Executive Summary
This paper seeks to explain the operations of Coca-Cola in Kenya since it entered the country until now. It also explains the changes that have taken place in the business environment and the impact that those changes have on the company’s operations. It starts by explaining how and when the company entered the Kenyan market and the subsequent growth trends. It then explains the characteristics of the Kenyan market through a PESTLE analysis.
Strategies of the company are then explained followed by the changes that are happening in the market currently and their impact on the future strategies of the company. Lastly, the paper explains the strategy changes that Coca-Cola is planning to adopt and the recommendation of changes it needs to implement.
Overview of Coca-Cola and the Kenyan market
Coca-Cola is a non-alcoholic beverage company that is headquartered in the US. It launched its operations in Kenya in 1948 through direct investment by setting up a production plant in the capital city, Nairobi, on a quarter acre of land. The company’s products gained popularity with the Kenyan population, which led the management to open another production line in Mombasa, the coastal town of Kenya. The company has since grown by entering into joint ventures with strategic partners and through franchise.
At present, the leading non-alcoholic beverage company in the country is Coca-Cola. The company has at least 22 lines of production and 7 plants nationwide. Coca-Cola supplies the Kenyan market with a wide range of drinks, which include soft drinks such as Coca-Cola, Fanta, Sprite and Stoney as well as drinking water called Dasani (Coca-Cola Subco, n.d).
Generally, the Kenyan population believes in having a soft drink during celebrations. The country has a population of over 42 million people, 70 percent of which are youths. This is a potential market for the company’s products because most youths in Kenya like partying, whereby they end up using the company’s products in large numbers. The Kenyan market structure has the characteristics of an oligopoly whereby there are few dominant market players.
For instance, in the soft drink market, Coca-Cola is the market leader with two other players, namely East African Breweries who produce Alvaro soft drink and Kuguru Food Complex Ltd that produces the soft drinks branded Softa. In the bottled water market, there are two other dominant products apart from dasani from Coca-Cola. These are Keringent and Aquamist, who jointly have a market share of over 60% (Kamau, 2011).
PESTLE analysis
The political environment is increasingly becoming steady after implementation of the constitutional reforms in 2009. This provides a stable environment for business operation. In spite of political instability in the 2007, the economy has shown resilience, whereby there is a steady annual growth of over 2 percent which provides a good economic environment.
Socially, the Kenyan population has a partying culture whereby people enjoy drinks as part of celebration. This can be during weddings, graduations or holiday periods where people meet as communities to celebrate.
This is a potential market for soft drink manufactures. Technologically, the country has adopted new technological developments such as the fibre optic cable which is in its last stages of implementation. This will help the company in attaining efficient and effective communication. There have been calls for companies to adopt environment-friendly strategies and coca-cola has risen up to the challenge by building a state-of-the art facility in the capital city, which meets all the safe environment requirements (Wafula, 2011b).
Strategies currently used by Coca-Cola
Generally, Coca-Cola has been a fast mover in the soft drinks market whereby it has invested in developing cost efficient production operations. Therefore, the company has been able to adopt and maintain cost-leadership strategy (Bensoussan & Fleisher, 2008). In the 1970s, the company was able to maintain low prices because of low production costs.
Its main rival at the time, Pepsi, could not operate at such low cost and bowed out of the market. Through this strategy, the company has been able to maintain market leadership for over three decades. Another way in which the company manages its costs is by controlling retailers’ prices. The company provides standard retail prices that include the retailers’ margin.
The retailers are tentatively required to sell their products within those prices ranges. Whenever there is threat from a competitor, the company would reduce its prices and will ensure that customers enjoy reduction in prices. It offers to paint retail stores whereby the reduced prices will be printed for the customers to see (Bensoussan & Fleisher, 2008
There are times when the company uses differentiation strategies especially when a competitor introduces a substitute product in the market which is a threat to the company’s market share (Williams & Green, 1997). East Africa Breweries, the market leader in the alcoholic beverages, introduced a non-alcoholic drink as a diversification strategy. It introduced the drink under the brand name of Alvaro. Coca-cola Company followed almost immediately with a similar brand called Novida.
Considering that both products competed for the same youthful market, coca-cola initiated campaigns that stated that its Novida drink had no malt. This was to differentiate it from that produced the by alcohol the manufacturer. The company went ahead to introduce different flavours of the drink, which include orange, apple and pineapple. Eventually the company managed to secure its market and to acquire new consumers from the Alvaro consumer market (Kamau, 2011).
The company has also been using focused strategies whereby it targets a particular market segment with a product that is meant to satisfy their unique needs. For instance, the market strategies of sprite soft drink are always focused to the youth. It is mostly associated with sporting events and the adverts call upon the youth to “be true to who they are”. The company promotes the sprite brand by sponsoring basketball tournaments across the country.
This has made most basketball fans and players to identify with the brand. Most youths feel a sense of pride when taking the drink because they believe it is a way of expressing themselves. In addition, the company markets its bottled water, Dasani, targeting the corporate market. The product is sold through a premium pricing strategy which sees the product sold at a relatively higher price than most of its rivals’ products in the market (Williams & Green, 1997).
The company has also used mergers as a growth strategy. Since the company started operating in Kenya in 1978, it has been entering into strategic joint ventures and acquiring entities that are strategic to its plans. The company is currently run under the name Beverage Services Kenya Ltd., which is a joint venture that was formed in 2002.
Nairobi Bottlers Ltd merged with Flamingo Bottlers Ltd and together they joined with East Kenya Bottlers Ltd to form Beverage Services Kenya Ltd. The first two bottlers were supplying 50 percent of the Kenyan market. Therefore, when they merged with East Kenya bottlers the company is now controlling over 72 percent of the Kenyan market share (Coca-Cola Subco, n.d).
Diversification strategy is a strategy whereby a business ventures into new product lines different from the one it has been dealing in (Ireland, Hoskisson & Hitt 2008). Coca-Cola introduced its drinking water in 2006, which was a clear shift from its conventional soft drinks sector.
The company has made significant strides in gaining the market share. It currently has over 7 percent of the Kenyan market share. The company also introduced its diet drinks such as Coke Light in the Kenyan market as a way of diversifying (Ireland, Hoskisson & Hitt 2008).
Vertical integration strategy refers to a strategy whereby a company adopts the services of some members of its supply chain. This includes offering the services provided by the supply chain members or providing support to the supply chain members (Ireland, Hoskisson & Hitt 2008). The company provides refrigerators to retailers of its products to help them in cooling their products. It also advertises retail prices that the suppliers are supposed to sell its products.
Through the strategy, the company can also control how its products are sold. For instance, the company allows only its products to be put in the refrigerators it provides to retailers. Therefore, the company can reposes refrigerators from retailers who use them for other products. In addition, the company sets a target of the amount of products that must be sold within a given period. This applies to retailers who have been given the refrigerators (Kamau, 2011).
The company has also used different pricing strategies for its products in different product lines. The company uses low price strategy for most of its soft drinks, whereby it strives to make the products affordable to its consumers (Ireland, Hoskisson & Hitt 2008). Therefore, it applies standard prices for almost all of its soft drinks such as Coca-Cola, Fanta, Sprite and Stoney. The 500 ml drink is old at a standard price of USD 30 cents while the 300 ml drink is sold at price of USD 25 cents.
Setting the retail price has helped in keeping the prices low, which has contributed to the high sales registered by the company in the soft drink sector. The company also uses premium-pricing strategy in selling its drinking water, Dasani. This product targets the corporate market and therefore it is sold at a high price to denote its high quality. The product capitalizes on the Coca-Cola brand name that has dominated the Kenyan market for over three decades (Kamau, 2011).
Projected market changes and their impact
The Kenyan market is expected to have stiff competition in the coming future. This will apply to all markets that Coca-Cola Company is dealing in. One of the reasons for increased competition is new entrants in to the various markets that the company is dealing in. The Kenyan market is increasingly becoming lucrative for investors, both local and foreign.
The economy has exhibited a steady growth and analysts have projected that the economy will grow by 6 percent annually for the next five years if the expected reforms are implemented. In addition, the country is strategically situated at the centre of Africa, which makes it an entry point in to the East African region as well as the whole of Africa (Wafula, 2011b). Some of the specific changes expected to take place in he Kenyan market are explained below.
Changes in the bottled water category
The drinking water category is anticipated to grow by an average of over 8 percent annually. Based on the growth statistic of the past ten years whereby the demand has grown by an annual growth of 7 percent, the demand is expected to grow by 42 percent for the next three years. These prospects have attracted more investors into the $120 million market of bottled water. The market currently has over 350 suppliers, although dominated by only twelve players of which Coca-Cola is among the dominant ones.
One of the new entrants is Kenya’s main tea processor, Ketepa. The company introduced its bottled water under the name Maisha which will be offered in 300 ml, 500ml and large packages of one litre, 1.5 and 18.7 litres. Although there are other new entrants into the already crowded market, Ketepa catches attention because it comes in with a developed distribution network of is tea products (Sambu, 2010).
The bottle water market has been realizing an increased growth for the past seven years with the increasing awareness of healthy lifestyles. For instance, research shows that there is an increase in the popularity of bottled water at the expense of carbonated soft drinks (Karanja, 2010). The prolonged drought in Kenya has also contributed to the increasing demand for bottled water. The market is also adopting product differentiation whereby some brands have introduced mineral water. These brands include Dasani, Keringet and Aquamist who apparently are market leaders. The bottle water market is also expecting a new international entrant, SABMiller, which is an alcohol producer based in London. The company is planning to collaborate with Keringet, which is among the market leaders (Karanja, 2010).
Changes in soft drink category
The soft drinks market is also anticipating increased competition. Pepsi Cola, a US multinational that bowed out of the Kenyan market in the 1970s due to competition pressures is setting up operational plans. The company has started plans to set up a 12.4 billion plant in outskirts of the capital city.
The company that re-entered the Kenyan market through imports has established a potential market in Kenya and decided to pursue the opportunity. This indicates that there will be rivalry like that witnessed in other countries where both soft drink giants are present. There is possibility of price rivalry because both companies produce almost the same products (Wafula, 2011a).
Coca-Cola change in strategies
Coca-Cola is planning to use, increasingly, its price leadership strategies to counter the competitive threats. For instance, the company announced a decrease in its prices of soft drinks. This happened immediately after Pepsi announced its intention of setting up a production plant in Kenya. Secondly, Coca-Cola Company has decided to increase its product lines as a way of withstanding competitive threats from the new entrants.
The company is planning to set up a juice production plant. This diversification plan involves 50 million dollars project that will enable the company to produce juice drinks for the Kenyan market. The company has also collaborated with Bill and Mellinda gates foundation to support fruit farmers in the Rift valley. This will improve the production capacity of these farmers and will ensure that the company has continuous supply of fruits. Therefore, the company will be able to increase its revenue by creating new income avenues (Wafula, 2011b)
Strategic recommendations and possible future decisions
The company needs to focus more of its resources in diversifying because the soft drink category is facing many challenges. Diversifying into fruit juice production will enable the company to withstand the turbulent periods. Analyst have also projected that the soft drink market is flattening, therefore, it would be prudent if the company concentrated on more lucrative product lines such as bottled water and juice.
The market will soon reach saturation point because the number of players have increased while the market is growing at a relatively low pace. In addition, the increased awareness on healthy diet is also working against the progress of the soft drink sector. Therefore, the company needs to focus on diversifying rather than maintaining the soft drink market (Hitt, Ireland Hoskinson, 2009).
The company needs to focus on developing and implementing supply management strategies. This involves training its supply chain members, especially the retailers, on marketing skills. Considering that the players are dealing on similar products, the market will eventually reach saturation point and pricing strategies will no longer be effective.
As competition in the soft drink market increases, the company with the ability to reach the customers effectively will have an upper hand. Therefore, the company needs to develop other competitive advantages, one of which is having an effective distribution strategy (Hitt, Ireland Hoskinson, 2009).
The company can also focus on developing new markets for its existing products. This can help in avoiding confrontation within an overcrowded market such as the bottled water market. The company can launch its products in other regional markets such as Uganda and Tanzania. This will help the company in increasing its revenue and finding other needs that can be met in the new markets. On the other hand, the company can decide to adopt focused differentiation strategies.
This involves focusing on a particular market segment and concentrating its resources in identifying and satisfying the needs of the segment. For instance, the company can decide to focus on the corporate segment to provide it with bottled water. This specialization will help the company to develop unique products for the segment, which will enable the company to secure loyalty from its customers (Hitt, Ireland Hoskinson, 2009).
Conclusion
Coca-Cola has achieved a lot of success in the Kenyan soft drinks market for the last three decades. The company has also diversified into other markets such as bottled water whereby it has a brand called Dasani. However, the continued dominance of the multinational soft drink giant is about to be reduced because new players are coming into the markets. The new entrants are both foreign and local investors. As a result, Coca-Cola has to make some strategic changes which will enable it to withstand the competition.
References
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