External Environment Analysis of Coca-Cola

Topics: Coca-Cola, Soft drink, High-fructose corn syrup Pages: 6 (1916 words) Published: February 11, 2012
External Environment Analysis
Trident University International
MGT599 Mod 2 Case

Executive Summary
In this section of the company analysis we will be examining several of the external factors present in the Coca-Cola Company’s environment. We will conduct a Porter’s 5-forces analysis, a PEST analysis which will include a look at political, economic, social, and technological factors, and will show how the Coca-Cola Company has a solid grasp on its place in the market along with its major competitor.

Coca-Cola Refreshments USA, Inc. is located in Atlanta, Georgia. The Company’s North American Industry Classification Code (NAICS Code) is 312111, Soft Drink Manufacturing. (Manta, Inc., 2012)

Porter 5-Forces Analysis
Threat of New Entrants (low threat): This threat is quite low in the soft drink manufacturing industry as the cost of entry is very prohibitive. Coca-Cola has the financial means to snuff out nearly any attempt by a new company to enter the market, and Pepsi-Cola – their largest competitor - would quickly team up with Coca-Cola to help with that effort.

Both companies have invested hundreds of millions of dollars over the years to create brand loyalty, and both have made huge strides around the world, gaining millions of new customers outside of the United States. (Manta, Inc., 2012)

Most new entrants would find it difficult to provide significant enough margins to retailers. If a new entrant began gaining ground, Coca-Cola could simply raise margins enough to buy all of the available shelf space until the new entrant was out of business. If the product were viable enough, Coca-Cola has more than enough financial means to purchase the newcomer and the rights to its product line.

Bargaining Power of Suppliers (low threat): There are a large number of suppliers for the ingredients that go into Coca-Cola’s products, and those commodities are inexpensive. Coloring, sugar, high-fructose corn syrup, caramel color, vanilla, lime extract and most of the other ingredients are readily available from several large suppliers. The one exception to this is the artificial sweeteners that go into most of the diet products; these are available from only a few suppliers and this gives them more leverage than distributors of the other ingredients. (Sheth & Sisodia, 2002) (Manta, Inc., 2012)

Although the ingredients themselves are extremely important to Coca-Cola’s secret formula, ingredient substitutes are easy to come by because of the similarity of the raw materials, and the switching cost would be fairly low if Coca-Cola decided to change suppliers. Coca-Cola’s business is very important to the suppliers because of the extremely large volume of product that Coca-Cola purchases; therefore, most of the suppliers have no real leverage. (Merrett, 2008)

Bargaining Power of Customers (low threat): Coca-Cola utilizes authorized bottlers who purchase concentrated formulas in very high volumes, but since the Company is usually the largest or the only customer of these bottlers, their margins are quite high. These customers have very little bargaining power. (Gaudet, 2009)

The Company also has contracts with many large restaurant chains and ballparks where Coca-Cola products are the exclusive soft drinks available. These organizations have more bargaining power because they could go to Pepsi-Cola if the contract ceases to make sense for them. Coca-Cola is usually forced to accept a smaller margin from these companies. (Gaudet, 2009)

Convenience stores, grocery stores, and vending machine organizations typically offer several different kinds of soft drinks and the shelf space required along with the competitive nature of the stores usually requires acceptance of lower margins for Coca-Cola. (Gaudet, 2009) (Gillespie, 2007)

Availability of Substitutes (medium threat): Perhaps the biggest threat of substitution to Coca-Cola is what has made them so popular: Caffeine, sugar, and...
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