Coca-Cola Strategic Risks

Coca-Cola Strategic Risks

Executive Summary

The main objective of this project is to investigate strategic risks, including strategy risk, international risk, competitor risks, and legislative risk, the Coca-Cola Company (TCCC) is experiencing. The changing beverage market industry presents a wide spectrum of strategic risks the firm. It faces strategic competitor risk due to strong forces of competitive rivalry and new entrants. Besides, the beverage industry is highly saturated. Furthermore, increasing environmental and health awareness presents a strategic regulatory risk to the firm. The FDA and federal initiatives against carbonated beverages threaten the firm performance. TCCC also faces a strategy risk due to viability of controversy in its value proposition and product choices. This has influenced the government to pass a law for the firm to disclose the harmful chemicals used in producing beverages. Chinese economy slowdown presents the brand with strategic international risk. The project also provides recommendations for addressing the strategic risks the company is facing. Various objectives of this project are summarized below:

• To describe the overall strategy of Coca-Cola
• To describe strategic risks the corporation is facing by exploring its internal and external environment using:
• Porters Five Forces Analysis (External)
• PESTEL Analysis (External)
• SWOT Analysis (Internal)
• To outline recommendations on addressing the risks the firm is facing
• A summary of the Coca-Cola assessment

     Introduction

The Coca-Cola Company is one of the leading multinational giants in the beverage industry. The firm is the world’s largest producer, marketer, and supplier of soft drinks. Its plethora of non-alcoholic beverage brands dominate the Fast Moving Consumer Goods (FMCG) domain. The leading iconic sparkling beverage brands of Coca-Cola leading in the market include Coca-Cola, Minute Maid, diet coke, sprite, PowerAde, Fanta, and vitamin water. Notably, the company markets over 500 brands of soft drinks. The corporation has powerful brand visibility and a well-established market niche globally. As such, the firm enjoys a vast market share, global presence, and a robust supply chain network.  The company’s brands reach consumers in over 200 countries (Coca-Cola Company 1). The objective of the company is to gain a sustainable competitive edge in the beverage industry by increasing volume, expanding its global market share, and maximize long-term cash flow. Although TCCC is the market leader in the global beverage industry, it experiences a wide spectrum of strategic risks, including strategy risk, international risk, competitor risks, and legislative risk. For instance, Porter’s Five Forces reveal that the firm faces stiff competition from prime beverage companies such as PepsiCo. This presents a competitor risk for the corporation. Additionally, the pervasive health and environmental concerns also present regulatory and strategy risk to Coca-cola. This research paper will, therefore, investigate the strategic risks Coca-Cola is facing and recommend strategies that the firm can implement to overcome these risks.

1. TCCC’s Overall Strategy

Coca-Cola’s business strategy is congruent with a broad differentiation strategy. Its broad differentiation strategy integrates powerful marketing capabilities, strong brand image, superior quality beverages, strong global presence, brand loyalty, and the Coca-Cola system. It has strong marketing initiatives with global reach. Its marketing mix has evolved due to the effect of joint ventures and acquisition (Zhang 42). The firm capitalizes on a vast promotional mix that enhances its brand visibility and competitive edge at large. Based on the company’s marketing mix, the firm offers the highest quality beverages that appeal to customers. TCCC has built strong brand recognition since its logo is famous in most parts of the world. The company’s brands are in over 200 nations (Coca-Cola Company 1). Furthermore, the strong value chain system with a global presence gives the company a competitive edge.

Another strategy used by Coca-Cola is concentrated growth. It continuously focuses on widening its market base to strengthen its market potential through diversification. For instance, they introduced Nestea after entering a joint venture with Nestle to exploit the food and beverage market (Sauerbronn et al. 51). In its vertical integration, the company acquired Costa Coffee to sell their products directly to customers. Diversification has been indispensable in enhancing Coca-Cola’s market penetration. Concentrated growth enables the company to sustain its dominance in the beverage industry.

Coca-Cola also uses product development strategy. This strategy involves modifying products in the market for developing new novel products. The firm is trying to introduce new products to fuel its market development goals. It is trying to leverage the prevalent health and fitness trends to appeal to a new, rapidly growing market group (Le 43). In the product development strategy, the corporation focuses on providing more excellent choice to customers. Coca-Cola has been introducing new products with reduced calories and sugar due to the increasing health concern among customers. For example, the company introduced healthy beverages like Fairlife (milk segment), coke life, and coke-zero (Brondoni 19). Focusing on health and fitness will enable it to expand its market segment, thus strengthening its competitive advantage.

1. Key Strategic Risks

• Porters Five Forces Analysis (Competitor Risk)

Coca-Cola is facing a strategic competitor risk. Competitor risk for the firm is being driven by strong forces of competitive rivalry, the power of customers, and the threat of substitutes. Additionally, the moderate force of new entrants reinforces the competitor risk. The following are the key forces fortifying Coca-Cola’s competitor risk in the industry.

The first force is the hostile competitive rivalry prevailing in the beverage industry. PepsiCo is the biggest competitor of the firm in the global market (Singh et al. 162). Other key competitors that want to exploit Coca-Cola’s market base include Red Bull, Britvic, and Group Danone. A strong force of competitive rivalry in the industry is influenced by the following. First, the aggressiveness of the beverage companies in marketing and innovation enhances competition. This exerts a strong force on the company. Second, competitive rivalry is reinforced by the ability of the consumer to easily from one provider to another. The strong force of low switching cost has enabled PepsiCo to exploit the firm’s market base. Finally, the beverage industry is highly saturated (Singh et al. 166). There are multiple small and medium beverage companies. In the end, stiff competition is a strategic risk for Coca-Cola since it threatens its diverse market segments.

The second force propagating TCCC’s competitor risk is the bargaining power of Coca-Cola’s customers which is relatively strong. As noted, customers can easily switch from one company to another. Consumers, therefore, have the ability to influence the company (Zhang 42). Besides, consumers today have high access to brand information that influences their choices between Coca-Cola and other competing brands.

The third force significantly affecting the firm is the strong force of the threat of substitution. This is because the firm’s products can easily be substituted based on customer preferences. Most substitutes for Coca-Cola’s soft drinks are satisfactory. Brewed coffee or real fruit juice products, for example, can easily substitute the firm’s products. Further, consumers tend to prefer substitutes since they are generally affordable.

Finally, the threat of new entrants in the beverage industry is a moderate force enhancing the competitor risk. New entrants threaten the company because customers can easily switch to another brand. Nevertheless, its moderate customer loyalty protects it from new entrants (Sauerbronn et al. 57). It is also difficult for entrants to compete with Coca-Cola because of the high cost of brand development.

• PESTEL Analysis

Rudimentary to PESTEL analysis, Coca-Cola faces regulatory risk, international risk, and strategy risk:

1. In the political realm, its operations are affected by FDA regulations, environmental laws, taxation requirements, and accounting standards. The primary risk the firm faces in this domain is a legislative risk. Initiatives by the government against carbonated drinks will result in massive losses for the firm. This implies that unexpected changes in law present a regulatory risk for the corporation.
2. Economic factors streamline TCCC’s performance. In this dimension, the firm faces strategic international risk as a result of the Chinese economy slowdown (Brondoni 23-24). The international risk decreases the revenue and international growth of the firm.
3. The sociocultural strategy risk affecting the company is the unescapable higher health consciousness among consumers. Increased health lifestyle awareness is a strategy risk for the firm because of the concern about fat content, salt, and sugar of its beverages. Strategy risk threatens Coca-Cola’s market niche.
4. An environmental factor that threatens the company’s supply chain is climate change. The firm faces a regulatory risk in aligning with environmental laws. Additionally, the need to improve their sustainability standing is also an environmental risk.
5. Legal factors domain, the legal requirement to reveal negative information on product labels threatens Coca-Cola. The law was passed after a series of adverse health consequences associated with the firm’s carbonated drinks. This implies that the company faces a strategy risk based on its value proposition.

• SWOT analysis

SWOT analysis depicts the following strategic risks:

1. Strategy risk due to lack of products that align with the current health and fitness needs of consumers are a strategic risk for Coca-Cola. As the world focus on fighting obesity and consuming healthier drinks, its carbonated drinks are being rendered unfit for consumption (Le 37-38). Serving sweetened carbonated drinks is a serious risk to the firm’s performance.
2. The regulatory risk for water pollution and use of harmful chemicals in beverages
3. Competitor risk due to aggressive competition with PepsiCo over market share.
4. Recommendations

Coca-Cola needs to continually adjust its business strategies to respond to strategic risks influenced by external and internal environmental factors. The following recommendations can help TCCC to overcome the strategic risks it is facing.

1. The firm should adopt value-based marketing approach and focus on customer satisfaction to curb competitor risk.
2. Coca-Cola should invest in constant product innovation to overcome strategy and competitor risks. The firm must consider current trends, including a healthy lifestyle and environmental awareness in developing new products.
3. Coca-Cola must focus on market diversification to ensure stable international growth. It can also expand to developing economies.
4. It should embrace green business practices and sustainability to reduce its environmental footprint. This will help the organization retain its customers and enhance its competitive advantage.

Conclusion

This project has explored a variety of strategic risks, including competitor, strategy, regulatory, and international risks, Coca-Cola is facing. These strategic risks will inhibit the firm from effectively pursuing its overall strategy. It will detrimentally affect its profitability and business performance. Therefore, it is integral for Coca-Cola to adopt the recommended strategies to strengthen its strategic performance.

Works Cited

Brondoni, Silvio M. “Shareowners, Stakeholders & the Global Oversize Economy. The Coca-Cola Company Case.” Symphony. Emerging Issues in Management 1 (2020): 16-27.

Coca-Cola Company, ‘Coca Cola Company Website. Retrieved from https://coca-colahellenic.com/en/about-us/business-resilience-and-risk-management/principal-risks-and-mitigations/

Le, Alex, et al. “Business Ethics: The Coca-Cola Company.” Simon Fraser University Undergraduate Journal of Philosophy 1.1 (2017): 35-45.

Sauerbronn, Fernanda Filgueiras, Denise Franca Barros, and Alex Faria. “Coca-Cola and strategic CSR.” The Dark Side 3. Routledge, 2017. 55-64.

Singh, Uma Shankar, and Osman Sahin. “Measuring the Effectiveness of Sales Promotion Activities on Brand Loyalty: A Study on COCA-COLA.” International Journal of Social Sciences and Educational Studies 3.3 (2017): 159-173.

Zhang, Zhuo. “Risk Analysis of Two Leader Drink Company: PepsiCo and Coca-Cola.” Asian Business Research 4.3 (2019): 42.