Coca-Cola Servo Analysis

Background

Coca-Cola Beverages Ltd. is the largest bottler of soft drink products in Canada and one of the largest Coca-Cola bottlers in the world. The Company, through its subsidiary Coca-Cola Bottling Ltd., sells, distributes and produces under license Coca-Cola soft drink products and non-carbonated beverages, as well as various Canada Dry, Schwepps, A&W and Nestea trade-mark products. The Company also distributes Evian and Volvic natural spring waters and is responsible for approximately 98 percent of all production of Coca-Cola soft drink brands in the country and accounts for 95 percent of all sales of Coca-Cola products. Coca Cola Beverages operates in all ten provinces with over 3,700 employees. The Company markets and distributes beverages to Canadian retail consumers and customers, as well as to wholesalers and other bottlers.

Five Year Financial Analysis

In 1995, Coca-Cola Enterprises experienced their first annual profit since 1991. (see exhibit #1 for financial graphs) Their profit was $4 million compared to a loss of $16 million in 1994. Their three years of losses totaled over $200 million with their largest in 1993 at $139 million.

Coca-Cola's sales volume increased for the second consecutive year with an 8% increase over 1994 totaling $232.8 million. Their stock price nearly doubled over the previous year with a closing market price of $4.30 in 1994 and a closing market price of $8.50 in 1995. The earnings per share for 1995 was 0.01 per common share compared to a net loss of $0.47 in 1994. The earnings per share had a net loss since 1991.

Throughout 1995 Coca-Cola also embarked upon and continued various programs to cut costs and increase revenues. The company succeeded, by decreasing their operating expenses by 4% in 1995. Operating income was double 1994's at $60.3 million and a $9 million decrease was achieved in Selling, General and Administrative expenses.

Importantly, Coca-Cola was able to decrease their long term debt by $18 million throughout 1995. They still have high interest payments but will continue to pay off their debt in the future. Their debt-to-assets ratio shows they are increasing relying on borrowed funds to finance their investments. Their debt-to-equity ratio reveals that they have a high debt balance in their capital structure.

The company's liquidity is in a stable position. Their current ratio is currently approximately 1.0 which is the recommended rate. Their quick ratio is approximately 0.6 Coca-Cola is a good position to meet their short term obligations.

SERVO Analysis

Strategy

Goals

Coca-Cola Enterprise's primary goal is to increase shareholder value over the long term. This goal is one that has been evident in the company for a number of years. Their secondary goals include keeping costs low while providing quality products to their customers, and to increase consumer per capita growth.

Product

Coca-Cola offers a wide range of products to meet the demands of their customers. Coca-Cola sells, distributes, and produces soft drink products and non-carbonated beverages in Canada. The company also distributes Evian and Volvic natural spring bottled waters.

Market Scope

Their target markets are primarily adults, principal grocery shoppers, youth, and young adult.

Competitive Premise

Superior efficiency

In 1995, Coca-Cola completed their strategy-based restructuring and re-engineering which enhanced their operational efficiency and effectiveness. The aggressive acquisition strategy in 1992 and the subsequent restructuring program, such as consolidating production facilities and reducing inventory points, have created a consolidated bottling system across Canada. This results in reducing operation costs and increasing efficiencies in production. In addition, by using their Beverage Provider Model, a process to re-engineer the business practices and the information technologies, they are able to improve the flexibility in operations and reduces costs.

The company's Vision 2000 initiatives focuses on measuring how they will become the best beverage company in the world by the year 2000. This builds on the progress that was started with the restructuring and re-engineering in 1993. Vision 2000's ultimate objective is to increase shareholder value. This goal will be achieved through improving the link between strategy and operations, improving competitive advantage, removing unnecessary complexity from the business area, and improving productivity.

Over the past few years, the company established various cost saving and revenue enhancing programs. In 1993, the company cut costs by closing some bottling plants and decreasing the work force. As the result, the company reduced a significant among of net loss in 1994 and achieved a net income in 1995. In 1995, the company launched a revenue enhancing campaign, called Operation RED. It was designed to grow per capita consumption in all of the company's product lines. These strategies resulted in significant growth in gross profit and a decrease in operating expenses.

Superior quality

Through Total Product Management, which emphasizes quality in every stage of the operations, and through data codes, which help ensuring optimum taste for products, the company can achieve and maintain excellence in quality.

Superior innovation

Coca-Cola continues to produce new products and improve their existing lines. Their mission is to be the best beverage company in the world. They are in a good position because of their wide range of products to satisfy all of their customers.

In 1995, the company continued to capture new markets and respond to changing consumer tastes by introducing new flavors of their Fruitopia line, Powerade sports drinks, and adding Evian and Volvic bottled water to their product line.

Superior customer responsiveness

Through 1995, the company developed a multi-year initiative, Project MAX, that pursues superior customer responsiveness, quality and efficiency altogether. The company is focused on flexibility, reliability, quality and costs. Its task is to increase the responsiveness of the customers' needs, while producing the highest quality products at the lowest cost.

Through the advance Electronic Data Interchange (EDI)