Critical Perspectives On The Global Growth Of Food

Analysis of the Soft Drink Industry

Coca-Cola Company was crowned in 1886 by John S. Pemberton in Atlanta Georgia.  Since then, this company has grown to be the leading soft drink company in the world, with a variety of brands some of which include, Dasani, Minute Maid, Sprite, Fanta, Ciel, Powerade, Fresca and Coca-Cola among other brands (Coca-Cola. 2018). The success of this company in the competitive soft drinks industry can be linked to its proper competitive strategies and adequate value chain.

No firm operates in isolation. Companies interact with their external world, most commonly their clientele. Coca-Cola Company operates in the soft drinks industry. This industry serves as an essential part of the company’s external environment (Williams & Nestle, 2017, p. 62). Within this environment, periodic events and trends occur that may impact negatively or positively on the company’s prospects and actions. Changes in the external ecosystem relate to technological improvements, market, and economic changes, political advancements, social and cultural values, legal and environmental factors.

Enterprises including those in the soft drinks industry must be alert to the macro environmental influences whose possible consequences may fall into three primary groups- opportunity generation, cost and threat generation and resource access and provision (Njambi, Lewa & Katuse, 2016, p. 417). Technological developments in the soft drinks industry have made Coca-Cola Company more competitive resulting in many new opportunities for growth and expansion.  The development of social media technology has also enabled companies in the soft drinks industry to adequately market their products through Twitter, Facebook, and other social platforms.

In a society, the influence of some stakeholders may be either weak or powerful in the form of pressure groups. Companies must adhere to the interests of the society to operate profitably (Keupp, Palmié & Gassmann, 2012, p. 367). In the soft drinks industry, most companies distribute their products in their cultural states. For instance, companies like Coca-Cola prepare different alternative flavors to suit the preferences of different cultures. The interests of society may act as a threat or an opportunity to a firm or the whole industry. Therefore, companies must diversify their product portfolios to include different tastes and flavors that suit the preferences of different societies.

The external environments also act as a disposing place for waste materials and discarded products. Therefore governments oblige different companies to behave responsibly (Chen et al., 204, p. 897). Specifically, in the soft drinks industry, regulations relating to environmental conservation and sustainability pose restrictions to the nature of operations of different companies. The operations of companies in the soft drink company are also primarily influenced by environmental factors as companies have to adhere to environmental laws.  When a company does not respect the relevant laws, then it may pose a threat of legal proceedings against it.  

Strategic Implications

Political systems may change to the advantage or disadvantage of a firm. When it changes favorably, then it may be regarded as an opportunity (Wheelen et al., 2017, p 52). However negative political impacts can be treated as threats to a firm. These political impacts may range from changes in taxation laws to labor laws. Therefore, the companies in this industry are at the mercy of political regulations as they must meet them to remain in the market.

In an attempt to adjust to the varying ecosystems, companies in the soft drinks industry formulate different competitive strategies which range from diversification, focus, and differentiation to cost leadership and acquisitions. However, to better curb the threats forced by technological changes, economic variables, political differences and environmental pressures, companies should diversify their operations. For Coca-Cola Company, diversifying its product portfolio will enable it to tap new technologies in other industries, generate more funds by expanding its target markets and avoiding negative impacts from societal preferences by expanding its market presence in different societies and producing a variety of flavors.

In terms of the Porters five forces, new entrants pose a medium pressure on the soft drinks industry as there are relatively low barriers to entry of new players. There no costs associated with switching of brands. Furthermore, there is increased number of new brands that are getting into the market with similar or close prices. This acts as a threat to Coca-Cola Company. Therefore, if the company practices corporate diversification, it will be able to enter other industries such as snack production, meals and dines. There are also a variety of energy drinks and juice products that may act as substitutes in the industry. Therefore, threats of substitute products are quite high. The companies in this industry should, therefore, diversify their product portfolio to include products from other industries to remain competitive. The soft drinks mainly contain phosphoric acid, carbonated water, caffeine, and sweetener. The suppliers of these products are not differentiated or concentrated. This results in the low supplier bargaining power.

The buyer bargaining power largely depends on the brand loyalty of a firm (Porter, 2008, p. 25). Some companies in the soft drinks industry like Coca-Cola have developed strong brand loyalties among their customers. Therefore, this possesses a competitive advantage as the customers’ bargaining powers are weakened. Coca-Cola can treat this as an added advantage to use its brand loyalty to diversify its product portfolio and still win customer trust. Besides, there is a high rivalry and competition among different companies in the soft drinks industry. Therefore, there is the need for companies to expand their product portfolios by entering into new markets. For Coca-Cola Company it will enable it to gain access to new market segments.

Competitive Forces Analysis

Companies have a variety of strategic options to tackle the pressures posed by new entrants, buyers, competitors, and customers. These may include, mergers and acquisitions, differentiation, cost leadership, and diversification. However, strategies like cost leadership may be influenced by budget constraints. Furthermore, changing societal concerns impact largely on the consumers’ buying power. Therefore Coca-Cola should diversify their product portfolio and come up with other innovative products to remain competitive.

According to this model, a company’s resources should be valuable, inimitable, rare, effectively exploited by the organization, and also not substitutable (Pitt & Koufopoulos, 2012, p. 234). The resources and capabilities of Coca-Cola Company are valuable because they contribute to the satisfaction of the needs of its customers at prices that the customers are willing and ready to pay.  Also, Coca Cola’s resources and capabilities cannot be easily imitated. This is due to the cost asymmetries in the soft drinks market, meaning that the companies without the capabilities and resources find it expensive to obtain them as compared to the company which already holds them.

Coca Cola’s resources and capabilities are in limited supply, establishing a competitive advantage and moving beyond competitive parity. The rarity of the company’s resources and capabilities have existed for a long time hence enabling a sustained competitive advantage (Baah & Bohaker, 2015, p. 17). The company also has an organized structure which has been optimized to exploit the competitive potential of its key capabilities and resources. The table below shows the competitive implications of Coca Cola’s VRIOS model:

Each element can be ranked on a four-point scale A= outstanding generate of advantage and value (of genuine strategic significance), B= Valuable but not a critical source of advantage, C= Critical but of possibly declining importance, D= Unlikely to be sustainable (Already declining significance)
	V	R	I	O	S	COMMENTS
Strategic Assets
1 Brand Capital	Yes- the firm’s brand acts as its primary marketing tool	Yes – The Brand is solely for Coca-Cola	No firm can imitate Coca Cola’s brand	Very Organizational as Coca-Cola owns it	No substitute for the brand capital	A
2 Financial Capital	Yes-Vital for its operations	No- Other firms like Pepsi have a strong financial base	Yes- there is a variety of sources of finance	Yes Very organizational	Yes, There are other alternative sources of capital	B
3 Human Capital	Yes- Coca-cola has a pool of motivated staff	No- Other firms also have pools of employees	Yes- Other firms may acquire workers	Yes- Very Organizational	Yes- Other Organizations may use machines	C
4 Physical Capital	Yes- Inform of Machinery and Equipment	Yes- Unique to Coca-Cola	Yes- other firms may purchase	Organizational	Yes- A variety of equipment have same functions	D
Distinctive capability
1 Brand Loyalty	Yes- Preferred by Customers	Yes- Only for Coca-Cola	No- cannot be imitated	Yes- Organizational	No- No other Brand looks like Coca Cola’s.	A
2 Consumer Marketing Skills	Yes- Coca-Cola makes effective use of advertising	Yes- It makes unique decorations and adverts	No- It is difficult for competitors like Pepsi to exactly imitate the skill	Yes- Very Organizational	No- It has maintained its advertising skills for more than 120 years	A
3 Secret Formula	Yes-  Its unique and enables the company to maintain a competitive edge	Yes- The secret formula is rare and not possessed by other firms in the industry	No- Cannot be imitated as competitors do not know it	Yes- Organizational.	No- No other company knows it	B
4 Global Distribution Network	Yes- The Company utilizes this network to	Yes- forever internationally	Maybe the company can shut up other competitors through acquisitions	Yes- it is hard for other competitors like Pepsi to utilize another capability to replace it.	This can be substituted as other companies also operate globally	C
V (Value creation),  R (Rarity) I (Imitability), O (Organizational Appropriability), S= (Substitutability)

Coca Cola’s brand is well-established and cannot be imitated by other firms. This poses a great opportunity as the company can use its brand reputation to diversify its operations and extend into other markets such as snacks. However, since there is a high competition in the soft drinks industry, the company cannot favorably adopt and maintain a cost leadership strategy as it may dilute the company’s profits (Reeves & Deimler, 2011, p. 134). Furthermore, the company can utilize its large financial base, creative human capital, brand reputation and creative marketing skills to introduce a new product line through corporate diversification and promote it in the market.

The Best strategy for Coca-Cola Company is corporate diversification. Corporate diversification will enable the company to expand into other product lines and expand its market target. The company has already developed a unique brand, has adequate financial resources and motivated human resources. These are key resources that can be used by the company to diversify its product portfolio by introducing new product lines like snacks. Many organizations formulate strategies that are never implemented, due to strategic failure (Schulz & Hofer, 1999, p. 52). Strategic failure occurs when a strategy is not properly evaluated. Coca-Cola Company must, therefore, develop a way of finding out the feasibility of the strategy and whether the strategy will guide it towards the expected objectives.

Coca-Cola VRIOS Framework

As explained by Crittenden & Crittenden (2008, p. 305), through the process of strategic control and evaluation, the strategists in the company are expected to answer a setoff questions like, whether the managers are doing the right actions to support the strategy, whether the time schedules are being adhered to, whether there is a need to reformulate the strategy and whether the strategic resources are being utilized optimally. Strategic evaluation is a critical aspect of every organization as it serves as a control, feedback, rewards and review process.

Furthermore, it enables the managers to obtain strategic feedback. When evaluating the strategy, shareholders, chief executives, financial controllers, the board of directors, audit committees and middle-level managers among other personalities should be involved as key participants (Mantere, Schildt & Sillince, 2012, p. 174).  Strategic evaluation is a process that entails four processes- fixing of performance benchmark, performance measurement, variance analysis and strategic correction.  Coca-Cola Company should use a quantitative approach which includes determination of ROI, net profits, earning per share, employee turnover rate and cost of operation and production to set its strategic performance benchmark.

After setting the performance benchmarks, the company must measure the performance and compare it to the set standards. This will enable the organization to examine the deviations from the expected results. Ideally, the standard performance is treated as a benchmark with which the actual performance is to be ranked (Santos & Laczniak, 2015, p. 42). Therefore, the company must prepare appropriate financial statements like profit and loss accounts and balance sheets on an annual basis and compare them to the expected financial performance.

The third step is variance analysis. After introducing a new product line through diversification and setting a benchmark for performance. Coca-Cola Company should obtain the actual strategic performance and the standard performance, compare them and determine the deviations from the set performance this can be either negative or positive. The company should also indicate the degree or limits of tolerance between which the variance between the standard and the actual strategic performance may be allowed.

The final step is taking appropriate corrective action. Once the performance deviation is identified, it is critical to plan for a corrective measure (Lin et al., 2012, p. 1398). If the performance is continuously less than the expected the company should conduct a detailed evaluation of the factors that may be responsible for such weak performance.

Furthermore, the company can adopt various techniques to conduct a strategic evaluation.  These include benchmarking, SWOT analysis, Gap Analysis and PEST analysis (Killen et al., 2012, p. 526). In a diversification strategy, the most appropriate model of evaluation is PEST Analysis. Coca-Cola Company must conduct a thorough analysis of its external environment to identify the political, social, economic and technological factors that may influence its ability to achieve diversification successfully. For example, when introducing a new product line, the firm must be aware of the pending legislation regulating the production of such a product in a chosen country (Kozlenkova, Samaha & Palmatier, 2014, p. 20). Besides, economic factors relate to shifts in the economy, while social variables may entail changing attitudes and demographics. Also, it is important to note that technology keeps on improving every day; hence the company must evaluate the most technologically effective way of executing its production process and diversifying its product portfolio.

A company should formulate an accurate action plan to monitor the implementation of the strategies developed and ensured appropriate corrective action plans are installed (Wee, 2017, p. 36). A sample action plan for Coca-Cola Company’s diversification strategy has been provided in the Appendix section. The Action Plan should indicate the strategic action, the department responsible, required resources, stakeholders, any constraints, performance metric, date due the portion completed and the overall comments (Clancey, 2014, p. 343). This corrective plan’s primary aim is to provide a solution to a problem associated with the strategy being implemented.

When the strategy implemented is not profitable, the company can revise the strategy, change it or make some adjustments. As stated by Zamora (2016, p. 116), the company should also evaluate its processes to identify the right cause of strategic failure. Sometimes, this may be caused by poor control processes, inappropriate allocation of resources and poor strategic management.

Conclusion

In a nutshell, the strategic implementation process should properly be evaluated and monitored to examine whether it is enabling the firm to achieve the desired goals. Coca-Cola Company should diversify its product portfolio by introducing a new product line to be more competitive in the market as the soft drinks industry is highly competitive with many players. The company has unique capabilities and resources. These include financial resources, human capital, management and organizational capital which it can use to diversify its product portfolio. However, in conducting corporate diversification as a strategy, the firm must properly evaluate and control its strategy. The evaluation process begins immediately after the strategy implementation and will enable the firm to monitor the performance of the strategy against a specified benchmark and then perform variance analysis and administer the appropriate corrective plan.

References

Baah, S., & Bohaker, L. 2015. The Coca-Cola Company [online]. Available from: https://sandrabaah.weebly.com/uploads/4/9/9/3/49933149/strategic_analysis_of_coca-cola.pdf pp. 17. [Accessed 1^st May 2018]

Chen, Y., Jiang, Y., Wang, C. & Chung Hsu, W., 2014. How do Resources and Diversification Strategy Explain the Performance Consequences of Internationalization? Management Decision, 52(5), pp.897-915.

Clancey, W.J., 2014. Acquiring, Representing, and Evaluating a Competence Model of Diagnostic Strategy. The nature of expertise, p.343.

Coca-Cola. 2018. about Us Coca-Cola History. Retrieved May 1, 2018, from Co-Cola [online] Available from: https://www.worldofcoca-cola.com/about-us/coca-cola-history/ [Accessed 1^st May 2018]

Crittenden, V.L. & Crittenden, W.F., 2008. Building a Capable Organization: The Eight Levers of Strategy Implementation. Business Horizons, 51(4), pp.301-309.

Keupp, M.M., Palmié, M. & Gassmann, O., 2012. The Strategic Management of Innovation: A Systematic Review and Paths for Future Research. International Journal of Management Reviews, 14(4), pp.367-390.

Killen, C.P., Jugdev, K., Drouin, N. & Petit, Y., 2012. Advancing Project and Portfolio Management Research: Applying Strategic Management Theories. International Journal of Project Management, 30(5), pp.525-538.

Kozlenkova, I.V., Samaha, S.A. & Palmatier, R.W., 2014. Resource-based Theory in Marketing. Journal of the Academy of Marketing Science, 42(1), pp.1-21.

Lin, C., Tsai, H.L., Wu, Y.J. & Kiang, M., 2012. A Fuzzy Quantitative VRIO-based Framework for Evaluating Organizational Activities. Management Decision, 50(8), pp.1396-1411.

Mantere, S., Schildt, H.A. & Sillince, J.A., 2012. Reversal of Strategic Change. Academy of Management Journal, 55(1), pp.172-196.

Njambi, E., Lewa, P., & Katuse, P. (2016). Relationship between Threat of Substitutes and Competitive Advantage of Large Multinationals in Kenyan Beverage industry. The International Journal of Business & Management, 4(7), 412-423.

Pitt, M.R. and Koufopoulos, D., 2012. Essentials of Strategic Management. Sage. Pp. 1-451

Porter, M.E., 2008. The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86(1), pp.25-40.

Reeves, M. & Deimler, M., 2011. Adaptability: The New Competitive Advantage. Harvard Business Review, 89(7-8), pp.134

Santos, N. & Laczniak, G., 2015. Marketing to the Poor: A SWOT Analysis of the Market Construction Model for Engaging Impoverished Market Segments. Social Business, 5(2). Pp. 1-320

Schulz, W.C. & Hofer, C.W., 1999. Creating Value through Skill-based Strategy and Entrepreneurial Leadership. Pergamon. Pp. 1-350.

Wee, C.H., 2017. Think Tank-beyond the Five Forces Model and Blue Ocean Strategy: An Integrative Perspective from Sun Zi Bingfa. Global Business and Organizational Excellence, 36(2), pp.34-45.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. & Bamford, C.E., 2017. Strategic Management and Business Policy. Pearson. Pp. 1-450.

Williams, S.N. & Nestle, M. 2017. Big Food: Critical Perspectives on the Global Growth of the Food and Beverage Industry. Routledge. Pp. 1-320.

Zamora, E. A. 2016. Value Chain Analysis: A Brief Review. Asian Journal of Innovation and Policy, 5(2), 116-128.