Coca-Cola Essay Essay Example

Coca-Cola Essay Essay COLA-WARS Main Issue: Factors causing the decline in CSDs and Cola Sales: - Carbonated Soft Drinks (CSDs), the foundation of Coca-Cola’s brand is declining, although it still holds the highest market share in comparison to non-CSD beverages. Coca-Cola is at risk of eventually producing a negative return from its CSDs and to be outperformed by non-CSDs, non-carb beverages and bottled water within its own product line, and with its competitors if the current trends persist in the future. A combination of factors have played a role in the CSD downturn, including a significant change in consumer behaviour and perceptions, government regulations, increase in input prices, competitor innovations, financial indicators and production complexities that all contribute to Coca-Cola’s diminishing sales for which will all be examined and discussed in detail throughout the following body. In 1886, Coca-Cola was developed and its bottling network grew rapidly and reached 370 franchises by 1910. Its introduction of a carbonated soda beverage was like no other on the market where demand had a steady incline until the mid-2000s. During this period, the market entered into an economic downturn, sales declined as consumers opted for cheaper alternatives. (#) In addition to a lowered disposable income, there have been growing health concerns about CSDs and proven linkage between obesity and nutrition. The public began to view the ingredients as unnatural and unhealthy, where hazardous concerns about ingredients increase from 40% in 2004 to 53% in 2010. We will write a custom essay sample on Coca-Cola Essay specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Coca-Cola Essay specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Coca-Cola Essay specifically for you FOR ONLY $16.38 $13.9/page Hire Writer In response, initiatives to discourage purchase involved a 20% tax with the intentions to cut calorie intake from sugary drinks by up to 49% a per a day in the US and the banishment of these drinks on school premises had a negative effect on Coca-Cola’s sales and market share. Coke’s annual report identified obesity and health concerns as the number one risk factor for its business. The health conscious consumer base grew which lead to a significant shift in the market where there is an increase in non-CSDs, fruit drinks and bottled water. Consumption of CSDs maintained a steady incline from the 1970s and peaked in 2000 with 53. 0 to 46. 0 in 2009 and market share went down to 17. 0 from 20. 4 in 2000. Operations ran efficiently where its high speed production lines that was interchangeable only for productions of similar type and packages of similar size. However, with the spike in non-CSDs, production processes had to accommodate expensive modifications for the complicated alternative beverages caused. The finished goods required a smaller but specialized production process that were challenging for bottlers to make with their existing infrastructure. Bottlers became vulnerable as they were not fully participating in the new growth of the business and also being bypassed by Coke in the distribution of their non-CSDs. Also, mass merchandisers that used its size to exert pricing pressures on Coke who only wanted to negotiate marketing and shelving arrangements directly with concentrate makers which are a traditional practice of bottlers that benefited from distributing in exclusive territories. Bottlers incurred higher distribution and sales costs where cost of goods reached 90% of sales, the highest level in more than two decades. Supplier inputs and fierce competition which resulted in pricing discounts becoming the norm which had Coke struggling to maintain its market share. Consumers are now at the point of expecting sales and are less inclined to make purchases at a regular retail price which has keeps Coca-Cola’s margins. In addition, merchandisers who use its power to exert pricing pressure and substantial rebates for major accounts, such as reducing its per unit price to its franchisees to $1. 45 from $6. 20, 23% weighs heavily on Coca-Cola’s sales but it necessary to secure accounts away from its competitors. SWOT Analysis| Coca-Cola| Strengths| * Coke and Pepsi offered â€Å"direct store door† delivery, where sales people secured shelf space, stacking the products, trademark positioning and setting up point of purchase or end of aisles display. * Smaller national brands such as Shasta and Faygo distribute through food store warehouses where * The retailer is responsible for storage, transportation, merchandising and stocking shelves, thereby incurring additional cost * Cola Wars weakened small independent bottlers * Pressure to spend more on advertising, product and packaging proliferation, widespread discounting these factors resulted in higher capital requirements and lower profit margins * Retained deals with Burger King and McDonald’s (the largest national account in terms of sales) * In 2009, New Freestyle soda machine which could create dozens of different kinds of custom beverages (Restaurants had to pay a 30% premium for freestyle compared to regular fountains)| Weaknesses| * Cola Wars weakened small independent bottlers * Production difficulties with non-CSDs * Additional bottling expenses through specialized production processes * Strained relationship with bottlers| Opportunities| * Further international extensions * Product innovation * Bottler process improvement through its consolidation| Threats| * Early 2000s consumption of CSD declined * By 2009, the average American drank 46 gallons of CSDs per year, the lowest since ‘89 * Starting in the late 90s America still dr ank more CSDs, than any other beverage but consumption started to decline * **Health concerns – growing linkage between issues of obesity and nutrition * In 2005, Federal nutrition guidelines identified regular CSDs as the larger source of obesity –causing sugars in the American Diet * Schools throughout the nation banned the sales of soft drinks on their premises * Several states pushed for soda tax on sugary drinks * Government study suggested that a 20% tax could cut the calorie intake from sugary drinks by up to 49 calories a day per person in the US * Tax on sodas became the new measure * Consumers started to view high fructose corn syrup as unnatural and unhealthy * 53% of Americans were concerned that the ingredient posed a health hazard in 2010 compared to 40% in 2004 * ***Coke’s annual report identified obesity and health concerns as the number one risk factor to its business * 80% of sales from international markets-serving over 200 countries * Limited pricing controls| Weighted SKF| | Coca-Cola| Pepsi| Strength Measure| I. M| S. R| Score| S. R| Score| Image/Reputation| . 15| 10| 1. 5| 9| 1. 35| Distribution Capacity| . 25| 10| 2. 5| 10| 2. 5| Financial Resources| . 15| 8| 1. 2| 7| 1. 05| Price| . 15| 6| . 9| 6| . 9| Marketing/Advertising| . 25| 10| 2. 5| 10| 2. 5| Acquisitions/Extensions| . 05| 10| . 5| 10| . 5| Sum of I. M| 1. 00| | Weighted Overall Strength| 54| 9. 1| 52| 8. 75| 1. Image/Reputation Coca-Cola – Market survey on brand loyalty indicate that more consumers preferred Coke over Pepsi as their favorite CSD brands in 2010. * Pepsi – Redesigned its logo in 2008 with a three year rebranding plan that could cost over $1 billion to rejuvenate its image. 2. Distribution Capacity * Coca-Cola Pepsi – Both have around 100 plants for nationwide distribution with the capacity to serve the entire US. 3. Financial Resources * Coca-Cola – Net Profits/Sales: 22% * Pepsi – Net Profits/Sales: 13. 8 % 4. Price * Coca-Cola Pepsi – Both engage in severe price wars to retain customers as their purchasing behaviour indicates no brand loyalty where they seek cheaper alternatives in the economic downturn Mass merchandisers use its power to exert pricing pressures Substantial rebates for corporate accounts 5. Marketing/Advertising * Coca-Cola – Spent 5540 million in marketing support for its top bottlers Patented unique skirt design became an American Icon. Its marketing campaign, â€Å"Real Coca-Cola taste with zero calories† was the most successful product launch that produced double digit growth * Pepsi â€Å"Pepsi Generation† marketing campaign, which targeted the young and â€Å"young at heart. † The campaign helped Pepsi narrow Coke’s lead to a 2-to-1 margin 6. Acquisitions/Expansions * Coca-Cola Pepsi – Both have formed alliances to incorporate their core competencies and expand into foreign markets