Coca-Cola Porter's five forces analysis and diverse value-chain activities in different areas The impact of the Research Councils on the Coca-Cola value chain by creating absolute effective position.
Presented to: Prof. Amal El Kurdi Presented by: Roula Jannoun Spring 2011
Introduction Coca-Cola Company is the world's largest nonalcoholic beverage company. It offers a portfolio of world class quality sparkling and still beverages, starting with Coca-Cola® and extending through over 400 soft drinks, juices, teas, coffees, waters, sports and energy drinks that refresh, hydrate, nourish, relax and energize. Coca-Cola has more than 400 brands are nearly 2,400 beverage products. Four of the world's top-five soft-drink brands are : CocaCola, Diet Coke®, Sprite® and Fanta®. Thums Up and Limca, which are formulated to appeal to local cultures and lifestyles. With operations in more than 200 countries, we have a diverse workforce of approximately 55,000 Company employees. Coca Cola family of beverages accounts for approximately 1.3 billion servings worldwide of the 50 billion beverage servings consumed every day-a figure that indicates both strength and growth opportunity of the company.
SOME BRANDS OF COCA COLA
PRODUCTS DESCRIPTION The Rejuvenation division offers a range of drinks designed to improve how people feel physically and mentally. Products include ready-to-drink coffees, teas and herbal beverages. The Health & Nutrition division produces a range of products to promote health and well being. In the US, its products encompass Minute Maid Premium 100% juices, Hi-C fruit drinks and Minute Maid Coolers. The
Replenishment division offers a range of water products around the world. The division also produces a range of energy drinks, such as PowerAde. Elsewhere in the world, the company has created other products designed to meet the needs of local consumers and communities. For example, in Chile, it developed Bibo (Kapo) because mothers wanted a healthy, noncarbonated drink for their children.
Coca-Cola System - Production The Coca-Cola formula is The Coca-Cola Company's secret recipe for Coca-Cola. As a publicity marketing strategy started by David W. Woodruff, the company presents the formula as a closely held trade secret known only to a few employees. The actual production and distribution of Coca-Cola follows a franchising model. The Coca-Cola Company only produces a syrup concentrate, which it sells to various bottlers throughout the world who hold Coca-Cola franchises for one or more geographical areas. The bottlers produce the final drink by mixing the syrup with filtered water and sugar (or artificial sweeteners) and then carbonate it before filling it into cans and bottles, which the bottlers then sell and distribute to retail stores, vending machines, restaurants and food service distributors
The Coca-Cola Company and bottling partners are not one and the same from a legal or managerial perspective. The Company's business is focused on creating and marketing brands and trademarks, while Coca-Cola bottling companies produce and package the finished beverage products and then sell and distribute them to retail and wholesale customers. These bottling partners range from international and publicly traded businesses to small, family-owned operations. Their governance and management structures are separate from those of The Coca-Cola Company.
The company’s bottling relationships can be divided into three types:
1.Bottlers in which coca cola company have invested and have a non-controlling ownership interest; 2.Independently owned bottlers in which the company have no ownership interest; 3.Bottlers in which the company has invested and has a controlling ownership interest.
The Coca-Cola Company owns minority shares in some of its largest franchisees, like: Coca-Cola Enterprises, Coca-Cola Amatil, Coca-Cola Hellenic Bottling Company (CCHBC) Coca-Cola FEMSA,
While fully independent bottlers produce almost half of the volume sold in the world. Since independent bottlers add sugar and sweeteners, the sweetness of the drink differs in various parts of the world, to cater for local tastes.
Coca- Cola Suppliers
Suppliers include those business partners who supply system with materials, including ingredients, packaging and machinery as well as goods and services. At a minimum, all authorized and direct suppliers must comply with all applicable laws and regulations, including those concerning child labor, forced labor, abuse of labor, freedom of association and collective bargaining, discrimination, wages and benefits, working hours and overtime, health and safety, and environmental practices.
Coca- Cola Customers Customers include large, international chains of retailers and restaurants, as well as small, independent businesses. Some of our customers are major corporations as globally familiar as the name Coca-Cola; others are the corner market or the local pushcart vendor.
Departments of Coca Cola Every organization is made up of different departments, each of these departments help Coca Cola achieve their objectives. As Coca Cola is a large International company, the amounts of departments are huge. Each country has their own Head Office and departments. Coca Cola is geographically split into five geographic operating segments, also known as strategic business units (SBU's). The five SBU's are North America, Africa, Asia, Europe, Eurasia and Middle East and finally Latin America. If all these departments perform in the correct way then that will continue the success of Coca Cola.
Coca- Cola In India Coca-Cola was the leading soft drink brand in India until 1977 when it left rather than reveal its formula to the government and reduce its equity stake as required under the Foreign Exchange Regulation Act (FERA) which governed the operations of foreign companies in India After a 16-years absence, Coca-Cola returned to India in 1993 Coca-Cola India started business, including new production facilities, wastewater treatment plants, distribution systems and marketing equipment. Coca-Cola system has invested more than US$ 1 billion in India Coca-Cola is one of the country's top international investors
It employs approximately 6,000 people, and indirectly creates employment for more than 125,000 people in related industries through vast procurement, supply and distribution system The Coca-Cola system in India comprises 27 wholly-owned companyowned bottling operations and another 17 franchisee-owned bottling operations The complexity of the Indian market is reflected in the distribution fleet, which includes 10-tonne trucks, open-bay three-wheelers that can navigate the narrow alleyways of Indian cities, and trademarked tricycles and pushcarts. Coca-Cola serves in India some of the most recalled brands across the world, which include names such as Coca-Cola, Diet Coke, Sprite, Fanta, along with the Schweppes product range. In 2002, Coca-Cola India (CCI) launched a new advertisement campaign featuring leading bollywood actor - Aamir Khan. The advertisement with the tag line - 'Thanda Matlab Coca-Cola ' was targeted at rural and semiurban consumers.
Executive Summary A company that fully understands the importance of value chain in business is the Coca-Cola Company. A global leader in the beverage industry, the Coca-Cola Company further indulges in enhancing their value propositions as an instrument to create ‘virtuous cycles of geographic expansion' and thus greater advantage. Coca-Cola owns the most important elements of the value chain such as the brand, the technology, the management, the marketing expertise and the relationships This search includes Coca-Cola SWOT Analysis, Porter's five forces analysis and diverse value-chain activities in different areas. In addition, the search presented the interplay between the Research Councils and how it impacts Coke's value chain as well as creating the absolute effective position.
COCA- COLA SWOT ANALYSIS STRENGTHS
Strong brand name Co-operate identity Global distribution Innovative capabilities: Coca-Cola Increases Marketing and Innovation Spending to $400M Globally Coke Brands Enjoy a High-Profile Global Presence Broad-based bottling strategy 47% of global volume sales in carbonates
WEAKNESSES Carbonates Market is in Decline Over-complexity of relationship with bottlers in North America The existing distribution system is not so efficient for non carbonates
OPPURTUNITIES Expansion – Reaching all segments Catering to Health Consciousness of People Soft drinks volumes in the Asia- Pacific region forecast to increase by over 45% Use distribution strengths in Eastern Europe and Latin America Increased Consumer Concerns with Regard to Drinking Water
THREATS Health Drinks – Fruit Juice Companies
Competition-Pepsi Boycott in the Middle East
Porter’s 5 forces model The five forces model of Porter is and outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value…) of an industry structure Allows the development of a competitive strategy Suggests 5 main forces may be decisive in helping shape the outcome: Suppliers New entrants Substitutes
Buyers Rivalry (Industrial competitors)
Coca-Cola : Porter’s Five Forces Rivalry ( Condition concentrated on 2 main Coca-Cola Pepsi
Substitutes (Wilde and Thick causing a significant decline in Coca-Cola profits . To reduce the threats it embraced bottling and concentrated on diversification Teas Milk Coffee Juice Alcoholic drinks Bottled water Energetic drinks Other refreshments
Coca-Cola : Porter’s Five Forces (Cont.) Barriers to Entry (Penetrating the soft drink industry is hard because of the established name of Coca-Cola,
Exclusive Territories Direct-store-delivery (DSD) Substantial Investment Current Market Presence of CocaCola
Power of Suppliers Sugar Packaging Bargaining power of suppliers is low due to two reasons. First, the main inputs are sugar and packaging. Sources of sugar are on the open market which subsequently makes the creation power of suppliers at low levels. There are several suppliers for packaging as well as the abundance in supply of inexpensive aluminum.
Coca-Cola has long-term relationships with their retailers and distributors making possible the defense of the position by means of discounts and Second, direct negotiations from other tactics, and regulation make it concentrate producers to suppliers are impossible for new bottlers to enter present; an initiative to encourage reliable areas where an existing bottler operates. supply, faster delivery and lower prices.
Coca-Cola : Porter’s Five Forces (Cont.) Bargaining Power of Buyers depends on the marketing channel used. For Coca-Cola, there are six core channels such as: Super Markets Convenience Stores Mass Merchandisers Fountain vending machine Restaurants and Food stores
Bargaining power of buyer is high for fountain supermarkets and mass merchandising because of the low profitability and strong negotiation power of retail channels but for vending bargaining power is non-existing caused by high profitability.
Porter’s value chain: Overview
Primary Activities
Support Activities
Understanding Where To Explore
Infrastructure Financial Human Resources Management
Inbound logistics
Process
Sales Outbound & Aftercare Logistics Marketing Source: Porter,1985
Coca-Cola Value Chain The purpose of Coca-Cola 's value chain is divided into four areas namely shareholder, consumer, business operation and key processes. 1. To deliver superior returns to its shareholders is the mission of the CocaCola value chain. The key elements to achieve this end are a strong brand equity and revenue management that is comprised of sales, volume, pricing and costs 2. Consumers and customers are the focal points of the value chain driven by brand preference, pervasive market penetration and superior price/value ratio. 3. Operational drivers are identified as the strategic metrics, process excellence and organizational excellence. 4. Key processes are further divided into five key functions: Consumer and Customer Service Systems, Demand and Operations Planning, Warehousing and Logistics, Manufacturing, and Infrastructure Planning and Development
Coca-Cola Value Chain (Cont.) There are four enablers in Coca-Cola's value chain. These : 1. Coca-Cola's suppliers include business partners that provide the company with raw materials such as ingredients, packaging, machinery and services. Authorized and direct suppliers are subjected to comply with all applicable laws and regulations specially which tackles just employment practices. In addition, these suppliers must comply with the company's Supplier Guiding Principles. 2. Coca-Cola 's customers range from far-reaching, international chains of retailers and restaurants to major corporations to small and independent businesses to corner markets down to local pushcart vendors. Coca-Cola works with these people for the purpose of creating mutual benefits alongside their bottling partners. To assist them in their initiative, serving the customers are assisted by account management teams that provides service and support tailored to the need of the customers. 3. Coca-Cola Retailing Research Councils provide research concerning issues that have significant impacts on the food retailing industry. Within the company, there exists collaborative customer relationship process. The purpose of this collaboration is to improve shopper marketing and supply chain collaboration. Acceleration of innovation in order to provide superior beverage selections to every customer is another aim of the collaboration. 4. Coca-Cola Customer Development and Training provide support to smaller customers in terms of making their business more efficient and profitable. In different areas of operation, Coca-Cola had established customer development training centers. Through this, the exchange of information about broadening the range of beverages offered, providing nutritional information and ensuring beverages are marketed responsibly .
Coca-Cola 's value chain initiatives could be summed up in 10 areas: 1. Supplies of Components and Materials : Coke has a relatively wide range of cooperation among its suppliers. The company has generally not experienced difficulties obtaining raw materials. Through the assistance of Coca-Cola Bottlers' Sales and Service, Coke purchase materials like nutritive sweeteners and non-nutritive sweeteners and bottling requirements with different companies like The NutraSweet Company, Ajinomoto Co., Inc., Nutrinova Nutrition Specialties & Food Ingredients and Tate & Lyle. 2. Purchasing: Order sizes depended on customers or sales volume per person, frequency of visit based history and order collection based on customer attributes, made possible through order collection personnel. Variables are geography, density and logistics. Moreover, total value of purchase is highly-reliant on the purchase agreement between Coke and suppliers. In general, the total value of purchase over time per supplier is 43% in terms of value and 36 % by volume on just-in-time basis. 3. Inventory Holding: Coke has 68 days inventory on hand and has 5.7927 inventory turns. The figures mean that Coke sells its entire inventory 5.79 times each year. 4. R&D/Design/Engineering: Coca-Cola has a patent portfolio inside and outside the US, 800 and 1800, respectively; relating to various beverages with related technologies. Apart from product formulation as the trade secret, technologies complementary to these are packaging, vending equipment, fountain equipment and water treatment. Driven by the consumer value proposition, R&D is the core commitment. Implementation of strategies has been modified in efforts to allow more freedom to local operating divisions. R&D is not outsourced but works jointly with development partners.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:
5.
Component Manufacture: The three largest components within the system are manufacturing, fleet/transport and sales/marketing equipment. There are nearly 850 plants in the manufacturing process, with system's fleet of approximately 200, 000 vehicles to transport ingredients, packaging and finished beverages. Beverage concentrates are shipped to bottling operations by sea while finished beverages are mostly transported by road into distributors and retail customers. There are 9 million vending machine and coolers that keep products cold. These components are placed in 200+ countries of operation.
5.
Testing/Quality Control: Coke uses different technology to control
product quality like the Chemunex. Coca-Cola invested in realtime microbiology analyzer or the D-count. Such technology is adapted because of: quantitative analysis with satisfying detection limit, automated analysis with reduction of the analytical time, reliability of the results and robustness of the system for an intensive routing use.
Coca-Cola 's value chain initiatives could be summed up in 10 areas: 7.
Inventories of Final Goods: The selling numbers of Coca-Cola ranges from 9 glasses per day to over six trillion from the period of 1886 to 2003. Getting from this, we can determine that the unpredictability of sales follow a logical pattern that serves as indicators of the amount Coke produced and sold. Given the lack of cyclicality in different segments, the company invested in raising advertising budget into 38%.
8.
Sales and Marketing: Coca-Cola is getting their products advertised more frequently by means of own advertising as well as through sponsorships and other organizations. For example, Coca-Cola products appear in McDonald's advertisements, appearing on side boards of basketball arenas and other sporting events and also appearing on social events as sponsors in effort to be a household product and to demonstrate goodwill. Marketing also depended on the targeting of Coca-Cola products at individuals and groups of all ages and demographics. Marketing, in addition, comes in different styles and forms such as network television, radio and print media. To achieve brand visibility and become well-known to widest possible markets and most consumers reach, a number of new commercials are introduced each year.
Coca-Cola 's value chain initiatives could be summed up in 10 areas:
9.
Distribution: In the distribution of products, the wholesalers have no involvement; but rather conform to agent network. The company divides a country into various regions and established a franchisee within these regions. Franchisees have own bottling plants and has the autonomy to manage daily operations
10. Service/Dealer Support: Within each region are different dealers that orders through three primary categories: bulk, side load and full service. Coca-Cola system ensures that dealerships are assisted upon. So the company opened their distribution system and embraced the DSD system or the direct-to-store concept. The movement is from wholesalers channels into Direct-store-delivery DSD channels.
Coca-Cola Retailing Research Councils – Impact on Innovation and Products Research Councils conduct different studies on issues that could possible assist retailers to respond to the ever-changing marketplace. According to the company, the unique value of these activities is vested on the fact that retailers define the objective, the scope of each project and own the process after it was released and disseminated to the broader retail community .
There are five council members: Asia, Europe, Latin and North America and National Association of Convenience Stores (NACS). Such councils are cashing in on research to innovations of product portfolio by means of introducing new concepts and ideas about merchandising and store formats as well as idea generation for connecting store performance and the actions of store management teams as examples of retail innovations. Products-wise, the Council aimed at ensuring sustainable products and responsibly-sourced and traceable products as well as eco-friendly packaging, and this product must be accessible at reasonable prices. Ensuring product assortment is also under the Council's scrutiny to further guarantee innovative health goods. Assortment for Coca-Cola means small/fractionable, to consume right after at affordable prices
Coca-Cola Retailing Research Councils – Interconnection with the Value Chain Research Council removes unnecessary costs that could be incurred from distribution and supply systems; increase consumer choice and reduces overall costs of inventories and physical assets. Apart from this, the Research Councils are the key towards achieving Class A standards as part of the CPE program. CPE stands for Constant Pursuit of Excellence. Such program is initiated within the Coca-Cola system in order to support growth, to improve customer service and to increase market responsiveness. These are evidenced by the following: 1. Inventory levels are down: Each of the facilities and components such as the concentrate manufacturing facilities and canning plant that received Class A rates obtained significant progress in inventory turnover, with specific facilities that accomplished the number of weeks of inventory on hand declined between 50 to 75%. 2. Improved productivity Level of quality targets within these facilities, whether for products, bottles or cans, coupled with high responsiveness to production experienced productivity gain of 85% to 100%. 3. Improved customer delivery performance In different facilities, order fulfillment and delivery are technically reported to be 100% on time. In fact, the time since the last missed shipment is measured in years, not days, weeks or months. For Coke, this is just a part of putting value not just to the products but on punctuality and customer responsiveness.
Coca-Cola Retailing Research Councils – Interconnection with the Value Chain 4.
Better supplier delivery performance: Prior to acquiring the Class A rate, the performance of the supplier is measured to be falling between 50 to 75%. But right after the complete integration of CPE, while taking into critical account of the Research Councils' role, worldwide facilities had experienced supplier on-time delivery performance of higher than 95%.
5.
Improved business processes: For different processes like purchasing and customer order processing, there had been a large reduction in cycle times.
6.
High data integrity Inside different Coke facilities, inventory record accuracy and bill of material accuracy is reported to be 99-100% and 100%, respectively.
7.
Decline in cost of goods: The reductions, as high as 20%, in each facility annually is viewed to be a significant improvement.
8.
High team spirit: Communications within and between marketing, finance, quality assurance and manufacturing are improved with respect to the global teams. The focus of the company is on holistic improvement instead of systems replacement that centers on the development of the business operation in different levels but most significantly on the retailing. Implementations are the key towards proactive functionality within manageable and actionable initiatives. Coca-Cola 's plan is one facility at a time with decision-making that is based on anticipated benefits.
Coca-Cola – Creation of the Absolute Effective Position 1.
Coca-Cola continued to deliver unit case volume growth. Been ranking – 4 of the top 5 nonalcoholic sparkling beverage brands are owned by the Coca-Cola.
2.
Brand-wise, the original Coca-Cola is still the best known brand globally Evidently, the beverage leadership position is delivered by how consumers can more around the Coke portfolio depending on their needs at different stages of their lives.
3.
Financially, the Coca-Cola Company reported in February 2007 that profit jumped of about 18% with net income nearly $6B - $5.98 billion on $28.9 billion in revenue. Further, Coca-Cola and its bottling partners delivered unit case volume growth of 6% for the year 2007 and four consecutive quarters of double-digit earnings per share growth. Worldwide, the sparkling beverage volume increased by 4% and the still beverages by 12%.
4.
In terms of systemic integration, adding value with its bottling partners, there had been the existence of collaboration, support and shared values and goals and through its customers, Coke brands were made possible for the consumption in local communities. Driven by the Coca-Cola system, the company is now no. 1 in sales of sparkling beverages, juices and juice drinks, no. 2 in sales of sports drinks and no. 3 in sales of bottled water.
Conclusion At Coke, the creation of the absolute effective position is central on investing on Coca-Cola Retailing Research Councils. Along with its four key processes, Coke creates value through proactively engaging their retailers at technically every levels of the value chain from raw materials down to end-products. Conforming to holistic improvements, Coke strategically put value to store management, providing consumers with the right to choose while also enjoying the health benefits of its brands. More than complying to standards and acquiring first rates, Coke aimed at enhancing the shopping experience and enjoyment of refreshments which are reflected in the figures they accumulate coupled with ethical operation.
