Food And Drug Administration Regulation

Published Date: 02 Nov 2017

About nine servings of the soft drink were sold each day. Sales for that first year added up to a total of about $50. It cost John Pemberton over $70 in expanses, so the first year of sales were a loss.

Until 1905, the soft drink, marketed as a tonic, contained extracts of cocaine as well as the caffeine-rich kola nut.

Advertising was an important factor in John Pemberton and Asa Candler's success and by the turn of the century, the drink was sold across the United States and Canada. Around the same time, the company began selling syrup to independent bottling companies licensed to sell the drink. Even today, the US soft drink industry is organized on this principle.

On April 23, 1985, the trade secret "New Coke" formula was released. Today, products of the Coca Cola Company are consumed at the rate of more than one billion drinks per day.

Coca Cola is sold in over two hundred countries in the world, excluding Cuba and North Korea and is truly a globally recognised super-brand. In addition Coca Cola has entered into partnerships with bottlers all over the world and according to its website, the company says "Our Company manufactures and sells concentrates, beverage bases and syrups to bottling operations, owns the brands and is responsible for consumer brand marketing initiatives. Our bottling partners manufacture, package, merchandise and distribute the final branded beverages to our customers and vending partners, who then sell our products to consumers."

The beverage market is a highly competitive one: it is broad, but narrowly segmented, and it can range from hot and cold drinks to alcoholic beverages and plain water. The carbonated soft drink industry generates US$ 193billion as of 2012. Global Annual Growth rate between 2007- 2012 was 0.7% and carbonates account for 40% of global soft drinks industry. Coca Cola is the market’s top company accounting for 42% of total market. Coca cola operates within this environment by producing over 450 brands with over 3000 products available on the global market. Beverage companies are looking at a number of areas in order to maximize growth: leveraging consumer insights, focusing on rapidly expanding emerging markets and looking for acquisition opportunities (Ernst and Young 2012).

Environmental Analysis

In analyzing the strategic development of Coca Cola, consideration must be given to those elements specific to the company over which they have little or no control. These elements may be classed as the Macro factors. The macro-environment refers to all forces that are part of the larger society and affect the microenvironment. It includes concepts such as demography, economy, natural forces, technology, politics, and culture.and comprise the PESTLE (Political, Economic, Social, Technological, Legal and Environmental) macro factors. Marketing intermediaries help to sell, promote, and distribute goods. They are affected by prevailing Trends and Concepts meso factors. The micro environment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets and publics. Factors comprising the ITEMS (Information, Time, Energy, Money) are considered to be micro factors (Vrontis, D. 2003).

PESTLE analysis is valuable while analyzing external environment where a business is conducted or where an organization is planning to start a business (Henry, 2008). This section studies the environmental factors that have an impact on operation of Coca Cola over which they exert little or no control.

Political

Food and Drug Administration (FDA) Regulation

Coca Cola is subjected to strict regulations since its products come under food category.

These regulations define which ingredients can and cannot be used in the product, how the product is produced, where it is produced, as well as other laws concerned with the quality and health effects of the product.

There are potential fines set by the government if companies do not meet a standard of laws regarding manufacturing, production, and distribution.

However, few changes in law are expected to impact Coca Cola. Following are some such factors:

- The issue of negative impact of Coca Cola manufacturing plants on environment has been highlighted in many countries. Laws for environment protection and stringent regulations in this regard can impact the production process. Coca Cola can work towards minimizing this impact by improving the efficiency of its processes and reducing wastage.

- Government changes, civil unrest, military takeover and other disturbances in a country can affect sales and operations of Coca Cola in that country.

- Expansion to a new country depends on the political conditions of the area. Coke abstained from Israel for many years because it wanted to protect the Arab market, which was quite large.

Economic

The economic variables that can impact Coca Cola include:

- Economic downturn in a country is going to have a negative impact on sales of Coca Cola. The impact on the company would be especially huge since its products are non essential.

- Various macroeconomic factors such as inflation and labor price would impact operations of Coca Cola.

- Countries with high income per capita would have more to spend on products such as beverages.

Social

The Coca Cola Company can be impacted by following social variables:

- Soft drink beverages are considered unhealthy and people are getting health conscious.

This is both a threat and an opportunity for Coca Cola. While sales in traditional brands might go down, Coca Cola can introduce new products in new categories.

- The company has witnessed opposition from social groups in some countries due to the environmental issues surrounding its production.

- Social and culture of a country has a huge impact on food habits of its citizens and this would impact the portfolio that Coca Cola can introduce in the country.

Technological

Technology is used at every step of Coca Cola’s value chain – syrup manufacturing, bottling operations and storage at retail shops. Following technological factors have an impact:

- Coca Cola’s strength is marketing and new marketing and advertisement channels have a big impact on the company. Coca Cola has been quick to embrace new mediums that have developed over the years – radio, television and now internet. It is important for the company to connect to the customers through different channels.

- Different type of packaging has helped Coca Cola drive sales. Apart from the original glass bottle, the beverages are now available in plastic bottles and cans. These are easier to store and transport.

- New machines and processes impact the manufacturing operations. Adoption of new technology allows a company to manufacture more efficiently, with better quality and in greater quantity.

- The beverages need to be cooled before consumption. Therefore, consumption is limited to the places that can provide the facility of cold storage.

Legal

Legal factors include consumer laws, discrimination laws, employment laws, & health/safety laws. Examples are:

- Firms must provide nutritional information of their product to the customer.

- Employees must be provided with at least the required minimum wage and discrimination is not tolerated in the workplace.

- All factories of the firms must abide by OSHA standards and regulations.

If any of these laws change, companies must change their operations and procedures to avoid being fined or even worse, shut down. 

-Coca Cola syrup is a patented trade secret, so that while imitators may tweak or model the formula, the company has legal ownership claim to the beverage.

-In efforts to differentiate themselves from any implications of legal action, Coca Cola has endorsed a healthy living campaign and has developed several alternative brands to the sugar flavoured drink. Brands such as "Coke Zero", "Diet Coke" and "Coke Lite" have been marketed to the health conscious consumer.

Environmental

-The company has embarked on water sustainability campaigns globally to encourage healthy watersheds and water balance throughout their production countries.

-Commitment to sustainable packaging and recyclability and the preservation of soil, air, climate and water protection.

SWOT Analysis

SWOT analysis would give a good insight of the strategic capabilities and resources available and the way these capabilities strengthen the competitive advantage as well as allow the company to exploit new opportunities (Kotler, 1991). SWOT framework analyzes both internal factors (strengths and weaknesses) as well as external factors (opportunities and threats) that define the market environment as well as capability of a firm to respond to the market conditions. At the same time, distinction is also made between positive factors (strengths and opportunities) and negative factors (weaknesses and threats).

Strengths

The Coca Cola Company enjoys the following strengths that have seen the company become the most recognized one in today’s world.

- Brand: The Company has a very strong brand across the globe. The brand has been recognized as one of world’s leading brands by various studies conducted by Interbrand, Business Week and other experts. Apart from Coca Cola, the company owns other top beverages brands such as Fanta, Sprite and Diet Coke. The Company has spent huge amounts of money over more than a century to build a brand that has a high customer recall and is the most recognized one. It also allows the Company to go for brand extensions and introduce various types of beverages.

- Economies of scale: The Coca Cola Company is the largest manufacturer and marketer of non alcoholic beverages in this world. The company sells its products in more than 200 countries. The large scale of operations ensures that the company is able to invest in new markets and reap benefits when the business grows profitable there (Ernst and Young Report, 2012).

- The Coca Cola System: The whole supple chain of Coca Cola and its bottling system is a big strength for the company. It allows the company to target various markets globally and take the bottlers’ help to gain knowledge about the local market. It also allows the company to expand rapidly to new markets without a big upfront investment.

Weaknesses

Though the company has been hugely successful, there are various weaknesses that need to be addressed by the company. These are:

- Criticisms regarding health and environmental issues: Products of the Coca Cola Company are considered to be high in calories and harmful for health. Various groups have advocated healthier drinks over carbonated ones. In 2006, the Company was involved in a controversy in India when government agencies alleged that Coca Cola contains pesticides and is dangerous for health. Such negative publicity can cause a lot of damage to the company, especially in international and growing markets.

- Dropping sales in several countries: In recent years, the company has witnessed zero or negative growth in various key markets. The performance of the company has been weak in North America, which is its largest market, in last few years. The company’s performance has been weak in Japan, Latin America and South East Asia as well. This could prevent Coca Cola from being aggressive in marketing and prevent the company from higher growth overall.

Opportunities

- Inorganic Growth and Acquisitions: The Coca Cola Company has been acquiring various local beverages companies aggressively over the last decade. Also, the company has increased its stake in major bottling operations. This has given the company more control over the entire value chain and allows it to align the goals of these bottling operations with those of the company. The company acquired other companies in almost all major markets around the world. These acquisitions gave head start to Coca Cola in the international markets and allowed the company to diversify its revenue stream.

- Growing healthy drinks and bottled water: The market for carbonated drinks is getting saturated in many Western countries and the trend is to move towards healthier drinks. Also, the market for bottled water is increasing fast globally. Coca Cola has developed and acquired various brands catering to these two segments. Coca Cola can use its strong brand position in carbonated water to increase its presence in other beverages category and take advantage of these growing markets.

Threats

- Changing trends: In carbonated drinks, Pepsico is the only real competitor of Coca Cola. But the trend is to move towards healthier drinks and there is a big threat of substitution facing Coca Cola. Possible substitutes include coffee, tea, milk, juices and energy drinks. The company has already taken steps to address this issue by launching products in the category of healthy drinks.

- Dependence on third party bottling partners: The Coca Cola system of bottling partners, which is a strength for the company, is potentially a threat as well. The company does not have the ownership in most of the bottling operations and makes money by selling syrup to these bottling companies. The interest of The Coca Cola Company can be different from the bottling companies as each of them try to maximize their profits. The major dependence on independent third party vendors is a major risk to the company.

This threat is being addressed by vertical integration as well as entering into long term partnerships with the bottling companies.

- Competition: Pepsico competes fiercely with Coca Cola in most aspects and Coca Cola cannot let down its guard, lest it lose its grip on the market.

Porter’s Five Force Analysis

This analysis would give us a good idea of the competitive environment that the company operates in (Porter, 2008). The following factors define the competitive landscape for Coca Cola.

Competition

The largest competitor for Coca Cola is Pepsi Co. They compete in almost all the markets worldwide. Coca Cola has higher sales worldwide, though Pepsi Co dominates the US market.

There are other players in various beverages category, but none of them as large as Coca Cola or

Pepsi Co. The new competition in the industry is to increase the product portfolio and introduce new variants of carbonated drinks and non-carbonated drinks.

Most of the strengths and weaknesses of Pepsico are similar to those of Coca Cola. Pepsico enjoys good brand value as well as economies of scale. At the same time, it also has come under criticism for health and environmental issues. While Coca Cola operates almost exclusively in beverages segment, Pepsico derive a big share of total revenues from non-beverages category such as chips and oats. This can potentially provide opportunities to Pepsico to take advantages of synergy among various products. While Coca Cola is enjoyed by people from various age groups, Pepsico mainly targets young people.

Threat of new Entrants

Threat of new entrants is very low in this industry and the following factors are responsible:

- Brand name: It has taken these companies decades to build their brand and it’s not easy for a new company to emulate that.

- Distribution channel: The two existing companies have wide distribution channel across the world and it’s difficult to match up to that.

- Huge initial investment: The high cost of setting up manufacturing plants, transportation channel and distribution channel is a big barrier for new entrants.

- Economies of scale: Both the existing companies enjoy large economies of scale that help in keeping the costs down. A new entrant would not be able to match the cost of the bigger companies and would be forced out of the business.

Threat of substitute products

The threat of substitution is high for soft drink industry with products like bottled water, juices, tea and coffee readily available. To take care of this, The Coca Cola Company has increased its presence in these sectors as well. For people who take soft drinks for its caffeine, tea and coffee can be easy substitutes. In some cases, alcoholic beverages such as beer can be a substitute as well. It costs nothing for a customer to substitute a soft drink with another drink and hence there is a high threat of substitution. Many people are moving towards healthier drinks and substituting soft drinks with juices etc.

Supplier power

Supplier power is low in case of Coca Cola. Following are the suppliers for the company:

- Raw materials such as sugar and water are standard and the suppliers can be easily replaced without any problems.

- Bottling equipment manufacturers are suppliers for Coca Cola since the company owns stake in many bottling units. These equipments can be supplied by many companies and hence they have low bargaining power.

- Other factors such as labor, power etc would not be a problem for the company. For all the inputs, Coca Cola has higher bargaining power since it enjoys economies of scale and orders in huge quantities from the suppliers.

Buyer Power

In case of The Coca Cola Company, the bottling units are the buyers since the company sells the syrup to them and rest of the activities are undertaken by them independently. The company, however owns one hundred and five (105) bottling plants and in such case, buyers are the retail outlets.

- Bottling partners have low degree of bargaining power with Coca Cola. Though the company is dependent on bottlers for selling their product to the end consumers, they can replace the bottling partners. To start the business, the bottling company has to invest a lot and this creates a lock in for them, reducing their power.

- The power of mass retailers is moderate. On one hand, the brand of Coca Cola is very strong and the retailers have to store the product to satisfy the customers. On the other hand, the retailers can switch to other drinks without any cost and stop storing the products of Coca Cola.

Barney and Hesterly (2006), describe the VRIO framework as a good tool to examine the internal environment of a firm. They state that VRIO "stands for four questions one must ask about a resource or capability to determine its competitive potential."

The Question of Value

The Question of Rarity

The Question of Imitability

The Question of Organization

Distribution

Value:

- Coca-Cola focuses its distribution more on the fountain market with restaurants. While retail distribution is important, there is bigger margin for fountain sales. Distribution through global markets has proved to be valuable in strengthening their distribution network.

Rarity:

- The size of Coca-Colas distribution network is rare because they deliver their product to many different buyers on an international scale. Coca-Cola only produces the syrup concentrate which it then sends to its bottlers, who distribute to retailers. Coca-Cola has sustained competitive advantage by having a straightforward, efficient channel design.

Imitability:

- The push and pull distribution strategy of Coca-Cola may be imitated in its basic essence, but size of their channels is unique.

Organization:

- Coca-Cola is able to exploit their distribution by entering foreign markets to dominate their market share. For example, in Mexico there is not much clean water to drink. Coca-Cola realizes this and heavily distributes and advertises in Mexico. Producing Coke in Mexico uses the clean water available, forcing Mexican citizens to buy Coca-Cola beverages to satisfy their thirst.

Differentiation

Value:

- Coca-Cola’s product has value in its differentiation from competitors based on its taste. A common reason people say they drink Coke is because "it tastes better than Pepsi. The recipe is one major factor contributing to Coca-Cola’s success. This value is spread to Coca-Cola’s other product lines.

Rarity:

- Coca-Cola differentiation strategy is rare considering that when people thinking of drinking cola, Coca-Cola is typically the first soda that comes to mind. Indirectly engraining an idea that your product is "the" product to choose into consumers’ minds has allowed Coca-Cola to sustain a competitive advantage.

Imitability:

- Coca-Cola experiences imitability, considering in essence it is a standard cola beverage. There are hundreds of generic colas on the market. While the type of product is easily imitated, the specific product of Coke is not imitable.

Organization:

- Coca-Cola uses brand value to exploit its differentiation. Colour, logo design and advertising all play a role in differentiation. They also exploit their wholesome family brand image but advertising towards this segment (Santa/polar bear commercials.)

Coca-Cola

A business’ corporate strategy is aimed at the company’s overall scope and direction. Business strategy is a long term plan of action designed to achieve a set of company goals and objectives. An internationalization strategy is aimed at ideas that will help expand the business abroad. 

Coca-Cola’s number one goal is to maximize growth and profitability to create value for their shareholders. They plan to achieve these goals by

(1) Transforming their commercial models to focus on their customers’ value potential and using a value-based segmentation approach to capture the industry’s value potential.

(2) Implementing multi-segmentation strategies in their major markets to target distinct market clusters divided by consumption occasion, competitive intensity and socioeconomic levels

(3) Implementing well-planned product, packaging and pricing strategies through different distribution channels.

(4) Driving product innovation along there different product categories and achieving the full operating potential of our commercial models and processes to drive operational efficiencies throughout our company.