The Coca-Cola Co

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COMPANY PROFILE The Coca-Cola Co

REFERENCE CODE: 37CB5616-D04E-49EE-9F5C-FFE75047D6FF PUBLICATION DATE: 23 Aug 2019 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED The Coca-Cola Co TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ...... 3 Key Facts...... 3 SWOT Analysis ...... 4

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Company Overview

COMPANY OVERVIEW

The Coca-Cola Company (Coca-Cola) is a producer, distributor and marketer of non-alcoholic beverages. The company offers sparkling beverages and a variety of still beverages including juices and juice drinks, waters, enhanced waters, ready-to-drink teas and coffees, and energy and sports drinks. It sells its beverages under various brands including Sprite, Coca-Cola Zero, Diet Coke, Fanta, Glaceau Vitaminwater, Powerade, Dasani, FUZE TEA, Minute Maid, Simply, Georgia, and Del Valle. Coca-Cola markets its products to independent bottling partners, distributors, wholesalers and retailers. The company has business presence across Europe, the Middle East and Africa (EMEA), Latin America, Eurasia, North America and Asia-Pacific. Coca-Cola is headquartered in Atlanta, Georgia, the US.

The company reported revenues of (US Dollars) US$31,856 million for the fiscal year ended December 2018 (FY2018), a decrease of 10% over FY2017. In FY2018, the company’s operating margin was 22.9%, compared to an operating margin of 15.2% in FY2017. In FY2018, the company recorded a net margin of 20.2%, compared to a net margin of 3.5% in FY2017.

The company reported revenues of US$9,997.0 million for the second quarter ended June 2019, an increase of 15% over the previous quarter.

Key Facts

KEY FACTS

Head Office The Coca-Cola Co One Coca-Cola Plaza Atlanta Georgia Atlanta Georgia USA Phone 1 404 6762121 Fax 1 404 6766792 Web Address www.coca-colacompany.com Revenue / turnover (USD Mn) 31,856.0 Financial Year End December Employees 62,600 New York Stock Exchange Ticker KO

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SWOT Analysis

SWOT ANALYSIS

The Coca-Cola Co (Coca-Cola) is a global beverage manufacturing company. Billion-dollar brands, a comprehensive bottling and distribution system, and high profit margins are the company’s major strengths, whereas product recalls remains a area of concern. Growth in soft drinks consumption, focus towards healthier options and Strategic collaborations are likely to offer growth opportunities to the company. However,Stringent Regulations, Water Scarcity Could Impact Profitability, intense competition and foreign exchange risks could affect its business operations.

Strength Weakness

Billion-Dollar Brands Product Recalls Comprehensive Bottling and Distribution System Higher Profit Margins Product Innovation and Diversification Opportunity Threat

Global Scenario for Soft Drinks Consumption Water Scarcity Could Impact Profitability Focuses on Offering Healthier Options Stringent Regulations Strategic collaborations Foreign Exchange Risks Intense Competition

Strength

Billion-Dollar Brands

Coca-Cola is a leading beverage company serving consumers worldwide. The company has over 500 brands in its portfolio including 21 billion-dollar brands, which support the launch of new products and the company's foray into new markets. The company’s billion-dollar brands comprise Coca-Cola, Sprite, Fanta, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Minute Maid, Georgia Coffee, Powerade, Del Valle, Schweppes, Aquarius, Minute Maid Pulpy, Dasani, Simply, Gold Peak, vitaminwater, Fuze Tea, Ice Dew, smartwater, I LOHAS, and Ayataka. The Coca-Cola brand was created in 1886 in Atlanta, Georgia. It has a presence in more than 200 countries. Fanta was introduced in 1940, and is the second largest brand outside the US, with consumption totaling more than 130 million times on a daily basis. Sprite is a lemon- lime flavored soft drink launched in 1961 and ranked as the No. 3 soft drink worldwide. Diet Coke was introduced in 1982 as Coca-Cola light, and is now available in more than 185 markets worldwide. Launched in 2005, Coke Zero has presence in more than 150 countries. Georgia Coffee is the No. 1 ready-to-drink coffee brand in Japan that offers more than 100 varieties of cold and hot coffees in nine countries.

Comprehensive Bottling and Distribution System

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Coca-Cola has one of the most comprehensive bottling and distribution systems in the world. The company has an operating network, which comprises company-owned or -controlled bottling and distribution operations, independent bottling partners, distributors, wholesalers and retailers spread over 200 countries. The company manufactures and sells beverage concentrates and finished sparkling soft drinks. In FY2018, the company generated 64% of its revenue from concentrate operations and remaining 36% from finished products operations. It has five of the largest bottling partners: Coca-Cola FEMSA, S.A.B. de C.V, Coca-Cola European Partners plc, Coca-Cola HBC AG, Arca Continental, S.A.B. de C.V and Swire Beverages which has bottling and distribution operations in countries such as Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Venezuela, Colombia, Brazil, Argentina, Uruguay, Andorra, Germany, Monaco, Norway, Spain, Iceland, Croatia, Austria, Republic of Ireland, the Czech Republic, Switzerland, Argentina, Montenegro, Poland, China, Taiwan, the Russian Federation, the US and Hong Kong. In FY2018, these bottling partners represented 40% of total unit case volume. As of December 2018, Coca-Cola operated 60 manufacturing facilities worldwide, of which 54 are owned. It also owned 31 principal beverage concentrate and/or syrup manufacturing plants. In FY2018,Coca-Cola operated 201 principal beverage distribution warehouses.

Higher Profit Margins

Improving profitability expands the company’s ability to provide adequate returns to its shareholders. The company’s profitability improved during the same period. The company reported an operating margin of 23.7% in Fy2018 when compared to an operating margin of 15.2% in FY2017. Increased operating performance indicates proper cost management of the company. The company reported a net profit margin of 20.2% in FY2018 when compared to a net profit margin of 3.5% in FY2017. The company’s operating costs as a percentage of sales decreased from 84.8% in FY2017 to 76.3% in FY2018. The company's return on equity (ROE) also increased to 37.9% in FY2018 from 7.3% in FY2017. The strong ROE shows that the company is efficient in utilizing its equity base in delivering better results to its shareholders.

Product Innovation and Diversification

Coca-Cola stays abreast with the changing consumers’ preferences through product innovation and diversification. Being a customer-centric total beverages company, Coca-Cola anticipates the shift of consumers towards the healthier options and has diversified its product range towards no-sugar and healthier beverages such as juices, dairy drinks, water, tea and coffee, and energy drinks. To this end, in FY2018, the company launched Fuze tea, ultrafiltered milk, lower-calorie juice drinks and lemonades, iced coffee in over 37 countries across Europe, the Middle East and Africa, and Asia-Pacific. It also strengthened sparkling soft drink portfolio by launching iconic diet coke brand with zero sugar Coke Plus Coffee in North America, which were successful initiative that helped consumers in reducing added sugar and also generated 2% of volume growth in sparkling soft drink portfolio during 2018. It has also differentiated its brands with various beverage packaging initiatives, including launch of 90 calories mini- can with 38% less sugar of 7.5 oz in North America that led to gaining twice the system gross profit compared to traditional 12. Oz pack. Similarly, in Romania market, the company launched a new sleek can single-serve pack and glass bottle single-serve pack that obtained 19% of system revenue growth compared to traditional multi-serve pack.

Weakness

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Product Recalls

Product recalls create a negative impact on the company’s brand image and may also result in decease in customers’ confidence on the company, and also effect its growth. The company recalled a number of products in the past. In October 2018, Coca-Cola Deutschland initiated recalling bottles of ready-to-drink iced tea brands due to defect in the quality of the product. It recalled the 1 liter PET plastic bottle of Fuze Tea Pfirsich with expiry dates August 28 and 29, 2019 as it did not meet the quality standards. In March 2018, the company also recalled over 766,000 cases of canned drinks including Sprite, Pibb, Dr Pepper, Fresca, Coca-Cola, Diet Coke and Fanta 12oZ cans due to sharp edges on several cans which may have caused consumer injury. Drinks canned under the authority of the Coca-Cola Company were distributed to retail stores in Iowa, Arkansas, Kansas, Nebraska, Missouri and Illinois.

Opportunity

Global Scenario for Soft Drinks Consumption

The company stands to benefit from the growing consumption of soft drinks. According to in-house research, the global soft drink market is forecast to grow at a CAGR of 4.5% during 2017-2022 to reach US$944,376.5 million by 2022 from US$758,952.5 million in 2017. The market is forecast to reach 787,422.8 million liters by 2022, which reflects an increase of 11.9% over 703,980.6 million liters in 2017. Growing middle class population, increasing disposable income, rapid urbanization, improved buying power, introduction of new flavors, and changing customer needs are the major factors aiding the market growth. Usage of natural colors and sweeteners such as corn syrup, aspartame and similar ingredients, apart from improvement in manufacturing process of beverages is also leading to growth in the industry. Carbonates and packaged water were the largest segments of the global soft drinks market in 2017, accounting for 37.6% and 15%, respectively, of the market value. Asia-Pacific accounts for about 34.9% of the global soft drinks market value, followed by the US (26.6%), Europe (21.2%), the Middle East (1.9%) and the Rest of the World (15.4%).

Focuses on Offering Healthier Options

The company focuses on the providing healthier options to the consumers. As a part of this approach, it has launched various healthier products across the world. In November 2018, the company introduced natural yoghurt in Brazil. In October 2018, the company's Fanta introduced its new zero-sugar soft drinks in the UK. In July 2018, the company introduced coffee-cola fusion drink in Cambodia. In May 2018, Coca-Cola introduced a new lemon-flavored alcoholic drink, alcopop, in Japan, expanding its presence. In the same period, it also introduced new Coca-Cola Freestyle beverage dispenser and DASANI Sparkling, smartwater sparkling and Topo Chico to its Sparkling Water category. In February 2018, the company introduced a new blend of tea extract and fruit flavors, Fuze Tea and launched cans from Crown in Latvia, Lithuania and Estonia with thermochromic ink technology. In April 2018, Coca-Cola launched three flavors, avocado, sourdough and charcoal, to its Zero Sugar brand.

Strategic collaborations

The company continues to view acquisitions as a major part of its growth strategy. These acquisitions are intended to augment growth, expand its business with new technologies and products, and enhance its geographical reach. In January 2019, the company acquired Costa Limited, a British multinational coffeehouse from Whitebread for US$4.9 billion. This acquisition will enable Coca-Cola to get a strong coffee platform across Asia-Pacific, Europe, Middle East and Africa and get opportunities of further expansion. The company also expects to grow its presence in Hot beverages segments from Costa’s leading brands such as plus coffee and Georgia; 4000 retail outlets with qualified baristas; for-home coffee format; and coffee vending operations. It will also add new capabilities to Coca-Cola’s coffee portfolio with its solid presence of costa express at gas stations, travel hubs and movie theatres in the UK and china. Costa also provides Coca-Cola with strong expertise across its coffee supply chain Such as sourcing, vending and distribution. In the same month, the company acquired Chi. Ltd, a leader in expanding beverage category including value-added dairy, juices and iced-tea. This acquisition will enable the company to strengthen its diversified business of Sugary Sodas and grow its business in Africa.

Threat

Water Scarcity Could Impact Profitability

Water is the main ingredient in substantially all of the company’s products. Rapid population growth and continued pollution of existing freshwater sources have created water shortages in nearly every country. According to the United Nations, about 1.2 billion people, or almost one-fifth of the world's population, live in areas of physical scarcity, and 500 million people are approaching this situation. Another 1.6 billion people, or almost one quarter of the world's population, face economic water shortage. According to the United Nations, by 2030, the world will face nearly 40% of short fall in water supply. As a result, the company may incur increasing production costs or face capacity constraints, which could adversely affect its profitability in the long run.

Stringent Regulations

The company's business operations are subject to the rules and regulations of the Food and Drug Administration (FDA) and other federal, state and local health agencies regarding production and marketing of beverages. The FDA also regulates the labeling of containers under The Nutrition Labeling and Education Act of 1990. Similarly under one such law in California, known as Proposition 65, if the state has determined that a substance causes cancer or harms human reproduction, a warning must be provided for any product sold in the state that exposes consumers to that substance. If the company is required to add Proposition 65 warnings on the labels of its beverage products produced for sale in California, the resulting consumer reaction to the warnings and possible adverse publicity could negatively affect the company’s sales both in California and in other markets. Thus, significant additional labeling or warning requirements or limitations on the marketing or sale of company’s products may inhibit performance.

Foreign Exchange Risks

Coca-Cola operates in many parts of the world and is exposed to fluctuations in foreign exchange rates. The company reports financials in the United States dollars(US$) and its revenue is exposed to volatility of the US$ against other functional currencies, as it conducts business operations in over 200 countries. A significant part of its revenue is also denominated in other currencies such as including the Argentine peso, Mexican peso, Australian dollar, Euro, British pound sterling, Brazilian real , South African rand and Japanese yen. The major elements exposed to exchange rate risks include the company’s investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. In FY2018, the company reported a loss of US$2,035 million due to foreign exchange difference. To minimize risks from currency fluctuations, the company involves in foreign exchange contracts, options, financial futures and currency swaps to hedge foreign currency flows and positions. However, there could be no assurance that such hedging activities or measures would limit the impact of movements in exchange rates on the company’s results of operations.

Intense Competition

The non-alcoholic beverage industry is highly competitive. The competitors of the company include bottlers and distributors of nationally and regionally advertised and marketed products, and bottlers and distributors of private label beverages. The key factors influencing the competition in the non-alcoholic beverage industry include point-of-sale merchandising, new product introductions, new vending and dispensing equipment, packaging changes, pricing, price promotions, product quality, retail space management, customer service, and frequency of distribution and advertising. Key competitors include PepsiCo, Inc, Nestle SA, Danone SA, The Kraft Heinz Co, Mondelez International, Inc., National Beverage Corp., ConAgra Brands, Inc, Unilever PLC and Dr Pepper Snapple Group. Due to intense competition from various players, the company may be forced to increase its spending on advertising and promotions or reduce prices which may lead to reduced profits.

The level of competition has been increasing due to the strategic growth initiatives taken by competitors. In August 2018, Nestle SA acquired the perpetual rights for marketing, selling and distributing certain Starbucks’ consumers and foodservice products such as Teavana, Starbucks, Seattle’s Best coffee, Torrefazione Italian Coffee, Starbucks VIA Instant and Starbucks branded K-Cup pods globally to extending Nestle’s coffee business in Europe and North America. In January 2019, ConAgra Brands entered into a strategic agreement to acquire Gelit, a producer of authentic Italian frozen food and ready meals. This acquisition is expected to extend Conagra frozen food business.

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