Cola and Pepsi - Sample Essay
In the soft drink industry the new entrance of competitors is not a strong competitive pressure. Major players, Coca-Cola and Pepsi, dominate with their strong brand name and superior distribution channels (IBIS, 2011). Additionally, the soft-drink industry is mature and new growth is small (IBIS, 2011). This makes it difficult for new entrants to compete against established firms. Furthermore, high fixed cost for warehouses, trucks, labour and economies of scale represent other barriers to entry. New entrances are not able to compete on price without economies of scale (IBIS, 2011).
These requirements and market saturation make it difficult for other companies to enter the soft drink industry. Threats of Substitutes – Very Strong Substitutes for coca- cola products are energy drinks, bottled water, coffee, and tea (IBIS, 2011). There is an increasing demand for healthier beverages. This trend can be related to a shift in consumption patterns of the generation X (baby boomers). The growing number of water, sport drinks and energy drinks come in different tastes and are generally perceived as healthier than soft drinks (IBIS, 2011). Coffee and tea represent competitive replacements because they provide caffeine as well.
Thus, soft drinks can be substituted with coffee and tea. Evidence for this can be seen in the increasing number of coffee and tea franchises such as Gloria Jeans, Starbucks, Easy Way, Chatime, etc. These stores appeal to a wide number of customers through different flavour options and low switching cost (Datamonitor, 2011). Threats of Suppliers –Medium Coca –Colas suppliers (see Coca-Cola value cycle appendix) are manufacturers, secondary packaging suppliers and Ingredient suppliers. Previously, the Company outsourced a substantial part of bottling activities and worked with a large number of independent bottling partners.
“In February 2010, rival the Coca-Cola Company purchased its own bottlers to cut costs and increase distribution flexibility” (IBIS, 2011). The Company took over the North American bottling operations of Coca-Cola Enterprises (the largest bottler in the world), which distributed 100% of Coke products in Canada and 75% in the United States (The Coca-Cola Company, 2011). Acquisitions by Coca-Cola along the supply chain have also led to dominance over the market and distribution channels which makes there bargaining power less to non-existent (IBIS, 2011).
Nevertheless, conflicts with remaining independent bottlers and suppliers can be major threat to the company. Purchases of raw materials and packaging (sweeteners, glass and plastic bottles and cans) are the largest cost item for this industry (IBIS, 2011). The number of suppliers is not short and the raw material they are providing is generally the same. That makes it easy for a company to switch suppliers. Hence, the bargaining power of both, suppliers and manufacturers is less. However, changes in sugar and packaging prices affect the profitability of Coca-Cola’s products.
Bargaining power of Buyers –High Coca-Colas customers are amongst others supermarkets, convenience stores and restaurants. The bottling partners distribute the beverages to these stores which than sell the product to the consumer. The relationship between Coca-Cola bottling partners and the customers, enable the company to conduct business with the consumers. Hence, the bargaining power of buyers is very evident and strong. The growing market power of large groceries and discount stores (e. g. Costco, Wal-Mart) allows them to buy large volumes for low prices.
Furthermore, these supermarkets have their own ‘private brand’ which could potentially capture profits that go otherwise to the manufacturer (IBIS, 2011). Another problem the company is facing is that supermarkets are able to determine the amount of shelf space devoted to particular products (IBIS, 2011). The bargaining power of restaurants is less because they do not order in large volume. The shift in consumer preferences could start increasing customer power. However, consumers (generation X), may have become more health consciousness (e. g.
tea, coffee, low calories, zero sugar) but the overall consumption of soft drinks has gained from the frantic pace of life, of generation Y. People are increasingly time poor hence, energy and sport drinks are becoming an important source of substance. Furthermore, changing lifestyles have resulted in the increasing consumption of convenient snacks and take-away meals which results in high soft drink consumption and low bargaining power of customers. Coca – Cola has already adapted this consumer behaviour to gain further growth. Competitive rivalry – High
The competitive pressure Coca-Cola is facing from its rival sellers is by far the greatest competition in the industry. Coca-Cola, PepsiCo, and Cadbury Schweppes major players in the industry and globally present (IBIS, 2011). Coca-Cola owns four of the top five soft drink brands: Coca-Cola, Diet-Coce, Fanta and Sprite. Costello writes that “when it comes to the soft drink wars, it is still very much a country divided between two familiar colours: Red and blue” (Costello, 2009). “In the U. S. , it’s a closer race between Coke and Pepsi,” said Bonnie Herzog, an industry analyst with Smith Barney. “When you look outside the U.
S. , I think Coke has the lead. ” In 2011 Interbrand published the ranking of the top 100 brands for 2011. Coca-Cola ranked 1st and Pepsi ranked 22nd. 3. 3 Coca-Colas current strategy Johnson and Scholes (1998, p. 47) describing ‘Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations. ’ Coca-Colas strategic objective is to drive sustainable growth by meeting short-term commitments while investing to meet long term goals.
To achieve long-term growth the company has a clear vision and goals. “We are building on our fundamental strengths in marketing and innovation, driving increased efficiency and effectiveness in interactions with our system and generating new energy through core brands that focus on health and wellness” (The Coca-Cola Company, 2011). (See appendix 1 for the Coca-Cola System) 3. 4 Coca Cola value chain Coca-Cola is a multinational company which focuses on broad product lines with many flavoured drinks (Porter 2004, p. 16).
The company produces the concentrate and beverage bases for the drinks, develops marketing and advertising. Both, Coca-Cola system and the Coca-Cola value cycle which can be found in the appendixes 1 and 2, visualize the strong relationship between the company and its suppliers, bottling partners and customers. The analysis of Coca Cola value chain shows that the company concentrates more on the primary than on seconrady activities. Among those primary activities there are three parts of value chain which are directly responsible for competitive advantages of Coca Cola. These activities are:
Inbound Logistics Coca Cola continuously develops its quality management methods. The company puts a special attention to the qulity of raw materials and secelt its suppliers according to strict quality rewuirements (Coca Cola, 2011). Outbound Logistics The distribution system that Coca Cola has can be considered strong competitive advantages. Coca Cola operates in over 800 plants worldwide and its beverage products reach consumers in more than 200 different geographic locations (Coca Cola, 2011). However, Coca Cola is only responsible for producing the syrup that is going to be used in the end product.
The activities of finishing the syrup into the final product are a responsibility of the bottlers. The fact that Coca Cola outsource some of the operations is an important advantage in its distribution, since it creates more lighter and flexibler company. Marketing and Sales This sector is so important for the company that Coca Cola invests about 14% of its profits in communications. The Coca Cola also continuously try to build a deep relationship with the consumers. Althouht there are only two other competitors, Coca Cola strongly focus on creation of creative marketing campains. 5. 0 Chosen aspects of management
This section analyses four management areas which influence organisational responsiveness to market factors and opportunities for innovation. 5. 1 Quality Management Coca Cola ensures the quality of its product through The Coca Cola Quality System (TCCQS). This system is an integrated approach to managing quality, environment, health and safety. According to Coca Cola, the TCCQS should help the company coordinate and guide activities which ensure the quality in everything Coca Cola does (Coca Cola 2011). TCCQS is a quality management concept heavily driven by the total quality management (TQM) approach.
TQM is a management philosophy and strategy designed to involve all members of an organisation in the process and responsibility for product/service quality (Andersson 2006, p. 282). 5. 1. 1 Current and future opportunities in quality management TCCQ continuously keeps pace with the new regulations and quality management methods (Coca Cola 2011). With the last version of TCCQ (Evolution 3) Coca Cola has tried to develop and implement methods which increase the quality of the product as well the quality of business practice within the organisation. Coca Cola identified the quality issues and then created the quality framework.
Coca Cola also has adopted the process approach when developing, implementing and improving the effectiveness of the quality management system. This approach offers ongoing control of individual processes as well as their combination and interaction (see Figur 2). As a result, the company wants to be able to meet customer and consumer requirements and increase their satisfaction. With the TQCC Coca Cola recognised the following opportunities which are important to strengthen its market position: Everyone who works for Coca Cola is empowered and expected to maintain the highest standards of quality product, process and relationship.
The company launched its ongoing quality effort with a massive top-down training effort, in which all workers learned about the tools of continuous quality improvement (Caudron 1993, p. 48). Coca Cola guarantees that all food safety and environmental standards and requirements are fulfilled. According to SGS-ICS (Societe Generale de Surveillance – International Certification Serices) and LRQA (Lloyd’s Register Quality Assurance) with the TQCC Coca Cola meets the requirements of ISO 9001 (quality standards), ISO 14001 (environmental standards) and OHSAS 18001 (health and safety standards).
In addition, in January 2004 the company established exclusive TCCQS certification. This means that since that time the company only has to audit itself against the TCCQ Evolution 3. Certification to TCCQ enables Coca Cola to attain a host of external certification like ISO 9001 or ISO 14001. Coca Cola can also save audit costs, minimise the operational disruptions and realise myriad benefits (Coca Cola 2011). Coca Cola has established a high quality and safety standards throughout the whole supply chain in order to ensure effective consistency of materials and products.
Coca Cola defines criteria and procedures for selection and authorisation of suppliers based on their ability to supply materials and products according to Coca Cola requirements. Coca Cola performs precise analyses of fruit juices and other ingredients from suppliers to ensure the product quality. Also production processes undergo constant scrutiny to safeguard the quality of water used in the products and the packaging that carries them to the consumers (Dinesh 2007, p. 25).
Each organisational unit also needs to implement a documentation procedure to ensure that material, product and services effectively conform to all Coca Cola requirements. A part of TCCQ contributes to alleviating some social problems in countries the company operates. One of the company’s quality statements is ‘Coca Cola is a responsible citizen of the world’. Coca-Cola India, for example, received a Golden Peacock Global Award for Corporate Social Responsibility for replenishing ground water and setting a target to reach a ‘net zero’ balance with respect to groundwater usage in 2009 (Coca Cola 2011).
5. 1. 2 Current and future threats in quality management One of Coca Cola’s quality threats can be its wide network of Coca Cola bottlers. The Coca Cola Company distributes syrups and concentrates which are the basis for creating its product. The manufacturers produce the product from these bases. Such a widespread network of producers requires a massive control. The case of the Nigerian Bottling Company in December 2007 shows that not all producers always complay with the good manufacturing practices established by Coca Cola (Srivastava 2007).
In that case some major deficits, which had already been criticized in prior visits, still existed. The case of the Belgian Coca Cola crisis shows that even higher developed countries can be affected by major quality issues. ‘‘Off-quality’’ carbon dioxide affected the taste and odor of some bottled drinks. Several people got ill and Coca Cola had to temporarily shut down their plants (Johnson 1999, p. 18). Any quality problems within the supply chain may also in the future be a threat to Coca Cola’s quality, since the company wants to expand in countries where there is lower quality awareness.