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Coca-Cola Company
A.   Case Abstract

     Coca Cola (www.cocacola.com) is a comprehensive business policy and strategic management
     case that includes the company’s fiscal year-end December 2006 financial statements,
     competitor information and more. The case time setting is the year 2007. Sufficient internal and
     external data are provided to enable students to evaluate current strategies and recommend a
     three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coca Cola’s
     common stock is publicly-traded on the New York Stock Exchange under the ticker symbol KO.

     Coca Cola operates in over 200 nations around the world and sells carbonated and non
     carbonated beverages. Coca Cola’s line of non carbonated drinks includes: water, juice, and
     teas. The company has over 70,000 employees and is led by CEO Neville Isdell.

     The Coca-Cola Company’s (Coke’s) operating segments include 1) Africa, 2) East, South East
     Asia & Pacific Rim, 3) European Union, 4) Latin America, 5) North America, 6) North Asia,
     Eurasia, and the Middle East, and 7) bottling investments. Not all soft drink products/flavors of the
     company are available in all the operating groups.
     The Coca-Cola Company has two major rivals: PepsiCo and Cadbury Schweppes PLC.

     It’s interesting to note that PepsiCo has more that double the employees as Coca-Cola as listed
     in Exhibit 6.             Groupe Danone competes to a lesser degree with C
     oke. The number 3 soft drink producer, Cadbury Schweppes PLC (behind Coca-Cola and
     PepsiCo Inc.), is a diversified company that produces and markets beverages, chocolate, and
     chewing gum. Cadbury plans to divest its beverage division in 2007 of PepsiCo, Coca Cola
     Company, and Cadbury Schweppes PLC. Federal regulations may prohibit PepsiCo and Coke
     from bidding for Cadbury’s carbonated soft drink business. Analysts however believe the brand
     Snapple, which Cadbury sells, would be a good fit for Coke. PepsiCo would likely benefit most
     from acquiring Cadbury’s Mexican assets with such strong brands as Squirt, Crush, and Canada
     Dry.


B.   Vision Statement (actual)

     To maintain our reputation as the leading cola company in the world.

C.   Mission Statement (actual)

     Everything we do is inspired by our enduring 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.


     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 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 as good as the last (5). Our employees (9) are fairly compensated and we practice fair
     trade in all markets we compete. We value our responsibility to all communities we serve and
     support many educational and leadership programs (8).




                                                                                                         1
1.   Customer
           2.   Products or services
           3.   Markets
           4.   Technology
           5.   Concern for survival, profitability, growth
           6.   Philosophy
           7.   Self-concept
           8.   Concern for public image
           9.   Concern for employees


D.     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.

       Threats

       1. Consumption of American beverages is denounced by foreign officials in areas where
          conflicting interest exist.
       2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in advertising
       3. Smaller, lesser known brands are turning to major beer distributors for bottling.
       4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high
          fructose corn syrup to heart disease.
       5. Pepsi is more diversified offering beverage and food products.
       6. High cost of commodities such as sugar, and metals used in production of cans.
       7. Many smaller companies are fierce competitors around the world in their local markets.

CPM – Competitive Profile Matrix

                                  Coca-Cola               Pepsi               Cadbury Schweppes
Critical Success Weight      Rating      Weighte          Rating   Weighted   Rating    Weighted
Factors                                  d Score                   Score                Score
Market Share       0.15      4        0.60                3        0.45         2             0.30
Price Comp         0.10      3        0.30                3        0.30         3             0.30
Financial Position 0.12      4        0.48                4        0.48         3             0.36
Product Quality    0.15      3               0.45         3        0.45         3             0.45
Product Lines      0.15      4        0.60                4        0.60         3             0.45
Customer Loyalty 0.15        4        0.60                4        0.60         3             0.45
Employees          0.11      3        0.33                3        0.33         3             0.33
Marketing          0.07      3        0.21                3        0.21         3             0.21
Total              1.00                3.71                        3.56                       2.85
External Factor Evaluation (EFE) Matrix




                                                                                                     2
Key External Factors                                Weight             Rating             Weighted
                                                                                          Score
Opportunities
1. Bottled water consumption has increased 11       0.06               4                  0.24
   percent.
2. According to the S&P Industry Survey,
   consumers are drawn to new smaller               0.05               2                  0.10
   beverage brands that are not sold on a
   mass scale.
3. Word Economic Forum’s annual Davos,              0.02               2                  0.04
   Switzerland gathering grants international
   voice.
4. Less developed countries are in desperate        0.02               2                  0.04
   need to improve community water supplies.
5. Energy drink sales are expected to increase      0.06               3                  0.18
   7 to 8 percent in 2007.
6. Disposable income has increased 6.2              0.05               3                  0.15
   percent.
7. Consumers are striving to drink and eat their    0.07               3                  0.21
   way to better health than pervious
   generations.
8. EPS is expected to rise 7 to 8 percent in        0.07               4                  0.28
   2007.
Threats
1. Consumption of American beverages is
   denounced by foreign officials in areas          0.02               3                  0.06
   where conflicting interest exist.
2. Multiple lawsuits against the new Enviga
   beverage for calorie burning claims in           0.04               2                  0.08
   advertising
3. Smaller, lesser known brands are turning to      0.06               2                  0.12
   major beer distributors for bottling.
4. Overall carbonated drink sales have been
   flat due to links of sugar to obesity and high   0.10               2                  0.20
   fructose corn syrup to heart disease.
5. Pepsi is more diversified offering beverage      0.20               3                  0.60
   and food products.
6. High cost of commodities such as sugar,          0.10               3                  0.30
   and metals used in production of cans.
7. Many smaller companies are fierce                0.08               3                  0.24
   competitors around the world in their local
   markets.
TOTAL                                               1.00                                  2.84


E.      Internal Audit

        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.   Partnership longevity with established sporting events including the Olympics.
        5.   Industry leader in market capitalization with $112 billion.



                                                                                                     3
6. Return on Equity yielded 30 percent in 2006.
       7. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an
          annual dividend increase.
       8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment
          of Beverage Partners Worldwide (BPW).
       9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their
          largest customer.

       Weaknesses

       1. Product line is limited to beverages.
       2. A failed $16 billion acquisition of Quaker Oats hinders long-term growth.
       3. Negative publicity in India because of water issues, has led to poor brand image and
          hindered growth there.
       4. Lack of management willingness to place foreign products into American markets.
       5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in advertising
          spending.
       6. Coca Cola’s inventory turnover is only 5.4 compared to Pepsi Co.’s 8.0.

Financial Ratio Analysis (December 2006)

  Growth Rates %                        Coca Cola           Industry          SP-500
  Sales (Qtr vs year ago qtr)           19.20               22.20             11.60
  Net Income (YTD vs YTD)               8.30                25.70             17.10
  Net Income (Qtr vs year ago qtr)      13.30               30.00             9.30
  Sales (5-Year Annual Avg.)            6.54                8.45              13.09
  Net Income (5-Year Annual Avg.)       5.01                9.38              19.82
  Dividends (5-Year Annual Avg.)        11.49               12.61             10.00
  Price Ratios
  Current P/E Ratio                     25.4                26.2              20.3
  P/E Ratio 5-Year High                 NA                  49.9              26.8
  P/E Ratio 5-Year Low                  NA                  20.7              6.8
  Price/Sales Ratio                     5.00                3.96              2.37
  Price/Book Value                      6.97                5.71              3.45
  Price/Cash Flow Ratio                 21.10               19.60             10.70
  Profit Margins
  Gross Margin                          64.2                52.7              34.5
  Pre-Tax Margin                        26.0                17.5              17.8
  Net Profit Margin                     19.8                14.2              12.6
  5Yr Gross Margin (5-Year Avg.)        64.4                59.1              34.3
  5Yr PreTax Margin (5-Year Avg.)       27.9                20.1              16.4
  5Yr Net Profit Margin (5-Year Avg.)   21.1                14.9              11.4
  Financial Condition
  Debt/Equity Ratio                     0.49                0.69              1.06
  Current Ratio                         0.8                 1.0               1.1
  Quick Ratio                           0.6                 0.7               0.9
  Interest Coverage                     55.1                41.0              31.8
  Leverage Ratio                        2.1                 2.5               3.7
  Book Value/Share                      8.52                10.25             18.53
  Investment Returns %
  Return On Equity                      28.9                22.0              24.9
  Return On Assets                      14.9                11.2              7.6
  Return On Capital                     22.6                16.9              10.2
  Return On Equity (5-Year Avg.)        32.0                25.4              18.5



                                                                                                      4
Return On Assets (5-Year Avg.)    16.7                       12.6              6.4
   Return On Capital (5-Year Avg.)   24.6                       18.2              8.6
   Management Efficiency
   Income/Employee                   76,690                     56,327            92,892
   Revenue/Employee                  386,732                    360,922           806,706
   Receivable Turnover               9.8                        10.1              14.3
   Inventory Turnover                5.4                        6.8               7.8
   Asset Turnover                    0.8                        0.8               0.8
    Adapted from www.moneycentral.msn.com


     Date            Avg. P/E       Price/Sales          Price/Book       Net Profit Margin (%)
     12/06           20.30          4.71                 6.61             21.1
     12/05           21.00          4.18                 5.84             21.1
     12/04           23.30          4.65                 6.29             22.3
     12/03           25.00          5.99                 8.79             20.8
     12/02           31.10          5.56                 9.18             20.3

     Date        Book     Value/ Debt/Equity             ROE (%)       ROA (%)    Interest
                 Share                                                            Coverage
     12/06       $7.30             0.27                  30.0          17.0       28.7
     12/05       $6.90             0.35                  29.8          16.6       25.4
     12/04       $6.61             0.45                  30.4          15.4       29.1
     12/03       $5.77             0.38                  30.9          15.9       29.3
     12/02       $4.78             0.45                  33.7          16.3       27.4
    Adapted from www.moneycentral.msn.com

Net Worth Analysis (December 2006 in millions)

1. Stockholders’ Equity + Goodwill = 17,000 + 1,400                                     $ 18,400
2. Net income x 5 = $5,000 x 5=                                                         $ 25,000
3. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000=                           $ 123,931
4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 =                        $ 92,800
Method Average                                                                          $65,032

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors                                      Weight              Rating         Weighted
                                                                                             Score
Strengths
1. Product line has over 400 brands.                      0.09                4              0.36
2. Strong global presence, located in over 200            0.10                4              0.40
    countries.
3. Long history has built excellent brand recognition.    0.06                4              0.24
4. Partnership longevity with established sporting        0.05                4              0.20
    events including the Olympics.
5. Industry leader in market capitalization with $112     0.12                4              0.48
    billion.
6. Return on Equity yielded 30 percent in 2006.           0.04                4              0.12
7. Leader of dividend yields of 2.6 percent. The
    company has had 43 consecutive years of an            0.04                4              0.16
    annual dividend increase.
8. Joint venture between The Coca Cola Company
    and Nestle has resulted in the establishment of       0.06                4              0.24


                                                                                                        5
Beverage Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with
   McDonalds, with McDonalds becoming their largest       0.10           4                  0.40
   customer.
Weaknesses
1. Product line is limited to beverages.                  0.09           1                  0.09
2. A failed $16 billion acquisition of Quaker Oats        0.10           1                  0.10
   hinders long-term growth.
3. Negative publicity in India because of water issues,   0.03           2                  0.06
   has led to poor brand image and hindered growth
   there.
4. Lack of management willingness to place foreign        0.02           2                  0.04
   products into American markets.
5. Marketing deficiencies due to turnover in leadership   0.05           2                  0.10
   and a 16 percent decrease in advertising spending.
6. Coca Cola’s inventory turnover is only 5.4             0.05           2                  0.10
   compared to Pepsi Co.’s 8.0.
TOTAL                                                     1.00                              3.09


F.      SWOT Strategies

        SO Strategies

        1. Improve environmental awareness with community involvement (S2, S4, O2, O3).
        2. Market new diet drinks that have healthier sugar substitutes (S5, O7).

        WO Strategies

        1. Market international beverages to American consumers (W4, O2, O6, O7).
        2. Increase marketing efforts for bottled water (W5, W6, O1).

        ST Strategies

        1. Acquire Krispy Kreme (KKD) to help diversify the product line (S5, T5).
        2. Acquire Golden Enterprises (GLDC) to help diversify the product line (S5, T5).

        WT Strategies

        3. Acquire Krispy Kreme (KKD) to help diversify the product line (W1, T5).
        4. Acquire Golden Enterprises (GLDC) to help diversify the product line (W1, T5).




G.      SPACE Matrix




                                                                                                   6
FS
                 Conservative                                                Aggressive
                                                  6

                                                  5

                                                  4

                                                  3

                                                  2

                                                  1


  CA                                                                                               IS
       -6      -5       -4      -3    -2    -1            1      2       3       4         5   6
                                                 -1

                                                 -2

                                                 -3

                                                 -4

                                                 -5

                                                 -6
                    Defensive                                                Competitive
                                                  ES


Financial Strength (FS)                          Environmental Stability (ES)
Return on Assets (ROA)                      6    Rate of Inflation                                  -3
Leverage                                    6    Technological Changes                              -2
Net Income                                  6    Price Elasticity of Demand                         -2
Income/Employee                             6    Competitive Pressure                               -6
Inventory Turnover                          3    Barriers to Entry into Market                      -3

Financial Strength (FS) Average            5.4   Environmental Stability (ES) Average              -3.2

Competitive Advantage (CA)                       Industry Strength (IS)
Market Share                               -1    Growth Potential                                   5
Product Quality                            -1    Financial Stability                                6
Customer Loyalty                           -1    Ease of Entry into Market                          4
Technological know-how                     -2    Resource Utilization                               5
Control over Suppliers and Distributors    -2    Profit Potential                                   5

Competitive Advantage (CA) Average         -1.4 Industry Strength (IS) Average                     5.0

x-axis: -1.4 + 5.0 = 3.6
y-axis: 5.4 + -3.2 = 2.2
Coordinate: (3.6, 2.2)
H.      Grand Strategy Matrix




                                                                                                          7
Rapid Market Growth


                      Quadrant II                                   Quadrant I




       Weak                                                                         Strong
     Competitive                                                                  Competitive
      Position                                                                     Position




                      Quadrant III                                  Quadrant IV


                                              Slow Market Growth




I.        The Internal-External (IE) Matrix



                                                                                                8
The IFE Total Weighted Score

                             Strong               Average       Weak
                             3.0 to 4.0           2.0 to 2.99   1.0 to 1.99
               High          I                    II            III
               3.0 to 3.99




              Medium         IV                   V             VI
The EFE Total 2.0 to 2.99
Weighted
Score                        Coca Cola




               Low           VII                  VIII          IX
               1.0 to 1.99




Grow and Build


Divisions                            Percent Revenue 2006
North America                        29.1
Bottling Investments                 21.2
North Asia, Eurasia & Middle East    16.5
European Union                       14.6
Latin America                        10.3
Africa                               4.6
East, South Asia & Pacific Rim       3.3
Corporate                            0.4




J.     QSPM




                                                                              9
Strategic Alternatives
                                                                 Acquire KKD and       Produce      new
                                                                 GLDC                  diet drinks that
                                                                                       have healthier
Key                       Internal                     Factors                         sugar
Weight                                                                                 substitutes
Strengths                                                        AS       TAS          AS        TAS
1. Product line has over 400 brands.                 0.09        2        0.18         4         0.36
2. Strong global presence, located in over 200       0.10        ---      ---          ---       ---
    countries.
3. Long history has built excellent brand            0.06        2        0.12         4         0.24
    recognition.
4. Partnership longevity with established sporting   0.05        ---      ---          ---       ---
    events including the Olympics.
5. Industry leader in market capitalization with     0.12        4        0.48         3         0.36
    $112 billion.
6. Return on Equity yielded 30 percent in 2006.      0.04        4        0.16         3         0.12
7. Leader of dividend yields of 2.6 percent. The
    company has had 43 consecutive years of an       0.04        ---      ---          ---       ---
    annual dividend increase.
8. Joint venture between The Coca Cola
    Company and Nestle has resulted in the           0.06        ---      ---          ---       ---
    establishment      of     Beverage    Partners
    Worldwide (BPW).
9. Coca-Cola has formed a strong partnership
    with McDonalds, with McDonalds becoming          0.10        ---      ---          ---       ---
    their largest customer.
Weaknesses
1. Product line is limited to beverages.             0.09        4        0.36         1         0.09
2. A failed $16 billion acquisition of Quaker Oats   0.10        ---      ---          ---       ---
    hinders long-term growth.
3. Negative publicity in India because of water
    issues, has led to poor brand image and          0.03        ---      ---          ---       ---
    hindered growth there.
4. Lack of management willingness to place           0.02        ---      ---          ---       ---
    foreign products into American markets.
5. Marketing deficiencies due to turnover in
    leadership and a 16 percent decrease in          0.05        ---      ---          ---       ---
    advertising spending.
6. Coca Cola’s inventory turnover is only 5.4        0.05        4        0.20         1         0.05
    compared to Pepsi Co.’s 8.0.
SUBTOTAL                                             1.00                 1.50                   1.22

                                                                 Acquire KKD and   Produce new diet
Key                      External                     Factors    GLDC              drinks that have
Weight                                                                             healthier     sugar
                                                                                   substitutes
Opportunities                                                    AS      TAS       AS        TAS
1. Bottled water consumption has increased 11         0.06       ---     ---       ---       ---
   percent.
2. According to the S&P Industry Survey,
   consumers are drawn to new smaller beverage        0.05       1       0.05      3           0.15
   brands that are not sold on a mass scale.
3. Word Economic Forum’s annual Davos,                0.02       ---     ---       ---         ---


                                                                                                       10
Switzerland gathering grants international voice.
4. Less developed countries are in desperate need       0.02     ---        ---        ---       ---
   to improve community water supplies.
5. Energy drink sales are expected to increase 7 to     0.06     ---        ---        ---       ---
   8 percent in 2007.
6. Disposable income has increased 6.2 percent.         0.05     ---        ---        ---       ---
7. Consumers are striving to drink and eat their        0.07     2          0.14       4         0.28
   way to better health than pervious generations.
8. EPS is expected to rise 7 to 8 percent in 2007.      0.07     4          0.28       3         0.21
Threats
1. Consumption of American beverages is
   denounced by foreign officials in areas where        0.02     ---        ---        ---       ---
   conflicting interest exist.
2. Multiple lawsuits against the new Enviga             0.04     ---        ---        ---       ---
   beverage for calorie burning claims in
   advertising
3. Smaller, lesser known brands are turning to          0.06     ---        ---        ---       ---
   major beer distributors for bottling.
4. Overall carbonated drink sales have been flat
   due to links of sugar to obesity and high fructose   0.10     2          0.20       4         0.40
   corn syrup to heart disease.
5. Pepsi is more diversified offering beverage and      0.20     4          0.80       2         0.40
   food products.
6. High cost of commodities such as sugar, and          0.10     ---        ---        ---       ---
   metals used in production of cans.
7. Many smaller companies are fierce competitors        0.08     ---        ---        ---       ---
   around the world in their local markets.
SUB TOTAL                                                                   1.47                 1.44
SUM TOTAL ATTRACTIVENESS SCORE                                              2.97                 2.66


K.      Recommendations

        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. 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                                          $ 107
2. Net income x 5 = $-42 x 5=                                                         $ NA
3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42=                               $ NA
4. Number of Shares Outstanding x Share Price = 65 x $2.73 =                          $ 177
Method Average                                                                        $142




Golden Enterprises (GLDC) Net Worth January 2008 (in millions).



                                                                                                        11
1. Stockholders’ Equity + Goodwill = 19.4 + 0                                              $ 19.4
2. Net income x 5 = $1.2 x 5=                                                              $ 6.0
3. Share price = $2.95/EPS 0.19 =$15.52 x Net Income $1.2=                                 $ 18.6
4. Number of Shares Outstanding x Share Price = 11.2 x $2.95 =                             $ 33.0
Method Average                                                                             $19.3


L.         EPS/EBIT Analysis

           $ Amount Needed: 360M
           Stock Price: $58
           Tax Rate: 35%
           Interest Rate: 5%
           # Shares Outstanding: 1,600M

                            Common Stock Financing                               Debt Financing
                   Recession       Normal          Boom            Recession        Normal            Boom
EBIT             4,000,000,000  6,000,000,000 8,000,000,000      4,000,000,000   6,000,000,000    8,000,000,000
Interest               0              0             0             18,000,000      18,000,000        18,000,000
EBT              4,000,000,000  6,000,000,000 8,000,000,000      3,982,000,000   5,982,000,000    7,982,000,000
Taxes            1,400,000,000  2,100,000,000 2,800,000,000      1,393,700,000   2,093,700,000    2,793,700,000
EAT              2,600,000,000  3,900,000,000 5,200,000,000      2,588,300,000   3,888,300,000    5,188,300,000
# Shares         1,606,206,897  1,606,206,897 1,606,206,897      1,600,000,000   1,600,000,000    1,600,000,000
EPS                  1.62            2.43          3.24              1.62             2.43             3.24

                         70 Percent Stock - 30 Percent Debt            70 Percent Debt - 30 Percent Stock
                   Recession          Normal           Boom        Recession        Normal           Boom
EBIT             4,000,000,000    6,000,000,000 8,000,000,000    4,000,000,000 6,000,000,000 8,000,000,000
Interest           5,400,000         5,400,000       5,400,000    12,600,000      12,600,000      12,600,000
EBT              3,994,600,000    5,994,600,000 7,994,600,000    3,987,400,000 5,987,400,000 7,987,400,000
Taxes            1,398,110,000    2,098,110,000 2,798,110,000    1,395,590,000 2,095,590,000 2,795,590,000
EAT              2,596,490,000    3,896,490,000 5,196,490,000    2,591,810,000 3,891,810,000 5,191,810,000
# Shares         1,604,344,828    1,604,344,828 1,604,344,828    1,601,862,069 1,601,862,069 1,601,862,069
EPS                   1.62              2.43            3.24         1.62            2.43             3.24




                                                                                                              12

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Coca cola company strategies

  • 1. Coca-Cola Company A. Case Abstract Coca Cola (www.cocacola.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coca Cola’s common stock is publicly-traded on the New York Stock Exchange under the ticker symbol KO. Coca Cola operates in over 200 nations around the world and sells carbonated and non carbonated beverages. Coca Cola’s line of non carbonated drinks includes: water, juice, and teas. The company has over 70,000 employees and is led by CEO Neville Isdell. The Coca-Cola Company’s (Coke’s) operating segments include 1) Africa, 2) East, South East Asia & Pacific Rim, 3) European Union, 4) Latin America, 5) North America, 6) North Asia, Eurasia, and the Middle East, and 7) bottling investments. Not all soft drink products/flavors of the company are available in all the operating groups. The Coca-Cola Company has two major rivals: PepsiCo and Cadbury Schweppes PLC. It’s interesting to note that PepsiCo has more that double the employees as Coca-Cola as listed in Exhibit 6. Groupe Danone competes to a lesser degree with C oke. The number 3 soft drink producer, Cadbury Schweppes PLC (behind Coca-Cola and PepsiCo Inc.), is a diversified company that produces and markets beverages, chocolate, and chewing gum. Cadbury plans to divest its beverage division in 2007 of PepsiCo, Coca Cola Company, and Cadbury Schweppes PLC. Federal regulations may prohibit PepsiCo and Coke from bidding for Cadbury’s carbonated soft drink business. Analysts however believe the brand Snapple, which Cadbury sells, would be a good fit for Coke. PepsiCo would likely benefit most from acquiring Cadbury’s Mexican assets with such strong brands as Squirt, Crush, and Canada Dry. B. Vision Statement (actual) To maintain our reputation as the leading cola company in the world. C. Mission Statement (actual) Everything we do is inspired by our enduring 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. 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 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 as good as the last (5). Our employees (9) are fairly compensated and we practice fair trade in all markets we compete. We value our responsibility to all communities we serve and support many educational and leadership programs (8). 1
  • 2. 1. Customer 2. Products or services 3. Markets 4. Technology 5. Concern for survival, profitability, growth 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees D. 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. Threats 1. Consumption of American beverages is denounced by foreign officials in areas where conflicting interest exist. 2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in advertising 3. Smaller, lesser known brands are turning to major beer distributors for bottling. 4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high fructose corn syrup to heart disease. 5. Pepsi is more diversified offering beverage and food products. 6. High cost of commodities such as sugar, and metals used in production of cans. 7. Many smaller companies are fierce competitors around the world in their local markets. CPM – Competitive Profile Matrix Coca-Cola Pepsi Cadbury Schweppes Critical Success Weight Rating Weighte Rating Weighted Rating Weighted Factors d Score Score Score Market Share 0.15 4 0.60 3 0.45 2 0.30 Price Comp 0.10 3 0.30 3 0.30 3 0.30 Financial Position 0.12 4 0.48 4 0.48 3 0.36 Product Quality 0.15 3 0.45 3 0.45 3 0.45 Product Lines 0.15 4 0.60 4 0.60 3 0.45 Customer Loyalty 0.15 4 0.60 4 0.60 3 0.45 Employees 0.11 3 0.33 3 0.33 3 0.33 Marketing 0.07 3 0.21 3 0.21 3 0.21 Total 1.00 3.71 3.56 2.85 External Factor Evaluation (EFE) Matrix 2
  • 3. Key External Factors Weight Rating Weighted Score Opportunities 1. Bottled water consumption has increased 11 0.06 4 0.24 percent. 2. According to the S&P Industry Survey, consumers are drawn to new smaller 0.05 2 0.10 beverage brands that are not sold on a mass scale. 3. Word Economic Forum’s annual Davos, 0.02 2 0.04 Switzerland gathering grants international voice. 4. Less developed countries are in desperate 0.02 2 0.04 need to improve community water supplies. 5. Energy drink sales are expected to increase 0.06 3 0.18 7 to 8 percent in 2007. 6. Disposable income has increased 6.2 0.05 3 0.15 percent. 7. Consumers are striving to drink and eat their 0.07 3 0.21 way to better health than pervious generations. 8. EPS is expected to rise 7 to 8 percent in 0.07 4 0.28 2007. Threats 1. Consumption of American beverages is denounced by foreign officials in areas 0.02 3 0.06 where conflicting interest exist. 2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in 0.04 2 0.08 advertising 3. Smaller, lesser known brands are turning to 0.06 2 0.12 major beer distributors for bottling. 4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high 0.10 2 0.20 fructose corn syrup to heart disease. 5. Pepsi is more diversified offering beverage 0.20 3 0.60 and food products. 6. High cost of commodities such as sugar, 0.10 3 0.30 and metals used in production of cans. 7. Many smaller companies are fierce 0.08 3 0.24 competitors around the world in their local markets. TOTAL 1.00 2.84 E. Internal Audit 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. Partnership longevity with established sporting events including the Olympics. 5. Industry leader in market capitalization with $112 billion. 3
  • 4. 6. Return on Equity yielded 30 percent in 2006. 7. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an annual dividend increase. 8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment of Beverage Partners Worldwide (BPW). 9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their largest customer. Weaknesses 1. Product line is limited to beverages. 2. A failed $16 billion acquisition of Quaker Oats hinders long-term growth. 3. Negative publicity in India because of water issues, has led to poor brand image and hindered growth there. 4. Lack of management willingness to place foreign products into American markets. 5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in advertising spending. 6. Coca Cola’s inventory turnover is only 5.4 compared to Pepsi Co.’s 8.0. Financial Ratio Analysis (December 2006) Growth Rates % Coca Cola Industry SP-500 Sales (Qtr vs year ago qtr) 19.20 22.20 11.60 Net Income (YTD vs YTD) 8.30 25.70 17.10 Net Income (Qtr vs year ago qtr) 13.30 30.00 9.30 Sales (5-Year Annual Avg.) 6.54 8.45 13.09 Net Income (5-Year Annual Avg.) 5.01 9.38 19.82 Dividends (5-Year Annual Avg.) 11.49 12.61 10.00 Price Ratios Current P/E Ratio 25.4 26.2 20.3 P/E Ratio 5-Year High NA 49.9 26.8 P/E Ratio 5-Year Low NA 20.7 6.8 Price/Sales Ratio 5.00 3.96 2.37 Price/Book Value 6.97 5.71 3.45 Price/Cash Flow Ratio 21.10 19.60 10.70 Profit Margins Gross Margin 64.2 52.7 34.5 Pre-Tax Margin 26.0 17.5 17.8 Net Profit Margin 19.8 14.2 12.6 5Yr Gross Margin (5-Year Avg.) 64.4 59.1 34.3 5Yr PreTax Margin (5-Year Avg.) 27.9 20.1 16.4 5Yr Net Profit Margin (5-Year Avg.) 21.1 14.9 11.4 Financial Condition Debt/Equity Ratio 0.49 0.69 1.06 Current Ratio 0.8 1.0 1.1 Quick Ratio 0.6 0.7 0.9 Interest Coverage 55.1 41.0 31.8 Leverage Ratio 2.1 2.5 3.7 Book Value/Share 8.52 10.25 18.53 Investment Returns % Return On Equity 28.9 22.0 24.9 Return On Assets 14.9 11.2 7.6 Return On Capital 22.6 16.9 10.2 Return On Equity (5-Year Avg.) 32.0 25.4 18.5 4
  • 5. Return On Assets (5-Year Avg.) 16.7 12.6 6.4 Return On Capital (5-Year Avg.) 24.6 18.2 8.6 Management Efficiency Income/Employee 76,690 56,327 92,892 Revenue/Employee 386,732 360,922 806,706 Receivable Turnover 9.8 10.1 14.3 Inventory Turnover 5.4 6.8 7.8 Asset Turnover 0.8 0.8 0.8 Adapted from www.moneycentral.msn.com Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%) 12/06 20.30 4.71 6.61 21.1 12/05 21.00 4.18 5.84 21.1 12/04 23.30 4.65 6.29 22.3 12/03 25.00 5.99 8.79 20.8 12/02 31.10 5.56 9.18 20.3 Date Book Value/ Debt/Equity ROE (%) ROA (%) Interest Share Coverage 12/06 $7.30 0.27 30.0 17.0 28.7 12/05 $6.90 0.35 29.8 16.6 25.4 12/04 $6.61 0.45 30.4 15.4 29.1 12/03 $5.77 0.38 30.9 15.9 29.3 12/02 $4.78 0.45 33.7 16.3 27.4 Adapted from www.moneycentral.msn.com Net Worth Analysis (December 2006 in millions) 1. Stockholders’ Equity + Goodwill = 17,000 + 1,400 $ 18,400 2. Net income x 5 = $5,000 x 5= $ 25,000 3. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000= $ 123,931 4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 = $ 92,800 Method Average $65,032 Internal Factor Evaluation (IFE) Matrix Key Internal Factors Weight Rating Weighted Score Strengths 1. Product line has over 400 brands. 0.09 4 0.36 2. Strong global presence, located in over 200 0.10 4 0.40 countries. 3. Long history has built excellent brand recognition. 0.06 4 0.24 4. Partnership longevity with established sporting 0.05 4 0.20 events including the Olympics. 5. Industry leader in market capitalization with $112 0.12 4 0.48 billion. 6. Return on Equity yielded 30 percent in 2006. 0.04 4 0.12 7. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an 0.04 4 0.16 annual dividend increase. 8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment of 0.06 4 0.24 5
  • 6. Beverage Partners Worldwide (BPW). 9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their largest 0.10 4 0.40 customer. Weaknesses 1. Product line is limited to beverages. 0.09 1 0.09 2. A failed $16 billion acquisition of Quaker Oats 0.10 1 0.10 hinders long-term growth. 3. Negative publicity in India because of water issues, 0.03 2 0.06 has led to poor brand image and hindered growth there. 4. Lack of management willingness to place foreign 0.02 2 0.04 products into American markets. 5. Marketing deficiencies due to turnover in leadership 0.05 2 0.10 and a 16 percent decrease in advertising spending. 6. Coca Cola’s inventory turnover is only 5.4 0.05 2 0.10 compared to Pepsi Co.’s 8.0. TOTAL 1.00 3.09 F. SWOT Strategies SO Strategies 1. Improve environmental awareness with community involvement (S2, S4, O2, O3). 2. Market new diet drinks that have healthier sugar substitutes (S5, O7). WO Strategies 1. Market international beverages to American consumers (W4, O2, O6, O7). 2. Increase marketing efforts for bottled water (W5, W6, O1). ST Strategies 1. Acquire Krispy Kreme (KKD) to help diversify the product line (S5, T5). 2. Acquire Golden Enterprises (GLDC) to help diversify the product line (S5, T5). WT Strategies 3. Acquire Krispy Kreme (KKD) to help diversify the product line (W1, T5). 4. Acquire Golden Enterprises (GLDC) to help diversify the product line (W1, T5). G. SPACE Matrix 6
  • 7. FS Conservative Aggressive 6 5 4 3 2 1 CA IS -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 -2 -3 -4 -5 -6 Defensive Competitive ES Financial Strength (FS) Environmental Stability (ES) Return on Assets (ROA) 6 Rate of Inflation -3 Leverage 6 Technological Changes -2 Net Income 6 Price Elasticity of Demand -2 Income/Employee 6 Competitive Pressure -6 Inventory Turnover 3 Barriers to Entry into Market -3 Financial Strength (FS) Average 5.4 Environmental Stability (ES) Average -3.2 Competitive Advantage (CA) Industry Strength (IS) Market Share -1 Growth Potential 5 Product Quality -1 Financial Stability 6 Customer Loyalty -1 Ease of Entry into Market 4 Technological know-how -2 Resource Utilization 5 Control over Suppliers and Distributors -2 Profit Potential 5 Competitive Advantage (CA) Average -1.4 Industry Strength (IS) Average 5.0 x-axis: -1.4 + 5.0 = 3.6 y-axis: 5.4 + -3.2 = 2.2 Coordinate: (3.6, 2.2) H. Grand Strategy Matrix 7
  • 8. Rapid Market Growth Quadrant II Quadrant I Weak Strong Competitive Competitive Position Position Quadrant III Quadrant IV Slow Market Growth I. The Internal-External (IE) Matrix 8
  • 9. The IFE Total Weighted Score Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99 High I II III 3.0 to 3.99 Medium IV V VI The EFE Total 2.0 to 2.99 Weighted Score Coca Cola Low VII VIII IX 1.0 to 1.99 Grow and Build Divisions Percent Revenue 2006 North America 29.1 Bottling Investments 21.2 North Asia, Eurasia & Middle East 16.5 European Union 14.6 Latin America 10.3 Africa 4.6 East, South Asia & Pacific Rim 3.3 Corporate 0.4 J. QSPM 9
  • 10. Strategic Alternatives Acquire KKD and Produce new GLDC diet drinks that have healthier Key Internal Factors sugar Weight substitutes Strengths AS TAS AS TAS 1. Product line has over 400 brands. 0.09 2 0.18 4 0.36 2. Strong global presence, located in over 200 0.10 --- --- --- --- countries. 3. Long history has built excellent brand 0.06 2 0.12 4 0.24 recognition. 4. Partnership longevity with established sporting 0.05 --- --- --- --- events including the Olympics. 5. Industry leader in market capitalization with 0.12 4 0.48 3 0.36 $112 billion. 6. Return on Equity yielded 30 percent in 2006. 0.04 4 0.16 3 0.12 7. Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an 0.04 --- --- --- --- annual dividend increase. 8. Joint venture between The Coca Cola Company and Nestle has resulted in the 0.06 --- --- --- --- establishment of Beverage Partners Worldwide (BPW). 9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming 0.10 --- --- --- --- their largest customer. Weaknesses 1. Product line is limited to beverages. 0.09 4 0.36 1 0.09 2. A failed $16 billion acquisition of Quaker Oats 0.10 --- --- --- --- hinders long-term growth. 3. Negative publicity in India because of water issues, has led to poor brand image and 0.03 --- --- --- --- hindered growth there. 4. Lack of management willingness to place 0.02 --- --- --- --- foreign products into American markets. 5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in 0.05 --- --- --- --- advertising spending. 6. Coca Cola’s inventory turnover is only 5.4 0.05 4 0.20 1 0.05 compared to Pepsi Co.’s 8.0. SUBTOTAL 1.00 1.50 1.22 Acquire KKD and Produce new diet Key External Factors GLDC drinks that have Weight healthier sugar substitutes Opportunities AS TAS AS TAS 1. Bottled water consumption has increased 11 0.06 --- --- --- --- percent. 2. According to the S&P Industry Survey, consumers are drawn to new smaller beverage 0.05 1 0.05 3 0.15 brands that are not sold on a mass scale. 3. Word Economic Forum’s annual Davos, 0.02 --- --- --- --- 10
  • 11. Switzerland gathering grants international voice. 4. Less developed countries are in desperate need 0.02 --- --- --- --- to improve community water supplies. 5. Energy drink sales are expected to increase 7 to 0.06 --- --- --- --- 8 percent in 2007. 6. Disposable income has increased 6.2 percent. 0.05 --- --- --- --- 7. Consumers are striving to drink and eat their 0.07 2 0.14 4 0.28 way to better health than pervious generations. 8. EPS is expected to rise 7 to 8 percent in 2007. 0.07 4 0.28 3 0.21 Threats 1. Consumption of American beverages is denounced by foreign officials in areas where 0.02 --- --- --- --- conflicting interest exist. 2. Multiple lawsuits against the new Enviga 0.04 --- --- --- --- beverage for calorie burning claims in advertising 3. Smaller, lesser known brands are turning to 0.06 --- --- --- --- major beer distributors for bottling. 4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high fructose 0.10 2 0.20 4 0.40 corn syrup to heart disease. 5. Pepsi is more diversified offering beverage and 0.20 4 0.80 2 0.40 food products. 6. High cost of commodities such as sugar, and 0.10 --- --- --- --- metals used in production of cans. 7. Many smaller companies are fierce competitors 0.08 --- --- --- --- around the world in their local markets. SUB TOTAL 1.47 1.44 SUM TOTAL ATTRACTIVENESS SCORE 2.97 2.66 K. Recommendations 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. 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 $ 107 2. Net income x 5 = $-42 x 5= $ NA 3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42= $ NA 4. Number of Shares Outstanding x Share Price = 65 x $2.73 = $ 177 Method Average $142 Golden Enterprises (GLDC) Net Worth January 2008 (in millions). 11
  • 12. 1. Stockholders’ Equity + Goodwill = 19.4 + 0 $ 19.4 2. Net income x 5 = $1.2 x 5= $ 6.0 3. Share price = $2.95/EPS 0.19 =$15.52 x Net Income $1.2= $ 18.6 4. Number of Shares Outstanding x Share Price = 11.2 x $2.95 = $ 33.0 Method Average $19.3 L. EPS/EBIT Analysis $ Amount Needed: 360M Stock Price: $58 Tax Rate: 35% Interest Rate: 5% # Shares Outstanding: 1,600M Common Stock Financing Debt Financing Recession Normal Boom Recession Normal Boom EBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000 Interest 0 0 0 18,000,000 18,000,000 18,000,000 EBT 4,000,000,000 6,000,000,000 8,000,000,000 3,982,000,000 5,982,000,000 7,982,000,000 Taxes 1,400,000,000 2,100,000,000 2,800,000,000 1,393,700,000 2,093,700,000 2,793,700,000 EAT 2,600,000,000 3,900,000,000 5,200,000,000 2,588,300,000 3,888,300,000 5,188,300,000 # Shares 1,606,206,897 1,606,206,897 1,606,206,897 1,600,000,000 1,600,000,000 1,600,000,000 EPS 1.62 2.43 3.24 1.62 2.43 3.24 70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock Recession Normal Boom Recession Normal Boom EBIT 4,000,000,000 6,000,000,000 8,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000 Interest 5,400,000 5,400,000 5,400,000 12,600,000 12,600,000 12,600,000 EBT 3,994,600,000 5,994,600,000 7,994,600,000 3,987,400,000 5,987,400,000 7,987,400,000 Taxes 1,398,110,000 2,098,110,000 2,798,110,000 1,395,590,000 2,095,590,000 2,795,590,000 EAT 2,596,490,000 3,896,490,000 5,196,490,000 2,591,810,000 3,891,810,000 5,191,810,000 # Shares 1,604,344,828 1,604,344,828 1,604,344,828 1,601,862,069 1,601,862,069 1,601,862,069 EPS 1.62 2.43 3.24 1.62 2.43 3.24 12