Counting Beans

Coca Cola has pursued an aggressive strategy of acquisitions over the years to build their portfolio of products. Coca Cola invested significant resources in R&D but if they miss a trend or see an up and coming brand, they will pursue an acquisition. Notable acquisitions over the years include: Minute Maid (1960), Barq’s (1995), Odwalla (2001), Fuze Beverage (2007), Vitamin Water (2007), Honest Tea (2008), a minority interest in Monster Energy Drinks (2015), and AdeS (2017). One of the most successful acquisitions over the years was Vitamin Water, which was purchased for $4.3 billion. This expanded the company’s line of non-carbonated beverages, an important strategic move as consumers move towards healthier beverages.

In March, Nestle and Coca Cola announced they would end their seventeen year joint venture in making Nestea, a ready-made tea. The joint venture will dissolve in 2018. During the joint venture, Nestea products were manufactured by Coca Cola and distributed by Nestle. Nestle retained the rights to the Nestea brand while Coca Cola will begin to make a similar product under their brand Fuze. Nestle will change its formula and packaging and will be made with no corn syrup, artificial colors or flavors or GMO ingredients in order to respond to consumers who want healthier drinks.

Coca Cola’s Executive Vice President and Chief Financial Officer is Kathy N. Waller. Waller has worked for Coca Cola for twenty years and started as a Senior Accountant. She is also leads Coca Cola’s Women’s Leadership Council. Waller is a positive role model to all, reaching the pinnacle of her profession. Being an African American woman certainly puts her in the minority of CFOs at Fortune 500 companies. However, Waller has shown that if you dream big and work hard, anything is possible.

 

Coca Cola made a substantial step in pursuing its product diversification strategy with the recent agreement to acquire initial minority equity shareholding in Chi Ltd., a Nigeria based leading dairy and juice company. Coca Cola has made an initial 40% investment, it intends to increase its holding to 100% in three years, pending regulatory approval. This investment brings new products as well as an increased presence in Africa. Chi Ltd is the leader in the juice industry in Africa. This purchase aligns with Coca Cola’s strategy to diversify into healthier beverages as consumers become more health conscious and the sales of carbonated soft drinks decline.

Coca Cola’s production is divided among its cold fill and hot fill production. Cold Fill production is owned by local bottlers. Cold fill production is used for carbonated soft drinks such as Diet Coke, Coca-Cola Class, and Sprite as well as bottled water such as Dasani. In this instance, Coca Cola has pursued a strategy of backward vertical integration, by divesting any of its company owned cold fill production to local bottlers. Hot fill production is owed by Coca-Cola. Hot fill is primarily used for non-carbonated beverages such as Powerade and Minute Maid juices. For hot fill production, Coca Cola has a vertical integration strategy since they own production and distribution.

Price fixing requires collusion between two or more firms in an industry to agree to coordinate prices. In the late 80’s, there the Justice department brought charges against four top executives at bottling companies for price fixing. The executives agreed to set and adhere to prices published in their promotional letters. Bottling companies involved were the Mid-Atlantic Coca-Cola Bottling Co, Mid-Atlantic Coke of Silver Springs, and Athens Coca-Cola Bottling Co. The Justice Department ruled that there was no wrongdoing by the parent company, Coca Cola. Price-fixing is illegal and is a violation of the Sherman Act, these executives faced fines and jail time if convicted. 

Coca Cola acquired Unilever’s AdeS soy-based beverage business in June 2016. AdeS is the leading soy-based beverage brand in Latin America. During the acquisition, Coca Cola exercised its option to expand into the soy beverage segment, which is expected to grow in the future. Coca Cola invested in AdeS not only for its current line-up of products but its expertise in the soy market industry. With this investment, Coca Cola will be able to launch new soy beverages in the future, creating more value for the company. Coca Cola’s acquisition of AdeS also demonstrates their desire to diversify into healthy products in order to create flexibility in their product offering as sales of carbonated beverages decline.  

Coca-Cola’s marketing strategy is built on the strategy of product differentiation. Coca-Cola markets the taste of its product over its competitor - Coca-Cola versus Pepsi and Diet Coke versus Diet Pepsi. The strategy has been extremely successful, with consumers typically having a favorite brand that they are loyal to. Coca-Cola has continued with this strategy through their new marketing campaign: Taste the Feeling (see ads in the photo gallery). So what’s your choice, Coca-Cola or Pepsi?

Coca Cola Company utilizes bottling partners to prevent diseconomies of scale. Coca Cola sells syrups and concentrates to their bottling partners who are responsible for packaging and distributing the product. The bottlers are mixing the product on-site, allowing for effective distribution by being close to the customer. Coca Cola has ownership interest in these bottlers. Utilizing this structure has allowed Coca-Cola to maintain efficient economies of scale to manufacture and distribute products, both domestically and globally. This structure allows management to effectively make decisions related to their facilities without the significant bureaucracy usually found in large companies. It also promotes worker motivation by being close to the end product allowing employees to see how their job contributes to the end product. These bottlers can also leverage the buying power of Coca Cola to get low costs from their suppliers. This business model has proved to be a successful business strategy for Coca Cola.

In 2013, Coca-Cola acquired Zico coconut water to compete for customers seeking heathier options.  The coconut water segment has seen significant growth in recent years and is a new product in the beverage industry.  Let’s analyze the Zico brand applying the VRIO Framework. 

Is Zico coconut water valuable? Yes.

Is Zico coconut water rare?  No.

Based on the answers above, exploiting Zico coconut water in conceiving and implementing strategies will generate competitive parity for Coca-Cola and the beverage industry.

Competitors in this specific market segment are Vita Coco, distributed by Dr. Pepper Snapple Group and O.N.E., a PepsiCo brand.  Vita Coco has significant market share, followed by Zico then O.N.E.  It seems that Vita Coco had a first mover advantage and has maintained an image of a brand focused on producing natural and healthy products.  So how does Zico gain market share in this industry?  Coca-Cola should leverage their organizational strengths in order to gain market share.  Coca-Cola has used their marketing expertise and signed on Jessica Alba as their spokeswoman for Zico and in their advertising(check out my photo gallery for a preview).  Coca-Cola should continue to focus on advertising in this rapidly expanding market, reaching new customers and pulling away customers from the competition.