Strategies to Maintain and Grow Market Share

Jingyuan Cao
Sheila Lee
Peter Loveland
Kevin Watkins

Team Project
DS 605
Dr. Linda Woodland
December 2, 2010
 Index

Introduction…………………………………………….……………..……………………………………3

Industry Analysis……………………………………….…………….……………………………………3

Five Forces Analysis……………………………………………………………………………………….3

SWOT Analysis…………………………………………………………………………………………….4

Sources of Financial Advantage and Disadvantage………………….…………………….…………….6

Cooperation Opportunities within the Industry…………………………………………………………7

Differentiation………………………………………………………………………………...……………7

Pricing Rivalry……………………………………………………………………………………………..8

First Mover Advantages…………………………………………………………………………………8

Switching Costs………………………………………………………………………………………….....9

Mass Customer Benefits…………………………………………………………………………………9

Product Life Cycle……….………………………………………………………………………………9

Vertical Boundaries……...………………………………………………………………………………9

Coca-Cola’s Relevant Strategic Choices and Competitor Responses………………………………10

References………………………………………………………………………………………………...11

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Introduction:
With stagnated sales and limited growth opportunities, many ideas have been offered for Coke to
maintain its dominance.  A current global wellness initiative aimed at individuals and businesses is to live
a healthier lifestyle. Global expansion is another concept that may buoy Coke’s financial performance.
Bottled waters and energy drinks, as well as eliminating the use of high fructose corn syrup
(HFCS) as a main ingredient in its soft drinks are two health-related options for Coke. Bocarsly et. al.
found that HFCS can lead to significant weight gain, abnormal increases in body fat, and a rise in
circulating blood fats (triglycerides), Bocarsly et. al. (2010).  We plan to focus on whether Coke should
invest more resources in the energy drink/bottled water segment help to grow market share and whether
using natural sugar as opposed to HFCS would provide enough goodwill among soft drink consumers to
enhance Coke brand loyalty as well as make sound economic sense. 
Global expansion may also benefit Coke.  Currently, 74% of their total sales come abroad. Global
markets may provide the best opportunities for growth, especially in Africa.  Currently Coke and Pepsi are
the only major carbonated soft drink companies to offer their products in all 7 major market segments,
including North America, Central America, South America, Europe, Asia, the Pacific, and Africa.
However both companies’ presence in Africa is limited.
This analysis will consider the carbonated soft drink industry, Coca-Cola as a firm, and explore
whether or not Coke should abandon HFCS, focus resources to expand their energy drink/bottled water
segment, as well as expansion throughout Africa.
 Industry Analysis
The soft drink industry, (SIC CODE 2086 Bottled & Canned Soft Drinks: NAICS Code 312111
Soft Drink Manufacturing), accounted for $38 billion in sales, 9.4 billion cases sold, and represented over
half of all beverages consumed in 2009.  The industry is in maturity, with sales declining 2.23% from
2008, and cases sold declining 2.22%. Overall, the industry has seen an increase in sales of 8.7% from
2003-2009.  However cases sold has decreased an average of 8% over the last 7 years.  Coca-Cola has
remained dominant, currently at $16.4 billion in sales, 43% market share, and 3.9 billion cases sold
(Appendix 1-3).  
Market structure defines the amount and distribution of firms within the industry. Our analysis
includes 11 firms: Coca-Cola(KO), Pepsi(PEP), Dr. Pepper Snapple Group(DPS), Cott Corp.(COT),
Hansen Natural Corp.(HANS), National Beverage Corp.(FIZZ), Jones Soda Co.(JSDA), Reeds Inc.
(REED), Clearly Canadian Beverage(CCBEF), Celsius Holdings Inc.(CELH), and China Fruits Corp.
(3CHFR). These companies manufacture, market and sell carbonated soft drink beverages.  While some
of these firms maintain business divisions, such as bottling, food, and bottled water, which are major
assets, this data will not be included in market structure analysis.    
  The top three companies, KO, PEP, and DPS accounted for 91% of total carbonated soft drink
sales in both 2009, and throughout the time period 2003-2009. Therefore our 3 firm concentration ratio is .
91 (Appendix 4).  The HHI for the CSD industry is .32 for 2009 and remains stable ranging between .30
and .34 from 2003-2009 (Appendix 4).  These HHI ranges fall under the category of oligopoly.  Price
elasticity is high because as prices increase for Coke, quantity demanded for Pepsi increases.  That is why
one firm will be on sale at grocery or convenience stores for a time period and the other will follow
afterward.  On the same token as Coke lowers prices their quantity demanded increases.  This is because
their loyal customers will look to purchase more of their product since it’s on sale.  As both firms are
looking to cannibalize sales from their competitors, it is in each firm’s best interest to operate at the
minimum efficient scale, then to lower prices to attract new customers and gain market share.  
Five Forces Analysis:  
Internal Rivalry  
Internal rivalry remains high within the CSD industry.  There is a lot of price and non-price
competition between competitors, especially Coke and Pepsi.  
Coke has done an excellent job of keeping costs low when compared to the industry. Average cost
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of goods sold as a percentage of sales for the industry in 2009 was 56%.  Coke has kept their figure better
than average at 32%, while Dr. Pepper/Snapple has maintained a 39% ratio, and Pepsi a 43% ratio of cost
of goods sold as a percentage of sales. Coke’s dominance in cost containment can be attributed to their
focus on streamlining operations (layoffs and efficient distribution) and operating near the minimum
efficient scale.     
Entry
Barriers to entry in the CSD industry remain high.  The two largest CSD companies, Coke and
Pepsi have several sources of market power over newcomers including bottling and distribution
networks/contracts, and exclusive restaurant contracts. Restaurant contracts are a major source of revenue
for the largest soft drinks companies. Coke and McDonald’s have a 54-year partnership, and Coke is sold
in all of McDonald’s 14,000 U.S. restaurants.  Pepsi beverages are sold exclusively in KFC, Taco Bell,
and Pizza Hut restaurants.  It would be difficult for a fledgling company to attempt to grow market share
by operating at an efficient production level and selling fountain drinks at major restaurants.       
Substitutes and Complements
There are many substitutes and complements in the industry.  Most companies have some form of
cola soft drink, lemon lime soft drink, bottled water, and energy drink. Each company’s prospective
product is a substitute for the other company’s offering of the same kind.  Jones Soda and several other
smaller firms offer pure cane soda drink options in flavors that are considered complements to the
traditional cola, or bottled water segments.  Jones Soda and other smaller beverage companies must
differentiate their products to appeal to the masses. Doing so helps them to grow brand recognition and
loyalty.
Supplier Power  
Suppliers have limited power because of governmental regulations, and alternatives.  Foreign
sugar producers have limited power due to tariffs and the U.S. government’s production quotas of
domestic sugar.  Also since the mid 1990’s the U.S. government has subsidized corn growers by $40
billion, which is another deterrent to sugar producers.  There are also various substitutes for a sweetener,
including HFCS, cane sugar, or beet sugar.  These are all similar tasting and most beverage companies
will utilize the most cost effective commodity.  
Buyer Power
Buyers have tremendous power in this industry.  When there is a specific movement of preferred
tastes, beverage companies must adhere to it.  This is definitely the case regarding the popularity of
bottled water and energy drinks.  As stated earlier, these product lines have become mainstays for most
companies.
SWOT Analysis
Internal Factors:
Strengths - World’s leading brand
Coke has strong brand recognition across the globe. According to BusinessWeek, Coke has the
highest brand value of all global brands. Business Week-Interbrand valued Coke at $70.4 billion in 2010.
Coke ranks ahead of its closest competitor Pepsi, which has a ranking of 23 and a brand value of $14
billion, Interbrand (2010). Furthermore, Coke owns a large portfolio of product brands. The company
owns four of the top five soft drink brands in the world: Coke, Diet Coke, Sprite and Fanta. Strong brands
allow the company to introduce brand extensions such as Vanilla Coke, Cherry Coke and Coke with
Lemon, Coca-Cola Wiki (2010). Over the years, the company has made large investments in brand
promotions. The company’s strong brand value facilitates customer recall and allows Coke to penetrate
new markets and consolidate existing ones.
Large scale of operations
With revenues in excess of $24 billion Coke has a large scale of operation. Coke is the largest
manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.
The company currently sells its products in more than 200 countries. Of the approximately 52 billion
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beverage servings of all types consumed worldwide every day, beverages bearing trademarks owned by or
licensed to Coke account for more than 1.4 billion. The company’s operations are supported by a strong
infrastructure across the world. Coke owns and operates 32 principal beverage concentrates and/or syrup
manufacturing plants, worldwide. In addition, it owns or has interest in 37 operations with 95 principal
beverage bottling and canning plants located outside the U.S., Stanford (2010). The company also owns
bottled water production and still beverage facilities as well as a facility that manufactures juice
concentrates. The company’s large scale of operation allows it to feed upcoming markets with relative
ease and enhances its revenue generation capacity.
Robust revenue growth in three segments
Coke’s revenues recorded a double-digit growth, in the three operating segments Latin America,
‘East, South Asia, and Pacific Rim’ and Bottling investments. Revenues from Latin America grew by
20.4% during fiscal 2006, over 2005. During the same period, revenues from ‘East, South Asia, and
Pacific Rim’ grew by 10.6% while revenues from the bottling investments segment by 19.9%. Together,
the three segments of Latin America, ‘East, South Asia, and Pacific Rim’ and bottling investments,
accounted for 34.8% of total revenues during fiscal 2006. Robust revenues and growth rates in these
segments contributed to top-line growth for Coke during 2006, Coca-Cola Strategy (2009).
Weaknesses - Negative publicity
The company received negative publicity in India during September of 2006. The company was
accused by the Center for Science and Environment (CSE) of selling products containing pesticide
residues in and around the Indian national capital region. These pesticides included chemicals, which
could cause cancers, damage the nervous and reproductive systems and reduce bone mineral density.
Such negative publicity could adversely impact the company’s brand image and the demand for Coke
products. Additionally, this could have an adverse impact on the company’s growth prospects in the
international markets, Grobel (2006).
Sluggish performance in North America
Coke’s performance in North America has been far from robust. North America is Coke’s core
market generating about 30% of total revenues during fiscal 2006. Therefore, a strong performance in
North America is important for the company.
Unit case retail volume in North America decreased 1% in 2006, primarily due to weak sparkling
beverage trends in the second half of the year and declined in the warehouse-delivered water and juice
businesses. Moreover, the company also expected performance in North America to be weak during
2007, SWOT Analysis (2006).
Sluggish performance in North America could impact the company’s future growth prospects and
prevent Coke from recording robust top-line growth.
Decline in cash from operating activities
The company’s cash flow from operating activities declined during fiscal 2006. Cash flows from
operating activities decreased 7% in 2006 compared to 2005. Net cash provided by operating activities
reached $5.95 billion in 2006, from $6.42 billion in 2005. Coke’s cash flows from operating activities in
2006 also decreased compared with 2005 as a result of a contribution of approximately $216 million to a
tax-qualified trust to fund retiree medical benefits. The decrease was also the result of certain marketing
accruals recorded in 2005, Coca-Cola Cash Flow (2007).
Decline in cash from operating activities reduces availability of funds for the company’s investing
and financing activities, which, in turn, increases the company’s exposure to debt markets and fluctuating
interest rates.
External Factors:
Opportunities - Acquisitions
Coke has aggressively adopted the inorganic growth path. During 2006, its acquisitions included
Kerry Beverages, (KBL), which was subsequently, reappointed Coca-Cola China Industries (CCCIL).
Coke acquired a controlling shareholding in KBL, its bottling joint venture with the Kerry Group, in Hong
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Kong. The acquisition extended Coke’s control over manufacturing and distribution joint ventures in nine
Chinese provinces. In Germany, the company acquired Apollinaris, which sells sparkling and still mineral
water in Germany. Coke also acquired a 100% interest in TJC Holdings, a bottling company in South
Africa. Coke also made acquisitions in Australia and New Zealand during 2006. These acquisitions
strengthened Coke’s international operations. Furthermore, the acquisitions gave Coke opportunity for
growth, through new product launch and greater penetration of existing markets. Stronger international
operations increase the company’s capacity to penetrate international markets and also gives it an
opportunity to diversity its revenue stream, Gaudet (2009).
Growing bottled water market
Bottled water is one of the fastest-growing segments in the world’s food and beverage market
owing to increasing health concerns. The market for bottled water in the US generated revenues of about
$15.6 billion in 2006. Market consumption volumes were estimated to be 30 billion liters in 2006. The
market's consumption volume is expected to rise to 38.6 billion units by the end of 2010. This represents
a CAGR of 6.9% during 2005-2010. In terms of value, the bottled water market is forecast to reach $19.3
billion by the end of 2010. In the bottled water market, the revenue of flavored water segment is growing
by about $10 billion annually. The company’s Dasani brand water is the third best-selling bottled water in
the U.S. Coke could leverage its strong position in the bottled water segment to take advantage of
growing demand for flavored water, Douaud (2007).
Threats:
Intense competition
Coke competes in the nonalcoholic beverages segment of the commercial beverages industry. The
company faces intense competition in various markets from regional as well as global players. Also, the
company faces competition from various nonalcoholic sparkling beverages including juices and nectars
and fruit drinks. In many of the countries in which Coke operates, including the U.S., PepsiCo is one of
the company’s primary competitors. Competitive factors impacting the company’s business include
pricing, advertising, sales promotion programs, product innovation, and brand and trademark development
and protection. Intense competition could impact Coke’s market share and revenue growth rates.
Dependence on bottling partners
Coke generates most of its revenue by selling concentrates and syrups to bottlers in whom it
doesn’t have any ownership interest or in which it has no controlling ownership interest. As independent
companies, its bottling partners, some of whom are publicly traded companies; make their own business
decisions that may not always be in line with the company’s interests. In addition, many of its bottling
partners have the right to manufacture or distribute their own products or certain products of other
beverage companies.
If Coke is unable to provide an appropriate mix of incentives to its bottling partners, then the
partners may take actions that, while maximizing their own short-term profits, may be detrimental to
Coke. These bottlers may devote more resources to business opportunities or products other than those
beneficial for Coke. Such actions could, in the long run, have an adverse effect on Coke’s profitability. In
addition, loss of one or more of its major customers by any one of its major bottling partners could
indirectly affect Coke’s business results. Such dependence on third parties is a weak link in Coke’s
operations and increases the company’s business risks, Cokecce (2006).

Sources of Financial Advantage and Disadvantage

Coke’s long-time dominance in the carbonated soft drink industry is displayed by the fact that
considerations for regional variations in the use of the terms "Pop" and "Soda" to describe carbonated soft
drinks led to a tertiary option of “Coke,” McConchie (2002). No other soft drink brand appeared as often
to be considered an independent option.
Coke has maintained its market leadership in various ways, but mostly through advantages that are
created through economies of scale. Specifically, Coke has created an advantage through modified
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bottling and distribution systems by selling off their bottling operations. In addition, Coke, possesses
scale advantages with respect to advertising and using advertising to maintain current customers, as well
as attract new customers, primarily in a global economy.
From a financial and economies of scale perspective, Coke experiences few, if any disadvantages.
They are able to introduce new products and try different styles of pricing and advertising with greater
margin of error than every other competitor not named Pepsi.
Sources of Financial Advantage
In 1986, Coke sold off 51% of their domestic bottling business, Coca-Cola Enterprises Inc, in
order “to remove the capital-intensive, debt-laden bottling operations from Coca-Cola’s books” but
maintain a company stronghold of CCE with their 49% stake in the operation and having a board
presence, Deogun (1997). This decision allowed Coca-Cola Bottling to be controlled by regional bottlers,
known as “anchor” bottlers that were large enough to benefit from economies of scale and are perceived
as part of Coke’s advantage over rival Pepsi. Moreover, the decision reduced the necessity for Coke to
manage from afar, allowing them to focus on other elements of their business. The sale and related
savings allowed Coke to reinvest in distribution systems to further enhance sales and create advantages
through these distribution systems, Deogun (1997).
The investment into distribution systems included purchasing technologies that would allow
account managers to spend more time in the field developing relationships with accounts and enhancing
sales. Account managers were provided with handheld instruments that allowed them to instantly access
account information that led to increased sales and, in turn, profits. This represented one element of
Coke’s efforts to return to the manner in which business used to be transacted, by talking to customers
about their needs, Fuhrman (2010).
Coke’s size allows them to advertise at a rate higher than most competitors. In 2006, Coke spent
$2.6 billion on advertising. In 2010, Coke, sought to turn the tide on decreasing domestic sales by
increasing their advertising in urban areas by saturating them with their traditional red logos and banners,
Holtz (2010). Moreover, Erickson found that Coke maintained an advantage in advertising in two ways.
First, research displayed that Coke had a per-unit profit advantage over Pepsi and all other rivals, adding
to their strength in advertising and Erickson also found that advertising for Coke was estimated to be
effective at generating new sales for secondary brands in the company, Erickson (2009). Finally, Erickson
found that Coke had the most effective advertising for attracting new sales of Coke and Diet Coke, as
compared to Pepsi and Diet Pepsi.
Cooperation Opportunities within the Industry
Coke takes advantage of cooperation opportunities within the industry in several ways. Primarily,
Coke bottlers cooperate financially through agreements to bottle competitors CSD brands. This allows
Coke to benefit financially from its competitors, as well as it allows Coke to control regions from
expansion of competitors. The competitors are allowed the opportunity to sell additional amounts of
CSDs in regions that they would otherwise be shutout of or which would require them increased costs to
distribute into the same regions.
Another way that Coke uses cooperation within the CSD industry is through complements.
Erickson found that sales of Coke and it’s advertising and pricing also increased sales of its other brands,
like Sprite, Erickson (2009). Moreover, Cotterill found that Coke and Sprite had a negative cross-price
elasticity, implying that they are complementary products, while Pepsi and Mt. Dew had a positive cross
price elasticity, implying substitute products, Cotterill (1994). Thus Coke can advertise and place these
products in a manner that will increase the firm’s overall sales, while Pepsi does so with the chance of
negatively affecting their other brand sales.
Differentiation
Beyond Coke’s product offerings, the company attempts to differentiate itself from its competitors
through advertising and marketing. Coke has established relationships with varying groups to position
themselves and their products in a positive light to appeal to consumers as being concerned with issues
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such as obesity and being green. Some of the efforts have also been made to create opportunities in
developing markets.
Coke has had either long-standing or newly established partnerships with health related/physical
fitness groups such as the American Academy of Family Physicians, Dirdorff (2009), the National Heart,
Lung, and Blood Institute, the American Dietetic Association, Diet-Coke (Nov., 2010), and many major
sports teams. In entering into these partnerships, Coke has not attempted to position their products as
being healthy, but instead to show an interest in creating programming to prevent concerns related to their
products, such as obesity and diabetes, Fortney (2010).
With respect to greening and concerns for the environment, Coke has entered into partnerships
with the World Wildlife Foundation to help protect freshwater resources worldwide, Coca-Cola (June,
2007). Coke also worked with Greenpeace in committing to utilize climate friendly refrigeration, and
partnered with TechnoServe and the Bill & Melinda Gates Foundation to assist small fruit farmers in
Uganda and Kenya to increase productivity, Coca-Cola (Jan., 2010).
Pricing Rivalry
Coke operates in an oligopolistic industry. Though there are several other competitors within the
CSD industry, Coca-Cola has one chief competitor, Pepsi. The pricing that is implemented by these two
companies mirrors one another, as consumers who are less brand committed perceive these products as
substitutes. To some consumers, the brand is what they are interested in and as long as pricing is
reasonable, they perceive value pricing may be in effect and are willing to pay a higher price than they
would for a private label cola or an alternative brand. For this reason, as Cotterill stated, increased price
for either Coke or Pepsi could result in decreased revenue, Cotterill (1994). At the same time, Cotterill
continued by stating that though revenue declines, the price increase might still be profitable due to the
percent of sales represented as profit. Cotterill continued with the finding that cross price elasticities for
Coke and Pepsi are .35 and significant. This means that if either brand changes price and the other
follows, their own price elasticity will be less than their nonfollowship elasticity, Cotterill (1994). This
indicates that some degree of price followship or tacit collusion will exist between Coke and Pepsi.
Using the implications of price followship and loss of market-share from unilateral Moderate Price
Change, game theory results in Nash Equilibrium with cooperation between Coke and Pepsi in making no
change in price (Appendix 13). History has shown that this is not the case, as there exists an unofficial
agreement to alternate pricing increases and decreases through trade promotions that amounts to tacit
collusion. This allows Coke and Pepsi to reap short-term benefits from small pricing increases and
decreases that do not affect their market-share standing, either between each other or the remaining firms
in the industry, due to the market power that Coke and Pepsi wield. This market power allows Coke and
Pepsi to raise price without losing market-share to the other competitors. Furthermore, using the
Bertrand-Nash model for differentiated goods, brands in equilibrium can have different prices and the
prices can be above MC. Finally, the change in price for Coke and Pepsi allows each to increase price
without losing direct market-share, as increasing price for either results in shifted demand for the other,
increasing the followers profit maximizing price. As the market leader, this followship enhances Cokes
pricing power.
First Mover Advantages
Economically, there is not much of a first mover advantage for much of what Coke or Pepsi could
do with respect to pricing, product differentiation, marketing, or advertising. Coke and Pepsi are such
well-established companies, with enormous economies of scale that they can respond to most changes that
the other could make. This is not to say that either company should not act in a manner that does not seek
to create a first mover advantage, only that any advantage that might exist can be matched and quickly
made up for by the other company.
One situation where first mover advantage might exist that cannot be duplicated is in patentable
machinery. Coke has developed several mechanistic elements that could create a competitive advantage.
One of these items is the CooLift Delivery system, which palletized orders to fit a delivery cart prior to
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delivery. This allows for a delivery to be completed straight from the delivery truck without taking time
to handpick an order from a stocked delivery truck. The CooLift not only reduces delivery time and
increased revenue opportunity; it also fathered an automated picking system for bottling facilities and
warehouses, Fuhrman (2010).
Another example of mechanistic first mover advantage is Coke’s Freestyle fountain dispenser that
allows consumers to select from over 100 varieties of Coke beverages. The consumer uses a touch screen
to create their own beverage selection using any combination of the Coke varieties available, Coca-Cola
(2009).
Switching Cost
The switching costs in this industry are very low.  If a customer chooses one brand over another
there is no financial cost, psychological or time based costs.  Some customers will follow their favorite
brand no matter the price to a certain extent.  The products do not have significant differences.  Therefore
it won’t matter to a customer to choose a rival brand over another because of price or taste.   
Benefits to customers when masses of other people adopt the product
There are benefits to customers when masses of other people adopt the product. The tastes and
preferences of the masses will influence decisions made by the beverage companies.  The popularity of
bottled water and energy drinks are evidence of this.  Coke has spent great effort in promoting and
growing both of these business divisions.
Product life cycle
The typical product life cycle consists of five main aspects, product development, introduction,
growth, maturity and decline.  Coke is in the maturity stage in the product life cycle with a large, loyal
group of stable customers. Within this stage of maturity, the growth speed has slowed.  However, there is
growth potential in foreign markets.  Coke establishes strong branding and holds a significant market
share already. Market maturity stage occurs when the market has become saturated and sales growth rates
tend to decrease.  The market share held by Coca-Cola Co. has decreased because of the growth of Pepsi
and Dr. Pepper. With the growth and maturity of their business, they focused on differentiation of the
product and built up a lot of other brands to create new markets.  Pricing is still lower because of increased
competition from other companies.  Margins began to shrink, but from the data analysis we can see the
margin profit leaves Coke the leader in the industry.  Because of the price elasticity, they begin to use
promotions as a way to encourage preference over competing products.
Many firms, especially single-product firms, will look to every possible marketing management
technique known to revitalize product sales, whether this involves starting new users or market segments,
or making significant modifications to the product, perhaps improving its quality, reliability or some
aesthetic feature.  Coke manages to increase global sales through entry into additional markets, many of
its core products have remained the same over significant periods; it has just been their branding that has
changed.  Ultimately, the maturity stage becomes the key turning point for companies because at some
point during this period, sales will start to decrease and potentially never experience positive growth
again. All of those potential dangers alarm Coke and push them to try to escape failure.
Vertical boundaries
For the part of vertical integration, Coke shows strong ambition.  Coke agreed to buy the bulk of
its largest bottler in a deal valued at about $12.17 billion, including debt, to gain more control of
manufacturing and distribution in the beginning of 2010. Under the terms of the deal, Coke would give up
its 34% stake in Coca-Cola Enterprises Inc., worth $3.4 billion, and assume $8.88 billion in debt, and all
North American assets and liabilities.  CCE agreed in principle to buy Coca-Cola’s bottling operations in
Norway and Sweden for $822 million, and acquire an 83% equity stake in its German bottling operations
in the near future.
CCE’s shares surged 30% to $25 in premarket trading, while Coca-Cola fell 2.6% to $53.65. CCE
shareholders will get one share of a new Coca-Cola Enterprises company focused only on European
bottling and will get a one-time $10-a-share payment. The company plans to issue debt to finance this
9
payment and the European acquisition. Coke will control about 90% of the bottling of its products in
North America.  It expects cost savings of $350 million over four years and that the acquisition will add to
earnings per share by 2012.  The transactions are expected to close in the fourth quarter.
Conclusion:
Coca-Cola’s Relevant Strategic Choices and Competitor Responses
With respect to a revitalized focus on their bottled water and energy drink segment we believe it’s
in Coke’s best interest to do so. Even though bottled water volume has decreased in the U.S. the last two
years, this segment still represents over 8.4 billion gallons sold. They were able to grow their Glaceau
Smartwater brand by 40% from 2008, cannibalizing sales from competitors. This, along with their Dasani
label both rank in the top 10 of U.S. top selling bottled water brands. Product differentiation through
advertising has worked for their Smartwater brand.
Energy drink growth has slowed over the last few years as well, but this is primarily due to the
economy. Coke should invest in its Full Throttle energy drink brand and look at entering the market for
energy shots. These 2-3 ounce bottles have grown in sales recently. 
Coke shouldn’t eliminate the use of HFCS in the production of its soft drinks.  The majority of
CSD companies use HFCS because it’s easier to blend and transport since it comes in liquid form. It’s also
been historically cheaper than natural sugar and beet sugar (Appendix7).  However, if the price of HFCS
becomes too high, raw sugar or beet sugar can be used as a substitute because the taste is very similar.
  It is documented that HFCS-55 (42% fructose, 53% glucose) is most commonly used in soft
drinks.  As of the 3rd quarter 2010, HFCS’ price is 28.88 cents per pound dry weight.  Meanwhile, U.S.
retail refined sugar is listed at 61.87 cents per pound and U.S. wholesale refined sugar is at 57.30 cents per
pound.  This represents a significant price difference.  Assuming Coke needs 100 million pounds of HFCS
for it’s yearly production, this represents a cost difference of $2.7 billion by using natural sugar and $2.1
billion in using beet sugar.  Coke could look to obtain its sugar abroad where the refined price as of the 3rd
quarter 2010 was 26.07 cents per pound.  However there are significant tax levies placed on sugar imports,
which would negate the cost savings. Therefore it makes better financial sense to continue the use of
HFCS.    
We also believe Coke should expand operations to gain a larger market presence in Africa.  Coke
currently maintains 29% market share there, with 9.1 billion liters of beverage sold.  Annual per capita
consumption of Coke in Kenya is 39 servings compared to 665 servings in Mexico, it’s largest consumer
by country.  This represents room for growth.  Africa has a growing market with projected households that
earn at least $5000 to close to double to 106 million homes from 59 million in 2000.  Disposable income
in Africa is $1.6 trillion of GDP, which is larger than Russia and India according to Muhtar Kent, CEO of
Coca-Cola.  With the middle class growing by such a large amount, the market size is sure to increase
significantly, and Coke should take advantage.  Coke has committed to investing $12 billion in African
operations out of a $100 billion plan to increasing its presence in developing countries (Appendix 8).  This
amount is sufficient to maintain its market share and solidify themselves as the premier cola in Africa.
Coke’s competitors would benefit most by attempting to take control of the bottled water/energy
drink market. Coke has not been as successful in establishing themselves in this market and may need to
purchase a brand to gain market-share. Furthermore, the use of specific sweeteners is not a viable option
for competitors to overtake Coke. Many have switched away from HFCS with little change in market-
share. Finally, Pepsi is the only firm that has the ability to take control of new global markets. They must
stay step-for-step in global expansion with Coke to have a chance to become the CSD market leader.

10
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