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Coca-Cola (KO) Analysis

Coca-Cola Corporation and its Competitors

Coca-Cola was discovered as a result of an accident. In 1886 a pharmacist named John Pemberton cooked up medicinal syrup. When he was done, he figured he had created a fine tonic for people who were tired, nervous, or plagued with sore teeth. He and his assistant mixed it with ice water, sipped it, and proclaimed it tasty. They wanted some more, and the assistant accidentally used carbonated water to mix the second batch. Instead of medicine, these men had created a fizzy beverage - one that is now consumed around the world. Today people guzzle 1 billion drinks a day from the Coca-Cola Company. But this new beverage was not an instant success. In the first year, Pemberton spent $73.96 promoting his new product but managed to sell only $50 worth.

"The Coca-Cola Company" is now the largest soft drink company in the world. Every year 800,000,000 servings of just "Coca-Cola" are sold in the United States alone. The company takes pride in being a worldwide business that is always local. Bottling plants with some exceptions are locally owned and operated by independent business people who are native to the nations in which they are located. The company manufactures, distributes and markets non-alcoholic beverage concentrates and syrups, including fountain syrups. The product includes primarily carbonated soft drinks, a variety of non-carbonated beverages, juices and juice drinks, and certain water products, such as Dasani. The company supplies the concentrates and beverage bases used to make the products and it provides management assistance to help it's bottler's ensure the profitable growth of their business.

Coca-Cola competes in the nonalcoholic beverages segment of the commercial beverages industry. Based on available data and a variety of industry sources, the estimate is that in 2004, worldwide sales of Company products comprised approximately 10 percent of total worldwide sales of nonalcoholic beverage products. The nonalcoholic beverages segment of the commercial beverages industry is highly competitive, consisting of numerous firms. These include firms that, like Coca-Cola, compete in multiple geographical areas as well as firms that are primarily local in operation. Competitive products include carbonated soft drinks, packaged water, juices and nectars, fruit drinks and dilutables (including syrups and powdered drinks), sports and energy drinks, coffee and tea, still drinks and other beverages. Nonalcoholic beverages are sold to consumers in both ready-to-drink and not-ready-to-drink form. In many of the countries in which Coca-Cola does business, including the United States, the primary competitor is PepsiCo, Inc. (PEP). Other significant competitors include Nestlй S.A. (private), Cadbury Schweppes plc (CSG), and Groupe Danone (private). In the future analysis we will choose the company market share and profit comparison with publicly trades companies only, like Pepsi and Cadbury Schweppes.

Coca-Cola's Profit and Market Share Position

The financial results for the company performance will be presented in the table that will provide benchmark comparison with the appropriate financial data from the main Coca-Cola competitors as PepsiCo, Inc. (PEP) and Cadbury Schweppes (CSG):

KO CSG PEP

Market Share

Market Cap: 106.90B 21.28B 94.26B

Employees:

50,000 58,442 153,000

Share Price Estimated Gain

Current $44.40 $56.29 $41.08

FY End $47.44 $58.27 $44.16

% Change 6.85% 3.53% 7.49%

Next Fiscal Yr $51.76 $64.35 $47.64

% Change 16.57% 14.32% 15.97%

Sales and Income

Sales Growth: 4.40% 12.50% 8.50%

Total Sales: 22.15B 12.36B 29.72B

Income Growth: -11.10% 10.50% 13.40%

Total Income: 4.72B 1.27B 4.26B

Share Price Cost per Earnings and Strength

PE Ratio: 22.77 23.62 22.62

Net Profit Margin 21.30% 14.50% 9.80%

Debt/Equity Ratio 0.07 0.17 1.25

The head-to-head comparison clearly highlights that, having the biggest market share in the soft drinks industry, Coca-Cola is closely followed by its competitors. In 2000, Coca-Cola had a market cap of 111.10B and total sales of 20.5B, and Pepsi, respectively, market cap of 64.0B and total sales of 20.4B (Richey, 2001). Today, five years later, Pepsi almost got even with Coca-Cola from the Market Cap point of view, and left it behind from the total sales point of view.

Coca-Cola's Resources, Capabilities, and Core Competencies

The currently dominant view of business strategy - resource-based theory or resource-based view (RBV) of firms - is grounded on the view of the company as a collection of capabilities. This view of strategy has a coherence and integrative role that places it well ahead of other mechanisms of strategic decision making. Traditional strategy models such as Michael Porter's five forces model focus on the company's external competitive environment. Most of them do not attempt to look inside the company. In contrast, the resource-based perspective highlights the need for a fit between the external market context in which a company operates and its internal capabilities. The resource-based view supports the perspective that a firm's internal environment, in terms of its resources and capabilities, is more critical to the determination of strategic action than is the external environment (Kotelnikov).

Each organization is a collection of unique resources and capabilities that provides the basis for its strategy and the primary source of its returns. In the 21st-century hyper-competitive landscape, a firm is a collection of evolving capabilities that is managed dynamically in pursuit of above-average returns. Thus, differences in firm's performances across time are driven primarily by their unique resources and capabilities rather than by an industry's structural characteristics.

Resources are inputs into a firm's production process, such