Buy our book here.

21-Coca-Cola-AFP-Getty

Coca Cola have for the last few years being trying to accept the fact that they are facing a strategic dilemma. The main product for Coca Cola is their carbonated drink known, by most of us, as ‘coke’.  The vast majority of their profit are from the Americas but this has reached the stage of maturity.  Therefore, Coca Cola have tried to target the emerging economies, where they have only a small market share. For example, the have been trying to crack the Chinese market now for many decades.

It was recently reported that the strategy of targeting the emerging economies has not been as successful as hoped with the market growth declining in these regions (Bloomberg, 2014). With increased concerns over the nutritional aspects of carbonated drinks this has increased the pressure on the company.  They have announced that they are aiming to reduce their costs by £1billion pound in the near future to re-structure their marketing campaign. As an accounting student or someone just generally interested in accounting you should be considering what type of costs they will be looking at to achieve a high reduction.  It is unlikely that there will be cuts in ‘real’ variable costs because the price of materials is fairly stable in this market and of course Coca Cola cannot afford to reduce the quality of their product. Therefore, it is likely that this long term strategy will focus mainly on their fixed costs and indeed Coca Cola have stated they will be targeting their supply and data management services to help reduce these costs (Bloomberg, 2014).

 

Even companies as large and well known as Coca Cola have to analyse their costs and re-structure to ensure they remain competitive, if their cost base increases whilst their market size decrease it can lead to failure. However, that said Coca Cola have recognise the problems and are trying to address these.

 

Original story from http://www.bloomberg.com/news/2014-02-18/coca-cola-profit-falls-8-4-as-cost-cuts-announced.html

Enhanced by Zemanta