Coca-Cola Case Study

1. What should Coke do with CCE going forward? Own/retain CCE? Follow a "beer" model? Replay the "hospital ward" strategy? Other? Why?

• The Coca-Cola spent a lot of money to buy the major assets of its main bottler. But it may not be interested in keeping them. Because of the high impact structure the beverage giant just announced a $12 billion deal to take over the North American operations of Atlanta-based Coca-Cola Enterprises. According to the analysts and investors, Coca-Cola executives have said the company, which traditionally has focused on branding and product development, does not want to be in the bottling business for the long haul. Other analysts also think that the Coke will eventually spin off the bottling operations after reshaping them to become more efficient and nimble in getting a broad mix of products to shelves.
• The planned deal of the coca-cola with CCE was announced on 25th Feb. 2010 they said that this move will give better control over distribution of the new products as well as the existing products. But running and owning the CCE bottling operations was the major shift for the company as it was moving into production as well as the logistics in a huge way.
•  As bottling business is of lower-margin than marketing and branding and that means the Coca-Cola will get more of its revenue from the slow-growing North American market. But in Europe’s coke business CCE was an autonomous body.

Coca-Cola was overarching a goal is to remake its North American operations in the sleeker image of its overseas businesses.

• All the beverages of the coke’s international market were made in Bottlers’ factories. Carbonated soft drinks and stills(bottled water) are distributed on their trucks. CCE makes and distributes carbonated soft drinks such as Coca-Cola, Diet Coke and Coke Zero.
• Since there had been intense negotiations and disputes between Coke and franchise bottlers and the bottlers were not ready to invest in new equipments there rose an unreliability on supply and availability to the consumers. Due to the intense disputes and negotiations between Coke and Bottlers there was no significant synergy between the two parties to be leveraged.

2. What were the pros & cons of buying CCE - the largest acquisition in Coke’s history? Does it address the challenges? Improve the prospects of reaching the 2020 vision?

Pros of buying CCE:

• As there is an opportunity to diversify so the responsiveness will increase
• Revenue will also increase
• Increase in revenue and decrease in cost will bring increase in synergy between various departments involved in production process.
• Increase in independence as the Coke will no longer have to be dependent on the bottling companies.

Cons of buying CCE:

• Net income in 2010 was $11.8 Billion out of which $12 Billion was invested (debt)  thus this affected profitability of the firm.
• The management complexity increased.
• The gross margin will go down

1. From the case, what generic inference can you make for make-or-buy decisions?

• Making the product “Coke” will be better as its formula (the classic coke formula) is the key to competitive advantage.
• Lower cost will create synergy which will consequently lead to the increase in distribution which will lead to increase in the revenues.
• To drive innovation in the US, Coke needed to change the way its products were manufactured and distributed.
• To examine the overall market potential.
•  To enhance the current assets since there are different number of facilities in different geographies.
•  Technology associated with the product or service.
• The challenges that the Coke industry and other companies face is that “buy” solution looks more attractive as it helps to increase the speed of the market and reduce overhead than the “make” decision.
• There are certain risks involved with the “buy” decisions. It can be more costly if investments are there in your own operations. There are risks of quantifying involved in out-sourcing vs. spending money to carry out in-house operations.

1.  How can a company derive competitive advantages from inputs it does not make but only buys?

• Enhancing differentiation
• By reducing the operational cost and hence reducing the cost of the end product.
• By the use of Innovation
• More effort on branding and advertising
• Improve the distribution of the product