This Document Contains Cases 17 to 19 L’Oreal SA – 2013 Forest R. David A. Case Abstract Headquartered outside of Paris in Clichy, Hauts-de-Seine, France, L'Oréal is the world's largest cosmetics and beauty company. Specializing in hair color, skin care, sun protection, make-up, perfumes, and hair care, L’Oreal is the leading nanotechnology patent-holder in the USA. L’Oreal recently opened a huge new factory in Indonesia. L'Oréal is a listed company with 66,000 employees, but the founder's daughter Liliane Bettencourt and the Swiss food company Nestle each control over a quarter of the shares and voting rights. In November 2012, L'Oréal began construction of the largest factory in the Jababeka Industrial Park in Cikarang, Indonesia with a total investment of US$100 million. The production will be absorbed 25 percent in Indonesia and the rest will be exported. L’Oreal’s sales in Indonesia are growing rapidly. L'Oréal is also building a Research and Innovation Center in Bom Jesus Island Rio de Janeiro, Brazil at an estimated cost of 30 million euros (70,000,000 reals). B. Vision Statement (proposed) To be the cosmetics company of choice that women, men, and children the world over rely upon to feel more beautiful. C. Mission Statement (proposed) Our mission is to design, produce, and distribute the world’s best fragrances, perfumes, and personal care products (2) to women, men, and children (1) by utilizing the latest technological improvements (4). We empower our highly creative team of researchers to develop safe, eco-friendly (7) products that will enable our firm to profitably grow (5) handsomely. We strive to be one of the most socially responsible (8) firms on the planet (3) and appreciate our employees (9) making that happen while always following the “golden rule.” (6) 1. Customers 2. Products or services 3. Markets 4. Technology 5. Concern for survival, growth, and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees 10. D. External Audit Opportunities 1. The worldwide cosmetics market grew 4.4% in 2011 representing $197.4 billion. 2. Major BRIMC and minor growth countries have several million middle class citizens and are projected to account for 5 of the 10 largest economies by GDP by 2020. 3. BCG reports the Chinese middle class is expected to increase from 150 million to +400 million in 10 years. 340+ urban locations will increase to 550 million in 10 years. 4. Direct retail sales in the US increased 4.6% to $29.9 billion in 2011 of which 78% were women and 89% worked part time. 5. Google Offers, Living Social, and Groupon have launched apps for Android phones to alert consumers to deals through mobile devices. 6. 91% of new products pacesetters were brand extensions (expanded effectiveness, new technologies, improved processes, new/unique formulas, varieties, designs or patterns). 7. Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft. 8. Latino and Asian population is expected to nearly triple (Hispanics, with the highest consumption of personal care products in 2009, are expected to grow from 16.7% in 2012 to 21.2 in 2025. 9. 29% of consumers made at least one consumer packaged good purchase online in 12 months. OTC drugs and health & beauty supplies ranked highest in respondents buying the brand they want the most. 10. To reduce currency volatility, companies can hedge their exposure with futures contracts (an 8.8% annual increase of dollar index). Threats 1. Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft. 2. Consumption of cosmetic products per inhabitant is 10 to 20 times lower in immature countries than in mature BRIMC countries. 3. China’s GDP growth target is 7.5%, which is well below the range recorded in 5 years; India slowed growth by 5.3% in Q1 2012. 4. Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US) for $1.7 billion; Coty agreed to acquire OPI Products (nail salon products) for $1 billion. 5. P&G is a global leader in personal and beauty care products 20% in Western Europe; $14 billion net in restructuring, cost reduction, & marketing reduction over next five years. 6. Avon markets Regenerist and Anew skin products to baby boomers; Johnson & Johnson launched a line of E-Pulse, Skin-Electro-Stimulation technology (skin rejuvenation/anti-aging. 7. 54% of the female respondents in 2008 said they would “buy the brand they want the most”’ (down to 45% in 2010 and 43% in 2011). 8. Avon sales in India increased 57.4% due to direct sales in 2011. 9. Due to weak US economic environment and higher pricing of green products, consumers may be deterred from buying green products. 10. Avon and Revlon both offer perfume products in their portfolio. Competitive Profile Matrix L’Oreal is performing slightly better than Revlon and significantly better than Avon according to the CPM above. A new area tactic for L’Oreal would be engage in direct sales especially in Latin America. EFE Matrix L’Oreal’s performance is average in addressing external issues. Moving forward, the firm could benefit from entering the direct sales market in Latin America. E. Internal Audit Strengths 1. 27 international brands distributed in over 130 countries. L’Oreal has 5 regional hubs worldwide. 2. The Body Shop’s total operating profits were €77 million in 2012, up 9% from 2011. The Body Shop has over 70 brands in 60 countries (presence in global travel retail outlets across 44 markets). 3. L’Oreal has €790 million invested in R&D in 2012 and had 3,676 researchers throughout 19 research and 16 evaluation centers; filed 613 patents in 2011. 4. L’Oreal achieved an approximately 14% sales growth in new markets in 2012, with total sales in 2012 amounting to €1.5 billion. 5. L’Oreal achieved 4% operating profit growth in Western Europe in 2012, with €1.6 billion in operating profits. 6. L’Oreal has positioned 41 production plants across current markets, including a new one in Russia; opening new sites in Mexico, Indonesia, and Egypt. 7. L’Oreal’s North America segment achieved 18.5% operating profit growth in North America in 2012. 8. Global predictive center (Lyon) reconstructs 130,000 units of biological tissues for predictive evaluation of ingredients and products; 9 reconstructive skin and cornea models developed (reduces time to market). 9. The Dermatology Branch (Galderma) total sales were €796 million in 2012, up 13% from 2011. 10. L’Oreal conducts in-house packaging of products at their plants through the wall-to-wall program (reduces transportation costs and waste generation). Weaknesses 1. L’Oreal suffered a -2.8% sales loss in its Eastern European Market in 2011, despite a 3.9% market growth. 2. L’Oreal lacks a Beauty Tools division, unlike its chief competitor Revlon.n its 3. L'Oreal's organizational structure limits its ability to create integrated brand promotion strategies for its distinctive SBU’s. 4. L’Oreal has a limited number of perfume, bath, and baby products in its portfolio compared to competitors. 5. L’Oreal lacks energy efficient production facilities in North America similar to ones in Belgium, Spain, India, and France. 6. L’Oreal does not practice direct selling strategies in their marketing initiatives as compared to competitors (Avon and Mary Kay). 7. L’Oreal has consolidated key market segments under “New Markets”; limits managerial response to changes in major geographic SBU’s. 8. L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief competitor Revlon (1.2). 9. L’Oreal’s cost of operations (55.05%) is higher than its chief competitor Revlon (49.42%). 10. When selecting different country options, L’Oreal’s website has defective or nonexistent navigation and translation capabilities. European Market in 2011, despite a 3.9% market growth (Ops profit: -$734.79 million) Financial Ratio Analysis (L’Oreal numbers are in Euros) Profit Margin Percent L’Oreal Industry Gross Margin 71.03 49.88 Pre-Tax Margin 17.61 17.41 Net Profit Margin 12.84 13.01 Liquidity Ratios Debt/Equity Ratio 0 0.36 Current Ratio 1.23 0.76 Quick Ratio 0.72 0.45 Profitability Ratios Return On Equity 14.59 18.47 Return On Assets 9.99 8.44 Return On Capital 14.55 12.14 Efficiency Ratios Income/Employee 484,074 48,902 Revenue/Employee 3.77 M 461,611 Receivable Turnover 6.41 11.86 Inventory Turnover 3.07 5.81 Asset Turnover 0.78 0.65 L’Oreal is doing extremely well financially. Net Worth Analysis (in millions) L’Oreal is one of the largest firms in the industry and is worth about $77 billion euros. IFE Matrix L’Oreal’s performance is above average in addressing internal issues. Moving forward, the firm needs to expand its footprint in the USA market as well as increase perfume, bath, and baby products. F. SWOT SO Strategies 1. Establish joint venture with Parlain Co Ltd or Sa Sa Intl Holdings Ltd (China); BK Corporation (Mumbai); Natura and/or O Boticario (Brazil). (S4, O2, O3) 2. Increase North American Sales by 15% over 3 years through IBP, direct selling, and eMarketing by targeting the growing population of Hispanic and Asians. (S7, O4, O8) 3. Increase sale of Body Shop, Dermatology Branch products 12% over 3 years through eMarketing and global travel retail outlets. (S2, S9, S10, O5, O7, O9) WO Strategies 1. Decentralize by establishing separate geographic profit centers to achieve 20% growth over 3 years in New Markets and 6% in Eastern Europe over 3 years. (W1, W3 W7, W8, O1) 2. Develop IBP marketing campaign with direct selling to achieve 15% sales growth in the US, and 20% in BRIMC. (W3, W6, O2, O3, O4, O8) 3. Improve website design and eCommerce as part of IPB marketing campaign to increase online sales 25% over 3 years. (W10, O5, O9) ST Strategies 1. Achieve 20% sales growth in New Markets by increasing production to 100% in 16 existing and 3 new plants, incorporating direct sales methods, and acquiring/JV’s with three distributors. (S4, S6, T2, T3, T8). 2. Body Shop will increase sales 9% over 3 years in its global travel retail outlets through 5 new perfume and brand extensions of existing products. (S2, T1, T10) 3. Increase sales of current products in North America 15% over 3 years by increasing production and distribution to 100% at 9 existing facilities and a new one in Mexico. (S6, S7, T4, T6, T7, T9) 4. Increase sales 15% over three years of more affordable green and specialty products in all markets, using its efficiencies in R&D, production, and packaging to control costs. (S3, S6, S8, S10, T6, T9) 5. Increase sales 6% over 3 years in Western Europe through sales of current products (Sanaflore). (S5, S6, T5, T6) WT Strategies 1. Invest $20 million to improve its Website design and eCommerce capabilities to increase online sales 25% over 3 years. (W10, T 8) 2. Develop 5 new perfumes and increase portfolio of affordable bath and body products in all markets. (W4, T10) 3. G. SPACE Matrix L’Oreal is positioned in the Aggressive Quadrant of the SPACE Matrix and should establish a joint venture with Natura in Brazil. H. Grand Strategy Matrix The firm is doing well as a market leader and should focus on expanding sales in the USA and Latin America. I. The Internal-External (IE) Matrix Segment 2012 Total Sales (in € millions) Consumer Products €10,713 L’Oreal Luxe 5,568 Professional Products 3,002 Active Cosmetics 1,528 Other 1,651 Total €22,463 L’Oreal is doing well in all business segments but should expand its perfume and baby items. J. QSPM K. Recommendations 1. Establish joint ventures with (€1.5 billion): Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd (China), BK Corporation (India), and Natura or O Boticario (Brazil). 2. Hire key executives (CIO, CLO, CTO, Presidents) (€15 Million) 3. Establish 10,000 direct sales force. (€150 Million) 4. Improve website design & eCommerce. (€10million) 5. Initiate an Integrated Brand Promotion marketing campaign to increase global sales over next 3 years. (€155 million) L. EPS/EBIT Analysis (in millions expect for EPS and Share Price) Amount Needed: €330 Stock Price: € 127.05 Shares Outstanding: 606 Interest Rate: 4% Tax Rate: 26% L’Oreal should finance with debt as economic conditions improve. However, the amount of capital requested here is not significant as revealed by little change in EPS equity and debt financing. M. Epilogue In October 2013, the online retail services company Demandware struck a deal with L'Oreal whereby L'Oreal will use Demandware's commerce platform to promote its 25 beauty product brands around the globe through online, mobile and social media. L'Oreal first began working with Demandware in 2010 to promote several luxury brands in North America — including Kiehl's, Lancôme, and Yves Saint Laurent Beauté — and later added its professional products division in the U.S. L’Oreal reported excellent Q1 2013 sales as indicated in the following table. Note the fast growth area was Africa/Middle East and the slowest growth area was Western Europe. Note the slight decline in Professional Products sales from the prior year quarter. Regarding its operations in Africa, L’Oreal in April 2013 acquired the Health & Beauty business of Interconsumer Products Limited in Kenya, which had annual sales of about 15 million euros. L’Oreal sells popular brands in Africa, including SoftSheen Carson. Dr Pepper Snapple Group – 2011 Forest David A. Case Abstract Dr Pepper Snapple Group (DPS) is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Plano, Texas, DPS’s common stock is publicly traded under the ticker symbol DPS. Headquartered in Plano, Texas, Dr Pepper Snapple (DPS) produces, bottles, and distributes Dr Pepper, Snapple, and other beverages in North America, including Canada, Mexico, and the US. DPS offers many non-alcoholic beverages including flavored, carbonated soft drinks and non-carbonated soft drinks, along with ready-to-drink non-carbonated teas, juices, juice drinks, and mixers. Among the company’s popular brands are Dr Pepper, Snapple, A&W Root Beer, Hawaiian Punch, Mott's, Schweppes, Vernors, Squirt, and Royal Crown Cola. DPS is the 3 soda business in North America, after 1 Coke and 2 Pepsi. With more than 50 brands total, DPS is the leading producer of flavored beverages in North America and the Caribbean. DPS owns 6 of the top 10 non-cola soft drinks. Nine of DPS’s 12 leading brands are No. 1 in their flavor categories. Other DPS beverages include Sunkist soda, 7UP, Canada Dry, Crush, Peñafiel, Clamato, Venom Energy, Rose's and Mr & Mrs T mixers. DPS’s Q3 2011 diluted EPS were $0.71 compared to $0.60 in the prior year period. For Q3 2011, DPS sales increased 5 percent and their income from operations was $261 million compared to $260 million in the prior year period. B. Vision Statement (proposed) To become the number one choice for non cola flavored soft drinks in the world. C. Mission Statement (proposed) We at Dr. Pepper Snapple Group believe in being the leader in the food and beverage industry (6). Our ability to provide our customers with great drink products (2) that fit into today’s society is unparalleled (7). We are a global market competitor (3). Our responsibility to our employees is to give them the best chance to be successful (9). Our customers (1) are number one and we will continue to use the latest technology (4) to produce high quality products for their pleasure (5). At Dr. Pepper Snapple we believe good ethics is good business and operate that way on a daily basis in our communities (8) and show respect every employee (9). 11. Customers 12. Products or services 13. Markets 14. Technology 15. Concern for survival, growth, and profitability 16. Philosophy 17. Self-concept 18. Concern for public image 19. Concern for employees D. External Audit Opportunities 1. Customers currently prefer favored soft drinks over colas such as Sunkist, Dr. Pepper, and A&W. 2. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively. 3. Customers are becoming more health minded in their food and drink choices. 4. Brazil, India, and Eastern Europe should offer good long term opportunities. 5. China's food and beverage consumption is forecasted to increase by 54.1% by 2014. 6. 25% of Americans eat fast food each day. 7. Energy drinks hold 62% of the functional beverages market. 8. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade. 9. Weaker US Dollar. Threats 1. High commodity prices in sugar and tin. 2. Soft drinks are considered discretionary products and don’t perform well in poorer economic times. 3. Increased concern in health and wellness among consumers. 4. Sales are slower in the Winter months as the business is seasonal. 5. Retailers are consolidating reducing the number of companies and increasing their bargaining power. 6. Coke and Pepsi account for 63% of the sales in the industry. 7. Store brand and private label products still have great appeal among cost conscious customers. 8. Governments are looking to tax sugary drinks. Competitive Profile Matrix EFE Matrix E. Internal Audit Strengths 1. Dr. Pepper has 6 of the top 10 noncola soft drinks. 2. CEO Larry Young was named 2010 beverage executive of the year by Beverage Industry Magazine. 3. Sales in 2010 allowed DPS to: increase dividends 28%, pay down debt, and repurchase shares. 4. National launch of Sun Drop in 2011. 5. Snapple distributes their juices with labels indicating their health benefits. 6. $715 million agreement with Coke to distribute Dr. Pepper, and Canada Dry in the United States. 7. DPS markets many non carbonated drinks. Weaknesses 1. DPS as of 2011 does not have a written vision or mission statement. 2. Profits were lower in 2010 than 2009 while Coke and Pepsi both had revenue growth over 13%. 3. Brands like Mott’s, A&W, and Canada Dry have not received any serious advertisement since the 1990s. 4. Sunkist, 7UP, and A&W sales declined in 2010. 5. Substantial portion of net sales are generated through bottlers not owned by DPS. 6. 80% of revenues come from the sale of carbonated soft drinks. 7. 89% of revenues come from the US. Financial Ratio Analysis Growth Rate Percent DPS Industry S&P 500 Sales (Qtr vs year ago qtr) 4.90 30.50 14.50 Net Income (YTD vs YTD) NA NA NA Net Income (Qtr vs year ago qtr) 6.90 7.90 47.50 Sales (5-Year Annual Avg.) 11.95 9.85 8.27 Net Income (5-Year Annual Avg.) 1.63 14.68 8.68 Dividends (5-Year Annual Avg.) NA 9.67 5.68 Profit Margin Percent Gross Margin 58.4 56.1 39.9 Pre-Tax Margin 14.1 23.2 18.1 Net Profit Margin 9.4 19.3 13.2 5Yr Gross Margin (5-Year Avg.) 57.5 58.2 39.8 Liquidity Ratios Debt/Equity Ratio 1.16 0.94 1.01 Current Ratio 1.0 1.2 1.4 Quick Ratio 0.8 1.1 0.9 Profitability Ratios Return On Equity 22.8 34.6 26.0 Return On Assets 6.1 14.3 8.9 Return On Capital 7.2 20.3 11.8 Return On Equity (5-Year Avg.) 10.8 32.0 23.8 Return On Assets (5-Year Avg.) 3.9 15.2 8.0 Return On Capital (5-Year Avg.) 4.5 20.9 10.8 Efficiency Ratios Income/Employee 29,000 67,398 126,213 Revenue/Employee 308,105 338,900 1 Mil Receivable Turnover 11.0 9.7 15.7 Inventory Turnover 9.0 7.5 12.4 Net Worth Analysis (in millions) IFE Matrix F. SWOT SO Strategies 1. Increase advertising by $200M marketing the health benefits of Snapple teas (S5, O3). 2. Increase R&D by $200M to develop an energy drink (S7, O7). WO Strategies 1. Increase advertising by $300M for Canada Dry, A&W and other non cola flavored soft drinks (W3, O1). 2. Build a new bottling plant in Croatia for $100M (W7, O4). ST Strategies 1. Increase advertising by $100M for Snapple juice and tea products (S5, T3). WT Strategies 1. Develop a line of flavored waters without sugar in plastic bottles only (W2, T1). 2. Develop a line of Christmas themed hot coco and ciders for $100M (T4, W6). G. SPACE Matrix H. Grand Strategy Matrix I. The Internal-External (IE) Matrix Segment Revenue 2010 (in millions) Operating Profit 2010 (in millions) Beverage Concentrates $1,156 $745 Packaged Beverages $4,098 $536 J. QSPM K. Recommendations 1. Increase advertising by $200M marketing the health benefits of Snapple teas. 2. Increase R&D by $200M to develop an energy drink. 3. Increase advertising by $300M for Canada Dry, A&W and other non cola flavored soft drinks. 4. Build a new bottling plant in Croatia for $100M. 5. Increase advertising by $100M for Snapple juice and tea products. 6. Develop a line of flavored waters without sugar in plastic bottles only for $100M. 7. Develop a line of Christmas themed hot coco and ciders for $100M. L. EPS/EBIT Analysis (in millions) Amount Needed: $1,100M Stock Price: $36.69 Shares Outstanding: 214 Interest Rate: 5% Tax Rate: 31% M. Epilogue Year-to-date including Q3 2011, DPS’s sales increased 5 percent and their income from operations was $753 million compared to $757 million in the prior year period. Net income was $440 million compared to $416 million in the prior year period. DPS’s national launch of Dr Pepper TEN is benefiting the firm as it continues to build per capita consumption with new fountain availabilities and cold drink placements. For the Q3 of 2011, DPS’s volume declined 1 percent with carbonated soft drinks (CSDs) flat compared to the prior year and non-carbonated beverages (NCBs) down 5 percent. In CSDs, Sun Drop added 2 million cases, Canada Dry volume grew double digits and Squirt grew low-single digits. Dr Pepper volume was flat. Crush and Sunkist soda declined double digits while 7UP and A&W grew low-single digits. Fountain foodservice volume grew 4%. In NCBs, Clamato volume grew double-digits and Snapple grew 2 percent. Both Hawaiian Punch and Mott’s volume declined as net pricing increased, driving sales dollar increases for both brands. Aguafiel also declined double-digits. In Q3 2011, DPS’s U.S. and Canada CSD volume was flat while NCB volume declined 5 percent. In Mexico and the Caribbean, CSD volume grew 4 percent while NCB volume declined 6 percent. Year-to-date through September 2011 and across all measured channels, as reported by The Nielsen Company, U.S. CSD dollar share declined 0.2 percentage points. Regarding DPS’s Latin America Beverages in Q3 of 2011, sales for the quarter increased 4 percent reflecting low-single digit price increases, favorable product mix and 2 percent volume growth. A the end of Q3 2011, DPS said it expects full year 2011 reported sales to increase 3 percent to 5 percent and diluted earnings per share to be in the $2.70 to $2.78 range. Coca-Cola Company – 2011 Forest David A. Case Abstract Coca-Cola is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Atlanta, Georgia, Coke’s common stock is publicly traded under the ticker symbol KO. Coca-Cola is the world's largest nonalcoholic beverage company, owning four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Founded in 1886 by Atlanta pharmacist John Pemberton, Coca-Cola brands today include Minute Maid, Powerade, and Dasani water. In North America the company sells Groupe Danone's Evian and also sells brands owned by rival Dr Pepper Snapple Group (Crush, Dr Pepper, and Schweppes) outside Australia, Europe, and North America. Coca-Cola today produces or licenses more than 3,500 drinks for sale in 200-plus countries. In late 2010, Coca-Cola Company bought out its leading bottler, Coca-Cola Enterprises (CCE), and renamed it Coca-Cola Refreshments USA. The company continues to buy out its bottlers worldwide. Some of Coca-Cola’s $15 billion brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply and Georgia. Coca-Cola is the No. 1 provider of sparkling beverages, juices and juice drinks and ready-to-drink teas and coffees. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the company's beverages at a rate of 1.7 billion servings a day. B. Vision Statement (proposed) To maintain our status as the number one beverage company in the world. C. Mission Statement (proposed) At Coca Cola we aspire to stay the world’s (3) leader focused on producing and selling superior quality (7) carbonated beverages in the soft drink industry (2). We strive to treat our employees (9), customers (1), and our communities with respect (8). We also seek to provide healthy financial rewards to our shareholders and business partners (5) by using the latest technology (4) and hiring the most skill employees. We always use ethical practices that assist in displaying Coca Cola’s public image as being trustworthy, loyal, and honest (6). 20. Customers 21. Products or services 22. Markets 23. Technology 24. Concern for survival, growth, and profitability 25. Philosophy 26. Self-concept 27. Concern for public image 28. Concern for employees D. External Audit Opportunities 10. Customers currently prefer favored soft drinks over colas such as Powerade, Sprite, and Fanta. 11. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively. 12. Customers are becoming more health minded in their food and drink choices. 13. Brazil, India, and Eastern Europe should offer good long term opportunities. 14. China's food and beverage consumption is forecasted to increase by 54.1% by 2014. 15. 25% of Americans eat fast food everyday. 16. Energy drinks hold 62% of the functional beverages market. 17. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade. 18. Weaker US Dollar. Threats 9. High commodity prices in sugar and tin. 10. Soft drinks are considered discretionary products and don’t perform well in poorer economic times. 11. Increased concern in health and wellness among consumers. 12. Sales are slower in the winter months as the business is seasonal. 13. Retailers are consolidating reducing the number of companies and increasing their bargaining power. 14. Pepsi has a large food stuff business along with beverages. 15. Store brand and private label products still have great appeal among cost conscious customers. 16. Governments are looking to tax sugary drinks. Competitive Profile Matrix EFE Matrix E. Internal Audit Strengths 1. Coke is the largest manufacturer, distributer and marketer of nonalcoholic beverage concentrates and syrups in the world. 2. New “micro-dosing” technology to dispense over 120 beverages from one machine. 3. Produced over 400 brads consisting over 3,000 beverage products including, water, juice, sports drinks, energy drinks, soft drinks, and others. 4. Products are sold in over 200 countries and people consume 1.4 billion Coke product servings every day. 5. Net income increased from $6.8 billion in 2009 to $11.8 billion in 2010. 6. Coke’s Coca-Cola, Diet Coke, Fanta, and Sprite comprise 4 of the top 5 soft drink brands In the world. 7. Coke has 5 water brands and just acquired Apollinaris and Traficante two European companies. 8. Coke Zero has yielded double-digit volume growth for four consecutive years. 9. Coke employees half the people of Pepsi, yet has higher net income. Weaknesses 1. Coke continues to struggle in Europe as a whole; experiencing zero percent growth in 2010. 2. Coke continues to struggle in North America experiencing zero percent growth since 2009. 3. Coke is focused solely on the beverage business. 4. 45% of sales and revenue rely solely on Coca Cola and Diet Coke. 5. Inventory turnover is 6.7 while Pepsi is 9.0 and the industry average is 7.5. 6. Goodwill increased from $4 billion to over $11 billion in 2010 with Coke’s recent bottling acquisitions and goodwill and intangibles accounts for 87% of all equity. Financial Ratio Analysis Growth Rate Percent Coke Industry S&P 500 Sales (Qtr vs year ago qtr) 45.40 30.50 14.50 Net Income (YTD vs YTD) NA NA NA Net Income (Qtr vs year ago qtr) 8.10 7.90 47.50 Sales (5-Year Annual Avg.) 8.74 9.85 8.27 Net Income (5-Year Annual Avg.) 19.37 14.68 8.68 Dividends (5-Year Annual Avg.) 9.46 9.67 5.68 Profit Margin Percent Gross Margin 60.7 56.1 39.9 Pre-Tax Margin 33.6 23.2 18.1 Net Profit Margin 27.7 19.3 13.2 5Yr Gross Margin (5-Year Avg.) 64.4 58.2 39.8 Liquidity Ratios Debt/Equity Ratio 0.88 0.94 1.01 Current Ratio 1.1 1.2 1.4 Quick Ratio 1.0 1.1 0.9 Profitability Ratios Return On Equity 41.5 34.6 26.0 Return On Assets 18.8 14.3 8.9 Return On Capital 27.6 20.3 11.8 Return On Equity (5-Year Avg.) 33.0 32.0 23.8 Return On Assets (5-Year Avg.) 16.7 15.2 8.0 Return On Capital (5-Year Avg.) 23.9 20.9 10.8 Efficiency Ratios Income/Employee 91,289 67,398 126,213 Revenue/Employee 329,484 338,900 1 Mil Receivable Turnover 10.4 9.7 15.7 Inventory Turnover 6.7 7.5 12.4 Net Worth Analysis (in millions) IFE Matrix F. SWOT SO Strategies 1. Build 5 new bottling plants in Eastern Europe and China for $100M each (S1, O4). 2. Form agreements to get Coke products into every major fast food chain in the world (S1, S4, O6). WO Strategies 1. Invest $50M to develop a line of coconut water (W4, O8). 2. Increase presence in Europe by 20% (W1, O9). ST Strategies 1. Market new water acquisitions in the US (S7, T1, T3). WT Strategies 1. Invest $200M to start production of a snack division (W3, T6). G. SPACE Matrix H. Grand Strategy Matrix I. The Internal-External (IE) Matrix Segment 2010 Revenues North America 31.7% Bottling Investments 23.4 Pacific 14.1 Europe 12.6 Latin America 11.0 Eurasia & Africa 6.9 J. QSPM K. Recommendations 1. Build 5 new bottling plants in Eastern Europe and China for $100M each. 2. Form agreements to get Coke products into every major fast food chain in the world. 3. Invest $400M to start production of a snack division (W3, T6). L. EPS/EBIT Analysis (in millions) Amount Needed: $900M Stock Price: $66.38 Shares Outstanding: 2,270 Interest Rate: 5% Tax Rate: 20% M. Epilogue In November 2011, Muhtar Kent, Chairman and CEO of Coca-Cola Company, pledged $500,000 to the Atlanta Women’s Foundation (AWF) to support economic empowerment initiatives impacting Atlanta’s women and girls. Kent made the announcement during his keynote address at “Numbers Too Big To Ignore,” an annual fundraising luncheon hosted by the Atlanta Women’s Foundation. “As we look ahead, women will play a transformative role in shaping our global economy and society over the next decade,” said Kent. “The real drivers of the 21st century will be women. They are already the most dynamic and fastest-growing economic force in the world. “When we look locally at the very real needs for women’s economic empowerment and growth in our own community, our goal is to build on previous work with the Atlanta Women’s Foundation in a way that inspires others,” said Kent. In November 2011, Coca-Cola announced that it will acquire its Oklahoma City-based Great Plains Coca-Cola Bottling Co. for $360 million. The deal is expected to close by the end of the 2011. Great Plains is the fifth-largest independent Coca-Cola bottler in the United States, with territories in Oklahoma and Arkansas. Great Plains currently runs nine facilities and employs more than 1,200 people. Great Plains will become an operating unit within Coca-Cola Refreshments, a subsidiary of Coca-Cola Company. As part of a marketing campaign aimed at protecting polar bears and their habitat, Coca-Cola Company recently teamed up with the World Wildlife Fund for the campaign. The special Coke can will be largely white in color, unlike Coke's traditional red and white can, to promote the cause, according to people familiar with . For Q3 of 2011, Coca-Cola Company reported that worldwide volume growth of 5 percent, 6 percent volume growth year-to-date and volume growth across all five geographic operating groups. North America organic volume grew 1 percent in Q3 and Q3 EPS was $0.95, up 8 percent, with year-to-date EPS of $2.97, up 15 percent. Also for Q3 of 2011, the company’s international volume growth was 5 percent and 6 percent year-to-date. Worldwide volume growth was led by brand Coca-Cola, up 3 percent in both the quarter and year-to-date. The company’s Q3 revenues were $12.2 billion, up 45 percent, reflecting solid growth in concentrate sales, a 5% currency benefit, positive price/mix and the acquisition of Coca-Cola Enterprises' (CCE) former North America operations in the fourth quarter of 2010. Year-to-date revenues were $35.5 billion, up 44 percent. The company’s Q3 operating income was $2.7 billion, up 17 percent. The company’s year-to-date reported operating income was $8.2 billion, up 13 percent. Instructor Manual Case for Strategic Management: Concepts and Cases Fred R. David, Forest R. David 9781292016894
Download
Close
Close
