drawn to new smaller beverage brands that are not sold on a mass scale. 3. Word Econ Economi omicc Forum’ Forum’ss annual annual Davo Davos, s, Switzerland gathering grants international voice. 4. Less Less develop developed ed countr countries ies are are in despe desperat ratee need to improve community water supplies. 5. Energy Energy drink drink sales sales are are expe expecte cted d to incre increase ase 7 to to 8 percent in 2007. 6. Disposable income has increased 6.2 percent. 7. Consum Consumers ers are are striv striving ing to to drink drink and and eat thei their r way to better health than pervious generations. 8. EPS is expected to rise 7 to 8 percent in 2007. Threats 1. Consum Consumpti ption on of of Americ American an beve beverag rages es is is denounced by foreign officials in areas where conflicting interest exist. 2. Multip Multiple le laws lawsuit uitss agains againstt the the new Envi Enviga ga beverage for calorie burning claims in advertising 3. Smalle Smaller, r, less lesser er known known bran brands ds are are turnin turning g to major beer distributors for bottling. 4. Overal Overalll carbon carbonate ated d drink drink sales sales have have been been flat flat due to links of sugar to obesity and high fructose corn syrup to heart disease. 5. Pepsi Pepsi is more more diver diversif sified ied off offeri ering ng bevera beverage ge and food products. 6. High High cost cost of comm commodi oditie tiess such such as suga sugarr, and metals used in production of cans. 7. Many Many smalle smallerr compani companies es are fierc fiercee competi competitor torss around the world in their local markets. TOTAL
Weight
Rating
Weighted Score
0.06
4
0.24
0.05
2
0.10
0.02
2
0.04
0.02
2
0.04
0.06
3
0.18
0.05 0.07
3 3
0.15 0.21
0.07
4
0.28
0.02
3
0.06
0.04
2
0.08
0.06
2
0.12
0.10
2
0.20
0.20
3
0.60
0.10
3
0.30
0.08
3
0.24
1.00
2.84
Internal Audit Strength
Weakness
1. Produc Productt line line has over over 400 400 brands brands.. 2. Strong Strong global global presen presence, ce, locate located d in over 200 countries. 3. Long Long histo history ry has built built excelle excellent nt brand recognition. 4. Part Partne ners rshi hip p longev longevit ity y with with established sporting events including the Olympics. 5. Indu Indust stry ry lea leader der in mar market ket capitalization with $112 billion. 6. Retu Return rn on on Equi Equity ty yiel yielde ded d 30 percent in 2006. 7. Leader Leader of divi dividend dend yields yields of 2.6 2.6 percent. The company has had 43 consecutive years of an annual dividend increase. 8. Join Jointt ventu venture re betw betwee een n The The Coca Coca Cola Company and Nestle has resulted in the establishment of Beverage Partners Worldwide Worldwide (BPW). 9. Coca Coca-C -Col olaa has for forme med d a stro strong ng partnership with McDonalds, with McDonalds becoming their largest customer.
1. Produ Product ct lin linee is limi limite ted d to beverages. 2. A failed failed $16 bill billion ion acquis acquisiti ition on of Quaker Oats hinders longterm growth. 3. Nega Negati tive ve publ public icit ity y in Indi Indiaa because of water issues, has led to poor brand image and hindered growth there. 4. Lack Lack of mana manage geme ment nt willingness to place foreign products into American markets. 5. Market Marketing ing defici deficienci encies es due to turnover in leadership and a 16 percent decrease in advertising spending. 6. Coca Coca Cola Cola’’s inv inven ento tory ry turnover is only 5.4 compared to Pepsi Co.’s 8.0.
Financial Ratio Analysis (December 2007) Growth Rates %
Coca Cola
Industry
SP-500
Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Current P/E Ratio P/E Ratio 5-Year High P/E Ratio 5-Year Low Price/Sales Ratio Price/Book Value Price/Cash Flow Ratio Profit Margins Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) Financial Condition Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Leverage Ratio Book Value/Share Investment Returns % Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Management Efficiency Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Asset Turnover Adapted from www.moneycentral.msn.com www.moneycentral.msn.com
Date 12/06 12/05
Avg. P/E 20.30 21.00
19.20 8.30 13.30 6.54 5.01 11.49
22.20 25.70 30.00 8.45 9.38 12.61
11.60 17.10 9.30 13.09 19.82 10.00
25.4 NA NA 5.00 6.97 21.10
26.2 49.9 20.7 3.96 5.71 19.60
20.3 26.8 6.8 2.37 3.45 10.70
64.2 26.0 19.8 64.4 27.9 21.1
52.7 17.5 14.2 59.1 20.1 14.9
34.5 17.8 12.6 34.3 16.4 11.4
0.49 0.8 0.6 55.1 2.1 8.52
0.69 1.0 0.7 41.0 2.5 10.25
1.06 1.1 0.9 31.8 3.7 18.53
28.9 14.9 22.6 32.0 16.7 24.6
22.0 11.2 16.9 25.4 12.6 18.2
24.9 7.6 10.2 18.5 6.4 8.6
76,690 386,732 9.8 5.4 0.8
56,327 360,922 10.1 6.8 0.8
92,892 806,706 14.3 7.8 0.8
Price/Sales 4.71 4.18
Price/Book 6.61 5.84
Net Profit Margin (%) 21.1 21.1
12/04 12/03 12/02
23.30 25.00 31.10
4.65 5.99 5.56
Date Book Value/ Share Debt/Equity 12/06 $7.30 0.27 12/05 $6.90 0.35 12/04 $6.61 0.45 12/03 $5.77 0.38 12/02 $4.78 0.45 Adapted from www.moneycentral.msn.com www.moneycentral.msn.com
6.29 8.79 9.18 ROE (%) 30.0 29.8 30.4 30.9 33.7
22.3 20.8 20.3 ROA (%) 17.0 16.6 15.4 15.9 16.3
Interest Coverage 28.7 25.4 29.1 29.3 27.4
Net Worth Analysis (December 2007 in millions) 1. Stockholders’ Equity + Goodwill = 17,000 + 1,400 2. Net income x 5 = $5,000 x 5= 3. Share price = $5 $58.00/EPS 2.34 =$24.78 x Ne Net Income $5,000= 4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 = Method Average
Internal Factor Evaluation (IFE) Matrix
$ 18,400 $ 25,000 $ 123,931 $ 92,800 $65,032
Key Internal Factors Strengths 1. Product line has over 400 brands. 2. Strong global presence, located in over 200 countries. 3. Long history has built excellent brand recognition. 4. Partnersh Partnership ip longev longevity ity with establish established ed sporti sporting ng events events including the Olympics. 5. Industry Industry leader leader in in market market capitali capitalizati zation on with with $11 $112 2 billion. 6. Return on Equity yielded 30 percent in 2006. 7. Leader Leader of of divid dividend end yiel yields ds of 2.6 2.6 perce percent. nt. The comp company any has had 43 consecutive years of an annual dividend increase. 8. Joint Joint ventu venture re betwe between en The The Coca Coca Cola Cola Company Company and Nestle has resulted in the establishment of Beverage Partners Worldwide Worldwide (BPW). 9. Coca-C Coca-Cola ola has has forme formed d a strong strong partn partners ership hip with with McDonalds, with McDonalds becoming their largest customer. Weaknesses 1. Product line is limited to beverages. 2. A faile failed d $16 billion billion acquis acquisition ition of Quaker Quaker Oats Oats hinders hinders long-term growth. 3. Negative Negative publi publicity city in India India becaus becausee of water water issues, issues, has led to poor brand image and hindered growth there. 4. Lack Lack of manage managemen mentt willin willingne gness ss to place place fore foreign ign products into American markets. 5. Marketing Marketing deficienc deficiencies ies due due to to turnover turnover in leader leadership ship and a 16 percent decrease in advertising spending. 6. Coca Cola’s Cola’s inventor inventory y turnove turnoverr is only 5.4 compar compared ed to to Pepsi Co.’s 8.0. TOTAL
\
SWOT Strategies
Weight
Rating
Weighted Score
0.09 0.10 0.06 0.05
4 4 4 4
0.36 0.40 0.24 0.20
0.12
4
0.48
0.04
4
0.12
0.04
4
0.16
0.06
4
0.24
0.10
4
0.40
0.09 0.10
1 1
0.09 0.10
0.03
2
0.06
0.02
2
0.04
0.05
2
0.10
0.05
2
0.10
1.00
3.09
Opportunities (O)
Strengths (S)
Weaknesses (W)
SO Strategies
WO Strategies
1.
2.
Threats (T)
Impro Improve ve envi enviro ronm nmen enta tall awareness with community involvement (S2, S4, O2, O3). Mark Market et new new die diett drin drinks ks that have healthier sugar substitutes (S5, O7).
ST Strategies
1. Acqu Acquiire Kr Krispy ispy Kreme (KKD) to help diversify the product line (S5, T5). 2. Acqu Acquiire Gold Golden en Enterprises (GLDC) to help diversify the product line (S5, T5).
SPACE Matrix Coordinate: (3.6, 2.2)
1. Market international beverages to American consumers (W4, O2, O6, O7). 2. Incr Increa ease se mar marke keti ting ng efforts for bottled water (W5, W6, O1). WT Strategies 1.
2.
Acqu Acquir iree Kri Krisp spy y Kre Kreme me (KKD) to help diversify the product line (W1, T5). Acqu Acquir iree Gold Goldeen Enterprises (GLDC) to help diversify the product line (W1, T5).
FS Conservative
Aggressive
CA
IS
Defensive
Competitive
ES Financial Strength (FS) Return on Assets (ROA) Leverage Net Income Income/Employee Inventory Turnover Financial Strength (FS) Average Competitive Advantage (CA) Market Share Product Quali ty Customer Loyalty Technological know-how Control over Suppl iers and Distributors Compe ompettiti itive Ad Advan vantage age (C (CA) Ave Avera rage ge
x-axis: -1.4 + 5.0 = 3.6 y-axis: 5.4 + -3.2 = 2.2 Coordinate: (3.6, 2.2)
Grand Strategy Matrix
6 6 6 6 3 5.4
-1 -1 -1 -2 -2
Environmental Stability (ES) Rate of Inflation Technological Changes Price El astici ty of Demand Competi tive Pressure Barriers to Entry into Market Environmental Stability (ES) Average Industry Strength (IS) Growth Potential Fi nancial Stabi li ty Ease of Entry into Market Resource Uti li zati on Profit Potential
-1.4 Indu Indust stry ry Stre Streng ngtth (IS (IS) ) Av Averag erage e
-3 -2 -2 -6 -3 -3.2
5 6 4 5 5 5.0
Rapid Market Growth Quadrant II
Quadrant I
Weak Competitive Position
Strong Competitive Position
Quadrant IV
Quadrant III
Slow Market Growth
The Boston Consulting Group (BCG) Matrix
Relative Market Share Position
Coke
Stars
Question Marks
Industry Sales Growth Rate Cash Cows
The Internal-External (IE) Matrix The IFE Total Weighted Score
Dogs
High
Strong 3.0 to 4.0
Average 2.0 to 2.99
Weak 1.0 to 1.99
I
II
III
IV
V
VI
VIII
IX
3.0 to 3.99
Medium The EFE Total 2.0 to 2.99 Weighted Score
Coca Cola
Low
VII
1.0 to 1.99
Grow and Build
Divisions North America Bottling Investments North Asia, Eurasia & Middle East European Union Latin America Africa East, South Asia & Pacific Rim Corporate
QSPM Strategic Alternatives Alternatives
Percent Revenue 2006 29.1 21.2 16.5 14.6 10.3 4.6 3.3 0.4
Acquire KKD and GLDC Key Internal Factors Strengths 1. Product line has over 400 brands. 2. Strong Strong glob global al pres presenc ence, e, locat located ed in in over over 200 countries. 3. Long history has built excellent brand recognition. 4. Partnersh Partnership ip longevity longevity with establish established ed sporting sporting events including the Olympics. 5. Industry Industry leader leader in in market market capitali capitalizati zation on with with $11 $112 2 billion. 6. Return on Equity yielded 30 percent in 2006. 7. Leader Leader of divi dividen dend d yiel yields ds of of 2.6 2.6 perce percent. nt. The company has had 43 consecutive years of an annual dividend increase. 8. Joint Joint vent venture ure betw between een The Coca Coca Cola Cola Company Company and Nestle has resulted in the establishment of Beverage Partners Worldwide (BPW). 9. Coca-C Coca-Cola ola has has forme formed d a strong strong partn partners ership hip with with McDonalds, with McDonalds becoming their largest customer. Weaknesses 1. Product line is limited to beverages. 2. A faile failed d $16 billi billion on acquis acquisiti ition on of Quake Quakerr Oats Oats hinders long-term growth. 3. Negative Negative publicity publicity in India because because of water water issues, issues, has led to poor brand image and hindered growth there. 4. Lack Lack of manage managemen mentt willin willingne gness ss to place place fore foreign ign products into American markets. 5. Market Marketing ing defi deficie cienci ncies es due due to turno turnover ver in in leadership and a 16 percent decrease in advertising spending. 6. Coca Coca Cola’ Cola’ss invent inventory ory turn turnove overr is only only 5.4 5.4 compared to Pepsi Co.’s 8.0. SUBTOTAL
Key External Factors
Weight
Produce new diet drinks that have healthier sugar substitutes AS TAS 4 0.36 -----
0.09 0.10
AS 2 ---
TAS 0.18 ---
0.06 0.05
2 ---
0.12 ---
4 ---
0.24 ---
0.12
4
0.48
3
0.36
0.04
4
0.16
3
0.12
0.04
---
---
---
---
0.06
---
---
---
---
0.10
---
---
---
---
0.09 0.10
4 ---
0.36 ---
1 ---
0.09 ---
0.03
---
---
---
---
0.02
---
---
---
---
0.05
---
---
---
---
0.05
4
0.20
1
0.05
1.00
Weight
1.50
1.22
Acquire KKD and GLDC
Produce new diet drinks that have healthier sugar
Opportunities 1. Bottled water consumption has increased 11 percent. 2. Acco Accorrdin ding to to th the S&P Industry Survey, consumers are drawn to new smaller beverage brands that are not sold on a mass scale. 3. Word Economic Economic Forum’ Forum’s annual annual Davos, Davos, Switzerl Switzerland and gathering grants international voice. 4. Less Less develop developed ed countr countries ies are are in despe desperat ratee need to to improve community water supplies. 5. Energy Energy drink drink sales sales are are expe expecte cted d to incre increase ase 7 to to 8 percent in 2007. 6. Disposable income has increased 6.2 percent. 7. Consumers Consumers are striv striving ing to to drink drink and and eat eat their their way way to to better health than pervious generations. 8. EPS is expected to rise 7 to 8 percent in 2007. Threats 1. Consum Consumpti ption on of Amer America ican n beverag beverages es is denoun denounced ced by foreign officials in areas where conflicting interest exist. 2. Multip Multiple le lawsui lawsuits ts agains againstt the new Envig Envigaa beverag beveragee for calorie burning claims in advertising 3. Smaller Smaller,, lesser lesser known brands brands are are turnin turning g to major major beer distributors for bottling. 4. Overall Overall carbon carbonated ated drink sales sales have have been been flat flat due due to links of sugar to obesity and high fructose corn syrup to heart disease. 5. Pepsi is more more divers diversifie ified d offerin offering g beverage beverage and food food products. 6. High cost of commodi commodities ties such as sugar sugar,, and metals metals used in production of cans. 7. Many Many smalle smallerr compani companies es are fierc fiercee competi competitor torss around the world in their local markets. SUB TOTAL SUM TOTAL ATTRACTIVENESS SCORE
Recommendations
substitutes AS TAS -----
0.06
AS ---
TAS ---
0.05
1
0.05
3
0.15
0.02
---
---
---
---
0.02
---
---
---
---
0.06
---
---
---
---
0.05 0.07
--2
--0.14
--4
--0.28
0.07
4
0.28
3
0.21
0.02
---
---
---
---
0.04
---
---
---
---
0.06
---
---
---
---
0.10
2
0.20
4
0.40
0.20
4
0.80
2
0.40
0.10
---
---
---
---
0.08
---
---
---
---
1.47 2.97
1.44 2.66
The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and snack food company) was a better option than producing a new diet soda line made form more healthy sugar alternatives. Both scores on the QSPM are relatively close and given the financial condition of KKD and GLDC, it is recommended Coca Cola undertake both strategic alternatives. The Net Worth of both companies is provided below. below. It is estimated it would cost $200 million to research, produce and market the new diet drinks. Krispy Kreme (KKD) Net Worth January 2008 (in millions). 1. Stockholders’ Equity + Goodwill = 79 + 28 2. Net income x 5 = $-42 x 5= 3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42= 4. Number of Shares Outstanding x Share Price = 65 x $2.73 = Method Average
$ 107 $ NA $ NA $ 177 $142
Golden Enterprises (GLDC) Net Worth January 2008 (in millions). 1. Stockholders’ Equity + Goodwill = 19.4 + 0 2. Net income x 5 = $1.2 x 5= 3. Share price = $2.95/EPS 0.19 =$15.52 x Ne Net Income $1.2= 4. Number of Shares Outstanding x Share Price = 11.2 x $2.95 = Method Average
EPS/EBIT Analysis $ Amount Needed: 360M
$ 19.4 $ 6.0 $ 18.6 $ 33.0 $19.3
Stock Price: $58 Tax Rate: 35% Interest Rate: 5% # Shares Outstanding: 1,600M Commo n Stock Financin Recession
EBIT EBIT
Debt Financin
Normal
Boom
Recession
Normal
Boom
4,00 4,000, 0,00 000, 0,00 000 0
6,00 6,000, 0,00 000, 0,00 000 0
8,00 8,000, 0,00 000, 0,00 000 0
4,00 4,000, 0,00 000, 0,00 000 0
6,00 6,000, 0,00 000, 0,00 000 0
8,00 8,000, 0,00 000, 0,00 000 0
0
0
0
18,000,000
18,000,000
18,000,000
EBT EBT
4,00 4,000, 0,00 000, 0,00 000 0
6,00 6,000, 0,00 000, 0,00 000 0
8,00 8,000, 0,00 000, 0,00 000 0
3,98 3,982, 2,00 000, 0,00 000 0
5,98 5,982, 2,00 000, 0,00 000 0
7,98 7,982, 2,00 000, 0,00 000 0
Taxe Taxess
1,40 1,400, 0,00 000, 0,00 000 0
2,10 2,100, 0,00 000, 0,00 000 0
2,80 2,800, 0,00 000, 0,00 000 0
1,39 1,393, 3,70 700, 0,00 000 0
2,09 2,093, 3,70 700, 0,00 000 0
2,79 2,793, 3,70 700, 0,00 000 0
EAT EA T
2,60 2,600, 0,00 000, 0,00 000 0
3,90 3,900, 0,00 000, 0,00 000 0
5,20 5,200, 0,00 000, 0,00 000 0
2,58 2,588, 8,30 300, 0,00 000 0
3,88 3,888, 8,30 300, 0,00 000 0
5,18 5,188, 8,30 300, 0,00 000 0
# Shar Shares es
1,60 1,606, 6,20 206, 6,89 897 7
1,60 1,606, 6,20 206, 6,89 897 7
1,60 1,606, 6,20 206, 6,89 897 7
1,60 1,600, 0,00 000, 0,00 000 0
1,60 1,600,0 0,000 00,0 ,000 00
1,60 1,600, 0,00 000, 0,00 000 0
1.62
2.43
3.24
1.62
2.4 3
Interest
EPS
70 Perc Percen entt Stoc Stock k - 30 Perc Percen entt Debt Debt Recession
EBIT EBIT Interest
4,00 4,000, 0,00 000, 0,00 000 0
Normal
6,00 6,000, 0,00 000, 0,00 000 0
Boom
8,00 8,000, 0,00 000, 0,00 000 0
3.24
70 Perc Percen entt Debt Debt - 30 Perc Percen entt Stoc Stock k Recession
4,00 4,000, 0,00 000, 0,00 000 0
Normal
6,00 6,000, 0,00 000, 0,00 000 0
Boom
8,00 8,000, 0,00 000, 0,00 000 0
5,400,000
5,400,000
5,400,000
12,600,000
12,600,000
12,600,000
EBT EBT
3,99 3,994, 4,60 600, 0,00 000 0
5,99 5,994, 4,60 600, 0,00 000 0
7,99 7,994, 4,60 600, 0,00 000 0
3,98 3,987, 7,40 400, 0,00 000 0
5,98 5,987, 7,40 400, 0,00 000 0
7,98 7,987, 7,40 400, 0,00 000 0
Taxe Taxess
1,39 1,398, 8,11 110, 0,00 000 0
2,09 2,098, 8,11 110, 0,00 000 0
2,79 2,798, 8,11 110, 0,00 000 0
1,39 1,395, 5,59 590, 0,00 000 0
2,09 2,095, 5,59 590, 0,00 000 0
2,79 2,795, 5,59 590, 0,00 000 0
EAT EA T
2,59 2,596, 6,49 490, 0,00 000 0
3,89 3,896, 6,49 490, 0,00 000 0
5,19 5,196, 6,49 490, 0,00 000 0
2,59 2,591, 1,81 810, 0,00 000 0
3,89 3,891, 1,81 810, 0,00 000 0
5,19 5,191, 1,81 810, 0,00 000 0
# Shar Shares es
1,60 1,604, 4,34 344, 4,82 828 8
1,60 1,604, 4,34 344, 4,82 828 8
1,60 1,604, 4,34 344, 4,82 828 8
1,60 1,601, 1,86 862, 2,06 069 9
1,60 1,601,8 1,862 62,0 ,069 69
1,60 1,601, 1,86 862, 2,06 069 9
1.62
2.43
3.24
1.62
2.4 3
EPS
References 1.
www.moneycentral.msn.com
3.24
www.coca-cola.com 3. Strategic Strategic Managem Management ent concepts concepts and cases cases by Fred David David 12 edition edition th 4. Exploring Corporate Strategy text & cases 8 edition 2.
