Coca Cola Amatil (CCA) shares seems like a good procurement with the organization announcing its intent in returning to the sustainable growth at mid-single digit point in the coming few years. It has been injecting funds into various markets on the solid grounds for the next few years. However, there are three key challenges that the investors need to focus on:
a. Competition from PepsiCo:
Pepsi is being disseminated within Australia by Schweppes that is being owned by Asahi, with its operations of local bottling existing in India, providing PepsiCo with a sturdy cost improvement. This, that is being pooled with insistent strategies of sales along with the premium pricing of Coca Cola are key in Pepsi’s products being perpetually cheaper than the comparable CCA beverages (Kim and Mauborgne 2016). The bottling operations in Sydney do not have the ability in competing on the factor of cost, but there is existence of motive to hope that CCA has overseas bottling operations that could be stepped up in improving the competitiveness issue. This would be resulting in idleness with Australia, which is stated to be an issue of the Public Relations (PR) and might not be politically feasible, predominantly after the Victorian government and the consumers stepping up to put away SPC Ardmona at the closing stages of 2013.
b. Change in beverage preferences of consumers:
Consumers have been changing more towards being health-conscious that is affecting the beverage sector, with Coca Cola making a note of its growth in segments of juice, water and energy, that is being followed by low sugar soft drinks. Pepsi and Coca Cola have been responding to the preferences through augmenting of their assortment of the beverages in the non-cola segment along with issuing with the new products like Coke Life (Wilkinson 2016). CCA has also inaugurated the sales of ‘Barista Bros’ having range of iced tea and pre-mixed coffee which has not seen success till date. CCA has been selling soft drinks to a hastily growing number of consumers who are not much health conscious, something that is done perfectly by CCA.
Figure 1. Porter’s Five Forces
Source: (Aithal and Kumar 2015)
The force for the conventional competitors would be high if there is existence of huge competitors within the same service or product. For instance, CCA and Pepsi have been two companies that have been selling similar products having same structures of price. It is hard to compete against the market of Pepsi and CCA as holding shares like them in market is difficult. But other organizations would be able to manufacture similar sort of products like the CCA.
CCA has been establishing itself for years and has been recognized around the world. A new entrant would find it costly in entering into the industry along with requirement for right experience fir succeeding in the market. In this industry barrier to entry is generally high, the reason being there is cost involved in buying into this industry (Aithal and Kumar 2015). CCA has been having higher brand recognition, which is not possible in case of new entrants.
There is existence of various substitute products that has the capability of posing a threat to CCA. Consumers might be purchasing juice, tea and coffee that has minimal difference in price to consumers.
The bargaining power of suppliers is generally higher when there are small suppliers to decide from. This facilitates the supplier in demanding a price that the buyer has to pay as there may be no additional option for the buyer to choose from.
Buyers have huge power while buying of services and goods. Coke has been manufactured by CCA, with consumers having the ability to decide between products by Pepsi and CCA. This is obtaining a cheaper price (Král and Králová 2016). Customers have been haggling with their suppliers through providing cash, or threatening in changing suppliers in attaining a price that is cheaper.
Coca Cola has limited opportunities in its business. It boasts of many successful brands which it should persist to develop and practice. It also has enough opportunity in advertising its less accepted products. With large income backing the company, it has available money in putting some of the new and other beverages in the market. This could be advantageous to the organization if they start advertising these other products to the same degree that they have been doing with their key products (Kim and Mauborgne 2016). Another opportunity that lies with Coca Cola is buying out of the competition. This is a rare opportunity that is being presented to Coca Cola. Coca Cola, over the years have bought out innumerable brands of drinks to minimize the competition. An easy process of turning other’s profit into Coca Cola’s own profit would be in buying out of the company. In the initial stages, this might incur a lot of money, but in the long run it would result in huge profit. Coca Cola has opportunity of continuing to broaden the gap between them and their competitors.
Coca Cola, though considered a market leader, it still has to deal with threats. Coca Cola and Pepsi deals with around 40 per cent of the overall beverage market, the approach of altering this health conscious mindset of the market might have s serious effect on Coca Cola (Arnold 2015). In the present scenario, people are continuously changing the taste and preferences of their eating and drinking behavior. This could have a negative effect on the sale of Coca Cola. Another possible issue might be the legal side of the things associated with it. Companies like Coca Cola Amatil having supreme wealth and popularity finds themselves in such situations. Coca Cola needs to careful with the lawsuits. Moreover, Coca Cola needs to be sure of the fact that Pepsi does not edge past them and grow successfully.
Porter’s Five Forces are generally been used in determining the intensity of competitiveness and the magnetism in the market. It helps in looking at the ‘balance of power’ existing in a market between the various types of the organizations. Porter’s Five Forces also helps in evaluating the probable profitability factor of the industry sector. For SWOT analysis it would be broader, covering the various domains. However, it is the Porter’s model that serves as the best tool in the planning of any project. For a SBU, it would be SWOT that is more useful in analyzing the threats and opportunities of the company for a precise product for tweaking its significance in the market, for improving the value in the minds of the customer.
Internal environmental analysis is being considered as the process of investigating the strengths and weakness of the organization. An organization’s potential, operations and the interior competencies are being recognized and analyzed in the internal analysis. In this report, Mckinsey’s 7-S framework and Porter’s value chain analysis are being used.
McKinsey &-S framework:
For assessing the internal factors of the organization, McKinsey 7-S framework is being used.
Strategy: Coca Cola’s strategies are mainly segregated into five which can be functional strategy, R&C strategy, business strategy, corporate strategy and operational strategy. These are the strategies that makes possible the production competence, building portfolio and amending packages (Wilkinson 2016).
Structure: Coca Cola owns a structure of regional nature. The key decisions are generally being made by the ExCo setting the 6Ps. The structure is mostly improved for satisfying the requirements of the customer. Both the factors of localization and centralization is been planned by the company.
System: Coca Cola have been processing directional, systems processes and the management systems in monitoring the several operations of the organization. Directional systems checks on the 6Ps, assisting in acquiring the 6Ps and the systems of management for focusing in getting of the feedbacks and the incentives and the rewards for performing in better way (Letaifa 2015).
Staff: Coca Cola has always been concerned with the maintenance and policies of influence against the sector. The company has been offering better enhancement of career for the development of the staff and the performance of the monitoring systems for efficiently slowing down the rate of sales at the rate of 19.1 per cent. For engaging the employees and moving forward with the process of innovation, the practices of EIP have been incorporated into the systems of business, offering the required recognition. Furthermore, the rewards and the appraisal systems at Coca Cola have been motivating the staffs for developing along with the organization.
Style: The style of the company encompasses of its culture- future leaning and driven, focusing on the strategies of the own-business. Coca Cola have been following the slogan of ‘One Organization, One Passion and One Team’. Being one organization, the company has been offering the improved facilities in learning to the employees and being the one team it would be indulging in the connections built in its success (Naipinit et al. 2014). The vision of ‘one-passion’ of the company contains the factor of sustainability and helping the society in conserving and protecting the environment.
Shared Value: Coca Cola has shown a continuous commitment towards constructing a sustainable society, focusing on the initiatives that restricts the footprints of the environment, healthy living, developing a secured atmosphere for working for the staffs and developing the society’s economic condition. The key Coca Cola Amatil Corporate Social Responsibility (CSR) practices takes into account the recycling of bottle, packaging in sustainable fashion and relationships with the retailers along with innovative sharing (Yunna and Yisheng 2014).
Figure 2. 7S Framework
Source: (Yunna and Yisheng 2014)
Value chain can be stated as the activity of the organization performed out in attaining the value for customers and their satisfaction. The analysis of the value chain would be evaluating the organizational profit and cost along with the value of the shareholder and the competitive advantage. For this Porter executed a value chain where the activities would be decided into the prime activities and the supporting activities.
Inbound Logistics:
Coca Cola’s main suppliers are mainly Prudential, IBM, and Mather. The machinery materials, components and the packages are offered by the above mentioned companies to Coca Cola. Coca Cola have been maintaining a strict guideline that should be pursued by the suppliers and they are being constituted of benefits and wages, abusing of labor, regulations and laws, health and safety (Porter and Heppelmann 2014). Coca Cola have taken efficient measures related to the subject with admiration to the supplier steering principles and terminating the contract of suppliers if appropriate events are not been taken.
Operations:
The major core operations of Coca Cola include the manufacture of syrup along with the company-owned contemplate. The key influence that Coca Cola Amatil has been making on this environment through the value chain is by factors like sales, marketing, operations in bottling and distribution (Sinclair and Keller 2014). The company has been functioning efficiently with its partners for decreasing the penalty at each level of manufacturing through focusing on the overall life cycle of the product from the procurement of the component, creation, trades, deliverance and post-consumer recycle.
Outbound Logistics (Customers):
Coca Cola has been possessing the biggest network of distribution in the world. The organization’s finished products have been reaching the customers through different steps like the warehousing, through fulfillment of orders and distributing network (Riccò and Guerci 2014). Coca Cola is an international company that boasts of around 2400 varieties of products around 200 geographical areas with the company possessing over 800 plants. Most of the distribution networks are the fast food restaurants like the Mc Donald, other retailing machines and grocery stores.
For the process of effective leadership, there can be no alternative for strategic thinking, unyielding and implementation. No alternatives are enough for drawing and retaining the best talents in leading and creating a active environment for them. Along with it no job can be more imperative than active communication with the customers and the other important stakeholders. Coca Cola has been achieving these objectives through formulation of precise and convincing vision, getting their system associated behind it, performing and regularly communication intent (Sinclair and Keller 2014).
Coca Cola has been successful in boasting of a management team that has been motivating its employees for meeting the required objectives that is been based on the management style that have been adopted by them. The North London branches of Coca Cola Amatil have been ethos on the ‘laissez-faire’ style connotation of the ‘hands off’ approach. If the workers have been fulfilling their ‘Key Business Indicators’, then the directors and the managers of the organization might take this as the relaxed style for directing their business. They have this vision of ‘refreshing everyone everyday’ along with the values of taking pride in the work they do, being honest, strong-minded to win, having passion for action. Coca Cola boasts of a genial culture or else there would be a rift between the workers and the managers and the whole system would get jeopardized.
Blue Ocean Strategy has been a established system for breaking out of the string competition and generating fresh unconcealed spaces in the market for attaining of the profitable growth factor. The strategies of the blue ocean have been assisting the companies in understanding, formulating, and executing the strategy of Blue Ocean for negating the factor of competition or making it a irrelevant factor (Aithal and Kumar 2015). Moreover, the Blue Ocean strategy has been a source of inspiration for the company in clarifying their thinking about the things they want to be and the plans for getting there. The Blue Ocean has this calmness about itself, with existence of little or no competition at all, smoothness in everything the company does or thinks of doing. Porter’s Five Forces and the Blue Ocean Strategy acquiring similar sort of ideas with the things that have been mentioned. Five Forces recommend that staying within the competition with the other organizations at the same point of time for similar line of products is better than generating of the ideas as compared to the other challenging business. Coca Cola is considered to be a well-known brand on a global basis. Coca Cola’s nearest competitor Pepsi has been in fierce competition over the period of time. Both the companies have the same product line and offer same sort of services in competing with each other, they have been offering plastic bottles to the consumers for denigrating of the other consumers (Agnihotri 2016). Both the companies have created a demand for their product in the market and have then gone for fighting each other head to head.
Companies that understand the fact that they are not doing business for just selling certain services or goods, but are rather in the business of distributing lifestyle enrichment to the customers are mainly the ones that flourish. Blue Ocean Strategy helps in instilling this perception, and once a root is being taken, a company like Coca Cola can persist on staying highly relevant to the customers, driving changes in the lifestyle and regularly creating blue oceans. The question arises on what can a company of Coca Cola’s stature do that sells around 18,000 servings per hour, though there is no change in their product. The VP of Coca Cola’s global design, David Butler states that their aim is in creating of value for the business through the process of design. Following on some of the strategies of Blue Ocean- like his own insights, Butler has immensely helped in showing that the core business of Coke is not limited to being a manufacturer and distributor for 123 years in beverage, rather upgrading itself as a business that believes in design.
Butler’s idea was to present his colleagues the fact that even though they did not recognize as such, Coca Cola has been one of the world’s largest companies of design. A more detailed focus on the designing part would lead to selling of more stuffs of the company. The term ‘design’ does not hold any significant meaning to the company’s top echelons, though winning at the sale point is essential. His main idea was to depict on the ways of creating value for business through the process of design. Creating value is the most significant part of an organization.
Coca Cola along with Pepsi have been making an effort for being better in serving of the products that are known for being obtainable to both the companies like the Sakto Cola. Coca Cola have been over the years been strategizing their plans for being more successful than its rivals. Coca Cola was the first company in the non-alcoholic beverage section in introducing the primary idea for developing or improving each product group (Crane et al. 2014). Both Coca Cola and Pepsi have been sharing the same passion in developing their product category for bettering their business.
The heart of applying the Blue Ocean strategy is evaluating the relationship of the organization to its industry and customers. Firms have been offering enough value for growth and competition. Offering the correct value to the proper customers in such ways that the competitors cannot replace is one important factor to success. Few would ever dispute over the fact that Coca Cola Amatil has been able to create an uncontested market liberty with the brand still being dominant. The firm has always been a strong believer on the advertising factor. Over the years the company has been promoting its products incessantly and their leader’s flair for commodities has augmented sales of the Coca Cola syrup (Ling 2017). It was considered that the unprecedented value of the brand was not because of its brand building or creation of the demand but the marketer.
Coca Cola have also been focusing on the bigger picture through their advertising campaigns. Coca Cola was previously known for making their advertisings long-term storytelling, beginning to incline their advertising in a pathos-heavy trend. Their slogan, ‘Open Happiness’ arrayed from commercials about the relations of India and Pakistan and the massive campaign containing Superbowl cyberbullying. With the entry of the ‘Taste the Feeling’ campaign, Coca Cola took its advertising to a different new level. This ‘Taste the Feeling’ ad campaign focused on the fact of putting Coca Cola products at the centre stage of every ad for winning over more drinkers within the industry of struggling soda.
Coca Cola has also been following the differentiation strategy where the company tries in positioning the products in a certain manner that it stands out being different from same category products. Coca Cola has been using the strategy of differentiation in making its product stand out from the crowd of other non-alcoholic beverages existing in the market. it has been spending around 20 per cent of the budget on factors like advertising for maintaining the differentiation strategy. The company has been using an unique blend of its marketing strategy and advertisement assisting it to be a market leader among the other existing soft drink organizations in the market. Another strategy of differentiation that is being used by the organization is using of the Coca Cola Freestyle machine for the customers to match and insert various flavors to the beverage manufactured by the company.
In case of the cost leadership strategy, the company has been trying to position its product much cheaper than its competitors and for this fact the company has been trying in minimizing the production cost (Malhotra and Seth 2014). For making this happen, the company would be managing its cost in the most efficient of manner. Coca Cola has been administering its operating expenses, managing the cash flow within the organization. It would be focusing on that area that seems profitable. A large scale production makes sure that the operating cost remains low, where the customers can also benefit. One of the most important factors of Coca Cola is that it does not change much as soon as it gains reputation. The factor of static price has helped the organization in being a cost leadership (Rothaermel 2015).
In the red ocean strategy, organizations do try to outperform their competitors for grabbing a larger share of the product or the demanded service. As the space in the market gets crowded, probability for profits and growth are generally been reduced. Product becomes niche and the existence of cutthroat competition turns the color of the ocean into bloody red, hence the term, “red oean”. Red Ocean implies where every industry is now. There is the existence of a defined market; certain defined competitors and a distinctive way of running a business within a specific industry. One industry in which the strategy of Red Ocean would be highly applicable would be the soft drink industry. This industry has long been in existence for a longer period of time, with existence of high barriers to entry. The presence of industry leaders like Pepsi and Coke along with the smaller organizations are also in the competition for smaller market share. The limited space in the shelf along with the spots in vending, well-established appreciation of popular brands, existing brands and many other facts affects the new competition (Mehrotra 2016). This is the reason for which the soft drinks industry is stated to be very competitive for other new companies to enter and succeed.
The growth of the soft drinks would be facing certain challenging times over the next few years, with growth being forecasted that is anticipated to be lower. Unit prices would be continuing to decline, determined by unswerving promotion of prices by the retailers and the manufacturers focusing on fuel growth in the segment (McLay 2014). Adding to that is the fact that the purchases of the consumers would be continuing to be impacted by the encouragement along with the value of money offered by the products that are privately labeled.
The retail environment that is weak in nature along with the changing trends of the consumers have been distinguishing the soft drinking manufacturing industry over the past five years, restricting the substantial growth of revenue. Despite all these threats, the increasing popularity of the energy drinks along with the increased focus on the diet ranges have been supporting the growth of the industry. The revenue of the industry is estimating in increasing at an annualized 2.4 per cent in the period of 2015-16. This takes into account the predictable growth of 2.2 per cent in reaching at a figure of $ 4.4 billion.
The soft drinks industry depicts a medium intensity capital level. For every dollar that is being paid as wages, an estimated of around $.30 is being spent on the capital investment. The capital intensity level reflects on the amount of the machinery along with the required automation within the industry (Arnold 2015). Manual labor has always been significant to the operations of the industry where machinery is been required in all the processes from the manufacturing to the distribution, with increased amount of automation. As a result of this the capital intensity level within the industry has been rising over the period of past five years with the trend anticipated to cultivate as major players have continued with investment in the technologies related to greener bottling.
Coca Cola have tried moving into the blue ocean strategy with its energy drink segment like Diet Coke and Coke Zero, where it has been able to capture the market because of its brand name. It zero added sugar content products have been able to built a loyal following among the younger adult section and party goers despite being tasting a bit different than its normal non-alcoholic beverages. Its long time competitor Pepsi and Red Bull have also tried in providing a tough competition to Coke, though the company has been able to create a space for its own in this segment with product differentiation and brand value.
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