Coca-Cola Company and PepsiCo: Comparative Analyses | Free Essay Example

Coca-Cola Company and PepsiCo: Comparative Analyses

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Topic: Business & Economics
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Introduction

The main objective of this report is to analyze and compare two multi-national companies Coca-Cola Company and PepsiCo. Firstly, this paper will present historical background of both companies with financial performance and determine the strongest performer. Both companies produce, distribute, and market non-alcoholic beverages on a worldwide scale and Coca-Cola always holds market leading position in the Carbonated Soft Drink industry.

This report will scrutinize many other issues related with the business operation of these companies, for instance, mission, vision, corporate culture, strength, weakness, opportunities, threats, growth estimates, organizational structure, marketing mix, competitive position, and ratio analysis. However, this report will concentrate more on the Coca-Cola Company, but it will include sections about Pepsi Co in order to discuss the competitive position of these two beverages companies.

Background of the Coca-Cola Company

Coca Cola has established in 1886 by John Pemberton, and now it is the world’s largest soft drinks manufacturer, which produces and delivers a broad range of non-alcoholic beverages for all major customer segments and offers different type of drinks. According to the report of Task (2010) and Yahoo Finance (2011), Coca Cola is the top brand among all multinational companies in the world and its value is $70,452.0 million; however, PepsiCo is not in the top ten lists.

It produces more than 500 non-alcoholic brands in their portfolio, and it operates in 200 countries and for its global network of sales, in 2009 its net sales was totalled $ 32.14 billion and net income was $7.58 billion (Yahoo Finance, 2011). This company serves more than 54 billion beverage of all types consumed in the global market each day; however, the financial overview of the Coca Cola for four years has outlined below for assessing its performance in recent years.

Financial Overview of Coca-Cola Company FY
2006
FY
2007
FY
2008
FY
2009
Financial Indicators (All Figures in USD Millions)
Total Revenues $24088.0 $28857.0 $31944.0 $30990.0
Cost of Goods-Sold $8160.0 $10392.0 $11374.0 $11088.0
Gross-Profit $15928.0 $18465.0 $20570.0 $19902.0
Total General-sales and Admin-Expenses $9431.0 $10945.0 $11774.0 $11358.0
Other Operating-Expenses $9431.0 $10945.0 $11774.0 $11358.0
Operating-Income $6497.0 $7520.0 $8796.0 $8544.0
Net Interest-Expense $-27.0 $-220.0 $-105.0 $ -88.0
Earnings of continued-Operations $5080.0 $5981.0 $5807.0 $6824.0
Net-Income $5080.0 $5981.0 $5807.0 $6824.0

Table 1: Financial Performance of the Coca-Cola Company. Source: Self-generated from Bloomberg Businessweek (2011)

Background of PepsiCo

The carbonated soft drink company PepsiCo started its journey in 1893 and the brand Pepsi has developed in 1908 and now the company generates a revenue of about US$ 60 billion per annum along with its 285,000 employees and enhancing global operation (PepsiCo, 2010, p-1).

Yoffie (2002, p.1) pointed out that the US people consume almost fifty-three gallons of beverage in each year and the beverage giant Coca-cola and Pepsi-Cola has been fighting against each other with an irrevocable war for more than a century while the companies are gaining almost 10% usual market growth both in home and abroad. Following table demonstrates key financial indicators of PepsiCo for years –

Financial Overview of Coca-Cola Company FY
2006
FY
2007
FY
2008
FY
2009
Financial Indicators (All Figures in USD Millions)
Total Revenues $35,137.0 $39,474.0 $43,251.0 $43,232.0
Cost of Goods-Sold $12,873.0 $14,152.0 $15,486.0 $15,053.0
Gross-Profit $19,375.0 $21,436.0 $22,988.0 $23,133.0
Total Other Operating-Expenses $12,873.0 $14,152.0 $15,486.0 $15,053.0
Operating-Income $6,502.0 $7,284.0 $7,502.0 $8,080.0
Net Interest-Expense $-66.0 $-99.0 $-288.0 $-330.0
Net-Income $5,642.0 $5,658.0 $5,142.0 $5,946.0

Table 2: Financial Performance of the PepsiCo. Source: Self-generated from Bloomberg Businessweek (2011)

Mission and Vision of Coca-Cola

Mission

The main objective of this company is to refresh the world and the other aim of the company is –

Mission of Coca-Cola
Figure 1: Mission of Coca-Cola. Source: Self generated from Coca-Cola (2011)

Vision

Coca-Cola’s vision is separated into six points and the company should focus on and accomplish this vision in order to carry on its growth; however, the following figure illustrates its corporate vision –

Vision of Coca-Cola
Figure 2: Vision of Coca-Cola. Source: Self generated from Coca-Cola (2011)

PEST Analysis of Coca-Cola

Political/legal Factors

According to the annual report 2009 of Coca-Cola, the legal action against this company has increased due to the frequent change of regulations in all over the world, for instance, it has to follow the recommendation and guidance of European Commission to conduct business in EU member states.

At the same time, political issues can play a vital role in the entire process of Coca Cola’s business operation by influencing production allocation, and retail activities to the final consumers, so, the changes in political environment could change these companies accordingly through both direct and indirect way. Norden, Koch, and Pronk (2008, p.8) stated that Coca-Cola took legal action against Pepsi in 1938 by arguing that this company had infringed trademark regulation, but the honourable court held that there is no offense.

On the other hand, some other factors like changes of accounting standards, political violence, state of emergency, taxation policy, alteration of non-alcoholic business environment, the Federal Trade Commission Act, environmental and labour laws, governmental instabilities in foreign countries, strikes, globalisation, and so on have affect on these two companies.

Economic Factors

Despite negative GDP growth of the US people, Coca-Cola Company had not suffered any severe hindrances in this market or global market as the impact of the global economic downturn was not excessive to this company. On the other hand, PepsiCo had suffered significantly by the recession from its operations in the European market and rest part of the world (PepsiCo, 2009).

However, the following comparative basic chart demonstrates that the share price of Coca-Cola always better than Pepsi; however, this share price of both companies faced a sudden slump in 2009.

Basic Chart of Coca-Cola and PepsiCo
Figure 3: Basic Chart of Coca-Cola and PepsiCo. Source: Yahoo Finance (2011)

In spite of these tough situations, PepsiCo produced a quite remarkable development in the income and started to revive back its stock prices in the fiscal year 2011.

Socio-cultural Factors

The following table shows that 20.2% of total population is children who are the large target market of Coca-Cola and Pepsi in the US market.

However, Norden, Koch, and Pronk (2008, p.6) reported that a significant part of total population is middle-aged people who are health conscious, and 7% of total population has suffered in diabetes, and more than 6.3 million people are not aware about their health problem. It is important to mention that California banned on the sale of soft drinks in order to protect the people from obesity and other health problem (Norden, Koch, and Pronk, 2008, p.6).

Age Percentage Male Female
0 to 14 years 20.2% 31,639,127 30,305,704
15 to 64 years 67% 102,665,043 103,129,321
65 years and over 12.8% 16,901,232 22,571,696

Table 3: Age Configuration of the US People. Source: Self-generated from Indexmundi (2010)

Technological Factors

Curd (2010, p.4) pointed out that Coca-Cola has already launched a new lightweight bottle in order to decrease the quantity of waste plastic, and according to the annual report it is using technical equipment, for instance, coolers, fountain machinery as well as vending tools.

Moreover, Norden, Koch, and Pronk (2008, p.8) stated that Coca-Cola concentrates on the development of information technology, so, IT department constantly works for ensuring the greatest technological assistance. In addition, it is imperative to note that the company has hi-tech instruments that help to increase production level with less human efforts in the global market; therefore, Coca-Cola successfully reduced the operating cost by reducing 20% employees.

On the other hand, PepsiCo has introduced agricultural technology in order to guarantee the highest crop yields and quality standards; in addition, it has developed Sustainable Engineering Guidelines and maintained innovative environmental management system to examine water (PepsiCo, 2009).

Organisation Structure of Coca-Cola

Coca-cola has maintained the cooperative (M-Form) of the multi-divisional structure as it generates more than 90% of total profits from beverage sector though it is not earning from a single product but the production material is shared each other. However, the following figure shows the organisational structure of Coca-cola where CEO controls six separate departments in different business zone, such as, human resources department, R&D, Bottling Investments, Marketing Strategy and Innovation, Finance and Control department.

Organizational Chart of Coca-Cola.
Figure 4: Organizational Chart of Coca-Cola. Source: Self generated from Puravankara (2007, p.20)

On the other hand, PepsiCo is highly diversified company, so, it has to maintain complicated organizational chart as it has more than 203,000 employees.

SWOT Analysis of Coca-Cola

SWOT Analysis of Coca-Cola Company.
Figure 5: SWOT Analysis of Coca-Cola Company. Source: Self generated from Kotler & Keller (2006)

Strengths

Reputation

Coca-Cola has excellent historical background, brand awareness, and eminent image, which helps the company to increase its profit day by day and to be market leader among all multinationals. It maintains well-trained employees to produces widely diversified product ranges starting from juices to carbonated drinks and possess strong distribution channel (Puravankara, 2007).

Worldwide Operation

Moreover, Coca-Cola has business operation in two hundreds countries and has strong financial condition to expand further in many underdeveloped economies; on the other hand, PepsiCo operates only in forty countries.

Financial Position

According to the annual report 2009, Coca-Cola is the one of the leading global business with a sturdy financial position such as its profits were $6824.0 million in 2009 while this figure was $5807.0 in 2008.

CRM

Customer relationship management of Coca-Cola is another strong side because this company considers that all customers are loyal, so new customers are also getting importance besides regular customers to develop its market segments. On the other hand, it has popularity for its superior customer service as it concentrates on the customer’s health conditions by providing safe and healthy drinks to retain and attract customers (Coca-Cola, 2009).

Weakness

Cost

According to the annual report 2009 OF Coca-Cola, it spends comparatively a large part of the budget for advertisement and promotional actions that increases its operating expenses.

Health

Curd (2010, p.3) stated that Coca-Cola has effects on the teeth, and long addiction of soft drinks negatively affect public health, for instance, it may cause to increase diabetes patient.

Implementation of Strategy

It is arguable that in many cases Coca-Cola’s marketing activities created immense controversies in the countries where it has operation. Curd (2010, p.3) further added that this company failed to implement sufficient strategies to address the cultural factors, which has negative impact of its global business operation.

Opportunity

Recover market position

The Coca-Cola can gain competitive advantages over the competitors in terms of technological experience by increasing the budget for research and development, which help the company to diversify product range. On the other hand, the number of distributors is rising and the demand for Coca Cola’s beverages are increasing by a fast pace after the recovery of the economic condition from the financial crisis.

Noncarbonated Drinks

Public interest for noncarbonated drinks is increasing dramatically while Coca-Cola captured 7% share and PepsiCo hold 8% market share; as a result, Coca-Cola has unlimited scope to expand its business in this sector.

Pure Water

Puravankara (2007, p.31) pointed out that Coca-Cola can increase sales profit by selling bottled pure water as the demand has increased 8.5% in this segment due to serious water pollution in some countries.

Threats

The following factors show the threats.

Health consciousness

According to the annual report of Coca-Cola, customers, government or health officials are becoming more anxious about the public health issues because the researchers show the negative impact of soft drinks on the health, for instance, sugar-sweetened beverages, with HFCS is harmful for health.

In addition, water pollution is another problem to maintain high quality of the products as water is the most important ingredient, so Coca-Cola has to invest large amount to get pure water, which rising production costs and affecting sales revenue.

Recessionary Impact

Both Coca-Cola and Pepsi experienced the adverse impact of global economic downturn on the annual revenue, for instance, Coca-Cola has reduced the pension fund of the employees, and PepsiCo’s earning from European zone has decreased due to recession.

Competitors

Increasing number of competitors is another threat for the Coco-Cola because strong competitors can reduce the market, for example, Coca-Cola faced intense competition in 1980s, and the following figure compares the situation –

Comparison of exclusive drinkers.
Figure 6: Comparison of exclusive drinkers. Source: Cold Wars

Other

Fluctuations in foreign currency exchange rates, increases in income tax rates and interest rates, Changes in regulations relating to beverage containers, and dilemmas with bottling partners.

Competitive Position – Coca-Cola Vs Pepsi

In 2010, Coca Cola’s total sales revenue was 32.14 billion, net income was 7.580 billion, and gross margin was 65.57%. It has about 92,800 employees whereas its direct competitor Pepsi has about 203,000 employees and DPS has only 19,000 staff. However, the subsequent picture demonstrates direct competitors of Coca Cola –

Direct Competitor Comparison
Figure 7: Direct Competitor Comparison. Source: Yahoo Finance (2011)

Coca-Cola has strong presence in the international market; for instance, it has successfully captured 51% share of the US market, 61% share of Mexican market, 56% share of German market, and 51% of Brazilian market. On the other hand, PepsiCo has better position only in the Middle East where Coca Cola created some controversy through their advertisement and lost their market share in this zone.

Product

Norden, Koch and Pronk (2008, p.14) stated that Coca Cola mainly focused on the beverages sector and 40% of the products related with carbonated soft drinks, 20% of the products occupied with juices, and rest of the parts also linked with soft drinks and water.

Product mix of Coca cola.
Figure 8: Product mix of Coca cola. Source: Norden, Koch and Pronk (2008, p.14)

According to the annual report 2009 of PepsiCo, about 63% of its profit comes from food sector and only 37% of total revenue generates from beverage sector. It is important to note that only 48% of its total profit comes from outside of the US market; so it should need to follow brand expansion strategy to earn more from international market.

Mix of net revenue of PepsiCo.
Figure 9: Mix of net revenue of PepsiCo. Source: PepsiCo (2009, p.6)

Network

The Coca-Cola Company and PepsiCo possess a rather complicated networking system. As global distributors, both the companies went through an intricate process of networking in order to deliver their products to the final consumers. However, a brief illustration of the networking is shown in the figure below:

Common distribution channel of Coca-Cola and PepsiCo.
Figure 10: Common distribution channel of Coca-Cola and PepsiCo. Source: Self generated
Distribution of beverage sales of Coca Cola.
Figure 11: Distribution of beverage sales of Coca Cola. Source: Norden, Koch and Pronk (2008, p.15)

Recommendations

Both Coca-Cola and Pepsi should develop its corporate social responsibility in order to gain customers’ confidence as use of pesticides into the soft drinks demonstrate that these companies not bother for public health issues but to making profit with harmful product, particularly Indian people suffered health injury due to consuming products of Coca-Cola.

According to the annual report 2009 of Coca-Cola and Pepsi, Global Financial Crisis has reduced their sales in some extent, as people were busy to meet their necessity rather than luxury; as a result, these companies should reduce operating costs to avoid adverse impact from this situation.

It should note that Coca-Cola has already taken few fruitful initiatives, which help the company to sustain as a market leader while Pepsi faced serious problem in Chinese market and some other countries; so, this company should increase budget for research to overcome such position.

As the customers’ choices are changing gradually, Coca-Cola should introduce new products considering the market demand of the population by launching delicious drinks with distinct flavours and tastes; in addition, it would be profitable for the company to enter food market as PepsiCo enjoys competitive advantage in this sector.

However, strong brand image is one of the main strength of the Coca-Cola but this company had created some controversial issues; for example, its alignment towards Israeli rather than Arabs reduced its market shares, Nazi affiliation to genocide of 470 workers in Colombia, and implementation of governmental policy of the US in case of global operation created hindrance.

As a result, it should try to be more focus on the compliance of local rules and regulatory barriers in Middle East and other Asian countries, and need to shape its behavioural conduct to increase its market shares.

Conclusion

In the changing pace of globalization, the international soft drinks market is going through a massive change in terms of competitiveness in the market. Even in such antagonistic environment, it is arguable that in many instances, the Coca-Cola Company was able to uphold its reputation as the most successful beverage sellers in the market.

Owing to the fact that the industry faces strong contention from a number of soft drinks producers throughout the world, the industry giants like Coca-Cola Company and PepsiCo constantly needs to come up with innovative ideas and strategic approaches in order to remain the most significant choice of the large-scale consumers.

Reference List

Bloomberg Businessweek. (2011) COCA-COLA CO/THE (KO: New York). Web.

Bloomberg Businessweek. (2011) PEPSICO INC (PEP:New York). Web.

Coca-Cola. (2009). Annual report 2009 of Coca-Cola Company. Web.

Coca-Cola. (2011). Coca-Cola’s Mission, Vision and Values. Web.

Curd, M. (2010). Marketing Plan: Coca-Cola in 2015. Web.

Indexmundi. (2010) Saudi Arabia Demographics Profile 2010. Web.

Kotler, P. & Keller, K. L. (2006) Marketing management. (12th ed.). New Jersey: Pearson Prentice Hall.

Norden, L. Koch, C. & Pronk, S. (2008). Marketing Management. Web.

PepsiCo. (2009). Annual report 2009 of PepsiCo. Web.

PepsiCo. (2010) Our History. Web.

Puravankara, D. (2007). Strategic Analysis of the Coca-Cola Company. Web.

Task, A. (2010). Top 100 Global Brands: Apple Soars, BP Slumps and Coke’s Still No. 1. Web.

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Yahoo Finance. (2011). The Coca-Cola Company (KO). Web.