Analysis presented elsewhere for assessment. Where material has

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of the Coca-Cola
Company and FMSS/Mode of Entry into South Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plagiarism
Declaration:

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‘I certify by my signature/printed name that this is my own work. The
work has not, in whole or in part, been presented elsewhere for assessment.
Where material has been used from other sources it has been properly
acknowledged and referenced. If this statement is untrue I acknowledge that I
will have committed an assessment offence.

I also certify that I have
taken a copy of this assignment, to be made available upon request, which I
will retain until after the Board of Examiners has published results.’

Your Name: Zill-e-elahi Zahoor Choudry / Signed:
Zill-e-elahi Zahoor Choudry 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

In this
report the operations of Coca-Cola in South Africa will be analysed along with
some research being done on how the Coca-Cola Company has become successful in
over 200 countries, including South Africa. There will be a discussion on the
competition that they face in the markets along with how they get their product
from an ingredients list to the end user. Logistics transporting is a key part
of how the Coca-Cola products get moved from one place to the other, they are
able to supply a small shop in the most remote areas of South Africa.

Coca-Cola (MNE) Analysis

In 1886,
Coca-Cola was invented by a pharmacist named John Pemberton and the company was
founded in 1892, located in Atlanta, Georgia; since then it has become one of
the most well-known beverage companies in the world. They own, market and
license over 600 non-alcoholic beverage brands worldwide which includes their
top four brands: Coca-Cola, Diet Coke, Fanta and Sprite.  Their beverages are sold in over 200 countries
(Frue, 2016) and sell over 1.9 billion beverages per day (Coca-Cola, 2017). The
company has a market capital of $182.9 billion as of May 2017 (Forbes, 2017).
In 2016, their revenue totalled to $35.12 billion (USD) (Statista, 2018). They currently
employ over 100,000 employees globally, making them a great investor in people
(Frue, 2016). With great success there is a problem, which is Pepsi; the
competitor of Coca-Cola. Unlike Coca-Cola; Pepsi has branched away from soft
drinks into other products which allow them to be the bigger brand. This can be
seen as an opportunity for Coca-Cola to diversify their product range into
niches which Pepsi hasn’t tapped into yet such as health foods, this will allow
them to branch away from soft drinks and grow their company further. For Coca-Cola
products the main ingredient is water, below is a chart that shows how much
water they used in 2016.

 

 

 

 

 

 

Now if water
was to become scarce due to global warming threats, then Coca-Cola would be in
trouble as they don’t have another line of products to sell. This is why it’s
important for them to find other product lines that use different sort of
ingredients. South Africa is known to have issues with limited clean water so
for Coca-Cola it important to interrogate where, how and why they use water in
daily operations (Africa, 2017).

The graph below shows how Coca-Cola
has reduced the water used in their soft drinks:

 

 

 

 

Industry/Sector Analysis

Coca-Cola
has a net worth of $78.14 billion (USD) in 2017 (Statista, 2017). Their main
sector is non-alcoholic beverages which is primarily sparkling beverages, along
with still beverages such as waters, juices and juice drinks, teas, coffees,
energy and sports drinks. In this beverages market Coca-Cola controls 42% of
the market share along with its competitor Pepsi which is at 31% market share (Nasdaq,
2014). Below is a table that shows the global market share of soft drinks in
2015:

 

 

 

 

 

 

 

 

 

Pepsi has
rivalled Coca-Cola since 1975; both brands have been fighting for more than a
century (Bhasin, 2011). Pepsi has slow caught up to Coca-Cola as they have
gained a great customer base globally. One of the main reasons for this is ‘product
diversity’ which Pepsi has taken on; they sell some of the biggest name snacks
such as Doritos and Cheetos. This has helped them grow as a company. Coca-Cola
still dominates the current market and has created a monopoly across the globe,
with only one competitor Pepsi it can grow and make great profits as it has
been doing since the very start. Other competitors such as Nestle are not as
big competitors to Coca-Cola as Pepsi is.

A new
competitor to enter the market is always possible but to compete with Coca-Cola
branding and street credit would be very difficult but not impossible.
Coca-Cola spent $3.3 billion (USD) on marketing their brand in 2013 (Zmuda,
2014), for a new competitor to rival them they would need a lot of money just
to compete in advertising. The Coca-Cola logo is one of the most well-known
brands in the world along with Pepsi and McDonalds, it has been kept relatively
the same throughout the company history; many generations have grown up knowing
the famous swirly logo. However in 1985 Coca-Cola failed miserably when they
changed the logo to ‘New Coke’ rather than ‘Coca-Cola’. This shows their brand
logo is at the main heart of the company, if it is changed or altered their
share price would most likely drop, like it did in 1985.

Coca-Cola
still makes some profits from other competitors that buyers could buy from too
such as people who drink coffee rather than tea. People are becoming more
health conscious so they would stay away from high sugar content Coca-Cola
products unless they choose the Diet version of the drinks. Coca-Cola has a
stake in the Green Mountain Coffee Roasters which means they make money with a
different product without having to sell it in their Coca-Cola product line.

Coca-Cola
does not sell to the end user directly, it sells through distribution channels
that service fast food chains such as McDonalds, vending machine companies,
college campuses and grocery stores (Butler, 2015). With increased demand
purchases also increase but Coca-Cola must closely monitor the end user price.
At the end of the day they need to sell to their buyers low enough, so they can
also make a profit and having repeat customers. Coca-Cola pricing strategy is
always consistent, for example they won’t be selling Coke for 99p on one day
and £1.05 the next. Although ingredient costs can fluctuate along with
logistics of moving their products from factory to warehouse then to the
distribution channels, Coca-Cola must absorb these changes in their margins
without really affecting their pricing structure (Butler, 2015).

Country Analysis

 

FMSS – Mode of Entry into South
Africa

The
Coca-Cola Company is a non-equity based company, meaning it has a low risk and
low margin on its product. Although their margins are low, 1.9 billion
beverages are sold per day. They have operations in one of its biggest markets
which is South Africa, where they have an Oligopoly of more than 50% market
share (Statista, 2010) which means they are contributing heavily into the South
African economy by creating jobs.  in the
non-alcoholic beverage market. They have done this by using their best market
entry strategies which are: licensing, franchising and equity based entry of
joint ventures, merger and acquisition.

Dunning’s
OLI model fits into Coca-Cola strategy as they have: Ownership advantages such
as: The Coca-Cola name is the second most well-known word after ‘Hello’ (Seed,
2014), this just shows how strong this brand is and sells itself, although marketing
is required to keep the consumer base growing and to compete with other brands.
The brand is protected with trademarks and patents to avoid any opportunist
behaviour from competitors. Dunning claimed that possession of an ownership
advantage was a necessary condition for a firm to become multinational. Their
production techniques are so developed that is costs a fraction of the selling price
to manufacture their product, which gives them high profit margins and
therefore they can sell to their customers at a fair price. The most
comprehensive distribution system that has made Coca-Cola products accessible
to billions of people worldwide. South Africa is a great example of this as
they had limited infrastructure for Coca-Cola to enter the market and so after
they spent nearly $1 billion USD to start operations, you can now find a small
shop selling Coca-Cola products in the middle of nowhere. Other competitors
wouldn’t think about entering a market where there is limited infrastructure
(Opinion, 23rd Nov). Localisation is also a key part of Coca-Cola
success as they have entered markets where their product is not sold unless you
import it, 200 countries are home of Coca-Cola products where they have chosen
key locations of populated countries which will help push consumer demand with
the help of a great infrastructure from creating bottling plants and having an
efficient logistics service from factory to distributors to vending machines
and licensed buyers. In South Africa Coca-Cola has three main locations: Port
Elizabeth, Cape Town and Johannesburg. A disadvantage for Coca-Cola is the TAX
charged on sugar, their main ingredient in most of the beverages they produce.
This policy set by South Africa government a move to tackle obesity and
increased risk on diseases such as type 2 diabetes, heart disease and stroke.

Licensing:

The
Coca-Cola brand is sold in over 200 countries around the world, it sells through
distribution channels that service fast food chains such as McDonalds, vending
machine companies, college campuses and grocery stores (Butler, 2015). Licenses
are given to a partner for a period of 3-5 years, this is to make sure it is a
good fit (Merchandiser, 2014). The main advantage of Coca-Cola licensing is to
design, commercialise and market branded merchandise that extends the brand
experience, connects consumers and drives brand value. The Coca-Cola brand is
well protected with global copyrights and trademarks for their brand identity.
Their well-guarded secret recipe which is said to be kept in an underground vault.
 With the recipe being secret it prevents
counterfeit entering the markets.

Coca-Cola is
successful due to a good infrastructure to start build plants in order to enter
a new market. In 2002, Coca-Cola Fortune (CCF) was born as one of four bottling
companies in South Africa for Coca-Cola, in hope to create a market for their
product as well as to build new canning and bottling plants, purchase or build
new marketplace infrastructure and similar businesses, such as food outlets, in
the region. Throughout the 60’s and 70′ Sabco, the first bottling plant in
South Africa acquired many companies such as: competitor bottlers for Pepsi and
Schwepps along with water and mineral factories. This allowed Coca-Cola to have
a great domination of market share in this region, which it did. Currently one
of their biggest markets is South Africa. In order for a restaurant owner,
grocer, convenience store manager to sell Coca-Cola products they need to
contact the authorised bottler to get the supply of bottles and cans. All
bottling partners work closely with customers — grocery stores, restaurants,
street vendors, convenience stores, movie theatres and amusement parks, among
many others, this is to execute localised strategies developed in partnership
with Coca-Cola.

Since the
CCF plant has been in operation, South Africans enjoy a wide range of
beverages, including Coca-Cola, Coke Light, Coke Zero, Fanta, Sprite, Tab,
Stoney, Iron Brew, Bonaqua, Valpre, Powerade, Minute Maid, Appletiser,
Grapetiser and those from the Schweppes, Sparletta, Krest and Twist groups. If
a retail shop wants to sell any of these brands, they must submit a proposal to
Coca-Cola South Africa (CCSA, 2018). Once they have submitted this CCSA will
then decide whether they will benefit with the license to sell, in terms of
consumer demands and also if it’s profitable for themselves as well as their buyer.
Coca-Cola consumers are not always retailers as there are proposals for
companies who want to sell a sponsorship with their product along with
Coca-Cola products, this can be TV commercials, movies and theatres and more.

Joint Ventures:

Coca-Cola
has taken an equity based mode of entry with Nestle which is a smaller
competitor than Pepsi, this was a high risk and maximum reward strategy. As of
1st January 2018, a well performing 15 year joint venture between
Coca-Cola and Nestle has come to end with their ready-to-drink beverage
(Nestle, 2017). This is due to fierce competition from Lipton iced tea which is
sold by another joint venture between Unilever and PepsiCo (Reuters, 2017).
From this rivalry there is evidence that Pepsi is a major threat to Coca-Cola
and could maybe take over the beverages market. Nestle said on Friday that Coca-Cola would retain a
license to make and sell Nestea in Canada, Spain, Portugal, Andorra, Romania,
Hungary and Bulgaria (Reuters, 2017). The Nestle Waters division, which manages
the brand in several countries including the United States, will also manage
Nestea in European countries not affected by the licensing agreements with Coca-Cola
(Reuters, 2017).

Merger & Acquisition:

In 2014,
Coca-Cola and Gutsche Family investments merged with another Multinational
beverage company SABmiller, headquarter in Working, England. The main reason
for this was to combine the bottling operations of their non-alcoholic
beverages that were to be supplied in Southern and East Africa, along with
supporting economic and social development in South Africa. The main reason for
this acquisition is to remove the chance of a large competitor buying SABmiller
who are one the largest bottling companies in South Africa.

Franchising:

The
licensing system has been around since 1889 when bottling rights began in the
Coca-Cola Company where they were sold to businessmen who were capable of
large-scale bottling and expanding the beverage into new markets. Coca-Cola isn’t
one giant corporation, it is made up of almost 2015 companies (Feloni, 2015). The
Coca-Cola Company licenses its franchises to sell and distribute the end
product using the franchisor’s trademark, trade mark, and logo (Daszkowski,
2017). Many of the bottlers are public companies with great revenues. The
Coca-Cola model is designed so they can move the maximum product with making
enough margin so their customer can also make a profit too (Feloni, 2015).
Coca-Cola is a franchised product distribution system and the largest beverage
company in the world (Daszkowski, 2017). With this model, the franchiser avoids
the costs of manufacturing, storage and distribution of the end product. This
also links in with the pricing strategy where Coca-Cola keeps their pricing
relatively the same depending on how big the customer is, they can’t be selling
a bottle for £1.05 one day and then 80p the next, by keeping the same price
they have enough margins to cover any additional costs for the logistics involved
with moving their product.

The Coca-Cola
franchiser may only sell the Coca-Cola product due to the agreement in place in
their contract which could be based upon demand from the end user. Whereas,
McDonalds who is one of the biggest buyers of the Coca-Cola products, they sell
many variety of their beverages using the soda fountain machines, this could be
to give the end user a choice of different products although they are all owned
by Coca-Cola Company. This could be an exclusive to McDonalds only due to their
large consumer base which would mean Coca-Cola would get repeat business along
with healthy profits.

As Coca-Cola
is a non-equity based company, their main advantage to franchise is a low cost
and low risk strategy to sell their products. Due to a worldwide presence the
brand sells itself. The disadvantage of this strategy would be to quality
control which could potentially damage brand image. Coca-Cola water sourced
locally at every plant, from a range of sources—well water to vastly varying
municipal waters, it is essential that specific filtering and treatment
processes be used so that the water that ends up in the final product is the
same at every plant. If it’s not, the bottled, canned, or tapped Coke will not
be the same. Even with
such controls, Coca-Cola does not leave the quality of the final product to
chance. Rather, it conducts at-trade sampling for assurance. Coca-Cola
contracts with third parties to purchase its products from various retail
establishments. The products are analysed and tested for everything from taste
to micro to label coding and alignment. The results are compiled every month,
upon which each plant is scored and analyses are made for continuous
improvement in that plant and across the system (Lupo, 2013).

 

Conclusion

From these strategies the best one to
choose would be licensing and franchising because they are relatively low risk
and in Coca-Cola the best for high margins. With a good legal framework
Coca-Cola can ensure their trademarks and patents are protected through secrecy.
Instead of licensing their knowledge to independent local producers, Coca-Cola
can exploit themselves in their own production facilities. In effect, they
internalise the market in knowledge within the firm. Internalisation leads to multinationalism
because knowledge is a public good (Buckley and Casson, 1976). The firm becomes
the owner of production plants in different countries and therefore a MNE
(Multinational Enterprise). With this in place the company has low risk of
opportunist behaviour. To keep market share high it is important to keep an eye
on close competitors in the South Africa market. Most of the bottling companies
have been taken over by Coca-Cola but there is always a chance of a new
competitor such as Pepsi to gain a higher market share by increasing supplies
into this region. The market is an Oligopoly with Coca-Cola and Pepsi as the
main players, it is very difficult for a new company to enter and compete with
them.

 

 

 

 

 

 

 

Bibliography

https://www.forbes.com/companies/coca-cola/

SWOT Analysis of Coca Cola

http://www.coca-colacompany.com/content/dam/journey/us/en/private/themes/2016-sustainability-update/Water-Use-By-Source-01.png – Coca-Cola Chart Water Use – Date
Accessed: 09/01/2018

http://www.coca-colacompany.com/content/dam/journey/us/en/private/themes/2016-sustainability-update/Coca-Cola-2016-Sustainability-Update-Water-Efficiency-Chart.png – Coca-Cola Water Efficiency Graph –
Date Accessed 09/01/2018

https://www.iol.co.za/business-report/companies/coca-cola-beverages-sa-announces-726-million-litres-of-water-savings-9341663 – Coca-Cola Beverages SA announces
726 million litres of water savings – Date Accessed 09/01/2018

http://www.nasdaq.com/article/coke-vs-pepsi-by-the-numbers-cm337909 – Coke Vs. Pepsi: By The Numbers –
Date Accessed 09/01/2018

https://image.slidesharecdn.com/pepsicoke-170531115423/95/pepsi-vs-coke-7-638.jpg?cb=1497940639 – Market share pie chart– Date
Accessed 09/01/2018

https://www.slideshare.net/SameerDhurat/pepsi-vs-coke-76521610 Pepsi vs Coke – Date Accessed
09/01/2018

https://www.nestle.com/media/news/nestle-coca-cola-company-end-beverage-partners-worldwide-joint-venture – Nestle + Coca Cola – Date Accessed
09/01/2018

https://uk.reuters.com/article/us-nestle-coca-cola/nestle-and-coke-end-nestea-iced-tea-venture-idUKKBN16A1D8 – Nestle and Coke venture ending –
Date Accessed 09/01/2018

http://adage.com/article/cmo-strategy/coca-cola-maintains-marketing-spend-amid-sluggish-demand/294251/ – Coca-Cola marketing spend

http://www.coca-cola.co.uk/faq/how-many-cans-of-coca-cola-are-sold-worldwide-in-a-day – How many drinks are sold per day?

http://fortune.com/2017/03/03/nestle-coca-cola-coke-nestea-iced-tea/
– Nestle joint
venture

http://www.qualityassurancemag.com/article/qa0413-coca-cola-company-profile/
– Quality control assurance