strategic-management

240 JOHN AND SHERRY ROSS
EXHIBIT 8 Coca-Cola
Two-Year Annual Income Statement
(all numbers in millions) 12/31/08 12/31/07
Sales 31,944.00 28,857.00
Cost of Goods Sold 10,146.00 9,229.00
Depreciation, Depletion & Amortization 1,228.00 1,163.00
Gross Income 20,570.00 18,465.00
Selling, General & Admin Expenses 11,774.00 10,945.00
Total Operating Expenses 23,266.00 21,337.00
Operating Income 8,678.00 7,520.00
Non-Operating Interest Income 333.00 236.00
Earnings Before Interest & Taxes 8,751.00 7,661.00
Interest Expense on Debt 438.00 456.00
Pretax Income 8,313.00 7,205.00
Income Taxes 1,632.00 1,892.00
Equity Interest Earnings -874.00 668.00
Net Income Available to Common 5,807.00 5,981.00
Source: Thompson Banker (2008).
Competition
Coca-Cola
Coca-Cola, the brand known around the world, is the largest producer and distributor of
dark colas in the world and as such is PepsiCo’s major competitor. With net revenues of
$31.944 billion and net profits of $5.807 billion in 2008 as seen in Exhibit 8, the Coca-
Cola Company continues to expand even in the current monetary crises. The financials for
Coca-Cola show a strong cash position of $4.979 billion and long-term debt of only $2.781
billion. Coca-Cola has also invested in purchasing bottlers and streamlining its operations.
“Rather, our entire Coca-Cola system is focused on what critically matters to our
business: investing in our brands enhancing our communications to the customers who sell
our beverages and the consumers who invite us into their lives each day; and streamlining
our operations” (President’s letter, 2008 Annual Report). Coca-Cola seems to be following
a very concentrated strategy by focusing almost exclusively on nonalcoholic beverages
with little, if any, tendency to diversify. This strategy is enhanced by extensive advertising
($3 billion expense in 2008) through the bottling and distribution network and toward the
ultimate consumer. Additionally, as the demand for dark colas has diminished, Coca-Cola
has continued to strengthen their juice, ready-to-drink tea and coffee products, water and
sport drinks along with the introduction of Truvia as a sweetener.
Coke generates most of its operating revenue outside the United States with international
concentrate sales accounting for 77 percent and U.S. sales 23 percent. Coke is a
strong, well-known competitor and spent, in addition to advertising, $4.4 billion in promotion
to bottlers and resellers in 2008. This amount of spending on promotion and advertising
has led to volume growth in Eurasia of 7 percent, Europe of 3 percent, Latin America
of 8 percent, and the Pacific of 8 percent. However, in the North America market volume
growth was down 1 percent. This follows the global trends of a mature and declining market
in North America with growth in other parts of the world.
Advertising for Coca-Cola is similar to Pepsi in that they also rely heavily on short
catchy slogans, songs, and celebrity endorsements. Since 1886 Coke has been successful with
such slogans as “Delicious and Refreshing” (1904), “The Pause That Refreshes” (1929),
“Things Go Better With Coke” (1963), “It’s the Real Thing” (one of the most successful:
1969), “Have a Coke and a Smile” (1979), “Life Tastes Good” (2001), and currently “Open
Happiness” (2009).