Southern New Hampshire University
Dr. Greg Randolph
The purpose of this paper is to examine the company Coca-Cola, which is an Atlanta based beverage company, from an economic point of view. The beverage industry as a whole will be examined. Many things will be taken into consideration such as entry barriers for the firm, competitors and their goods, as well as the structure of the overall industry. Coca-Cola will be examined specifically by looking at the firm’s competitors, the firm’s advantages over these competitors, product substitutes, and the impact of supply and demand for Coca-Cola’s beverages. Also in this paper, all uses of the term “the company”, “coke”, or “the firm” will refer specifically to Coca-Cola.
The Coca-Cola Company has successfully been selling the famous beverage since 1886 making it over 125 years old. First sold out of a small pharmacy in Atlanta, Georgia it has evolved into the top supplier and market brand leader in the world beverage industry providing the product which includes over 500 brands, to over 200 countries, while employing more than 700,000 individuals. This places the firm in the Forbes top-100 biggest public companies in the world. According to the mission of the Coca-Cola, they aim to achieve three simple things, “to refresh the world, to inspire moment of optimism and happiness, and to create value and make a difference (Mission, Vision, Values).” The company has also aimed to double their profit over the next decade and will strive to achieve this goal through their vision statement containing 6 P’s. The six P’s of Coca-Cola are profit, people, portfolio, partners, planet, and productivity (Mission, Vision, Values). In regards to profit, in 2011, the company sold 26.7 billion unit cases while earning $46.5 billion in revenue. As for the people aspect, Coca-Cola recently opened new plants in Ireland, Russia, and the United States. The portfolio aspect was also expanded by adding the innovative Coca-Cola Freestyle. This new fountain dispensing soda and drink machine offers the consumer more than 125 brand name beverage choices. The new machine is also more environmentally friendly than traditional equipment which correlates to the “planet” part of Coca-Cola’s vision (Kent, 2011). This paper will provide an in-depth look at Coca-Cola from a microeconomic standpoint. Many topics such as how supply and demand have changed over recent years, the firm’s competitive advantage, entry barriers for other firms, product substitutes that are available, Coca-Cola’s main competitors, and how the firm is adapting to changes occurring around it. There will also be a discussion included stating what Coca-Cola is excelling at and where the company could improve. SUPPLY, DEMAND, and PRICE ELASTICITY
Given that Coca-Cola is such a large organization with products found in many different industries, supply and demand is changing, but not in an any drastic amount. In regards to consumers who have large brand loyalty to Coca-Cola, if the price should rise, the demand would remain the same. Obviously for those who are not loyal, if the price went up, the demand would decrease. In regards to supply, in recent years through advancements in technology, the cost of production has decreased, allowing Coca-Cola to supply more at the same price. Given the availability of Pepsi, the price of a bottle of Coke has remained fairly stable although it is also very sensitive. Consumers would respond negatively to a rise in the price of Coke and would most likely either buy Pepsi, or stop drinking soda in general and move to other packaged products. Given that the market would be so responsive to a change in price, the demand for the soda Coca-Cola products would be considered elastic. COSTS OF PRODUCTION
During the past year, Coke and Pepsi had to raise their prices because the cost of making the product is rising. The costs of ingredients such as...