Coca-Coca Swot Analysis

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Figure 1 – Non-alcoholic beverage industry market share (Dudovskiy, 2015)

2.3 Brand Value

The Coca-Cola Company is one of the most broadly recognized brands worldwide. Its signature logo, characteristic white and red colours resonate with consumers of all ages. With regards to competition, although both Coca Cola and Pepsi constantly fiercely compete for increased market share, Coca-Cola has the edge. The beverage producer also enjoys customers’ loyalty since fans of its products tend not to shift toward other brands. Coca Cola’s solid financial position with a net income of $7.1 billion in 2014 (Annual Report, 2014), provides opportunities to foster competitive advantage via innovation and new product development, which should increase market-share gains over the long run.

2.4 Advertising and marketing capabilities

One of the main tools that Coca Cola can use more effectively than most of its rivals is its advertising and marketing capability. The Coca-Cola Company’s annual advertising spending was US$3.976 billion in 2015 (Annual Report, 2015). In 2015, The Coca-Cola Company was the largest advertiser in the beverage industry in the world a fact that can help it introduce new products to the market, promote the brand, communicate brand’s message to the public as well as increasing sales. The end result is attracting more customers and thus increasing market share.

3. Weaknesses

3.1 Lawsuits

Coca-Cola Co. has been confronting several lawsuits since the early 2000’s. The most recent case was the 2009 vitamin water lawsuit whereby, the Center for Science in the Public Interest, a non-profit watchdog and consumer assistance group that advocates for safer foods, dropped a lawsuit against The Coca-Cola company because it has mislabeled the Vitamin Water (Canadean, 2016) product by not showing that the product contained sweeteners and extra calories harmful for society. This case was solved 6 years later, in September 2015, when Coca-Cola Co. accepted to label the necessary information but at the same time, had to pay the penalties and fees and add a $2.9 million to its operating cost, which would increase the firm’s total cost. Other cases include labor and human rights discrimination and anti-competitive and consumer protection.

3.2 High Debts

High Debts are a major concern for the company. In fact, at the end of the year 2015 total debt summed up to $36,807 million much greater than the end of the year 2014 which was worth $32,787 (Canadean, 2016). This 10.9% increase in debt is enormous and very problematic for Coca-Cola co. because a high increase in debt will lead to additional costs and expenses, thus, resulting in a higher degree level of volatility in future earnings and revenues for the firm. Furthermore, another matter of interest would be the interest payable rate on any type of borrowing that Coca-Cola made via bonds, loans and convertible debts or even line of credit. As figures show, during the fiscal year 2014, the interest expenses of the company were about $483 million, whereas in the fiscal year 2015, these interest expenses increased of 77.22% reaching $856 million (Nasdaq, 2016). Moreover, data showing the net debt compared to the gearing ratio, indicate a positive relationship, which means that this establishment is having financial structure difficulties, in other words, the greater the level of gearing ratio (total debt/total equity), the greater the level of leverage, thus, it has a risky cash flow due to high volatility in leverage. These high debts may force the firm to minimize costs, thus, reducing the number of employees, which will lead to the reduction of production, in turn causing a decrease in fulfilling consumer or businesses wants and needs, and, causing a decrease on net profit. With a low turnover, Coca-Cola Co. would have difficulties in generating enough cash flows required to repay these high debts that will cumulate in the future. This issue needs to be solved fast, because in the end, high debts may affect the firm to pursue growth and expansion in the years coming, especially when competition is growing very fast.

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Figure 2 – Net debt vs gearing ratio (Canadean, 2016)

3.3 A decline in Financial Performance

“The world’s largest soft-drink company Coca-Cola Co., posted second-quarter sales that missed analysts’ estimates as falling revenue abroad outweighed modest gains in the U.S” (Bloomberg, 2016). This important fact summarizes the decline in financial performance. Numbers say it all, revenue declined by geographical analysis:

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Figure 3 – Coca Cola regional performance graph (Bloomberg, 2016)

As seen in figure 3, North America is the only part that gained around 2% of sales. This decline in sales are due because of divestitures and acquisitions, unstable price and product mix but also due to a high geographic mix, foreign currency volatility add up to this list of obstacles. 9.9% is the number that Coca-Cola Co. may keep in mind because it represents the declining growth rate between the fiscal years 2014 and 2015, whereby the company’s operating income dropped respectively from $9,676 million to $8,728 million (Nasdaq, 2016). A fall in financial performance may affect heavily The Coca Cola Company because it may not be able to continue its expansion, growth and product innovation plans, not only in the soda industry but also all around the world.

4. Opportunities

In addition to the internal factors analysed and discussed earlier, there are external factors as well. In this section we will discuss the external opportunities that coca cola has. The main opportunities for Coca-Cola Company can be classified into three categories: new markets in developing countries, product diversification and cost reduction from supply chain.

4.1 New markets in developing countries

Although Coca-Cola Company controls nearly half of the soft drink market, there is still a large space for market expansion. In 2011, Coca-Cola and its partners opened new plants in China, Russia and Africa and had plans of further investment in the next 3 to 5 years (Canadean, 2013). This brings on the opportunity to meet the increasing demand of customers in developing countries.