Business Model of Coca Cola
Coca Cola is a leading global beverage company whose products sell across more than 200 countries. Its only main rival is Pepsi. The broad product range of Coca Cola includes sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks (Coca Cola Annual Report, 2017). Coca Cola’s extensive portfolio of brands includes more than 500 nonalcoholic beverage brands. The company owns and markets four of the top five nonalcoholic beverage brands of the world - Coca-Cola, Diet Coke, Fanta, and Sprite. It has divided its business into six geographical operating segments that include • Europe, the Middle East, and Africa • Latin America • North America • Asia Pacific • Bottling Investments & Corporate. Coca Cola’s success is based on several factors that include product quality, pricing, accessibility, and marketing. In 2017, the company sold 29.2 Billion unit cases of its products. The net operating revenue of the company was 35.4 Billion dollars in 2017 versus 41.9 Billion dollars in 2016. In 2019, the company sold more than 30 billion unit cases, but sales again declined following the spread of Coronavirus.
Coca Cola is one of the leading employers that employs a large number of people globally through its system. It is known for its focus on human resource management. Its products have been selling in the USA since 1886 and now sell across more than 200 nations. Competition in the soda industry has grown highly intense, and success depends upon having several sources of competitive advantage. However, to be successful in an intensely competitive industry environment, the company has adopted an efficient business model. Its objective is to leverage its assets, including the company’s brands, financial strength, distribution system, global reach, and human capital, to remain competitive and find grown in a manner that benefits its shareowners. The company was incorporated in 1919 in Delaware. It is the successor of the original coca-cola company that was organized in Georgia in 1892.
Production Operations :
Coca Cola’s global reach is a major strength for the business which sells its products around the globe in 200 nations. Its global reach has been made possible through an extensive distribution network. Its business is divided into concentrate operations and finished product operations. Concentrate operations include the manufacturing, marketing and sales of beverage concentrates or beverage bases, and syrups including fountain syrups. The other part of its business is called finished product operations in which it makes, markets, and sells finished sparkling soft drinks and other non-alcoholic beverages. Coca Cola’s net operating revenues are generally higher from the finished product operations compared to the concentrate operations. However, its gross profit margins are lower from the former than the latter. The company sells concentrates and syrups to the authorized bottling partners in its concentrate operations to generate revenues.
The bottlers then combine the concentrates with sweeteners, still water, and sparkling water or the syrup with sparkling water for making finished beverages. The containers used for packing finished drinks include cans, plastic bottles, and refillable or non-refillable glass. These packages bear the Coca Cola trademark licensed to Coca Cola. The bottling patterns fill the finished beverages in these containers, which are then sold to the retailers either directly through wholesalers. Coca Cola also sells concentrates for fountain beverages to its bottling partners. These bottling partners are typically authorized for making fountain syrups, which they sell to fountain retailers like convenience stores and restaurants. These retailers use fountain syrups to make and sell beverages for immediate consumption. Consumers buy such beverages in classes at retail stores, restaurants, cinema halls where they can consume it immediately after purchase. In the US, Coca Cola sells the fountain syrups directly to the retailers or through the wholesalers who resell it in the US.
In its finished product operations, Coca Cola sells sparkling soft drinks and a variety of other nonalcoholic beverages, including water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. It sells them to retailers directly or through the distributors wholesalers and bottling patterns who then distribute it to retailers. The finished product operations of Coca Cola includes mainly the Company-owned or -controlled bottling, sales, and distribution operations included in the company’s Bottling Investments operating segment. Its finished products business also includes juice and other still beverage production operations in North America.
The number of principal production, distribution, and operation facilities by each operating segment in 2017 :
Europe, Middle East and Africa
Principal Concentrate and/or Syrup Plants - 6 (owned)
Distribution and storage warehouses - 1 (leased)
Principal Concentrate and/or Syrup Plants - 5 (owned)
Global Distribution Network:- 8 (2 owned & 6 leased)
Principal Concentrate and/or syrup plants - 11 (owned)
Principal beverage Manufacturing/bottling plants: 10 (9 owned and 1 leased)
Distribution and storage warehouses : 43 (leased)
Principal Concentrate and/or syrup plants - 6 (owned)
Distribution and storage warehouses : 1 (owned)
Principal Beverage Manufacturing/Bottling Plants - 38 (35 owned & 3 leased)
Distribution and Storage Warehouses- 122 (33 owned & 89 leased)
Principal Concentrate and/or Syrup Plants - 4 (owned)
Distribution and Storage Warehouses - 10 (leased)
Main Products by Coca Cola:
- Georgia – A coffee brand mainly sold in Japan.
- Ice Dew – Water brand that sells in China
- Diet Coke/Coca-Cola Light
- Simply - A juice brand that sells mainly in North America.
- I LOHAS- Water brand that sells mainly in Japan.
- Coca-Cola Zero Sugar – Includes Coca Cola Zero and Coca Cola no sugar.
- Del Valle – A juice and juice drink brand that sells mainly in Latin America. Coca cola makes markets and sells Dell Velle beverages through joint ventures with its bottling partners in Mexico and Brazil.
- Glacéau Vitaminwater
- Ayataka- Green tea brand; sells mainly in Japan.
- Schweppes – Coca Cola owns the Schweppes brand in certain countries other than US.
- Gold Peak - A tea brand that sells mainly in North America.
- FUZE TEA – Sells outside North America.
- Minute Maid
- Minute Maid Pulpy- A juice drink that sells primarily in the Asia Pacific.
- Glacéau Smartwater - vapor-distilled water with added electrolytes; sells mainly in North America and Great Britain.
Global Distribution Network
The distribution network of Coca Cola makes beverages available to consumers in more than 200 countries. It has the world’s largest beverage distribution system which includes Company-owned or -controlled bottling and distribution operations, independent bottling partners, distributors, wholesalers, and retailers. Overall, consumers enjoy 1.9 Billion servings of Coca Cola each day around the world out of the total 60 billion servings of beverages.
Coca Cola’s global distribution system plays a significant role in acquiring market growth as well. It has a stable and robust bottling and distribution system that has helped it capture global market growth. Coca Cola has continued to expand its marketing peseta to grow its unit case volume and net operating revenues in the developed, developing as well as the emerging economies. Its robust bottling and distribution network has helped it find rapid and vigorous growth throughout the world by playing a central role in the manufacturing, distribution, and sales of existing, enhanced, and new innovative products to consumers around the globe. In 2015, 16 and 17, Coca Cola sold around 29.2, 29.3, and 29.2 billion unit cases, respectively. Sparkling soft drinks were the largest percentage of the total sales representing approximately 70% of the entire unit case sales in 2017.
Trademark Coca Cola products or the products bearing Coca Cola trademark reprinted around 45% of the total unit case sales in 2017. The US is the largest market for Coca Cola, representing about 19% of the total global sales volume in unit cases. Out of the total sales in the US, sparkling soft drinks accounted for 62% of the entire unit case sales volume, whereas Coca Cola trademark products represented around 43%. Other largest markets of Coca Cola that together accounted for approximately 31% of unit case sales volume were Mexico, China, Brazil, and Japan. Independent bottling patterns play a significant role in helping Coca Cola distribute its products globally and achieve its sales targets.
Based on unit case volume, five of the largest bottling partners of Coca Cola in 2017 included :
- Coca Cola FEMSA - It has bottling and distribution operations in Mexico, Guatemala, Nicaragua, Costa Rica, panama, Colombia, Venezuela, Brazil, Argentina and Philippines (Coca Cola Annual report, 2017).
- CCEP or Coca Cola European Partners plc. - It has bottling and distribution operations in Andorra, Belgium, France, Germany, Great Britain, Iceland, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain and Sweden (Coca Cola Annual report, 2017).
- Coca Cola Hellenic or Coca Cola HBC AG - It is one of the largest bottling partners of Coca Cola. Coca Cola Hellenic has bottling and distribution operations in a very large number of countries including Armenia, Austria, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, the Former Yugoslav Republic of Macedonia, Greece, Hungary, Italy, Latvia, Lithuania, Moldova, Montenegro, Nigeria, Northern Ireland, Poland, Republic of Ireland, Romania, the Russian Federation, Serbia, Slovakia, Slovenia, Switzerland and Ukraine (Coca Cola Annual report, 2017).
- Arca Continental - Arca Continental has bottling and distribution operations in Northern and Western Mexico, northern Argentina, Ecuador, Peru and the state of Texas and parts of the states of New Mexico, Oklahoma and Arkansas in the United States (Coca Cola Annual report, 2017).
- Swire Beverages - Swire beverages is a bottler with bottling and distribution operations in Hong Kong, Taiwan, 11 provinces and the Shanghai Municipality in the eastern and southern areas of mainland China, and territories in 13 states in the western United States (Coca Cola Annual report, 2017).
These are the five major bottling partners of Coca Cola that together represented for around 41% of the total Coca Cola unit cases sales volume in 2017. Bottlers are to legal partners or agents of Coca Cola but only independent contractors. These bottlers or bottling patterns are bound by bottler’s agreements related to the manufacturing and sales of Coca Cola products. These bottlers have to agree to the terms and conditions specified in the agreements. There can be small variations in the terms and conditions for each bottler. These agreements authorise the bottlers to prepare, package, distribute and sell specific Coca Cola trademark beverages in identified territories generally. While Coca Cola generally enjoy complete flexibility in setting the price and terms of sale for its products (including concentrates and syrups), its ability to set prices and terms of sale is also affected by the changing market conditions inside and outside USA.
Bottlers’ agreements outside US can be extended or renewed and are generally of a fixed duration. These agreements can also be terminated by the company under certain circumstances. Inside US, the bottlers mostly operate under comprehensive Bottler Agreements which are of fixed durations and can be mostly renewed. Some bottlers operate under legacy agreements that do not have an expiration date. In US Coca Cola can terminate an agreement for nonperformance or under some other specified circumstances.
While independent bottlers’ mostly make, sell and distribute most of the Coca Cola branded beverages, the company from time to time can often take control of or acquire bottling operations. This generally happens in case of the underperforming markets where Coca Cola uses its resources or expertise to improving performance. Often Coca Cola acquires a controlling interest in a bottler’s operations so as to focus its sales and marketing programs and for the development of bottler’s business and information systems. From time to time the company also sells its interest in a particular nothing operation to improve the efficiency of the Coca Cola system. The company also makes significant equity investments in bottling operations to improve the efficiency of the system. Such investment also allows Coca Cola to exercise significant influence over the invested bottler’s operations as well as financial policies.
Raw Materials and Suppliers:-
One main ingredient required for nearly all of Coca Cola beverages is water. Historically, Coca Cola has not experienced any significant challenge related to water supply. However, water scarcity has grown in several parts of the world. So, water availability, quality and sustainability are the key challenges facing Coca Cola.
Apart from water, the other key ingredients required for Coca Cola beverages are nutritive and nonnutritive sweeteners. The principal nutritive sweetener that Coca Cola uses in the United States is called HFCS or high Fructose Corn syrup. HFCS is nutritionally equivalent to sugar. HFCS can be acquired from several domestic sources. Its prices have historically kept fluctuating. Outside the US, Coca Cola mainly uses sucrose or table sugar. Sucrose can also be made available from several sources. One of the major procurement partners of Coca Cola through which it procures HFCS in USA is CCBSS. CCBSS or Coca-Cola Bottlers’ Sales & Services Company LLC is a limited liability company owned and authorized by Coca Cola bottlers in US which helps with the procurement of various goods and services in the country apart from HFCS (High Fructose Corn Syrup).
Apart from the nutritive sweeteners, the principal nonnutritive sweeteners Coca Cola uses include aspartame, acesulfame potassium, sucralose, saccharin, cyclamate and steviol glycosides (Annual Report 2017). Ajinomoto Co., Inc. and SinoSweet Co., Ltd are the primary suppliers of asparatame for Coca Cola. Aspartame is a major non-nutritive sweetener that Coca Cola uses alone or with other non-nutritive sweeteners like saccharin or acesulfame potassium in its low and no calories sparkling beverages. Sucralose is also a critical raw material for Coca Cola which it sources from a few suppliers in US and China. The number of sucralose suppliers is limited and therefore the company works closely with these suppliers to maintain continuous supply. In the recent years, the demand for sucralose all around the globe has grown. It has happened because the number of brands replacing high calorie sugar with low calorie has increased. Stringent environmental requirements have also reduced the production of sucrose in China. To overcome the decreasing supply, Coca Cola works closely with its existing sucralose suppliers. However, the company has not experienced any difficulty in sourcing sucralose in past and does not anticipate any either in future.
The raw materials for juices and juice drink products of Coca Cola are the juices and juice concentrates from various fruits and mainly orange juice and orange juice concentrates. Coca Cola sources its orange juice and concentrate mainly from Florida and Brazil. The main supplier of orange juices for Coca Cola in US and Brazil is the Cutrale Citrus Juices U.S.A., Inc. Coca Cola works closely with Cutrale to ensure a continuous supply of orange juices. However, the costs of orange juices is growing due to several factors. Apart from greening disease, there are other factors like the hurricanes and freezing weather which are also affecting the supply of oranges and orange juice. The prices and costs of cultivation have kept increasing.
Coca Cola purchases raw materials form several other channels as well. The company owned and consolidated bottling operations as well as the finished product business of Coca Cola also purchase a variety of raw materials for the company. These raw materials include polyethylene terephthalate (“PET”) resin, preforms and bottles; glass and aluminum bottles; aluminum and steel cans; plastic closures; aseptic fiber packaging; labels; cartons; cases; post-mix packaging; and carbon dioxide. The company generally buys these raw materials from several suppliers and has not had any difficulty or experienced any shortage in the past.
Overall, there are a few raw materials that Coca Cola sources from a limited number of suppliers. In case of others it has a large number of suppliers.
Strategic priorities of Coca Cola:
The company has set five strategic priorities which are meant to help it achieve its objectives. These priorities are:
- Accelerating growth of a consumer-centric brand portfolio – Coca Cola has a large product portfolio. However, the focus of the brand is to make its brands popular. It focuses on changing consumer tastes and preferences so as to bring new and innovative products that cater to the changing tastes of the consumers.
- Driving our revenue growth algorithm – Coca Cola is also working towards revenue growth and margin expansion. To grow its revenue, it is directing tis efforts towards sales growth.
- Strengthening the Coca-Cola system – The company’s focus is on strengthening the entire Coca Cola system. For this purpose, it focuses on technological innovation as well as equity investments. The company invest in its bottlers whenever needed to improve their performance.
- Digitizing the enterprise – Digital is changing the consumer experience like never before. In every industry digital technology is changing how brands marketed themselves. Coca Cola is also focusing on digitizing the system by digitizing the supply chain and distribution network as well as using digital channels for marketing and business growth. By investing in digitization, the brand has grown its efficiency and is also focusing on innovation to bring new products and cater to changing consumer lifestyles and preferences.
- Unlocking the power of our people – Coca Cola is also focusing on utilizing the power of tis human capital to achieve the best results. It is focusing on better employee training and higher employee motivation to make them perform better and create higher growth.
Core Capabilities of Coca Cola
Coca Cola makes a heavy investment in marketing each year. The main reason behind investment in marketing is to improve people’s awareness of Coca Cola and to increase their preference for Coca Cola brands. By investing in marketing Coca Cola has been successful at growing unit case volume sales, per capita consumption as well as its share of worldwide nonalcoholic beverage sales. The brand creates and implements marketing programs in partnership with its distributors and bottling partners. These marketing programs both global and local are meant to increase the consumer’s awareness and appeal of the Coca Cola brands. So as to develop a clear marketing strategy for the company brands, Coca Cola conducts product and packaging research, establishes brand positioning, develops consumer communication, and derives consumer feedback using various channels. The integrated marketing activities of Coca Cola include digital and traditional advertising, point of sale merchandising as well as sales promotions.
The focus of Coca Cola is on marketing strategies that help drive volume growth in emerging markets as well as grow the brand value of Coca cola in developing markets and grow the net revenues and profits of Coca Cola in its developed markets. In the emerging markets, the focus of Coca Cola is to invest in infrastructure programs that drive volume growth by providing increased access to consumers. In the developed markets where the consumer access is already high, the focus is on differentiation. Coca Cola has continued to invest in these markets in brands and infrastructure programs albeit at a rate slower than its gross profit growth.
Coca Cola system has millions of retail customers around the globe that sell its products to the consumers directly. The focus of Coca Cola is to maximize value for its distributors and wholesalers so as to grow their beverage business. The approach that Coca Cola takes is to analyze and understand the business needs of each wholesaler/distributor/other customer irrespective of the size of the customer’s business. Whether it is a sophisticated retailer in a developed market or a simple kiosk owner in an emerging market, Coca Cola retains equal focus on all. The company ensures that each one of them has the right products and packages as well as the right promotional tools. Coca Cola’s focus is to build new and innovative customer experiences and improve beverage merchandising and displays. The brand also engages in joint brand building initiatives with its customers (including distributors, wholesalers and retailers) so as to increase the appeal of its brands. Through its commercial leadership strategies the brand also ensures to develop better execution of marketing strategies at the point of sale.
Franchise leadership: -
The focus of Coca Cola is also on continuously improving its franchisee leadership. The needs and preferences of consumers are changing fast. Focusing on franchisee leadership gives the company and its bottling partners the ability to grow in tandem through shared values, aligned incentives. The financial success of the bottling partners of Coca Cola is essential to profitable growth of the company in the long run. It works in partnership with the bottlers to study processes that help it achieve scale and efficiencies. It also shares best practices that can help improve productivity throughout the Coca Cola system. Keeping the channels and consumers in mind, Coca Cola works with its bottling partners to make differentiated beverages and packages. Apart from that he company designs appropriate business models which help it share the value its beverage brands create with its bottling partners. It is working to continuously strengthen its supply chain network in order to gain a competitive advantage.
Risks and challenges before the Coca Cola system:
The global scale and size of the Coca Cola system gives it unique opportunities. However, apart from opportunities global scale of the business and the nature of the non-alcoholic beverages industry also brings unique risks and challenges. From reputation management to water scarcity and competition there are several challenges before Coca Cola. The beverage giant has adopted a strong business model. However, despite its strong business model, its business faces several unique challenges and risks. Some of these are discussed below:
The growing rate of obesity is a major concern for the public health professionals, governments and consumers as well. As a result, obesity has become a major challenge for the soda industry. Coca Cola is focusing on managing its product portfolio in a way that aids obesity control.
- The company continues to offer low and zero calorie beverage options to its consumers around the world.
- The company is transparent in terms of providing nutritional value on the product packages. It features the calories on most of our product packages.
- Offers beverages in a large range of package sizes from small to large.
- The company focuses on responsible marketing. It does not direct its advertising on children below 12.
Water scarcity is a major challenge that has kept growing in size. Not just Coca Cola, but water quality and sustainability are major challenges before its competitors and other beverage brands also. Water quality is not a small issue that can be managed easily. The company is collaborating with several groups on this issue including other companies, suppliers, governments, non-governmental organizations, and the communities in which Coca Cola operates. Water is an important ingredient for the production of most of Coca Cola products.
Apart from that, it is also required during the production process. Moreover, it is required for the production of the agricultural raw materials. However, water is a limited resource and overexploitation as well as pollution and climate change have led to its scarcity. The company has implemented a water risk management program for the benefit of Coca Cola and its bottling partners. As a part of this program it regularly assesses water related risks. The company has implemented water stewardship strategic framework to mitigate water related risks. Coca Cola executes this strategy at the local level where the company operates. This strategy has the following elements:
- water use efficiency and wastewater treatment in manufacturing operations;
- shared watershed protection efforts;
- engaging local communities;
- and addressing water resource management in Coca Cola’s agricultural ingredient supply chain (Annual report, 2017)
Through many of these programs, the company is able to replenish the water that Coca Cola and its bottling partners use in their finished products. It is also working with other companies, governments and several other non-governmental organizations for advocating for water policy reforms.
Changing consumer preferences:
Consumer preferences are changing globally. A large part of the global population is aging. Apart from that people’s lifestyles and needs have also changed. People have much more technology and information in their hands than ever before. Changes are happening very fast and people want more choices than ever. So, the company is trying to cater to their needs by innovating and bringing new and innovative products. It already has a substantially large product portfolio of around 500 brands and 4,100 beverages. Still, fast-changing consumer needs and preferences pose new risks and challenges everyday.
Growing competition and technology use:
Competition in the beverage industry has kept growing fast. Apart from Pepsi and Dr Pepper Snapple, there are other global and local brands as well which are also competing with Coca Cola. Moreover, these companies are investing in technology and product innovation. Coca Cola should also continuously focus on expanding its marketing and technological capabilities in order to retain customer loyalty and market share. The brand is also expanding into new profitable categories of beverages.
Product safety and Quality:
Product safety and quality have also become major challenges in the beverage industry where reputation is an important question with regard to sales and market share. Apart from consumers there are certain other groups and bodies that are also concerned regarding specific ingredients used by Coca Cola as well as the overall product quality. Therefore, Coca Cola has designed rigorous product and ingredient safety and quality standards. It ensures safety and quality in each of its products. Coca Cola takes every care throughout the system that each of its products meets the highest safety and quality standards. It undertakes strong governance and compliance to ensure consistent safety and quality. The company also stays current with industry best practices as well as marketplace conditions. A quality management program with stringent quality standards measures all processes continuously. The quality management system set in place by Coca Cola also identifies and mitigates risks and works to drive improvement.
A number of key agricultural commodities, such as sugarcane, corn, sugar beets, citrus, coffee and tea have seen their prices rising because of changing weather patterns and reduced productivity. This can affect the situation of food security for several communities all around the globe. The sustainable sourcing commitment of Coca Cola has two basic principles which are environmental protection and building more sustainable communities. Programs designed by Coca Cola focus on economic opportunity, environmental sustainability, and addressing these agricultural challenges. The company is working in tandem with key suppliers, bottlers, important partners, communities, and farmers, and through higher investment in sustainable agriculture, it is trying to make a strategically positive impact on food security throughout the globe.
Five Operational Performance Objectives: Coca Cola's Operations
A well-defined set of operations performance objectives helps businesses manage their performance and profitability in both the short and the long run. There are five basic performance objectives that apply to every business operation and especially so in the case of large businesses that face a lot of competition. These five basic operations objectives are - cost, dependability, flexibility, quality, and speed. These performance objectives have both internal and external implications. They are also interrelated. The internal effects of these performance objectives have a definite impact on cost.
Quality is a leading operational performance objective. It refers to consistent performance according to your customer’s expectations. Quality also affects customer satisfaction to a significant extent. However, quality can have a different meaning in one industry and a different one in another. Compare an automobile business with a technology business. The same quality standards do not apply to each one. Quality can acquire different meanings in different settings or industry environments. While in some industries, the level of staff friendliness is the major scale to measure quality, product efficiency is the primary indicator of quality for another. However, no matter whatever industry a business belongs to, customers appreciate quality above other things. It is evident in the case of all the market-leading brands that have built their market positions by focusing on quality. Quality can, therefore, have a direct and significant influence on customer satisfaction as well as organizational performance.
Quality is also related directly to a company’s social image. If a business delivers consistently according to its customers’ expectations, it will have acquired a strong image in the market and among its customers. Many things are easier for such businesses as customer acquisition through positive word of mouth and increase customer retention as well as higher brand recall. These things have the potential to grow an organization’s profitability. In the context of the computing industry, quality is measured based on several factors. While product performance is a leading indicator of quality, pricing, marketing, and brand image are also indicators of quality for computing brands.
Coca Cola, the biggest rival of Pepsi, is the market-leading beverage brand. Its business empire spans the entire globe. The company sells its products in 200 countries. As one of the most well-known businesses in the beverage industry, Coca Cola’s market dominance is a result of its focus on quality and its ability to deliver consistently according to its customers’ expectations. Coca Cola’s focus on quality is not limited just to its products but spans the other aspects of its business operations as well. The company is equally good in terms of marketing, packaging, as well as distribution, sales, and other elements like supply chain management. While the company may face some flak over its water management practices, it overall remains in a powerful position in the soda industry. These things have ensured faster growth for the business as well as a market-leading position that only Pepsi can challenge. The soda industry is also experiencing growing competition, and it requires companies like Coca Cola and Pepsi to stay focused on quality. However, quality aids Coca Cola’s growth by helping it achieve higher bond recall and positive word of mouth. Pricing is also an essential factor that has supported the financial growth of the Coca Cola company. Prices are related to quality directly in the soda industry. If brands do not sell their products at affordable prices, it will become difficult to achieve sales on a vast scale. Customers also decide which brand they can trust based on their pricing strategy. Coca Cola has kept prices consistently low, and this has also helped it maximize customer satisfaction.
As the industry has evolved with the advancement of digital technology, speed has become essential to acquire business growth. In fact, you cannot imagine operational performance without speed in the 21st century. Now in nearly every industry speed matters just as much as quality or prices. Customers want products delivered to their doorsteps faster. In this era, where a large range of services are delivered and consumed online including a large range of technology and entertainment services, speed matters a lot and sometimes it can be a leading differentiating factor for a company. A company that brings ideas to the table and products to the shelves faster than its competitors usually finds itself ahead of the others in the market. In some industries where services have to be consumed instantly, speed matters more than ever. Apart from that, in some industries, businesses need to keep the shelf filled with the latest items in order to engage their customers and it is also a reason that speed is so important.
The advancement of digital technology has led to enormous changes in the world of computing. Speed has become more integral to business growth. HP has also managed its value chain in a manner that ensures higher efficiency as well profitability and success. It has managed its supply chain in a manner that ensures continuous availability of raw material as well as the flow of goods and services at a faster pace. Overall, the company focuses on quality in nearly all aspects of its business operations.
Speed has become a very important factor that affects nearly all aspects of business operations and higher speed is also a sign of resiliency as well as flexibility. Faster growth cannot be achieved without smooth and agile operations. This is just as much true about Coca Cola as any other business. Even in Coca Cola’s operations, whether it is the manufacturing operations, supply chain, distribution or marketing, speed matters everywhere. Managing speed while also ensuring business requires focus on innovation (including product and process innovation) as well as the use of latest technologies to grow customer base and increase market influence. Coca Cola has also focused heavily on digitalisation to speed up things inside its system which includes its bottling and distribution partners. Down its supply chain also Coca Cola introduced technologies that bring higher speed as well as flexibility and also allow the company to manage its supplier relationships better. Speed is an indicator of efficiency and through faster product and process innovation, Coca Cola continues to grow its market influence.
Dependability or reliability is in itself considered a sign of quality in this era. Dependability, reliability, or trust are synonymous with brand equity which is an important strength for any industry-leading brand. How dependable your business is or how much your customers trust your brand affects your brand equity. However, there are several factors that affect dependability in each industry. For example, while the quality of raw materials and the final product will have a direct impact on the dependability of a business, in the case of others it is the timeliness of delivery.
Keeping the promise you made to your customers also affects dependability. Another factor that has kept growing in importance for businesses as well as customers in the twenty-first century that also affects dependability is the overall level of customer experience. Brands that offer a superior customer experience overall are considered to be more dependable by the customers. Apple and Amazon are two great examples of companies that have maintained very high-level customer loyalty because they deliver superior customer experience.
In the 21st century customer loyalty is not easy to achieve since there are a large number of factors that affect dependability. Trust is the most important factor that affects how loyal your customers will remain to you over their lifetime. In the beverages industry, building trust dependability requires focus on several things apart from product quality and marketing. Brands also have to focus on their social image to grow their market influence. It is why brands like Coca Cola, apart from investing in product quality and marketing, also invest in philanthropic activities to improve their image among the customers. The company has been able to strengthen its market influence in this manner by continuous investment in the satisfaction of all its stakeholders. Another important factor related to dependability is legal compliance. It is essential for businesses like Coca Cola to comply with all the relevant local as well as international laws to win in the market and stay in the leading position they have achieved. In the fast food and beverages industry, the focus on compliance has become more important than ever in this era because of the growing government scrutiny.
Flexibility means the ability to change what, how, and when operations do. There are four types of flexibility in general that are applicable to business operations. They include product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility. Product/ service flexibility means the ability to introduce new or customized products or services. Mix flexibility means the ability to widen the product/services mix to cater to the customer needs better. Volume flexibility denotes the ability to change the output level to produce different quantities of products/services over time. Delivery flexibility on the other hand means the ability to change the timing of delivery. Overall, flexibility is an important aspect of operational performance and superior flexibility also denotes superior performance. Flexibility can also acquire different meanings in different industrial environments. For example, in a healthcare environment, the ability to introduce new types of treatment and to widen the range of available treatments or the ability to adjust more patients and reschedule appointments can all be a sign of flexibility. However, in the case of the automobile, hospitality or retail industries, flexibility can mean different things.
Flexibility is important for business success in the 21st century. The more flexible the business operations of a company, the more faster the business will taste success. It is because customer needs are evolving and customers’ expectations from businesses all over the world have also changed sharply with time. Having more flexible operations ensures that you are able to cater to the changing demand patterns with higher efficiency and thus retain the trust all your stakeholders place in you. Coca Cola has established a global business system that includes its manufacturing and distribution network. Its bottling partners play a key role in ensuring the availability of Coca Cola products globally. Apart from that, the use of latest technologies, alliance with partners and supply chain management have helped the company grow the flexibility of its business operations. Growing digitalisation of Coca Cola’s operations has also helped the company manage its operations with higher flexibility. Overall, the success of the company is also a result of its flexibility and focus on customer experience.
Cost in terms of operations performance mainly means the operating expenses incurred by businesses. However, the proportion of various operating costs can vary from industry to industry. For example, staffing costs may represent the largest costs for a transportation company but the costs of raw material may be the largest group of operating costs for an automobile brand. In the case of most companies, if their operating expenses are low, they can also keep the prices low for their customers. Not all companies compete in the market on the basis of price.
Some companies compete on product quality, other companies compete on the basis of customer service and others on the basis of marketing or all of these factors. However, even the companies that do not compete on the basis of prices, they too are interested in keeping their operational costs low. If a company reduces its operating expenses that will help it increase its profits because a penny saved equals a penny earned. To keep operating expenses low requires focusing on areas where the company incurs the highest operating expenses.
The cost of goods sold is the largest category of operating expenses for Coca Cola, followed by selling, general and administrative expenses. IN fiscal .2019, the cost of goods sold by Coca Cola grew to $14.6 billion compared to $13.1 billion in 2018. The company also incurred S, G&A expenses of $12.1 billion in 2019 compared to $11 billion in 2018. The selling, general, and administrative costs of the company include its advertising costs as well as shipping and handling costs. Since there is a lot of competition in the soda beverages industry, the leading payers spend a significant sum each year on marketing and promotions to retain their market share and manage faster growth. Coca Cola spent around $4 billion on advertising in the fiscals 2018 and 2019. However, the company is focusing mainly on digital advertising and promotions for managing its growth momentum. Digital advertising, apart from offering better reach, also guarantees higher exposure and improved ROI. The company is using digital technology to manage supplier relationships, ensure continuous delivery of raw material, and to reduce costs of manufacturing and distribution through improved inventory management practices and technologies.
Analysis of Coca Cola’s Operations based on the 4Vs model:
Operations and operational processes are the fundamental building blocks of organizations’s productivity. They have a significant influence on the productivity of the organization and the quality of the organizational output as well. Focusing on operational efficiency helps businesses find faster market growth and maximize their output. Many times, when the efficiency of processes is low, it is mainly because the organization has adopted a poor operational design. Processes across business organizations and industries can differ significantly. Operational processes differ widely from a fast food brand to a smartphone brand. It is why all processes need to be managed differently. Some of the major differences between various processes are due to the technologies and the type of skills or know-how involved. Different processes require different production equipment apart from different skills and know-how. However, apart from these things, the difference also lies in the nature of the demand for the products and services these processes produce. There are four main characteristics of demand that have a significant impact on process management and which are as follows:
- The volume of the products and services produced.
- Variety of products and services produced.
- Variation in the demand for products and services.
- Degree of visibility that customers have into the production of products and services.
Volume of products and services:
Does the business being discussed manufacture a limited range of products and services in very large volumes or various items in small volumes? For example, a car company will produce thousands of pieces of the same model. On the other hand, a fashion brand will produce limited pieces of various designs. If the volume of output is high, it indicates repeatability or high-level familiarity of the processes. Many times since a large business produces more and more of the same thing, it gains significant expertise in producing that product. It also helps the business gain a significant competitive advantage compared to the smaller ones. In the beverages industry, while companies offer a wide range of flavours, most products are produced using the same processes and methods.
Over time as Coca Cola has continued to improve its production and supply chain capabilities, it has also gained significant expertise in the areas of production, distribution, and sales. However, while the company offers the essential ingredients, including the syrups required for producing the beverages, its bottling partners do the mixing to manufacture sparkling drinks. So, overall while the Coca Cola system makes products in huge volumes, the overall level of complexity related to production remains low. It is also a reason behind the significant competitive advantage that the brand enjoys in the beverages industry. In 2019, apart from 32 concentrate and syrup plants, the company also owned or leased 105 manufacturing and bottling plants. While Coca Cola offers a broad range of soda drinks and other drinks, these products require similar equipment and processes for their production. The overall level of output at the Coca Cola system is also very high. For example, the company produced and sold 30.3 billion unit cases in 2019 and 29.6 billion unit cases in 2018. Since the company makes beverages on a vast scale, it can achieve high profits through economies of scale.
Variety of processes (products and services produced):
Variety is related to the various types of activities that are being performed by the company and how well it manages the various processes. The level of operational complexity is very high when it comes to a mixed model manufacturer that is engaged in lots of changeovers between processes. It means apart from having to choose from a very wide range of inputs, the company has to handle the additional complexity of matching specific customer requirements in terms of products and services. Generally, the high variety processes are more costly as compared to the lower variety processes.
As in the case of the beverage industry, it utilizes both high complexity and low complexity processes for the production and distribution of its products. The production and bottling of beverages employ high complexity processes. However, the company’s boiling partners are responsible for the production and bottling of the drinks. The company only offers the syrups or concentrates required for its production. In this way, the company has managed process complexity very well and does not have to deal with high variety processes. So, the variety of methods is not a challenge for Coca Cola. Moreover, the company has managed the entire system in a manner that allows for the highest efficiency and output.
Variation in demand of products and services:
In fact, demand variation is among the most challenging aspects of business operations. It is easier for businesses to manage the processes when the level of demand is predictably constant. However, when demand can fluctuate significantly, then managing processes becomes somewhat complex. If demand is predictably constant, it is easier to gear resources to efficiently cater to the existing demand, Moreover, businesses can plan operational activities including marketing and sales or after-sales services in advance.
On the other hand, if the level of demand varies significantly or can be highly variable or even unpredictable, then resources will need to be adjusted over time. What is even worse is that if demand can soar unpredictably, extra resources need to be devoted to the process such that it provides a capacity cushion that can easily absorb the unexpected demand. Let’s take a simple example of seasonal variations in retail and e-commerce. The demand for a vast range of products surges suddenly during the festive season, including gifts, electronics, home decor products as well as fashion products. Another critical factor that can cause a variation in demand for specific products and services is the level of competition in the market. If the overall level of competition in the market is very high, the companies have to care a lot to maintain the demand for their products and services, and that may require a considerable annual investment in marketing as well as technology.
In the beverages industry, seasonal fluctuation in demand is common. The soda brands enjoy higher sales during the summer season. The demand for cold drinks is generally very high during the hot season and declines significantly during the winters. It is a main factor that can have a severe impact on the demand of Coca Cola products over the world.
Moreover, since the company has priced its products affordably, economic fluctuations globally would not have a significant impact on demand. The effect of economic factors on the market demand for affordable products is generally limited. The spread of the pandemic has caused Coca Cola sales volume to decline globally. Strict lockdowns in several economies, including India, one of the leading markets for Coca Cola products, has caused the demand and sales to fall. The economic fluctuations caused by pandemic throughout various economies can also hurt the sales of Coca Cola products. However, it is not just Coca-cola that has experienced a decline in sales following the spread of Covid-19. Still, the other fast food or beverage brands are also experiencing a similar decline. Otherwise, apart from seasonal fluctuations, there are no significant factors that will affect the demand and sales of Coca Cola products.
Visibility of processes:
Visibility denotes that aspect of business operations that is easily visible to the customers. The businesses that work with consumers directly may have more visible processes. For example, the healthcare and retail industry have more visible processes. However, the same is not true about an automobile business. Customers generally do not have a very clear view of the production and distribution processes of automobile brands. They cannot peep into everything that goes on before the finalized cars reach the showrooms. This is the only aspect of automobile operations that they are generally familiar with. It is also true about businesses like Apple inc. However, when it comes to businesses like Amazon or even Facebook, these are highly customer-facing businesses or customers have very high visibility into their operations. These are also some businesses for which transparency and accountability matters a lot. Even in the physical retail industry, accountability and transparency have become of paramount importance because of the growing focus on the brand image as well as customer trust and customer experience.
Coca Cola is basically a low visibility business and unlined the retail or fast food brands, its operations are not visible to the customers. It is mainly because Coca Cola uses a large network of distributors, wholesalers and retailers for the sales and distribution of its products. The plants operated by Coca Cola are located in places where customers generally cannot reach. The most visible aspect of Coca Cola’s operations is the marketing of Coca Cola products. The company invests heavily in marketing. In the fiscals 2018 and 2019, the company invested around $4 billion in advertising. It runs promotional campaigns throughout the year and especially during the holiday seasons to grow sales. Otherwise, the rest aspects of its business operations generally remain invisible to the customers.
Coca Cola is a major global player in the beverage industry. It is rivaled mainly by just a few international brands. While its main rival is Pepsi, there are more rivals like Dr. Pepper Snapple. The beverage industry has grown highly competitive. In this scenario, every brand needs several sources of competitive advantage to win the game. Coca Cola has focused on creating extraordinary value by investing in critical areas. Product quality and safety are some crucial areas where Coca Cola keeps trying continuously to make further improvements. Growth in the beverage industry has become a significant challenge because of higher competition and government regulation. Coca Cola and its bottling partners work together to find new channels of growth and bring new and innovative products to the market. Coca Cola’s business model’s main strength is its extensive global presence.
The company is working to grow its product portfolio, which already contains more than 500 brands and more than 4,100 beverages. It is selectively investing in new drinks. Apart from that, its focus is on strengthening its business model by helping its bottling partners grow their business profitably. It also stays current with industry best practices and manages the entire Coca Cola system strategically through stringent rules and regulations related to product safety and quality. Its bottling partners, who are mostly independent contractors, have played a central role in ensuring the success of its global distribution network. They are like the central pillar of Coca Cola’s business model. The company’s extensive product portfolio is a significant strength, but there are several risks and challenges ahead. For sustainable growth, Coca Cola will need to focus on digitization and bring higher efficiency across both its supply chain and distribution network as well as create innovative marketing programs.
- Coca Cola Annual Report 2019.