Coca-Cola Company

A.

Case Abstract
Coca Cola (www.cocacola.com) is a comprehensive business policy and strategic management
case that includes the companys fiscal year-end December 2006 financial statements,
competitor information and more. The case time setting is the year 2007. Sufficient internal and
external data are provided to enable students to evaluate current strategies and recommend a
three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coca Colas
common stock is publicly-traded on the New York Stock Exchange under the ticker symbol KO.
Coca Cola operates in over 200 nations around the world and sells carbonated and non
carbonated beverages. Coca Colas line of non carbonated drinks includes: water, juice, and
teas. The company has over 70,000 employees and is led by CEO Neville Isdell.
The Coca-Cola Companys (Cokes) operating segments include 1) Africa, 2) East, South East
Asia & Pacific Rim, 3) European Union, 4) Latin America, 5) North America, 6) North Asia,
Eurasia, and the Middle East, and 7) bottling investments. Not all soft drink products/flavors of the
company are available in all the operating groups.
The Coca-Cola Company has two major rivals: PepsiCo and Cadbury Schweppes PLC.
Its interesting to note that PepsiCo has more that double the employees as Coca-Cola as listed
in Exhibit 6.
Groupe Danone competes to a lesser degree with C
oke. The number 3 soft drink producer, Cadbury Schweppes PLC (behind Coca-Cola and
PepsiCo Inc.), is a diversified company that produces and markets beverages, chocolate, and
chewing gum. Cadbury plans to divest its beverage division in 2007 of PepsiCo, Coca Cola
Company, and Cadbury Schweppes PLC. Federal regulations may prohibit PepsiCo and Coke
from bidding for Cadburys carbonated soft drink business. Analysts however believe the brand
Snapple, which Cadbury sells, would be a good fit for Coke. PepsiCo would likely benefit most
from acquiring Cadburys Mexican assets with such strong brands as Squirt, Crush, and Canada
Dry.

B.

Vision Statement (actual)

To maintain our reputation as the leading cola company in the world.

C.

Mission Statement (actual)

Everything we do is inspired by our enduring mission:

To Refresh the World... in body, mind, and spirit.

To Inspire Moments of Optimism... through our brands and our actions.
To Create Value and Make a Difference... everywhere we engage.

At Coca Cola we believe our main responsibility is providing customers (1) with refreshing
beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit any occasion in
their day to day lives (6). Our signature product, Coke (7), is a favorite around the world and a
wide variety of our products are sold in over 200 nations (3). We use the only the most
sophisticated equipment (4) to process and make our products to ensure each glass of Coke
product is as good as the last (5). Our employees (9) are fairly compensated and we practice fair
trade in all markets we compete. We value our responsibility to all communities we serve and
support many educational and leadership programs (8).

1.
2.
3.
4.
5.
6.
7.
8.
9.
D.

Customer
Products or services
Markets
Technology
Concern for survival, profitability, growth
Philosophy
Self-concept
Concern for public image
Concern for employees

External Audit
Opportunities
1. Bottled water consumption has increased 11 percent.
2. According to the S&P Industry Survey, consumers are drawn to new smaller beverage brands
that are not sold on a mass scale.
3. Word Economic Forums annual Davos, Switzerland gathering grants international voice.
4. Less developed countries are in desperate need to improve community water supplies.
5. Energy drink sales are expected to increase 7 to 8 percent in 2007.
6. Disposable income has increased 6.2 percent.
7. Consumers are striving to drink and eat their way to better health than pervious generations.
8. EPS is expected to rise 7 to 8 percent in 2007.
Threats
1. Consumption of American beverages is denounced by foreign officials in areas where
conflicting interest exist.
2. Multiple lawsuits against the new Enviga beverage for calorie burning claims in
advertising
3. Smaller, lesser known brands are turning to major beer distributors for bottling.
4. Overall carbonated drink sales have been flat due to links of sugar to obesity and high
fructose corn syrup to heart disease.
5. Pepsi is more diversified offering beverage and food products.
6. High cost of commodities such as sugar, and metals used in production of cans.
7. Many smaller companies are fierce competitors around the world in their local markets.

CPM Competitive Profile Matrix

Critical Success
Factors
Market Share
Price Comp
Financial Position
Product Quality
Product Lines
Customer Loyalty
Employees
Marketing
Total

Weight
0.15
0.10
0.12
0.15
0.15
0.15
0.11
0.07
1.00

Coca-Cola
Rating
Weighte
d Score
4
0.60
3
0.30
4
0.48
3
0.45
4
0.60
4
0.60
3
0.33
3
0.21
3.71

Pepsi
Rating
3
3
4
3
4
4
3
3

Weighted
Score
0.45
0.30
0.48
0.45
0.60
0.60
0.33
0.21
3.56

Cadbury Schweppes
Rating
Weighted
Score
2
0.30
3
0.30
3
0.36
3
0.45
3
0.45
3
0.45
3
0.33
3
0.21
2.85

External Factor Evaluation (EFE) Matrix

Key External Factors
Opportunities
1.
Bottled water consumption has
increased 11 percent.
2.
According to the S&P Industry
Survey, consumers are drawn to new
smaller beverage brands that are not sold
on a mass scale.
3.
Word Economic Forums annual
Davos,
Switzerland
gathering
grants
international voice.
4.
Less developed countries are in
desperate need to improve community
water supplies.
5.
Energy drink sales are expected
to increase 7 to 8 percent in 2007.
6.
Disposable
income
has
increased 6.2 percent.
7.
Consumers are striving to drink
and eat their way to better health than
pervious generations.
8.
EPS is expected to rise 7 to 8
percent in 2007.
Threats
1.
Consumption
of
American
beverages is denounced by foreign officials
in areas where conflicting interest exist.
2.
Multiple lawsuits against the new
Enviga beverage for calorie burning claims
in advertising
3.
Smaller, lesser known brands are
turning to major beer distributors for bottling.
4.
Overall carbonated drink sales have
been flat due to links of sugar to obesity and
high fructose corn syrup to heart disease.
5.
Pepsi is more diversified offering
beverage and food products.
6.
High cost of commodities such as
sugar, and metals used in production of
cans.
7.
Many smaller companies are fierce
competitors around the world in their local
markets.
TOTAL

E.

Weight

Rating

Weighted
Score

0.06

0.24

0.05

0.10

0.02

0.04

0.02

0.04

0.06

0.18

0.05

0.15

0.07

0.21

0.07

0.28

0.02

0.06

0.04

0.08

0.06

0.12

0.10

0.20

0.20

0.60

0.10

0.30

0.08

0.24

1.00

2.84

Internal Audit
Strengths

1.
2.
3.
4.
5.
6.
7.

Product line has over 400 brands.

Strong global presence, located in over 200 countries.
Long history has built excellent brand recognition.
Partnership longevity with established sporting events including the Olympics.
Industry leader in market capitalization with $112 billion.
Return on Equity yielded 30 percent in 2006.
Leader of dividend yields of 2.6 percent. The company has had 43 consecutive years of an
annual dividend increase.
8. Joint venture between The Coca Cola Company and Nestle has resulted in the establishment
of Beverage Partners Worldwide (BPW).
9. Coca-Cola has formed a strong partnership with McDonalds, with McDonalds becoming their
largest customer.
Weaknesses
1. Product line is limited to beverages.
2. A failed $16 billion acquisition of Quaker Oats hinders long-term growth.
3. Negative publicity in India because of water issues, has led to poor brand image and
hindered growth there.
4. Lack of management willingness to place foreign products into American markets.
5. Marketing deficiencies due to turnover in leadership and a 16 percent decrease in advertising
spending.
6. Coca Colas inventory turnover is only 5.4 compared to Pepsi Co.s 8.0.
Financial Ratio Analysis (December 2006)
Growth Rates %
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)
Dividends (5-Year Annual Avg.)
Price Ratios
Current P/E Ratio
P/E Ratio 5-Year High
P/E Ratio 5-Year Low
Price/Sales Ratio
Price/Book Value
Price/Cash Flow Ratio
Profit Margins
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
5Yr PreTax Margin (5-Year Avg.)
5Yr Net Profit Margin (5-Year Avg.)
Financial Condition
Debt/Equity Ratio
Current Ratio
Quick Ratio
Interest Coverage
Leverage Ratio
Book Value/Share
Investment Returns %

Coca Cola
19.20
8.30
13.30
6.54
5.01
11.49

Industry
22.20
25.70
30.00
8.45
9.38
12.61

SP-500
11.60
17.10
9.30
13.09
19.82
10.00

25.4
NA
NA
5.00
6.97
21.10

26.2
49.9
20.7
3.96
5.71
19.60

20.3
26.8
6.8
2.37
3.45
10.70

64.2
26.0
19.8
64.4
27.9
21.1

52.7
17.5
14.2
59.1
20.1
14.9

34.5
17.8
12.6
34.3
16.4
11.4

0.49
0.8
0.6
55.1
2.1
8.52

0.69
1.0
0.7
41.0
2.5
10.25

1.06
1.1
0.9
31.8
3.7
18.53

Return On Equity
28.9
Return On Assets
14.9
Return On Capital
22.6
Return On Equity (5-Year Avg.)
32.0
Return On Assets (5-Year Avg.)
16.7
Return On Capital (5-Year Avg.)
24.6
Management Efficiency
Income/Employee
76,690
Revenue/Employee
386,732
Receivable Turnover
9.8
Inventory Turnover
5.4
Asset Turnover
0.8
Adapted from www.moneycentral.msn.com
Date
12/06
12/05
12/04
12/03
12/02

Avg. P/E
20.30
21.00
23.30
25.00
31.10

Price/Sales
4.71
4.18
4.65
5.99
5.56

Date

Book
Value/ Debt/Equity
Share
12/06
$7.30
0.27
12/05
$6.90
0.35
12/04
$6.61
0.45
12/03
$5.77
0.38
12/02
$4.78
0.45
Adapted from www.moneycentral.msn.com

22.0
11.2
16.9
25.4
12.6
18.2

24.9
7.6
10.2
18.5
6.4
8.6

56,327
360,922
10.1
6.8
0.8

92,892
806,706
14.3
7.8
0.8

Price/Book
6.61
5.84
6.29
8.79
9.18

Net Profit Margin (%)

21.1
21.1
22.3
20.8
20.3

ROE (%)

ROA (%)

30.0
29.8
30.4
30.9
33.7

17.0
16.6
15.4
15.9
16.3

Interest
Coverage
28.7
25.4
29.1
29.3
27.4

Net Worth Analysis (December 2006 in millions)

1. Stockholders Equity + Goodwill = 17,000 + 1,400
2. Net income x 5 = $5,000 x 5=
3. Share price = $58.00/EPS 2.34 =$24.78 x Net Income $5,000=
4. Number of Shares Outstanding x Share Price = 1,600 x $58.00 =
Method Average

$ 18,400
$ 25,000
$ 123,931
$ 92,800
$65,032

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors
Strengths
1.
Product line has over 400 brands.
2.
Strong global presence, located in over
200 countries.
3.
Long history has built excellent brand
recognition.
4.
Partnership longevity with established
sporting events including the Olympics.
5.
Industry leader in market capitalization with
$112 billion.
6.
Return on Equity yielded 30 percent in

Weight

Rating

Weighted
Score

0.09
0.10

4
4

0.36
0.40

0.06

0.24

0.05

0.20

0.12

0.48

0.04

0.12

2006.
7.
Leader of dividend yields of 2.6 percent.
The company has had 43 consecutive years of an
annual dividend increase.
8.
Joint venture between The Coca Cola
Company and Nestle has resulted in the
establishment of Beverage Partners Worldwide
(BPW).
9.
Coca-Cola has formed a strong partnership
with McDonalds, with McDonalds becoming their
largest customer.
Weaknesses
1.
Product line is limited to beverages.
2.
A failed $16 billion acquisition of Quaker
Oats hinders long-term growth.
3.
Negative publicity in India because of water
issues, has led to poor brand image and hindered
growth there.
4.
Lack of management willingness to place
foreign products into American markets.
5.
Marketing deficiencies due to turnover in
leadership and a 16 percent decrease in
advertising spending.
6.
Coca Colas inventory turnover is only 5.4
compared to Pepsi Co.s 8.0.
TOTAL
F.

0.04

0.16

0.06

0.24

0.10

0.40

0.09
0.10

1
1

0.09
0.10

0.03

0.06

0.02

0.04

0.05

0.10

0.05

0.10

1.00

3.09

SWOT Strategies
SO Strategies
1. Improve environmental awareness with community involvement (S2, S4, O2, O3).
2. Market new diet drinks that have healthier sugar substitutes (S5, O7).
WO Strategies
1. Market international beverages to American consumers (W4, O2, O6, O7).
2. Increase marketing efforts for bottled water (W5, W6, O1).
ST Strategies
1.
2.
T5).

Acquire Krispy Kreme (KKD) to help diversify the product line (S5, T5).
Acquire Golden Enterprises (GLDC) to help diversify the product line (S5,

WT Strategies
3.
4.
(W1, T5).

Acquire Krispy Kreme (KKD) to help diversify the product line (W1, T5).
Acquire Golden Enterprises (GLDC) to help diversify the product line

G.

SPACE Matrix

FS

Conservative

Aggressive

6
5
4
3
2
1
CA

-6

-5

-4

-3

-2

-1

IS

-1
-2
-3
-4
-5
-6
Defensive

Financial Strength (FS)

Return on Assets (ROA)
Leverage
Net Income
Income/Employee
Inventory Turnover
Financial Strength (FS) Average

ES

6
6
6
6
3
5.4

Competitive

Environmental Stability (ES)

Rate of Inflation
Technological Changes
Price Elasticity of Demand
Competitive Pressure
Barriers to Entry into Market
Environmental Stability (ES) Average

-3
-2
-2
-6
-3
-3.2

Competitive Advantage (CA)

Market Share
Product Quality
Customer Loyalty
Technological know-how
Control over Suppliers and Distributors
Competitive Advantage (CA) Average

-1
-1
-1
-2
-2

Industry Strength (IS)

Growth Potential
Financial Stability
Ease of Entry into Market
Resource Utilization
Profit Potential

5
6
4
5
5

-1.4 Industry Strength (IS) Average

5.0

x-axis: -1.4 + 5.0 = 3.6

y-axis: 5.4 + -3.2 = 2.2
Coordinate: (3.6, 2.2)
H.
Grand Strategy Matrix

Rapid Market Growth

Quadrant II

Quadrant I

Weak
Competitive
Position

Strong
Competitive
Position

Quadrant III

Quadrant IV
Slow Market Growth

I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score
Strong
3.0 to 4.0
I

Average
2.0 to 2.99
II

Weak
1.0 to 1.99
III

Medium
The EFE Total 2.0 to 2.99
Weighted
Score

IV

VI

Low
1.0 to 1.99

VII

VIII

IX

High
3.0 to 3.99

Coca Cola

Grow and Build

Divisions
North America
Bottling Investments
North Asia, Eurasia & Middle East

Percent Revenue 2006

29.1
21.2
16.5

European Union
Latin America
Africa
East, South Asia & Pacific Rim
Corporate

J.

14.6
10.3
4.6
3.3
0.4

QSPM

Strategic Alternatives
Acquire KKD and
GLDC
Key
Internal
Weight
Strengths
1. Product line has over 400 brands.
2. Strong global presence, located in over
200 countries.
3. Long history has built excellent brand
recognition.
4. Partnership longevity with established
sporting events including the Olympics.
5. Industry leader in market capitalization
with $112 billion.
6. Return on Equity yielded 30 percent in
2006.
7. Leader of dividend yields of 2.6 percent.
The company has had 43 consecutive years
of an annual dividend increase.
8. Joint venture between The Coca Cola
Company and Nestle has resulted in the
establishment
of
Beverage
Partners
Worldwide (BPW).
9. Coca-Cola
has
formed
a
strong
partnership with McDonalds, with McDonalds
becoming their largest customer.
Weaknesses
1. Product line is limited to beverages.
2. A failed $16 billion acquisition of Quaker
Oats hinders long-term growth.
3. Negative publicity in India because of
water issues, has led to poor brand image and
hindered growth there.
4. Lack of management willingness to place
foreign products into American markets.
5. Marketing deficiencies due to turnover in
leadership and a 16 percent decrease in
advertising spending.
6. Coca Colas inventory turnover is only 5.4

0.09
0.10

AS
2
---

TAS
0.18
---

Produce
new
diet drinks that
have healthier
sugar
substitutes
AS
TAS
4
0.36
-----

0.06

0.12

0.24

0.05

---

---

---

---

0.12

0.48

0.36

0.04

0.16

0.12

0.04

---

---

---

---

0.06

---

---

---

---

0.10

---

---

---

---

0.09
0.10

4
---

0.36
---

1
---

0.09
---

0.03

---

---

---

---

0.02

---

---

---

---

0.05

---

---

---

---

0.05

0.20

0.05

Factors

10

compared to Pepsi Co.s 8.0.

SUBTOTAL

Key
Weight

External

Opportunities
1. Bottled water consumption has increased 11
percent.
2. According to the S&P Industry Survey,
consumers are drawn to new smaller beverage
brands that are not sold on a mass scale.
3. Word Economic Forums annual Davos,
Switzerland gathering grants international voice.
4. Less developed countries are in desperate
need to improve community water supplies.
5. Energy drink sales are expected to increase
7 to 8 percent in 2007.
6. Disposable income has increased 6.2
percent.
7. Consumers are striving to drink and eat their
way to better health than pervious generations.
8. EPS is expected to rise 7 to 8 percent in
2007.
Threats
1. Consumption of American beverages is
denounced by foreign officials in areas where
conflicting interest exist.
2. Multiple lawsuits against the new Enviga
beverage for calorie burning claims in
advertising
3. Smaller, lesser known brands are turning to
major beer distributors for bottling.
4. Overall carbonated drink sales have been
flat due to links of sugar to obesity and high
fructose corn syrup to heart disease.
5. Pepsi is more diversified offering beverage
and food products.
6. High cost of commodities such as sugar,
and metals used in production of cans.
7. Many smaller companies are fierce
competitors around the world in their local
markets.
SUB TOTAL
SUM TOTAL ATTRACTIVENESS SCORE
K.

1.00

1.50

1.22

Factors

Acquire KKD and

GLDC

0.06

AS
---

TAS
---

Produce new diet

drinks that have
healthier
sugar
substitutes
AS
TAS
-----

0.05

0.05

0.15

0.02

---

---

---

---

0.02

---

---

---

---

0.06

---

---

---

---

0.05

---

---

---

---

0.07

0.14

0.28

0.07

0.28

0.21

0.02

---

---

---

---

0.04

---

---

---

---

0.06

---

---

---

---

0.10

0.20

0.40

0.20

0.80

0.40

0.10

---

---

---

---

0.08

---

---

---

---

1.47
2.97

1.44
2.66

Recommendations
The QSPM strategies assessed whether acquiring KKD and GLDC (a potato chip and snack food
company) was a better option than producing a new diet soda line made form more healthy sugar
alternatives. Both scores on the QSPM are relatively close and given the financial condition of
KKD and GLDC, it is recommended Coca Cola undertake both strategic alternatives. The Net

11

Worth of both companies is provided below. It is estimated it would cost $200 million to research,
produce and market the new diet drinks.
Krispy Kreme (KKD) Net Worth January 2008 (in millions).
1. Stockholders Equity + Goodwill = 79 + 28
2. Net income x 5 = $-42 x 5=
3. Share price = $2.73/EPS -0.94 = NAx Net Income $-42=
4. Number of Shares Outstanding x Share Price = 65 x $2.73 =
Method Average

$ 107
$ NA
$ NA
$ 177
$142

Golden Enterprises (GLDC) Net Worth January 2008 (in millions).

1. Stockholders Equity + Goodwill = 19.4 + 0
2. Net income x 5 = $1.2 x 5=
3. Share price = $2.95/EPS 0.19 =$15.52 x Net Income $1.2=
4. Number of Shares Outstanding x Share Price = 11.2 x $2.95 =
Method Average
L.

$ 19.4
$ 6.0
$ 18.6
$ 33.0
$19.3

EPS/EBIT Analysis
$ Amount Needed: 360M
Stock Price: $58
Tax Rate: 35%
Interest Rate: 5%
# Shares Outstanding: 1,600M

EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS

Common Stock Financing

Recession
Normal
Boom
4,000,000,000
6,000,000,000 8,000,000,000
0
0
0
4,000,000,000
6,000,000,000 8,000,000,000
1,400,000,000
2,100,000,000 2,800,000,000
2,600,000,000
3,900,000,000 5,200,000,000
1,606,206,897
1,606,206,897 1,606,206,897
1.62
2.43
3.24

Recession
4,000,000,000
18,000,000
3,982,000,000
1,393,700,000
2,588,300,000
1,600,000,000
1.62

Debt Financing
Normal
6,000,000,000
18,000,000
5,982,000,000
2,093,700,000
3,888,300,000
1,600,000,000
2.43

EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS

70 Percent Stock - 30 Percent Debt

Recession
Normal
Boom
4,000,000,000
6,000,000,000 8,000,000,000
5,400,000
5,400,000
5,400,000
3,994,600,000
5,994,600,000 7,994,600,000
1,398,110,000
2,098,110,000 2,798,110,000
2,596,490,000
3,896,490,000 5,196,490,000
1,604,344,828
1,604,344,828 1,604,344,828
1.62
2.43
3.24

70 Percent Debt - 30 Percent Stock

Recession
Normal
Boom
4,000,000,000 6,000,000,000 8,000,000,000
12,600,000
12,600,000
12,600,000
3,987,400,000 5,987,400,000 7,987,400,000
1,395,590,000 2,095,590,000 2,795,590,000
2,591,810,000 3,891,810,000 5,191,810,000
1,601,862,069 1,601,862,069 1,601,862,069
1.62
2.43
3.24

Boom
8,000,000,000
18,000,000
7,982,000,000
2,793,700,000
5,188,300,000
1,600,000,000
3.24

12

13