Coca Cola external environment analysis through PESTLE tool.
- Introduction about Coca-Cola
- Coca-Cola beverage industry analysis
- Coca-Cola PESTLE Analysis (based on external factors)
- Further Reading
Introduction about Coca-Cola
Coca-Cola is a globally accredited and recognized US-based international beverage company. Founded in the year 1892 in Atlanta, Georgia, the Coca-Cola company is an industry leader in carbonated soft drinks. The place of origin of the multinational company, Atlanta, also serves as its headquarters. Basically, Coca-Cola produces non-alcoholic concentrates, beverage bases, and syrups. Further, the company sells these syrups and concentrates to its bottling partners spread across the globe. The bottling companies with which Coca-Cola has collaborated further produce, package, and distribute beverages to consumers worldwide under different brand names.
Over more than 130 years of its operations, the company has diversified its products to target various segments of people in a worthwhile way. Besides, the company owns around 200 global brands that offer their products in more than 200 nations. The most prominent brands among its wide spectrum of brands include Coca-Cola, Sprite, Fanta, Minute Maid, Costa Coffee, Georgia Coffee, and Honest Tea. The company, since its inception, has ensured that it acquires different brands to expand its outreach by offering varied products that are aligned with the interests and preferences of consumers of all tastes.
The article talks about Coca- Cola, which is a carbonated soft drink company founded in 1886. The environmental analysis is done in this article with the use of PESTLE analysis with which different environmental factors are discussed, including political factors, economic factors, social factors, technological factors, legal factors, and environmental factors.
For instance, The Coca-Cola Company successfully acquired Costa from Whitbread PLC in January 2019 by transacting a deal worth USD 4.9 billion (Coca-Cola Press Release) In. This way, by acquiring Costa that has operational bases in more than 30 nations, Coca-Cola has been able to establish a greater stake in the global coffee market. This is to cite one of the innumerable examples of The Coca-Cola Company penetrating different markets by leveraging other brands. Given the marketing expertise and the global outreach that the Coca-Cola Company has, smaller brands like Costa see great potential for expansion in being acquired. This example also signifies the fact that given diverse consumer needs, the Coca-Cola company is no longer limiting itself to carbonated beverages.
To shed light on the company’s financial performance, in the year 2020, the company’s net operating revenue worldwide stood at 33 billion USD. It is important to note that as compared to 2019, the net operating revenue of the company in 2020 fell by 4.26 billion USD (Coca-Cola's net operating revenues worldwide 2020 | Statista, 2021). This slump in revenue can be attributed to the unprecedented COVID-19 pandemic, after which the company also decided to reduce the ownership of its brands to half. While the company had more than 400 brands before the pandemic, it now has around 200 of them left, as mentioned above. This is because the company had to lay off employees in the unprecedented COVID-19 situation and cut down on its operational and other expenses to compensate for the economic losses.
To substantiate, as per the first-quarter results of 2020 shared by the company, the cash flow from operations was USD 556 million hence showing a downward revision by 29 percent. Also, the free cash flow was down by 43 percent as per the company’s reports. Also, in 2020 the net revenues of the company declined by 1 percent. (Coca-Cola Reports First Quarter 2020 Results, 2021)
In the post-pandemic era, or when things return to normal, the company will be keen on bouncing back and making up for the economic and revenue losses incurred during recent times. After regaining its lost financial strength, the company may again look to acquire some more brands to expand. To cite an example, the trend of cold-brewed coffee is rising in the United States at a rampant pace. As per Statista, the market size of cold-brewed coffee in the United States was USD 166 million. However, the market is so booming that it is expected to reach USD 944 million by 2025. (U.S. cold brew coffee market size 2015-2025 | Statista, 2021) So, if Coca-Cola may be interested in acquiring some cold-brewed coffee brands given the potential of this segment to help the company amplify its revenues and take them to the pre-COVID times or even higher.
Coca-Cola beverage industry analysis
In 2021, the global beverage market is pegged at 1744 billion USD. By 2024, the value of the global beverage market is projected to reach 1961 billion USD. Out of this, the projected value of the non-alcoholic beverage market is expected to be USD 1488 billion by 2024 as per the anticipated CAGR of 5.5 percent. In 2020 and the current year, the beverage industry, like other industries, has witnessed various setbacks given the global spread of the COVID-19 pandemic. The ramifications of the pandemic have impacted daily sales, consumer preferences, and the purchasing capacity of people.
Also, it is important to note that the US has been the worst-hit country by the pandemic in terms of total cases and covid-related deaths claiming the lives of more than 600,000 people. Since people with comorbidities like diabetes are more prone to severe cases of COVID-19, there is a paradigm shift in the demand for carbonated drinks with higher sugar content. People are now giving more preferences to healthy alternatives and immunity boosters. While these factors will adversely affect the prosperity of companies only producing carbonated beverages, it can prove to be a competitive advantage for companies that offer a wide range of beverages to consumers, including healthier alternatives.
Besides, given the fact that the world has sustainable development goals to meet by 2030 and there are other international environmental obligations like the Paris Climate Accord, the beverage industry will have to meet stricter environmental compliances to remain flourishing and avoid penalties and actions. The comprehensive PESTLE analysis sheds light on the various factors affecting international businesses in the context of The Coca-Cola Company.
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Coca-Cola PESTLE Analysis (based on external factors)
|PESTLE ANALYSIS OF Coca-Cola||DETAIL|
|Political factors impacting Coca-Cola:|
After rising to power as the President of the United States at the beginning of 2021, Joe Biden has shown intent to hike taxes on corporations. In response to the proposal for hiked taxes, industries in the US, including the food and beverage industry, have formed a coalition to oppose the move to levy more taxes on corporations. Also, ever since he has assumed office, the US President has been vocal about his plans to create a greener infrastructure in the country that will be centered around the ideas of climate change and sustainability. The new President of the US has further pledged that he will streamline the return of the US to the Paris Agreement.
Besides, there are four states in the US that have passed legislation that can affect the beverage industry. The legislation states that children should be served healthy drinks like milk and natural fruit juices by default with their restaurant meals rather than sugary drinks, soda, lemonades, and so on. The latest state to have passed the bill is the state of Illinois. The legislation is basically aimed at the idea of mitigating the occurrence of heart diseases and Type 2 diabetes.
Moreover, beverage companies in the US also rely on other countries, and hence how diplomatic relationships take a turn under the new government will be crucial to beverage companies. For instance, people in Mexico drink more soda per capita than people of any other nation in the world. Brands like Coca-Cola deliver carbonated beverages to even the most remote locations of Mexico, where water is scarce, and soda sells for a lesser price than water. So, what changes occur in the trade relations of the US after Joe Biden’s rise to power will have a great impact on the beverage industry.
|Economic factors impacting Coca-Cola:|
In the first quarter of 2021, the GDP of the United States has shown a 6.4 percent growth. In the second quarter, the GDP of the country is expected to grow at an annualized rate of 8.2 percent, as per predictions from the top economists. (Robb, 2021). Hence, despite being the worst-hit country by the pandemic, the economic environment in the United States seems on a bright path of recovery. So, for any company planning to expand via setting up new units, there will be easy availability of workforce. At last, despite the impacts of COVID-19, the non-alcoholic beverage industry is expected to grow at 5.5 percent. With rampant increase in the pace of globalization, the economic scenarios will keep getting better for industries.
|Social factors impacting Coca-Cola:|
In the present era, social factors are driven by major changes in consumer choices. Consumers are now switching from sugary and carbonated drinks to healthy drinks. The health drinks market is projected to grow at a CAGR of 6.06 percent against a CAGR of 5.5 percent for all non-alcoholic beverages. By the end of 2026, the market for health drinks will reach USD 700 billion. (PR Newswire) Some of the most popular health drinks or brands in the market replacing traditional carbonated drinks are Ample, Daily Harvest, Dirty Lemon, Twinings, Smartwater, and so on. People are increasingly adopting a healthy lifestyle and are avoiding sugary drinks. For instance, in a recent press conference, Cristiano Ronaldo, the stalwart soccer sensation, removed Coca-Cola from the dais. He removed the Coca-Cola bottles and instead recommended people to drink water. As a ripple effect of this, Coca-Cola’s market value witnessed a downfall by USD 4 billion in no time.
To add, 1 in every 10 Americans has diabetes while 1 in every 3 Americans has pre-diabetes. (Centers for Disease Control and Prevention). Globally, more than 422 million people in the world have diabetes; around 1.6 million deaths per year have a direct relation with diabetes. Speaking of demographics, millennials make the largest generation group in the United States, with a population of over 72 million (Statista). For beverage companies, millennials also make their primary target market given the high preference for soft drinks and beverages among them.
Furthermore, there are WHO guidelines that call for a reduction in sugar intake and limiting the consumption of sugary drinks. The World Health Organization recommends that the intake of free sugars per day should be less than 10 percent of the total energy intake. Free sugars are abundantly present in carbonated beverages, syrups, and juice concentrate. Hence, these health guidelines by WHO may impact the soft drinks industry.
For beverage companies that also penetrated the coffee businesses, it is vital to know that an average American drinks around 3 cups of coffee each day. Coffee is America’s one of the most popular drinks, and 64 percent of Americans drink coffee each day. This is evident in the fact that in the US, there is a favorable atmosphere for beverage industries looking to leverage the coffee industry or cold-brewed coffee brands.
|Technological factors impacting Coca-Cola:|
The United States is at the fourth position in the rankings of countries based on technological expertise. The US is among the most technologically advanced countries in the world using state-of-the-art technological infrastructure in various industries. The country spends around 2.9 percent of its GDP on research and development. This accounts for more than USD 440 billion (Analytics Insight). Hence, the country has a robust technological infrastructure, and given the large expenditure on R&D, the nation is keen on leveraging the scope of futuristic technology to grow its commerce and industries. In the present era, the beverage industry is using IoT for smart manufacturing solutions, smart packaging for better traceability and marketing, technologies for sugar reduction, devices for sanitizing and refilling recyclable beverage bottles, and so on. FuelGems, Climeworks, CarbonCure are some of the latest technological innovations that can play a game-changing role in the reduction of carbon footprint. For instance, Climework is a technology that works on the principle of capturing carbon emissions and recycles these emissions. Beverage companies can integrate such technologies to cut back on their carbon footprint.
|Legal factors impacting Coca-Cola:|
The food and beverage industry in the US is regulated by various legislations and acts. The FDA specifies that all products in the food and beverage industry, existing or new, must contain a description of nutritional values on the label. All claims of nutrient content must be in compliance with the Nutritional Labeling and Education Act. Besides, a bill has been introduced in the US Senate to CBD and hemp-based ingredients in the foods and beverages industry. This can offer greater prospects to beverage manufacturers in terms of diversification and reaching out to new customer segments with new products.
|Environmental factors impacting Coca-Cola:|
There are specific environmental standards that the beverage industry in the US must adhere to. The food and beverage industry in the US generates more than 40,000 tons of packaging waste annually. (US Environmental Protection Agency) This has compelled the government and the industry to promote sustainable packaging alternatives to cut down the massive waste production. Moreover, the beverage industry in the US is working on multidimensional strategies to cut down its carbon footprint. Recycling programs are being set up extensively across the country to recover and recycle cans and bottles.
California is already facing a drought-like situation in the present year, and California’s water shortage problem only seems to be deepening in due course of time. Similarly, states like Utah, Oregon, Texas, New Mexico, and Colorado are prone to water shortages and drought conditions. Colorado is currently facing its second drought in the last three years hence explaining how grim the situation is in the US when it comes to water inadequacy (States With Water Shortages: Who Is Affected By the US Drought Crisis? | Multipure, 2021). The groundwater in the west is depleting at a pace much faster than anticipated.
The government in the near future is looking forward to work on various water contingency plans, bring stricter laws, pledge more support to conservation, and addressing climate change. Also, various cities in the US are launching water rationing and water policing initiatives. Since the beverage industries depend a lot on water for their production, the upcoming laws and contingency plans will directly impact them. In the recently concluded G7 summit too, the US has pledged to play a greater role in creating a greener and more sustainable infrastructure.
In the above section of the report, various external environmental factors that may affect the working of Coca-Cola have been evaluated. It has been identified that multiple external factors have the potential to change the operation of Coca-Cola. Also, it has been determined that non-compliance with any of the elements may harm the reputation of the company. following are some of the recommendations that have been devised for Coca-Cola to help the company comply with external environment influences and achieve a competitive position in the industry:
- Coca-Cola should devise a number of strategies to increase its focus on environmental aspects. Also, plans should be developed by Coca-Cola to reduce negative impacts on the environment.
- Coca-Cola should review the needs and preferences of its customers and must develop its products according to the needs and tastes of customers. Also, the company should boost the supply of its healthy drinks such as diet coke, etc. to meet the needs of health-conscious customers.
- The marketing team of the company should increase the promotional activities of its products to create awareness of various products among rural people.
- The company should also develop a number of strategies to cautiously use water due to the scarcity of this resource. Also, water is one of the main ingredients for the company in many liquids and beverages.
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To conclude, given the present scenario and changing lifestyles of people, Coca-Cola should look to add more healthy drinks and nutritional products to its brands. In the present times and the times to come, people will remain more fitness conscious and will look to avoid sugary drinks. This is where there lies a massive opportunity for Coca-Cola to bring a new league of healthy drinks in the US market and acquire some brands that offer nutritional value. The company is already headquartered in the US, has comprehensive knowledge of the US market and a large network of bottlers and marketers. It already has the prerequisite environment and infrastructure needed to diversify its products to enhance its competitiveness. Because it is a trusted brand in the US, it will be able to attract customers to its new or refined products in an effective way.
- Coca-colacompany.com. 2021. Coca-Cola Reports First Quarter 2020 Results [online] Available at: https://www.coca-colacompany.com/press-releases/coca-cola-reports-first-quarter-2020-results https: coca-cola-reports-first-quarter-2020-results press-releases www.coca-colacompany.com [Accessed 16 June 2021].
- Statista. 2021. Coca-Cola's net operating revenues worldwide 2020 | Statista [online] Available at: https://www.statista.com/statistics/233371/net-operating-revenues-of-the-coca-cola-company-worldwide/ https: 233371 net-operating-revenues-of-the-coca-cola-company-worldwide statistics www.statista.com [Accessed 16 June 2021].
- Statista. 2021. U.S. cold brew coffee market size 2015-2025 | Statista [online] Available at: https://www.statista.com/statistics/659724/cold-brew-coffee-sales-us/ https: 659724 cold-brew-coffee-sales-us statistics www.statista.com [Accessed 16 June 2021].
- Robb, G., 2021. U.S. GDP expanded at unrevised 6.4% rate in first quarter https://www.marketwatch.com/story/u-s-gdp-expanded-at-unrevised-6-4-rate-in-first-quarter-11622119270 https: story u-s-gdp-expanded-at-unrevised-6-4-rate-in-first-quarter-11622119270 www.marketwatch.com [Accessed 16 June 2021].
- Multipure.com. 2021. States With Water Shortages: Who Is Affected By the US Drought Crisis? | Multipure [online] Available at: https://www.multipure.com/purely-social/science/states-with-water-shortages/ https: purely-social science states-with-water-shortages www.multipure.com[Accessed 17 June 2021].
What is the PESTLE Analysis of Coca Cola?
The PESTLE analysis of coca cola explains the impact of various external market factors on the working of Coca cola. These external market factors include political, economic, socio-cultural, technological, legal and environmental factors that impact the working of Coca cola in the global market.
How do you write an external environmental analysis?
The external environment analysis of Coca-cola can be written by following various steps which include evaluating external factors, collecting data, identifying opportunities, recognizing various threats and preparing the final report.
What impact does Coca Cola have on the environment?
Although Coca Cola has adopted various strategies to fulfil its environmental responsibilities, still various actions of Coca Cola have a negative impact on the environment. The company has also been accused of dehydrating communities due to huge consumption of water, drying up farmers' wells, etc.