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Introduction

Coca Cola is one of the few successful global brands in the World. Since the year 1980 Pepsi Cola started to challenge the dominance of Coca Cola and turned to be the main rival. And in the year 2005 for the first time in the history of both companies, Pepsi Cola was valued higher than Coca Cola. There are a lot of reasons why it happened, mainly because Coca Cola rely too much on carbonates market which is declining at the moment. Another reason is the number of failed new products and some poor investment decisions.

PEST analysis for Coca Cola

Political

• War against Iraq made USA and UK very unpopular in Middle East as well as in other Muslim countries. Because Coca Cola is known as very American company, this had a huge effect on the sales of its product.

• The European Commission has alerted EU member countries to ban Coca Cola drinks because of recent poisoning of 100 children in Belgium and cause seems to be the wrong carbon dioxide which was used in coca cola soft drinks.

• Recently there were demonstrations all around the India, protestors demanded Coca Cola to stop production. Demonstrators believe that Coca Cola is depleting groundwater.

Economical

• Disposable income of consumers has increased by 4.2% and it had a positive impact on sales.

• Recently against the pound, the dollar was down more than 0.55% at $0.52, while against the euro it was down 0.58% at $0.77. There is a fear of inflation because of the weakening dollar.

• Bank of England reported that in order to meet its 2% inflation rate in the next two years they are going to slightly increase the interest rates. They are planning to keep interest rates at 4.5%, for the nine month in a row.

• Unemployment rate in the UK is around 4.7%.

Socio-cultural

• Increasing average age via demographic change in the UK reducing the market base (young age groups drink Coca Cola products more frequently than older groups).

• Islamic cola was launched in the UK in 2003 and donates 10% of profits from this product to Muslim charities.

• Coca Cola improved water use efficiency globally by 6%.

• Established rainwater harvesting programs at almost all company plants in India.

• Wastage generation was reduced by 4.5%.

Technological

• PDX 25, innovative fluid processing technology, signed and agreement with Coca Cola which was first installed in 2004 and already delivering dramatic process efficiency and quality improvements. It cuts cooking times by up to 95% and cleaning times by up to 80%.

• Developed a new Ultra Glass technology that is 14% more efficient in production, 20% lighter, and 50% stronger.

As we know Coca Cola and PepsiCo both compete in soft drinks market. I am going to audit each part of this market in order to see the strength and weaknesses of the companies.

Carbonates

Although sales of carbonated drinks are decreasing, it is still the leading market in the UK and Coca Cola Enterprise got the most shares of this market.

Figure 1 UK value sales of soft drinks, by type, 2000-04

2000 2002 2004 (est) % change

Јm % Јm % Јm % 2000-04

Carbonates 5,191 58 5,723 57 5,913 54 13.9

Fruit juice/drinks 1,756 20 1,956 19 2,316 21 31.9

Health/sports/energy 654 7 901 9 1,161 11 77.5

Concentrates/dilutables 922 10 1,000 10 990 9 7.4

Bottled water 415 5 455 5 520 5 25.3

Total 8,938 100 10,035 100 10,900 100 21.9

Volume sales of soft drinks have increased annually since 1997. Although carbonates got most of the shares of soft drink market it is gradually declining.

Cola is the most favored carbonated drink in the UK and it accounts for 54% of carbonates market. Customers mainly chose cola because of the flavored variants of drinks such as Coke with lemon, Pepsi twist etc.

Figure 2 UK volume and value sales of cola, at current and constant prices, 1999-2004

m litres Index Јm Index Јm at 1999 prices Index €m Index

1999 2,775 100 2,858 100 2,858 100 4,344 100

2000 3,010 108 3,100 108 3,109 109 5,084 117

2001 3,105 112 3,239 113 3,145 110 5,215 120

2002 3,265 118 3,531 124 3,405 119 5,614 129

2003 3,512 127 3,878 136 3,690 129 5,623 129

2004 3,372 122 3,762 132 3,559 125 5,605 129

Sales and the litres consumed have decreased recently. Health concerns are the main factors that influence the demand for the carbonates. Most of the consumers are trying to lose weight so they try to avoid carbonated soft drinks instead they try follow a healthier diet.

Although Cola is most favored drink in the UK Coca Cola Enterprise is the one with most shares not Pepsi. Apart from Cola and Diet Coke, the company also produces Fanta, Lilt and Schweppes.

Figure 3 Top ten brand shares in the carbonates market, by volume, 2000-04

2000 2002 2004 (est) % change

Brand Owner m litres % m litres % m litres % 2000-04

Coca-Cola CCE 840 14.2 970 15.3 950 15.2 13.1

Diet Coke CCE 530 9 602 9.5 638 10.2 20.4

Pepsi BSD 360 6.1 412 6.5 438 7 21.7

Irn-Bru AG Barr 265 4.5 330 5.2 325 5.2 22.6

Diet Pepsi/Pepsi Max BSD 210 3.6 279 4.4 294 4.7 40

Fanta CCE 200 3.4 279 4.4 281 4.5 40.5