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Description
Coca-Cola is a leading global soft beverage company. About 70% of the company’s revenues are related to sparkling beverages and 30% to still water. In terms of sales, the company operates on a worldwide basis. Its core brands include Coca-Cola, Sprite, Minute Maid, etc. Coca-Cola achieves annual sales in the region of USD 49 billion with only 20% of sales occurring in its home market, the US. The infrastructure requirements for bottling are capital intensive, but Coca-Cola mostly outsources it to third parties or company close operations.

When it comes to brand awareness, Coca-Cola is a powerhouse and is used as a textbook example by many marketers. The company benefits from an extensive network of points of sales, with each one playing a part in the global product awareness and marketing effort. In most markets, Coca-Cola maintains and runs its own distribution retail network, and therefore the company is able to place its products in key store locations. This gives the company a tremendous competitive edge over the competition which relies on the services of third parties for the distribution of the products.  The firm’s key product is among the few products, (if not the only), which can be found in more than 200 countries. In the past decades, the company’s sales increases were driven by higher EM  sales, while sales were stagnant to declining in DM . In DM, higher consumer awareness about carbonated beverages has changed consumer behavior, consumers have shifted demand to trendier products such as still water, fresh juices and high-quality coffee brands.

Over the next decade, it can be assumed that the company will be able to grow its business as it has done in the past. Its anticipated increase in sales will be split as follows: price increase: 1% to 1.5% (annually) and volume growth: 3.5% to 4% (annually). Operating margins should remain constant in the region of 27%, +/- 2% for FX headwind and other adjustments. Because of increased operating efficiencies and share repurchase programs, long-term EPS growth is about 8% annually. As a pure consumer staple, Coca-Cola has a high PE of over 20 times at present and a dividend yield of 2.5%, below dividend yields of similar companies. The company’s principal challenge is counterbalancing the declining sales of carbonated soda. It tried to introduce still water and similar products, but it is so far unable to generate traction. The addition of complementary products might produce the opposite effect, i.e. higher marketing and infrastructure cost, with sales of carbonated products declining even quicker than anticipated.     

The management has implemented a “2020 Vision” aimed at long-term growth rather than quarterly results. Furthermore and in order to support this, a number of high ranking people were offered board positions: Mr Howard Buffet (son of Warren), Mr Evan Greenberg (CEO of Ace), and ex-Chicago Mayor Mr Richard M. Daley.


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