BUSINESS ECONOMICS

CIA -2 WAR GAMES

COMPANY – COCO COLA

GROUP 7 MEMBERS (SECTION-B)

1.RAHUL S -JU2023MBA15040
2.LOGESH PRASATHE -JU2023MBA12757
3.MOHAMED MUTHMEIN -JU2023MBA16463
4.JITHENDRA REDDY CHIRLA -JU2023MBA10402
5.SUSHMA BHANDARKAR M -JU2023 MBA15497
6. VISWA BHARATH GV -JU2023MBA19335
INTRODUCTION

The Coca Cola Company is a multinational company of American origin that is headquartered
in Atlanta, Georgia. It is OLIGOPOLY MARKET. It is the world’s largest beverage company
that manufactures, distributes, and retails non-alcoholic beverages, beverage concentrates and
syrups. The Coca Cola company also owns the brand Coca-Cola , which is considered to be
one of the most popular beverages in the world.

History :

The Coca Cola Company is a multinational company of American origin that is headquartered
in Atlanta, Georgia. It is the world’s largest beverage company that manufactures, distributes,
and retails non-alcoholic beverages, beverage concentrates and syrups. The Coca Cola
company also owns the brand Coca-Cola , which is considered to be one of the most popular
one.

Products :

Although The Coca-Cola company had first started by selling only the Cola-Cola syrup and
Cola-Cola beverage in the glass contour bottles, they have since expanded into the
manufacturing and distribution/retail of a wide range of non-alcoholic beverages including
sparkling soft drinks, water, juice, sports drinks, coffee and tea. Some of the company’s most
popular brands include : Coca-Cola, Sprite, Fanta, Minute Maid fruit juices, Dasani, Smart
water, Vitamin water, Toppo Chico, BODYARMOR, Powerade, Costa Coffee, Georgia Coffee,
Gold Peak Tea and Ayataka. In addition to these brands, The Coca-Cola company also
manufactures and sells a variety of snacks including chips, pretzels and candy. Some of the
company’s most popular brands include : Frito-Lay, Doritos, Lays and Ruffles.

Global Reach :

The company’s products are sold in over 200 countries and territories. This includes India,
China, Japan, South Korea, Canada etc. The company has a network of over 200 bottling
partners who manufacture and distribute Coca-Cola Company’s products around the world.
The cost and revenue performance of Coca-Cola:

REVENUE STRUCTURE:
Coca-Cola's revenue structure is based on the sale of its concentrates and syrups to bottling and
distribution partners, who then produce and sell the finished products to consumers. Coca-Cola
also generates revenue from licensing fees and investment income. Concentrate and syrup sales
account for the majority of Coca-Cola's revenue. In 2022, concentrate and syrup sales
accounted for 53% of Coca-Cola's total revenue. Licensing fees are generated from the
licensing of Coca-Cola's brands and trademarks to bottlers and distributors. In 2022, licensing
fees accounted for 17% of Coca-Cola's total revenue. Investment income is generated from
Coca-Cola's investments in other businesses, such as bottling and distribution partners. In 2022,
investment income accounted for 30% of Coca-Cola's total revenue.

Here is a breakdown of Coca-Cola's revenue structure by segment in 2022:

Coca-Cola's revenue structure is relatively diversified, with no single source of revenue

accounting for more than 53% of its total revenue. This diversification helps to reduce
CocaCola's risk exposure. It is important to note that Coca-Cola does not manufacture or
distribute the majority of its products. Instead, it contracts with independent bottlers and
distributors to produce and sell its products. This allows Coca-Cola to focus on its core
business, which is the development and marketing of its brands.

Coca-Cola made $43.0 billion in 2022, 11% more than the previous year. This gain came from
price/mix going up 11% and concentrate sales going up 5%. The cost of goods sold by the
company went up 10% from the previous year to $17.2 billion in 2022. Higher ingredient prices
and problems in the supply chain mostly caused this rise. Even though prices increased,
CocaCola's gross profit margin stayed high at 40.0% in 2022. This margin was a little lower
than the 40.9% margin that the company reached in 2021, but it was still in line with its long-
term goal of 40%. The profit margin for Coca-Cola rose from 26.6% the year before to 28.9%
in 2022. This improvement came from a number of sources, such as the company's strong sales
growth, efforts to cut costs, and a favourable tax rate.

Here is a summary of Coca-Cola's key financial metrics for 2022:

Revenue: $43.0 billion

Cost of goods sold: $17.2 billion

Gross profit margin: 40.0%

Operating margin: 28.9%

Coca-Cola has done well in recent years in terms of both cost and income. The company has
been able to cover its higher costs by raising prices and selling more. Because of this, CocaCola
has kept its gross profit margin and running margin in good shape.

Expenses:
Coca-Cola’s annual operating expenses for 2022 were $32.095B, a 13.22% increase from 2021.

Coca-Cola’s annual operating expenses for 2021 were $28.347B, an 18.03% increase from
2020.

Coca-Cola’s annual operating expenses for 2020 were $24.017B, an 11.64% decline from
2019.
Coco-Cola is OLIGOPOLISTIC.
Coca-Cola is often considered to operate in an oligopolistic market structure, which means that
it competes with a small number of large firms in the industry. There are several reasons why
Coca-Cola is considered an oligopoly.
Few Dominant Firms: In the global beverage industry, Coca-Cola competes with a small
number of major rivals, including PepsiCo, Dr. Pepper Snapple Group (now Keurig Dr Pepper),
and a few other regional or national players. These companies have a significant market share,
and their actions can impact the industry as a whole.
Pricing Power: Oligopolistic firms like Coca-Cola have significant pricing power because they
control a large portion of the market. They can influence prices, promotions, and product
innovations in ways that smaller firms cannot.
Global Presence: Coca-Cola operates in a global market, which gives it substantial market
power across various countries and regions. Its global presence reinforces its position as an
oligopolist.
It's important to keep in mind that just because Coca-Cola is in an oligopolistic market doesn't
mean there is no competition. Oligopolies can still be competitive and give customers a choice,
but the big players' actions and plans are affected by how they know each other and work
together in the market.
 Challenges faced by coco-cola over a time

1. THE MEDICINAL CHALLENGE

The first label for the new Coca-Cola syrup said in part: “This intellectual beverage and
temperance drink contains the valuable tonic and nerve stimulant properties of the Coca plant
and Cola nuts . . . a valuable brain tonic and a cure for all nervous affections: sick head-ache,
neuralgia, hysteria, melancholy, etc.” Nine years after its launch, Frank Robinson, the man who
came up with the Coca-Cola name and the Spencerian-script trademark, had a brilliant insight.
“We found that we were advertising to the few when we ought to advertise to the masses.” The
new slogan: “Drink Coca-Cola. Delicious and refreshing.”

2.Health concerns:
Coca-Cola's products are high in sugar, which has been linked to a number of health problems,
including obesity, diabetes, and heart disease. Consumers are increasingly becoming more
health-conscious and are looking for healthier alternatives to sugary drinks.

3.THE BOTTLE CHALLENGE

With hundreds of bottlers selling Coca-Cola around the country, there was no uniformity in
how the product looked. There were many different bottle designs. So Coca-Cola held a contest
to design a bottle that could be recognized in the dark. The winner produced the world’s
mostfamous package designs, the contour bottle. Even today, its iconic bottle is one of Coke’s
best attributes.

4. WATER SCARCITY

At a rate of 1.9 billion servings each day, the Coca-Cola Company (TCCC) uses about 305
billion litres of water every year As a company that relies heavily on water for its production
processes, Coca-Cola has had to address concerns related to water scarcity and sustainability
in the regions where it operates.

5.ENVIRONMENTAL CONCERNS
Coca-Cola, like many beverage companies, faces criticism for its environmental impact,
particularly in terms of plastic waste. The company has pledged to address this issue through
recycling initiatives and reducing plastic use, but it remains a challenge.

6.Emerging market performance

While Coca Cola holds a strong position on the emerging markets, it has been seen that
increased competition from domestic players, in other hands global competitors such as Pepsi
Co also looking to grow in these regions as well. If the company wants to hit its targets, BRIC
(brazil,Russia,india and China ) growth and development of major secondary markets such as
Indonesia and Vietnam are essential, which represents critical growth opportunities for the
company to maintain and expand its market growth
7. Plastic pollution:
Coca-Cola is one of the world's largest producers of plastic packaging, and this has contributed
to the global plastic pollution crisis. Plastic waste Coca-Cola was named world’s most polluting
brand in plastic waste third time in arow in 2020. The company is under pressure to reduce its
use of plastic and to develop more sustainable packaging solutions

8.Competition from PepsiCo:

PepsiCo stands as the primary rival in the cola market, engaging in a long-standing and intense
rivalry with Coca-Cola. PepsiCo boasts a formidable brand presence and a wide array of
products, perpetually striving to outshine Coca-Cola through marketing, innovation, and
pricing strategies.

9.New Entrants :
Despite the challenging barriers to entry within the cola market, new players can emerge. In
recent times, there has been a burgeoning trend in craft sodas and alternative beverages,
potentially posing a threat to Coca-Cola's market dominance.

10. Changing Consumer Preferences :

Consumer tastes are in constant flux, necessitating Coca-Cola's agility in adapting to these
evolving trends to maintain its market standing. Notably, the growing consumer demand for
healthier and environmentally sustainable beverage options has prompted Coca-Cola to
introduce new products such as Diet Coke and Coke Zero Sugar. Continuing innovation is
crucial to meet the evolving preferences of its customer base.

11.Regulatory Scrutiny :
Coca-Cola, like its counterparts in the food and beverage industry, faces escalating regulatory
scrutiny. For instance, many governments contemplate or have already imposed taxes on sugary
drinks, which could negatively affect Coca-Cola's sales.

12.Economic Downturns :
Coca-Cola remains susceptible to economic downturns. During periods of economic hardship,
consumers tend to cut down on spending, particularly on non-essential items like soft drinks.

13.Interdependence :
Operating within an oligopoly, Coca-Cola shares an intricate web of interdependence with its
main competitor, PepsiCo. This signifies that the decisions of one company are influenced by
those of the other, creating a delicate balance. For instance, if PepsiCo decides to reduce its
prices, Coca-Cola may feel compelled to follow suit to safeguard its market share. This
interdependence can pose challenges in setting prices and devising strategic moves for
CocaCola.
Questions
1. a) Identify the type of competition the business is facing and justify it.
We have identified that Coca cola is an Oligopolistic Company and hence faces an oligopolistic
competition.

The reason why coca cola is considered to be an oligopoly is because there are 2 major
companies that control the vast majority of the market share of the cola/ soft drink industry,
which are PepsiCo and Coca Cola. Although there are a few other small players in the industry
the market is mainly dominated by Coca Cola and PepsiCo by taking over 70% of the market
share in the US. Out of this Coca Cola’s market share is 46.3% and PepsiCo’s market share is
24.7%. Also, it is very difficult and expensive for new firms or regional beverage brands to
enter the soft drink / non-alcoholic beverage market and compete with Coca cola and Pepsi as
both of these brands have strong brand recognition, consumer loyalty, and extensive
distribution model which creates huge barriers for the entry of new players into the market.
Creation of barriers of entry to new players is one of the main characteristics of an oligopoly
with firms very carefully choosing their pricing range, choosing their outputs and all other
decisions that they take on the basis of other firms in the market.

Another reason why we believe that coca cola is an oligopoly is because there is a mutual
interdependence between PepsiCo and Coca Cola. The decisions that Coca Cola makes has a
significant impact on PepsiCo and PepsiCo’s decisions have a significant impact on Coca Cola
as well.

EXAMPLE :

1. In Pricing : Coca cola and PepsiCo monitor each other’s prices in the market and adjust
their prices accordingly. This is because if one company lowers their prices, the demand for the
other product could reduce and hence they closely monitor each other’s pricing in order to
maintain their market shares.

2. In Product Development : Coca Cola and PepsiCo are constant innovating and
developing newer products in order to stay relevant and cater to the consumers preferences.
When one of these companies produces a newer product the other is more likely to try and
launch a similar type of competing product in their brand. This is another characteristic of the
Oligopoly market, in which there is a mutual interdependence on output, price, advertising etc
between firms.

Coca-Cola has a number of competitors, including:

Direct competitors : This comes from other companies that sell similar products, such as
PepsiCo, Dr Pepper Snapple Group, and Keurig Dr Pepper. with PepsiCo being it’s no 1
competitor. These companies compete with Coca-Cola for market share and brand recognition.

Indirect competitors : This comes from companies that sell other types of beverages, such as
coffee, tea, and water. Such as Lipton, Twinning’s, Tetley, Starbucks, Tim Hortons, Aquafina,
Perrier etc. These companies compete with Coca-Cola for consumers' disposable income.
Substitute competitors: This comes from products that can be used instead of Coca-Cola, such
as energy drinks, sports drinks, and juice. Such as Red Bull, Monster Energy, Tropicana, Simply
Orange etc. These products compete with Coca-Cola for consumers' needs and preferences.

PepsiCo is the Coca-Cola Company's main rival. For more than one hundred years, the two
companies have been rivals. In almost every market in the world, they fight directly with each
other. Coca-Cola and PepsiCo are both world leaders in the beverage business and in most
areas, they have a big share of the market. Coca-Cola has also had to deal with more
competition from healthy drinks like juice, sports drinks, and bottled water in recent years.
People want to buy drinks that are lower in sugar and calories because they care more about
their health. Coca-Cola has reacted to this trend by making more drinks that are better for you,
but it still has a lot of competition in this part of the market. From a business point of view,
Coca-Cola has a lot of direct and indirect rivals. The main company that the company competes
with is PepsiCo. Other big competitors are healthy drinks and new companies that are just
getting into the market. Coca-Cola has a strong brand and a presence all over the world, but to
stay on top of the market, it needs to keep coming up with new ideas and changing to meet the
wants of customers.

b) Draw the price-output diagram based on the market structure. Apply classroom
learning.
In many oligopolist markets, it has been observed that prices tend to remain inflexible for a
very long time. Even in the face of declining costs, they tend to change infrequently. American
economist Sweezy came up with the kinked demand curve hypothesis to explain the reason
behind this price rigidity under oligopoly.

Since The coca cola company is an oligopolistic firm, its price output diagram shows a kinked
demand curve. As per Sweezy’s theory, oligopolistic firms face a demand curve that is kinked at the
current market price. The portion or segment above the kink is relatively elastic in nature that is, a if
the firm increases the price, it affects their market share and they begin to start losing customers to
their competitors who are charging a lesser price, and the segment below the kink is relatively
inelastic in nature, that is if the firm reduces its prices the competitor firms are likely to reduce their
prices as well, as a consequence of which it will attract only a limited number of customers away
from the competitor firms. Thus, the demand curve has a kink at the point where the firm operates.

Corresponding to this kink in the demand curve there is a vertical break in the curve that represents
Marginal revenue (MR). This break shows that there is a gap in it at the current price output level,
thus leading to price rigidity. This is because the MR curve represents the additional revenue a firm
generates from selling an additional unit of output, but the gap in it signifies that the Marginal
revenue remains constant when it adjusts its price within a certain range. This leads to the firm being
reluctant to make any changes to its pricing, hence leading to price rigidity.
Price output diagram:

2. Calculate the BEP and diagrammatically represent the Break Even Point (BEP)
chart for the company/firm.

The break-even point is the point at which total cost and total revenue are equal, meaning
there is no loss or gain for your small business. In other words, you've reached the level of
production at which the costs of production equals the revenues for a product.

For any new business, this is an important calculation in your business plan. Potential
investors in a business not only want to know the return to expect on their investments, but
also the point when they will realize this return. This is because some companies may take
years before turning a profit, often losing money in the first few months or years before
breaking even. For this reason, break-even point is an important part of any business plan
presented to a potential investor. For existing businesses, this can be a useful tool not only in
analysing costs and evaluating profits they’ll earn at different sales volumes, but also to prove
their potential turnaround after disaster scenarios.

- Benefits of a break-even analysis

- Price smarter
- Set revenue targets
- Catch missing expenses
- Make smarter decisions
- Limit financial strain
- Fund your business

To calculate the break-even point in units we use the formula:

Break-even point (units) = fixed costs ÷ (sales price per unit – variable cost
per unit)

fixed cost (FC) - cost which does not change with a change in the level of output. Example : plant,
machinery etc.

variable cost (VC) - cost which changes as the level of output changes. Example : fuel, labour, raw
material, power etc.
Total cost (TC) - sum of total fixed cost and total variable fixed cost.

DATA OF COCO-COLA

TOTOL REVENUE $ 43 BILLION

TOTOAL COST $ 17.2 BILLION

FIXED COST $ 8.5 BILLION

VARIABLE COST $ 8.7 BILLION

TOTOL UNITS SOLD 696 BILLION

BEP ( UNITS) 175 BILLION

THE BREAK-EVEN POINT IN TERMS OF UNIT IS 175 BILLION OF BOTTLES AT THE COST OF $ 10.4 BILLION.
3. Suggest measures to the company/firm to earn normal/super normal profit.
1.Product Diversification: Expand the product portfolio to include healthier options like
lowsugar and zero-sugar beverages.
2.Global Expansion :Pay attention to emerging markets with high growth potential.
Customize items to local preferences and tastes in order to increase market share.
3.Marketing and Branding: To preserve and enhance brand recognition, invest in powerful
marketing efforts.
4.Powerful narrative and advertising may establish a deep emotional bond with customers.
5.Innovation: Constantly create novel beverage compositions, packaging, and distribution
strategies. This can involve new Flavors or ecological packaging.
6.Pricing Strategies: Use dynamic pricing to increase revenue. Adjust prices according to
consumer categories, market conditions, or product value.
7.Cost Management: Reduce costs by streamlining the production and distribution processes.
This could involve decreasing waste, increasing energy efficiency, or streamlining the supply
chain.
8.Sustainability Initiatives :Sustainability is valued by consumers more and more. Coca-Cola
can appeal to environmentally conscious consumers by implementing eco-friendly policies,
such as cutting back on plastic consumption and carbon emissions.
9.Digital Presence and E-Commerce: Adopt e-commerce and improve the online buying
experience. Make use of social media and digital marketing to reach a bigger audience.
10.Strategic Partnerships: Work together with eateries, retail chains, and convenience stores to
guarantee items have a prominent location. Partnerships and joint ventures can also aid in
increasing market reach.
11.Acquisitions: Purchase or invest in businesses that boost Coca-Cola's product offerings or
own cutting-edge technologies that can expand their portfolio.
12.Customer Experience :Prioritize offering top-notch customer support and a frictionless
online shopping experience. Happy consumers are more inclined to stick around and make
repeat purchases.
13.Regulatory Compliance: Keep abreast of any changes to laws pertaining to the beverage
sector. Make sure all health, safety, and labelling regulations are followed to prevent expensive
legal problems.
14.Diversified Revenue Streams: Investigate non-beverage revenue streams such product
licensing, franchising, or investing in other businesses.
15.Quality Control: Preserve excellent product quality to foster consumer confidence and
lower the possibility of product recalls or problems.
REFERENCES

- https://www.coursesidekick.com/economics/study-
guides/wmopenmicroeconomics/why-do-
oligopoliesexist#:~:text=Think%20of%20the%20U.S.%20soft,other%20firms%20in%
20the%20 market.

- https://www.statista.com/statistics/225388/us-market-share-of-the-coca-colacompany-
since-2004/

- https://www.youtube.com/watch?app=desktop&v=PgjKUDm-jsc

- Https://www.ries.com/2013/04/01/the-seven-challenges-of-coca-cola/

- Coca-Cola reports Fourth Quarter and Full-Year 2022 results. (n.d.). The Coca-Cola
Company. https://investors.coca-colacompany.com/news-
events/pressreleases/detail/1076/coca-cola-reports-fourth-quarter-and-full-year-
2022results#:~:text=For%20the%20full%20year%2C%20net,5%25%20growth%20in
%20 concentrate%20sales.

- Coca-Cola reports Fourth Quarter and Full-Year 2022 results. (n.d.-b).

https://www.coca-colacompany.com/media-center/fourth-quarter-full-year-2022results

- Coca-Cola Operating expenses 2010-2023 | KO. (n.d.). Macrotrends.

https://www.macrotrends.net/stocks/charts/KO/cocacola/operating-expenses

- https://www.coca-cola.com/in/en

- https://investors.coca-colacompany.com/financial-information/financial-results

- Oligopolies, Managerial Economics, Yogesh Maheshwari, pg -187-188

- The kinked demand curve - https://www.ucl.ac.uk/~uctpvbh/kinked.pdf

- https://www.toppr.com/guides/business-economics/determination-of-prices/kinked-
demand-curve/