Strategic Mmgt- Research Based

Appendix III: Marketing Audit

Marketing

Coca-Cola

PepsiCo

Strength

Weakness

Product Mix

Sodas:

· Coke, Sprite, Mello Yellow, Fanta, Fresca, Diet Coke, and Coke Zero Sugar.

Juices and Tea:

· Fuze tea, Minute Maid, Odwalla, Honest tea, Simply juices, and Powerade.

Waters:

· Dasani, Glaceau Smartwater, Vitaminwater, and Ciel water.

Snacks and Food:

· None

Sodas:

· Pepsi, Mountain Dew, Mist Twist, 7-Up, Diet Pepsi, and Diet Mountain Dew.

Juices and Tea:

· Lipton, Naked, Tropicana, Brisk, Starbucks bottled drinks, and Gatorade.

Waters:

· Propel, Aquifina, and Lifewater.

Snacks and Food:

· Tostitos, Quaker Oats, Lays, Doritos, and Ruffels.

X

Pepsi has a broader product mix, specifically food products.

Market Share

11.2%

13.9%

Total Brand Value

$69.7 billion

$18.2 billion

X

CC

Promotion

Campaigns:

· “Taste the Feeling” campaign – Focuses on the firm’s commitment to choice.

· “One Brand” campaign – Emphasizes that Coca-Cola is more than a soda company.

· “Total Beverage Company” campaign

· Sustainability campaign – Focused on making consumers more aware and providing recycling tips and advice.

· “Share a Coke” campaign is one of the most successful – encourages associating social activity with Coke.

Promotional Spending:

· 2016: $4 billion

Failed Campaigns:

· The firm has not had and recent failed promotional campaigns.

Campaigns:

· “Creating a Healthier Future” campaign created to provide consumers with healthier food and drink options

Failed Campaigns:

· Kylie Jenner advertisement was aired which received considerable media backlash as mocking the ‘Black Lives Matter’ Movement.

Promotional Spending:

· 2016: $1.46 billion

X

CC

The firm’s advertising has been a key strength over the past decades. Customers always seem to feel engaged.

Pricing

Pricing Strategy:

· Price is based on the cost of production and the price of competitors’ products to remain competitive.

· However, pricing is in an oligopoly, which means the demand curve is kinked.

· Therefore, the firm follows its competitors in terms of pricing, so there is little difference in the price of the product.

Pricing Strategy:

· PepsiCo uses the same pricing practices as Coca-Cola.

· Because they operate in an oligopoly, both firms are forced to treat pricing the same.

Distribution

Distribution Methods:

· Direct Channel: Produces, bottles, and distributes products to wholesalers and retailers.

· Indirect Channel: Coca-Cola sells their syrups and concentrates to third-party bottlers who then distribute the products to wholesalers and retailers.

Distribution Methods:

· PepsiCo produces and bottles its beverages and sells and distributes the products to either retailers or customer wholesale warehouses.

X

CC

Using 3rd party bottlers keeps the company more agile in implementation.

Appendix IV: Management Audit

Management

Coca-Cola

PepsiCo

Strength

Weakness

Chief Executive Officer

CEO: James Quincy

Education:

· Bachelor’s degree in Electronic Engineering from the University of Liverpool.

Salary & Incentives:

· Total Compensation estimated to increase from $8.4 million.

Financial Results (Q3 2017):

· Net revenue down 15% - (cause listed below in “Restructuring Results”)

· Organic Revenue up 4%

· On track to deliver annual targets (+3% organic revenues)

2017 Stock Value:

· 14.37% stock growth YTD

CEO: Indra Nooyi

Education:

· Bachelor’s degrees in Physics, Chemistry and Mathematics from the University of Madras.

Salary & Incentives:

· Total Compensation rose 13% in 2016 to $29.8 million

Financial Results (Q3 2017):

· Net revenue up 1.3%

· Organic Revenue up 1.7%

· North America Beverages has not met annual target expectations.

2017 Stock Value:

· 10.77% stock growth YTD

X

Strength because the stock of coke has increased more than Pepsi this year, and organic revenues are higher. Further, the coke CEO is paid less.

Structure

Current Restructuring:

· Management is restructuring to ensure faster growth and increased responsiveness.

· 3 top executives have departed this year – Quincy’s new team is “focusing more on innovation.”

· Refranchising – selling bottling operations to independent partners. This returns the firm to its role as a franchise leader and not an owner.

Restructuring Results:

· Q3 2017: Net revenues down 15%, organic revenues up 4%. This is due to bottling operations no longer being included in revenues.

Restructuring:

· The firm has been restructuring its organization. However, most restructuring costs relate to severance costs.

· Otherwise, there seems to be no major restructuring. The firm is not following Coke’s step in restructuring bottling operations.

X

Human Resources

General Practices:

· Employee performance appraisal is annual.

· The firm views employees as its assets, and cares about its health and benefits.

· Maintains data records for all employees.

Mentoring Program:

· Helps employees broaden their network, enhance their competitiveness, and learn about multiple areas of the company.

· Includes one on one mentoring, group mentoring, and self-study mentoring.

Benefits:

· Retirement plans include a 401(k) plan with the firm matching 3%.

· Also offers a defined benefit plan at the discretion of the employee.

· Education benefits include tuition reimbursement and various undergraduate scholarship funds.

· Offers adoption assistance.

· Medical and dental coverage for eligible dependents.

General Practices:

· The firm says its employees are its “Greatest Asset.”

· They have performance management in place, and they reward employees based on the business strategy.

· Maintains data records for all employees.

Reward System:

· Have a “Chairman’s Circle of Champions” to reward top operations associates.

· Implemented various similar programs to recognize employees who are performing well.

Benefits:

· Offer a 401(k) plan with matching – the exact matching is not disclosed.

· Personally chosen health and insurance benefits.

· Company funded retirement plan: 100% PepsiCo paid benefit.

Appendix V: Research and Development Audit

R&D

Coca-Cola

PepsiCo

Strength

Weakness

Research & Development Costs

· The firm has 6 R&D facilities worldwide as of 2016.

· Spent 132.8 billion on health research from 2010 – 2015.

Expense:

· $760 million in 2016

· Have increased R&D spend by 45% since 2011.

Product Innovation

· The famous Coca-Cola Zero has been redesigned and is now being reintroduced as Coca-Cola Zero Sugar.

· Every sparkling brand sold is now available in a low/no sugar variation.

· Both firms have introduced various new healthy options

· Both firms have introduced various new healthy options.

· The firm states that their R&D efforts are often aimed at developing sweeteners that are low in calories.

X

Replacing consumer favorites could cause customers to switch.

R&D Model

Distributed, Connected, and Shared:

· Focuses on connecting the 6 R&D centers with partners in various industries for collaboration.

Hub and Spoke:

· Operates large R&D centers around the world, supported by smaller “satellite” centers.

· Opened an R&D center in China in 2012, supporting the goal of globalization.

· New centers help the firm target local markets more quickly.

X

Strength because expert partners are contributors.

Appendix VI: Information Systems Audit

Coca-Cola

PepsiCo

Strength

Weakness

ERP System:

· Coke uses an IBM enterprise resource planning system to integrate the Operations, Marketing, Accounting, Inventory, and Human Resources sectors of the company for consistent reporting of management and operational units.

ERP System:

· PepsiCo uses the SAP Netweaver integration and application platform to help to implement the mySAP Business software for distribution and delivery, improve forecasting, increase information transparency, and link supply chain and inventory processes with customer-facing activities.

ERP Application:

· SAP used for Accounting, Planning and Budgeting, and Procurement.

ERP Application:

· After switching from Oracle, PepsiCo and Coke use essentially the same information and technology systems for the similar functions.

Financial Consolidation:

· Uses mySAP Financials and Business Intelligence to integrate the consolidation of financials, power financial planning, and give a comprehensive view of corporate financial performance.

· Coca-Cola manufacturing plants have Project Implementation Systems that direct Inventory Management, Raw Materials Management, Production Planning, Sales, and Distribution,

Appendix VII: Footprint Analysis

Upstream

Operations

Downstream

Ecological

Ecological Goals:

· Set a goal to sustainably source 100% of key agricultural ingredients by 2020.

Sustainable Agriculture:

· Built factories near local farmers to decrease spoilage of crops.

· Teaching farmers to conserve and increase yields:

· 3,600 farmers in Malawi learned water smart practices.

· Mango farmers taught high density practices, increasing yields.

· Agricultural ingredients are responsible for 20-25% of the entire value chain’s carbon.

Water Consumption:

· The firm replenished 100% of the water used in finished beverages back to communities and nature (221 billion liters replenished through watershed projects).

· The firm used 1.96 liters of water to make 1 liter of product – compared with 2.7 liters in 2004.

Goals for 2020:

· Reduce water use by 30%

· Reduce direct CO2 emissions by 50%

Past 5 Years:

· The firm reduced its carbon footprint by 1.07 million tons.

· The firm reduced its water usage by 2.1 billion liters.

Emission Targets:

· In 2008 the firm committed to grow the business, not the carbon.

· However, the firm is “off track.” –Mfg. emissions are 15% above 2004 levels.

Manufacturing Emissions:

· 2016 global mfg. emissions: 5.45 million metric tons.

· Manufacturing accounts for 15% of the total carbon within the value chain.

Refrigeration:

· Single largest source of carbon emissions in the value chain (35%).

· Eliminated 75% of GHG emissions through HFC-free insulation for equipment. (2.5 mil introduced since 2009)

· EKOCENTER’s have generated over 815,000 kWh of solar power.

Packaging:

· Twist bottles are 22% lighter than old containers.

· Introduced PlantBottle packaging for Dasani, the 1st fully recyclable plastic bottle. Accounts for 29% total packaging.

· Smaller packaging trend– 40% of the firm’s sparkling brands are available in 8.5oz or less.

Recycling:

· Created Coca-Cola Recycling LLC to build recycling efforts.

· 60% of bottles and cans that were introduced into the marketplace were refilled or recycled in 2016.

Social

Supplier Guiding Principles:

· Monitor acceptable social and ecological practices.

· Achieved 89% compliance by direct suppliers via audits.

Impacting Farmers:

· The firm has worked with farmers worldwide to teach proper business practices, which has allowed the farmers to achieve financial stability.

Worker Safety:

· 21% reduction in serious injuries in 2016.

· Lost time rate: 1.29 per 200,000 hours worked.

· ISO 45001 manufacturing compliance achieved.

· 90% of facilities were compliant with the firm’s human rights policy.

EKOCENTER’s:

· Introduced in 2013

· Women entrepreneurs run local miniature stores.

· Over 150 stores

Charitable Contributions:

· Donated over $106 million in 2016.

· The firm donates 1% of its operating income annually.

· Over 230 organizations have been reached to date.

Economic

Project Nurture:

· Launched in 2010

· Invests in mango & passion fruit value chains (In Kenya and Uganda).

· Goal: To double the income of 50,000 farmers by 2014 (The goal was achieved).

· The firm has built factories near the orchards, allowing farmers to decrease spoilage.

Farmer Interaction:

· The firm has partnered with farmers from Kenya, India, etc. to teach more efficient farming techniques.

· Using these techniques, farmers can produce a more stable income; also, this makes the firm’s suppliers more dependable.

Employment:

· The firm is cutting 1,200 jobs as a result of weak growth.

· The layoffs are to let the firm be more agile.

Financial (Q3 of 2017):

· Operating margin grew 200 basis points.

· Net revenues declined 15%.

EKOCENTERS:

· Have created over 750 direct jobs, and over 525 are held by women.

Coca-Cola and Education:

· Coca-Cola’s scholars foundation gave $3 million in scholarships in 2016.

Local Communities:

· Since the foundation was incepted in 1984, $820 million has been given to local communities.

5by20 Program:

· The firm’s goal is to enable 5 million women entrepreneurs by 2020.

· Partners with women and teach business skills to become entrepreneurs.

· Has enabled 513,000 women in 2016 (1.75 million since 2010).

Appendix VII: Footprint Analysis (Continued)

Strengths

Weaknesses

Upstream Economic / Social:

Coca-Coal has a large impact on various upstream participants from farmers to local entrepreneurs. PepsiCo does make efforts in these communities, but they are insignificant compared to Coca-Cola’s.

Upstream / Operational – Ecological:

Weakness compared to PepsiCo because the firm has higher overall emissions / waste than PepsiCo. However, Coca-Cola’s sustainability goals have a 2020 deadline, and PepsiCo’s deadline is set for 2025. The firm seems to be missing its targets.

Social Operations (Worker Safety):

The firm had a 21% reduction in serious injuries, compared to PepsiCo’s 17%. Further the firm’s lost-time rate is significantly lower than PepsiCo’s.

Downstream Economic:

Although PepsiCo does have a few programs aimed at helping local communities, there is none as prominent as the firm’s EKOCENTER’s and 5by20 program. These programs have had a large impact in downstream communities, and there is no information on a program with similar results from PepsiCo.

Appendix VIII: SWOT Analysis

Helpful

Harmful

Internal

Strengths

· Brand Value: Coca-Cola has one of the top 3 strongest brands in the world.

· Promotional Campaigns & Marketing: The firm invests more in advertising than rival PepsiCo.

· CEO Performance / Salary: Mr. Quincy’s salary to performance ratio is more reasonable than PepsiCo’s.

· Distribution Network

· Operational Efficiency: Inventory Turnover is nearly double PepsiCo’s.

· Debt Ratio: The firm’s debt ratio is only 73.39%, compared to PepsiCo’s 85%.

· Product Stewardship

Weaknesses

· Value Chain Emissions: The firm has significantly higher emissions than its main competitor.

· Product Mix is Soda Focused and Lacks Diversification (Specifically food)

· Earnings per Share: PepsiCo’s EPS is more than double Coca-Cola’s.

· Return on Equity: Coca-Cola’s 2016 ROE was 28.3%, compared to PepsiCo’s ROE of 57%.

External

Opportunities

· Economic Development in Emerging Markets – The International soft drink market is expected to grow 20% from 2015 to 2020.

· Diversification into healthier products and potentially snacks – Within drinks, natural beverages are expected to drive 40% of growth in 2017.

· Packaged Water: Americans are now drinking 0.8 gallons more water than soda per year for the first time in decades.

Threats

· Growing Health-Conscious Consumers: Sugar consumption has decreased 14% since 1999.

· Various Niche Players Taking Small Shares of The Healthy Drink Space

· PepsiCo

· Increasing Costs of Raw Materials

· Potential political issues and additional soda taxes: A new beverage tax in Philadelphia has caused sales to decline 32% year to date.

Appendix IX: Strategy Identification

Strategy Level

Examples

Competitive:

· Product Differentiation

· Focused Differentiation Strategy – Craft Sodas

· Preemptive Sustainability Strategy (Product Stewardship and Socio-Efficiency)

· Product Stewardship

· Dominant Share – Keeping the Offensive

· Product Differentiation: The firm has 6 global R&D facilities and spent $4 billion on marketing efforts in 2016.

· Focused Strategy: In various markets, the firm is selling craft sodas that cater to specific demographics. Launched Blue Sky Soda and Hansen’s in 2016.

· Preemptive Sust. Strategy: Have invested large amounts to ensure entire value chain is sustainable (Ex. Farmers in Zambia being taught sustainable farming practices). These moves are clear representations of not only product stewardship, but also socio-effectiveness and eco-effectiveness.

· Product Stewardship: The firm reduced water usage by 2.1 billion liters over the past 5 years. PlantBottle (fully recyclable) now accounts for 29% of all packaging. The firm also replenished 100% of water used into communities in 2016.

· Keeping the Offensive: Although the U.S. market is identified as mature, the firm has continued spending $4 billion per year on marketing over the past 2 years.

Corporate:

· Divestiture Strategy

· Alliance with SAB Miller (Joint Venture)

· Shifting the Firm’s Portfolio through Horizontal Integration

· Glocalization

· Divestiture Strategy: The firm is refranchising (selling-off) all North American bottlers by the end of 2017.

· Joint Venture with SAB Miller: Formed a new company (Coca-Cola Beverages Africa) has $3 billion in annual revenue. SABMiller owns 57% of the venture, and Coca-Cola owns 43% of the venture.

· Horizontal Integration: The firm continues to purchase new businesses within its industry. The most recent was a purchase of Topo Chico (Natural water) for $220 million.

· Glocalization: The firm makes various local sodas and juices that cater to local taste. For example, Jaz Cola was introduced into the Japanese market. Although they cater to local tastes, the firm is able to use economies of scale to improve production (through simple adjustments to manufacturing).

Enterprise:

Values

· The firm seems to have a core value of improving the quality of life for everyone. Coca-Cola is true to its mission, and ‘walks the walk’ regarding improving the quality of life. Not only has the firm worked with various BOP suppliers and farmers to provide them with business and entrepreneurial skills, but the firm’s giving also expands to developed markets where they provide local funding and scholarship opportunities to the communities.

· The firm also values improving its sustainability. It has set aggressive goals, and is honest with stakeholders when those goals are off target. For example, the firm’s previous CEO was awarded the Water Leader Award for achieving various water stewardship milestones, including replenishing all the water the firm uses globally five years ahead of schedule.

· Overall, the firm’s values are strong, and they are committed to serving the world through improvements in sustainability as well as individuals that may interact within the value chain (or in other local communities).

Stakeholders

· The firm identifies its key stakeholders as bottling partners, consumers, communities, employees, shareholders, and suppliers.

· The firm engages bottling partners through day to day interactions and joint business planning, consumers through hotlines, plant tours, and joint value creation initiatives.

· The firm engages communities through meetings, partnerships on common issues, and sponsorships. The firm also engages shareholders through annual meetings, quarterly earnings reports, and ongoing dialogue with investors and analysts.

Issues

· The firm’s main issues lie within sustainability and health-conscious customers.

· The firm will continue to face pressing issues within sustainability, as they are required to continually improve their already impressive sustainability programs in place. Stakeholders will continue to desire more involvement, and the firm must respond.

· Health-conscious customers will continue to present issues, which will present themselves through shifts in demand. Not only does it appear customers will lean toward healthier options, but these tastes will inevitably continue to change rapidly.

Appendix X: Performance Gap Analysis

Strategy - Competitive

Suggestion

Rationale

Product Differentiation

Continue

The firm has done a tremendous job through product differentiation with R&D and marketing efforts (CC).

Focused Strategy – Craft Soda

Modify

The firm should allocate slightly more resources to this niche category. With changing customer taste, numerous small investments could reap large dividends.

Preemptive Sustainability

Continue

The firm’s sustainability program is very impressive, and they are outperforming their main competitor, PepsiCo, in this strategy.

Product Stewardship

Slightly Modify

The firm has exemplified product stewardship throughout the value chain, and no major improvements or strategy changes are necessary. However, the firm has higher emissions within the value chain than PepsiCo, and should continue setting aggressive goals to reduce these figures.

Dominant Share – Offensive Strategy

Continue

The firm should continue at their current advertising and marketing budget, and should ensure they do not become complacent through a harvesting strategy. We recommend using the CC in marketing to keep market share.

Strategy – Corporate

Divestiture Strategy

Slightly Modify

We recommend the firm continues divesting its North American bottlers, but also considers divesting small portions of its global bottlers. By divesting these units, the firm will be more agile in regards to local needs and desires.

Alliance with SABMiller

Continue

The alliance with SABMiller appears to be successful, so the team found no reason to recommend any changes to the current alliance strategy.

Shifting the Portfolio through Horizontal Integration

Slightly Modify

Because the firm has a strong debt ratio, we recommend that the firm continues purchasing competitors, specifically in the natural soda and juices segment of the market. Along with horizontal integration, we recommend that the firm uses some available capital to pursue internal ventures in the same markets.

Glocalization

Continue

The firm’s glocalization strategy has proven effective, as the firm has become a leader in various global markets through slight iterations of its products, such as the Jaz Cola in Japan.