Coca-Cola Great Britain Industry Analysis - Free Essay Example

Coca-Cola, Great Britain Industry Analysis Summary The following is a survey of the soft drink industry from the perspective of the company Coca-Cola, Great Britain outlining the various industry environment forces and competition climate. It evaluates the companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s capacity in term of its competitiveness and competencies, and offers some recommendation for medium-long term strategies. Table of Content Company Background Coca Cola, Great Britain (CCGB) Soft Drink Industry and Key strategic Issues EPISTLE Analysis Environmental impacts Psychological impacts Institutional Political impacts Social impacts Technological impacts Legal impacts Economic impacts Porters Five Forces Rivalry Threats of substitutes Buyers power Threats of entry Suppliers power Evaluation Analysis of Key Activities Competencies and competitiveness Comparisons Positioning Critical Success Factors Recommendatio ns References Appendices Invented on 8th May 1886 by Dr. John Styth Pemberton in Atlanta, Georgia, USA, Coca-Colas inventor did not realize the name Coca-Cola would one day take over the world by storm. Coca-Cola was sold as soda fountain in Jacobs Pharmacy in Atlanta with annual rate of sales amounting to $50 compared to todays average consumption rate of more than one billion drinks per day in 200 countries. Thus Coca-Cola had a humble beginning but robust current success (Canadean 2004). Coca-Cola first came to the United Kingdom in 1900 when Charles Candler brought the syrup on a visit to London. Soon the UK also began regular soda fountain sales at various locations including Selfridges and The London Coliseum. More than a century later, Coca-Cola is still celebrated as a historic favourite soft drink in the UK endorsed by public, celebrities and athletes alike (Canadean 2004). With the acquisition of Cadbury Schweppes plc in 1999, Coca-Cola has increased its product range in Britain and elsewhere to include Coca-Cola, Diet Coke , Coca-Cola Cherry, Fanta, Sprite, Lilt and Five Alive as well as Dr. Pepper, Oasis, Kia-Ora and Malvern water to name a few. The Coca-Cola brand thus became the focus for CCGBs operations for product innovation, business efficiency and future development as it increased diversification and niche markets for the health conscious groups and athletes (Canadean 2004). In 2004, Coca-Colas market share in the carbonated soft drinks category in the UK had been 45.3 percent while in the non-alcoholic beverages it has a share of 9.9 percent (Canadean 2004). The company in the UK operate at two levels: Coca-Cola Great Britain (CCGB) is the marketer for The Coca-Cola Company brand to consumers and to protect its trade marks in the UK. On the other hand, the operational level is handled by Coca-Cola Enterprises Ltd. which is the local bottler responsible for the manufacturing, distribution, sales and trade marketing of CCGB. These two partnering organizations is a system which has been c reated to further the companys strategy locally in the UK along with its 5000 employees in Great Britain (CCGB Website 2005). The food and drink manufacturing industry in the UK has a turnover of  £66bn, accounting for 14.8 percent of the total manufacturing sector. It employs some 500,000 people which represent 13.7 percent of the manufacturing workforce in the UK. Exports in 2004 account for  £9.7bn while imports came to about  £21.9bn. It is the largest spending category among industries whereby consumerà ¢Ã¢â€š ¬Ã¢â€ž ¢s expenditure in food and drink came to  £147.7bn. In 2003-4 the average gross weekly household income had been  £570 out of which  £418 had been the average household expenditure. Of this  £43.50 was on food and non-alcoholic drinks (Food and Drink Federation 2005). More narrowly, soft drink consumption in 2004 account for sales of  £11 billion out of which  £1.6 billion had been VAT revenues. The soft drinks industry employs about 20,000 people. Consumption average per person in the UK during 2004 had been 229 litres. According to the British Soft Drink Association the average has fallen from 96 litres per head to 82 litres since 1984 due to the rise in demand for bottled water and low calorie drinks. (Euromonitor Report 2004). According to a Euromonitor report on soft drink industry, 2004 had been a year categorized by rising interest rates, reduced sales, and decreased optimism from the consumers. Manufacturers in an attempt to salvage their performance increased spending in promotions, sponsorship and discounted products. One of the reasons for the decreased sales in soft drinks had been perhaps due to the fear of child and adult obesity in the UK forcing many consumers to forego their regular sugar carbonates in-take and instead opts for diet carbonates, fruit juices and bottled water. Soft drink manufacturers continue to create variety in the diet category so as to offer to this niche market. Alternatively, the sports or energy drinks category have also increased in its popularity due to the special events such as Euro 2004, Wimbledon and Olympics. These events helped marketers to exploit opportunities in salvaging their sales levels which they have managed to secure functional drinks market of about 83 percent in 2004. This niche market along with the diet market seem to have gained support from consumers as there is a growing number of sports drinks available in vending machines along with diet drinks (Euromonitor Report 2004; British Soft Drink Association 2005). As a mature demand market, soft drinks are lagging in innovation and brand categories as opposed to other industries. The mature product types have concentrated on brand extension whereas consumers are looking for innovations so that they can have more products to choose from. Nevertheless, the soft drinks industry is considered to be one of the most successful despite its temporary downturn. The future is inherent in product category like fruit/vegetable juices which has grown 4 percent in 2004 as opposed to bottled water by 9 percent and carbonates 3 percent. Health consciousness will drive consumers to more healthy options which create more opportunities for the soft drinks players (Euromonitor Report 2004; British Soft Drink Association 2005) Environmental impacts The soft drinks industry in the previous years has experienced a decrease in sales growth due to the adverse effects of the natural environment. Bad weather experiences as well as global climate changes have had a great impact on the local consumers. Summer sales have not increased due to decreased sunny days, a factor critical for an industry which relies on seasonal sales. For the year 2001 for example, industry saw a decrease in consumption level in the UK (Britvic Soft Drink Category Report 2003). The British Soft Drinks Association (2005) has also predicted that the climate change would continue to impact industries as far as 2010. Psychological impacts Recent debates on public health have given rise to the fear of obesity among children and adults especially women. This has given rise to a change in the perception of consumers that soft drinks with high sugar content is harmful for health forcing many to eliminate soft drinks from their average in-take and some turning to fruit juices, diet drinks and bottled water. This psychological fear has given rise to a new trend in the industry. According to Christopher Banks President of British Soft Drinks Association, Over the past twenty years, while overall consumption of soft drinks has risen by 129 percent, the total added sugar content of those drinks has barely increased at all. Growth in diet drinks, demand for low calories, no added sugar drinks, and bottled waters thus have replaced the growth of normal soft drinks (British Soft Drinks Association 2005). Institutional Political impacts The government in the interest of the consumers have enforced stricter regulations on soft drinks industry. Accurate and meaningful labelling information to construct a balanced diet has been mandated. Information such as nutrients, calories and health values allow consumers to have better choices in constructing a balanced diet. Association and exports to the European Union have also subjected the industry to restrictive approaches to nutrition and health claims in foodstuffs by manufacturers (British Soft Drinks Association 2005). Social impacts The UK society as discussed earlier is undergoing a social change as more and more consumers are becoming health conscious, shopping only for healthy options and disregarding those that might contribute to an unbalanced diet. This wave of social change is expected to have a greater impact on the kind of products soft drinks manufacturer sells in the coming years. Technological impacts Mandates from the EU and the British government to reduce pollution in manufacturing processes have forced many soft drinks companies to watch their CO2 emissions quota so as to sustain the greenhouse effect within their operating environment. Consequently, firms are trying to focus on sustainable strategies and technologies that support this regulation. Apart from that the government have also developed a movement for improving the skills and productivity levels of those working in the industry to support superior service and sustain competition (British Soft Drinks Association 2005). Legal impacts Apart from the mandates from the UK government and EU for green environment, it has also been observed that the industry is also affected by the new law Part III of the Disability Discrimination Act enforced in October 2004 (British Soft Drinks Association 2005). According to this law all service providers in the private, public and voluntary sectors must comply with the industry guidelines for vending machines to meet the specifications of the Act (British Soft Drink Association 2005). Economic impacts At the present the soft drink industry is highly sensitive to the environmental changes but this would also have a negative economic impact on the industry as companies in the industry are forced to reduce their production of normal colas and concentrate on alternatives to compete with consumer spending share. Rivalry There is intense competition among the top soft drinks companies which compete at all levels such as pricing, product categories, supply chain, locality for distribution as well as substitutes. Furthermore, rivalry also stem from new entrants which create a highly competitive environment for operation. Threats of substitutes The soft drinks industry is a mature industry that is categorized by strong growth rates at over 5 percent in value, and it is constantly changing as consumer behaviour changes. Consumers today readily substitute soft carbonated drinks for healthier alternatives like bottled waters, fresh juices from fruits and vegetables and hot drinks etc. Companies within the industry have to keep up with these changing tastes (Britvic Soft Drink Category Report 2003). Buyers power As a result consumers have a high buying power over the sellers. They are the price dictators who demand soft drinks producers to cater to their changing needs such as low calorie drinks, flavoured diet drinks and the new wave choices for fruit juices and bottled water. Threats of entry As a result of the high level of substitution, the soft drinks industry is not only threatened by the entry of carbonated category but also from others such as hot drinks, fruit juice makers, yoghurt and bottled water producers. A new category entry to the current categories is energy drinks which have perked the interests of athletes and young consumers. This is evident from the replacement of Sunny Delight by Red Bull (Britvic Soft Drinks Category Report 2003). Suppliers power One of the most important aspects of the soft drinks operation is its bottling. The associated bottling industry is considered to have significant power over the soft drinks syrup industry. It tends to affect the soft drink manufacturers in terms of agreements for retailing, distribution and area growth. Analysis of Key Activities CCGBs is perceived to be a successful industry leader with high volume growth in the carbonated as well as still drinks category. It heads up the brands it produces. It is continuously innovating brands with recent inclusions like Diet Coke with Lemon/Vanilla, Coke Zero, Sprite 3G, Lilt, Five Alive, Coca-Cola Cherry and its premium juice brand Oasis Fusion (Production problems delay 2005; Britvic Soft Drinks Category Report 2003; Coca-Cola Adds New 2005). The company is also actively engaged in marketing campaigns that is based on the concept of think global, act local. Successful campaigns include I Wish in 2004 created in the UK and exported to other markets (Brandfame: Coca-Cola 2005); and digital media through its iCoke campaign (Coca-Cola adds new strand 2005); CCE the foundation to the companys success on the other hand have been observed to have faced problems with smaller bottlers who supply to the company to meet market demand. Working in conjunction with a supply chain that has its own cultures, processes and ways of doing thing is difficult as it means trying to improve the efficiency of bottlers in order to respond to the consumers (Theodore 2005). Competencies and competitiveness CCGBs most competitive competency is perhaps its Coca-Cola system that innovates constantly to keep up with the business trend and consumer needs. CCGBs supply chain is consistent with the parent company which has spent much of its time in creating strategic alliances and product extensions and packaging to continue to sustain the interests of niche markets (Theodore 2005; Britvic Soft Drinks Category Report 2003). Comparisons Despite these facts it is Pepsi which gain through double digit growth in value and in volume as compared to CCGBs performance. Although Coca-Cola may boost its sales with every new product launch the fact remains that these new brand launches do not help it sustain growth rate. For this reason the shelf life for Coke products is slowly decreasing to be replaced by Pepsi and Robinsons two of its rivals in the UK soft drink industry (Britvic Soft Drinks Category Report 2003). Positioning Fizzy drinks sales according to the survey by Britvic Soft Drinks Category Report (2003) have started to dwindle to be replaced by still drinks such as fruit juices accounting for 75 percent of the UK household drinks consumption. This therefore has positioned the soft drinks company like Coca-Cola to the third subcategory instead of the first. Critical Success Factors Coca-Cola however, has an upper hand over its rivals such as Robinsons which focuses on fruit juices as well as PepsiCo which focuses on the young generation soft drink consumers. Coca-Cola through its product extensions have access to both type of consumers as well as many in between such as health conscious women and children, young individuals, working individuals as well as sports athletes etc. This deep penetration into the various market categories not only places CCGB at a critical strategic position but also allows it to explore niches within them. Apart from the above, CCGB along with its parent company have sustained its supply chain by forming strategic alliances with the local bottlers which rivals put in the secondary category of business strategy. Bottlers as mentioned earlier, play an important role in dictating the flow of distribution as well as allow the company to become responsive to consumer needs. Given the above discussion it is concluded that the compa ny is expected to grow in the next five years albeit at a slower rate as compared to rivals such as PepsiCo. To resolve it needs to take the following steps: Direct its strategy towards branding by concentrating its campaign towards younger generation who are brand conscious and the major soft drinks drinkers. Even they too are becoming health conscious which is the more reason why Coca-Cola should follow its competitors suit by capturing the young crowd to dominate its products (Vignali 2001). Once established, it should concentrate on maintaining a consumer base to sustain growth in the long term (Lynch 2005; Thomson 2005). Secondly, CCGB should also concentrate on product innovation as it can be observed the environmental change, legal mandates and social change are directing the flow of the soft drink industry towards healthier diet and liquid in-take (Lynch 2005; Thomason 2005). Diversification to hot drinks and such other substitutes would prevent the company from produc ts dying out due to maturity in the market. To sustain, products flavouring strategies would no longer help as this is only for short term satisfaction for the consumers. Lastly, CCGB should try and explore what is essentially important to the British culture. Uniqueness in product differentiation can be created through this aspect. Thompson, J. L. 2005, Strategic Management: Awareness, Analysis and Change, Thomson Learning. Vignali, C. 2001, Virgin Cola, British Food Journal, Vol. 103, No. 2, p. 131-145. Author not available, Oct 2005, Business: In hot water; Coca-Cola, The Economist. London: Vol.377, Iss. 8447; pg. 78 Theodore, S. Oct 2005, Playing to win, Beverage Industry. New York: Vol.96, Iss. 10; pg. 28. Author not available, Sep 2005, Brandfame: Coca-Cola. Marketing. London: pg. S18. Author not available, Jul 28, 2005, Coca-Cola adds new strand to Zero brand to reach youngsters, New Media Age. London: pg. 3. Author not available, Jul 7, 2005, Producti on problems delay launch of Oasis fruit juice, Marketing Week. London: pg. 6 Author not available, 2003, Britvic Soft Drinks Category Report 2003, Online accessed on 30-11-2005 available at: https://www.britvic.com/NR/rdonlyres/eplx7e5fmarisw473ahhvfwuvnmf5fitybfzvt23molleocuamqyuxbz5ikbtlqu5rrg2lti2zj5olkmzitf2qm7xgf/category+report+2003.pdf Author not available, 2004, Company Background: Coca-Cola Great Britain. Canadean. Author not available, 2005, Company Structure, Coca-Cola Great Britain Website, Online accessed on 30-11-2005 available at: https://www.coca-cola.co.uk/citizenship/about_us/cocacolaenterprises.html Author not available, 2005, Industry Statistics Food and Drink Federation. Author not available, 2004, 2004 sales à ¢Ã¢â€š ¬Ã‹Å"Armageddonà ¢Ã¢â€š ¬Ã¢â€ž ¢ Euro Monitor, Online accessed on 30-11-2005 available at: https://www.euromonitor.com/Softdrinks Author not available, 2005, British Soft Drinks Association Annual Report 2004-2005, Online access ed on 30-11-2005 available at: https://www.britishsoftdrinks.com/htm/sv/PDFs/AnnualReport2005.pdf Lynch, R. 2005, Corporate Strategy. Prentice Hall. Soft drinks range comprise of: Carbonated drinks 46% Still and dilutable drinks 29% Bottled waters 15% Fruit juices/nectars 10% And classified according to balance diet as: Regular 27% Low/zero calorie 49% Bottled water 15% Fruit juices 9% Source: British Soft Drink Association Source: Britvic Soft Drink Category Report 2003 Source: Britvic Soft Drink Category Report 2003 Source: Britvic Soft Drink Category Report 2003 Source: Britvic Soft Drink Category Report 2003