ECON545 Case Study: The Efficiency and Profitability of Coca-Cola

This case study analyzes the efficiency and profitability of The Coca-Cola Company, the largest beverage company in the US operating in an oligopoly market. It examines the company's performance, market share, and strategies to sustain its position in the competitive beverage industry, including product differentiation, pricing, and marketing. The study reviews the revenue and growth of the company and its impact on the industry. It also assesses the company's business model, product differentiation, and pricing strategy. The analysis includes data on market share, revenue growth, and the U.S. beverage industry, highlighting the company's competitive advantages, such as its ability to invest heavily in marketing and product differentiation, and the challenges it faces from competitors and changing consumer preferences. The study also considers the company's strategic actions, including product diversification and global expansion, to maximize profit and maintain market share.

Running head: THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
The Efficiency and Profitability of Coca-Cola
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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
EXECUTIVE SUMMARY
The largest beverage company of US, Cola-Cola is operating in oligopoly market, with largest
market share. This paper analyses the efficiency and profitability of the Coca-Cola Company.
The performance of the company along with its biggest rival PepsiCo is discussed in the paper.
The strategy the company is using to sustain in the highly competitive beverage industry and the
product it is serving is examined. The revenue and growth of the company, which influences the
beverage industry is assessed. The business model, product differentiation and pricing strategy of
the company make them different from the other competitors available in the market.

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
Table of Contents
Introduction......................................................................................................................................4
Discussion........................................................................................................................................4
Data..............................................................................................................................................4
Analysis.......................................................................................................................................5
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
Table of Figures
Figure 1: Market share of Coca-Cola Company..............................................................................5
Figure 2: Revenue growth of Coca-Cola Company........................................................................5
Figure 3: U.S. beverage industry.....................................................................................................6

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
Introduction
The Coca-Cola Company, which is based in United States, started its operation in 1886
with a distinctive tasting beverage or soft drink. The market share of the organization is 40% of
the total global carbonated sweet drink industry. The company is operating in oligopoly market
structure. The company is playing a dominant role in the soft drink industry. The main rival of
the Coca-Cola Company is PepsiCo (Serôdio, McKee & Stuckler, 2018). The market share of
PepsiCo and Coca-Cola Company are greater than all other smaller firms of the beverage
industry. There is entry and exit barriers in this industry. Coca-Cola is competing with other
major competitors of this industry on terms of non-price product differentiation. In addition, the
diet coke for health conscious population make them unique in the highly competitive beverage
industry.

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Discussion
Data
Figure 1: Market share of Coca-Cola Company
Source: (tradingeconomics.com, 2019)
Figure 2: Revenue growth of Coca-Cola Company
Source: (Morningstar.com, 2019)

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
The above graph represents the revenue growth of the Coca-Cola Company. In addition,
the annual revenue of the Coca-Cola was $41.863 billion in 2016, declining 5.49 % from 2015.
While, the annual revenue of the Coca-Cola was $35.41 billion in 2017, declining 15.41% from
2016. The annual revenue of the Coca-Cola was $31.856 billion in 2018, declining 10.04% from
2017. The revenue of the company was $32.826 billion as of June, 2019, declining for the
growing competition in the beverage industry.
Analysis
The soft drinks industry of United States and the world is dominated by the Coca-Cola
Company. Other than tastes and preferences of the potential customers, the industry is influenced
by the growing demand for non-sugary drinks. The competition is very high due to many players
in the market. The big market size of the company helps to retain its market share and stay
competitive despite many adverse effects. The demand for the sweet carbonated drinks in the US
as well the world is very high.
The market value of the Coca-Cola Company is largest in the domestic and international
market. Therefore, the demand for carbonated drink like Coca-Cola is elastic, as in the highly
competitive beverage industry, a small change in price will affect the market demand
significantly. If the price of the products manufactured by the company increases, the consumer
may buy substitutes of it from its main rival PepsiCo. Thus, the demand for the sweet beverage
will decline. However, the demand elasticity of the soft drinks helps the firm to decide the price
of the product in order to decrease the demand for other soft drinks available in the market
(tradingeconomics.com, 2019). Here, the firm influences the price of the soft drink products and
act as a price maker. Other small firms have to be price taker in this case. They have to take the
prefixed price by the major market players such as PepsiCo and Coca-Cola.

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
Figure 3: U.S. beverage industry
Source: (ameribev.org, 2019)
The expected increase in growth of the beverage industry is $300 billion between 2015
and 2020. The growth of the industry enhances the performance of the Coca-Cola Company.
Thus, the large market of soft drinks industry impacted the growth of the company. Moreover,
the diversified products of the company caters to its varied customers’ tastes and preferences. To
diversify its products with changing tastes and preferences of the customer, huge investment is
required. It is difficult for the small firms to invest more for the product differentiation and
marketing. Coca-Cola has competitive advantages over it, as it can invest huge amount on
marketing and product differentiations. Therefore, to sustain in the highly competitive market of
sweet carbonated drinks, the company develops new products and invests large amount for
strong branding.
The largest non-alcoholic beverage company of the United States as well as the world is
Coca-Cola. The categories of beverages served by the company are carbonated alternative
drinks, tea and coffee, soft drinks, bottled water, sports drinks, energy drinks and shots and juice
and juice drinks. The highest selling product of the company is Coca-Cola, company earned 40%

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THE EFFICIENCY AND PROFITABILITY OF COCA-COLA
of the total revenue from it. The unique product of the company, which helps in product
differentiation from other competitors of the market includes Coca-Cola Zero and Diet Coke
(Borges et al., 2017). The unique product of the company is popular among health conscious
population. The growing concerns about the adverse effects of the sweet sodas creates threats for
the beverage industry. However, the innovative product differentiation of the company give them
a diversified business model. The company can control the price of the product using its market
power and affect the competition of the market. They act as a price maker in the market. The
biggest competitor of the company is PepsiCo with market share of 20% of the total global
beverage industry (Elmore, 2014).
The shares of PepsiCo have gained for the past two years compared to Coca-Cola. The
gain of PepsiCo and Coca-Cola was 2.95% and -1.45% respectively. Though, the brand
valuation of the Coca-Cola is stronger than the Pepsi-Co. The market capitalization of the Coca-
Cola was lower than the Pepsi-Co, which is $190.10 billion and $159.46 billion respectively in
2018. Although, both the organizations face obstacles from the non-sugary drinks like nutritional
and energy drinks. The growing health concerns move the people to healthier alternatives
(Barlow et al., 2018). The operating margin of the company reduced since 2000 from almost
25% to 20%. Both the organizations came up with new and innovative non-sugary drinks to
adjust its market share and competition from other rivals (ameribev.org, 2019).
The strategic actions taken by the company includes driving profit and revenue growth,
investing in business and brands (Ramirez, Rincon & Parada, 2014). The company spread its
business in more than 200 countries of the world (Morningstar.com, 2019). The large presence of
the company around the world provides them a huge market to serve and expand its business.
The company tries to keep its product affordable and increases the volume of the production. The

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strategy of increasing volume and keeping price affordable helps the company to expand its
business in the developing nations. Coca-Cola is offering premium services through aluminium
and glass bottles in advanced countries. The business strategy of the company is different for the
developing and developed countries. The market segmentation helps the company to higher its
revenue growth.
The advertising strategy of the company make them different from other rivals of the
industry. The company invests a lot in improving the quality and quantity of its advertisement.
The amount spent on media advertising stands at more than $250 million. To compete in the
energy drinks market, the company entered into a strategic alliance with Monster Beverage
Corporation. Though, the competition and changing tastes and preferences of the customers
created many negative effects on the performance of the company. Thus, the company utilized its
product differentiation, pricing and marketing strategy to enhance the growth and revenue.
Conclusion
The biggest player of the US beverage industry, Coca-Cola has the sizeable market share.
In addition, the organization is operating in oligopoly market structure with biggest competitor
PepsiCo. The market size of the company facilitates in pricing strategy. It act as a price maker in
the market of beverage industry. The company is also using unique products to stay competitive
in the beverage industry. The Diet coke and Coca-Cola Zero caters to the health conscious
customers of the company. The growth of the beverage industry helps the company to grow and
stay in market. However, the market size of the company influences the presence of its biggest
rival. Though, some adverse effects hampers the growth of the company, its strong marketing
strategy helps to maximize the profit level.

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Reference List
Barlow, P., Serôdio, P., Ruskin, G., McKee, M., & Stuckler, D. (2018). Science organisations
and Coca-Cola’s ‘war’with the public health community: insights from an internal
industry document. J Epidemiol Community Health, 72(9), 761-763.
Borges, M. C., Louzada, M. L., de Sá, T. H., Laverty, A. A., Parra, D. C., Garzillo, J. M. F., ... &
Millett, C. (2017). Artificially sweetened beverages and the response to the global obesity
crisis. PLoS medicine, 14(1), e1002195.
Co, C. (2019). Coca-Cola Co (KO) Financials | Morningstar. Morningstar.com. Retrieved 17
September 2019, from https://www.morningstar.com/stocks/xnys/ko/financials
Coca-Cola | KO | Stock Price | Live Quote | Historical Chart. (2019). Tradingeconomics.com.
Retrieved 17 September 2019, from https://tradingeconomics.com/ko:us
Elmore, B. J. (2014). Citizen Coke: The Making of Coca-Cola Capitalism. WW Norton &
Company.
Ramirez, M. M. G., Rincon, J. C. V., & Parada, J. F. L. (2014, February). Liquid level control of
Coca-Cola bottles using an automated system. In 2014 International Conference on
Electronics, Communications and Computers (CONIELECOMP) (pp. 148-154). IEEE.
Serôdio, P. M., McKee, M., & Stuckler, D. (2018). Coca-Cola–a model of transparency in
research partnerships? A network analysis of Coca-Cola’s research funding (2008–2016).
Public health nutrition, 21(9), 1594-1607.
Us, A., History, O., Directors, B., Team, A., Associations, P., & Foundation, A. et al.
(2019). American Beverage Association - Representing US Beverage

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Companies. American Beverage Association. Retrieved 17 September 2019, from
https://www.ameribev.org/