External Analysis of The Coca-Cola Company

The Coca-Cola Company is analyzed in terms of the business organization’s performance with regard to the situation of the beverage industry. Emphasis is on the Five Forces according to Porter’s framework, and the external factors in the PEST analysis. The conditions of the company are evaluated, with consideration for changes in the market, and the forces and factors that affect the performance of the beverage business and its external environment.

External analysis of The Coca-Cola Company and its business environment using Porter’s Five Forces and PEST
A can of Coca-Cola Plus Coffee. The Coca-Cola Company faces challenges linked to trends in its external business environment, as can be analyzed and identified through the PEST model and Porter’s Five Forces model. (Photo by Nikolai Chernichenko; Public Domain)

The Coca-Cola Company is a large multinational organization that influences its target market, such that the company is in a position to take advantage of its opportunities and deep pockets in order to overcome the weaknesses, threats, and risks associated with the market or industry.

Five Forces Analysis (Porter’s Framework)

Threat of New Entrants. The beverage industry has a moderate force of possible new entrants. Despite other giant beverage businesses like The Coca-Cola Company in the international market, small new entrants could enter the market. This is especially because the production of beverages is not necessarily technically advanced and the technological aspect of the business has not evolved much in the past decades. There may be innovative changes in some beverage products, but these changes are not too sophisticated to prevent new entrants from establishing operations in the market.

Bargaining Power of Suppliers. The bargaining power of suppliers is moderate in the beverage industry. Suppliers have the power to change the prices of their products, which are used as ingredients in beverage products. However, The Coca-Cola Company can strongly influence suppliers by virtue of its large organizational size and market share. Also, the large number of suppliers of ingredients means that a single supplier cannot directly shape the development of the beverage industry.

Bargaining Power of Customers. The bargaining power of customers is high because customers directly influence the demand for the products of companies like Coca-Cola. Any change in the characteristics of the company’s products could lead to changes in market demand for these products. In addition, the look and feel of Coca-Cola products affect consumers’ attitudes toward these products. As a result, the company is cautious when it comes to the packaging, taste and contents of its products. Coca-Cola experiences significant influence under the power of consumers in the market.

Availability of Substitutes. Trends in health and wellness put emphasis on consuming substitutes to carbonated sweetened beverages, which are among the best-selling and most profitable products of firms like Coca-Cola, PepsiCo, and Keurig Dr Pepper. In this regard, beverage companies experience the impact of substitute products, such as natural juices and teas. Consequently, The Coca-Cola Company increasingly develops its products to satisfy the preferences of customers, with regard to factors like calorie content and sugar content. Also, the company now has more healthful products that serve as alternatives to its soda drinks. For example, The Coca-Cola Company now offers coffee and tea through its subsidiaries like Costa Coffee, which makes the company compete against Starbucks, McDonald’s, Dunkin’, and other firms that offer coffee and tea drinks, and food products. Based on these external conditions, the availability of substitutes imposes moderate force on companies like Coca-Cola.

Degree of Rivalry Among Competitors. Competitive rivalry in the beverage industry is high. New companies could enter the market. Companies from other countries could enter the American market. This condition creates strong competition, which involves players in the United States, Europe, and other regions. In response, The Coca-Cola Company increasingly emphasizes innovation in its product development to keep its competitiveness against other companies, such as PepsiCo.

PEST Analysis

Political. The political factors affecting Coca-Cola impose limitations on business operations. For instance, governments are increasingly under pressure from public campaigns regarding the consumption of sweetened beverages. Governments are implementing new guidelines for beverage consumption, impacting market demand for the products of companies like Coca-Cola. In addition, tax increases on carbonated sweetened beverage products could impact the demand for and profitability of The Coca-Cola Company. As a result, beverage companies are increasingly under pressure from strong political forces impacting the operations of their businesses.

Economic. The economic aspect of the beverage industry involves dependence on the economic conditions of various countries, especially the biggest markets, such as the United States. Consumption of beverages depends on the purchasing power of consumers, which in turn depends on the economic conditions of countries, with reference to such indicators as employment rates. The economic situation of The Coca-Cola Company is also impacted by governmental actions, such as food stamp allocations. In spite of economic pressure, the company faces moderately strong economic factors, considering that its revenue sources are distributed around the world.

Sociocultural. The socio-cultural factors affecting the performance of Coca-Cola include trends in beverage consumption. For example, consumers’ perceptions on health and wellness issues associated with sweetened beverages affect the profitability of the company’s products. Sociocultural factors impose a moderately strong force on the company’s operations because the consumer population is divided when it comes to supporting various health and wellness trends.

Technological. The technological aspect of the external environment of Coca-Cola can be considered in terms of the technological development of companies in the beverage industry, with emphasis on these firms’ increasing dependence on automated processes. In addition, players in this industry are impacted through current trends in innovation for the protection or conservation of the environment. For instance, these companies are compelled to implement new technologies that enable customers to participate in recycling campaigns. As a result, Coca-Cola experiences moderate pressure from the technological factors in the industry.

Solving Business Issues in The Coca-Cola Company’s External Environment

The Coca-Cola Company’s business performance depends on a variety of factors in the business environment, which includes the global market for beverages. Based on Porter’s five forces analysis and the PEST analysis, the company experiences mostly moderate forces from external factors. However, the bargaining power of customers and the force of competitors in the beverage industry are high. Also, the political factors impacting business performance strongly shape the company’s strategic development.

The Coca-Cola Company needs to focus on the power of customers, the power of competitors, and the political factors that impact the operations of the business organization. To manage the effects of these external factors on the business, it is recommended that Coca-Cola implement a more comprehensive strategic policy for developing products to match the trends in consumers’ perceptions and preferences in various target markets around the world. This recommendation is for enabling the company to increase its effectiveness in satisfying the expectations of customers. It is also recommended that the company continuously innovate its products to ensure competitiveness against the increasing force of competitive rivalry. This innovation needs to account for the political and social factors that favor beverage products that support consumers’ health and wellness. Developing a learning organization could boost the innovative capabilities of The Coca-Cola Company.