Milestone 1
Sarah Brown
Department of Business and Leadership, Regent University
Dr. Jeff Bajah
ECON 230 Macroeconomics
September 2, 2022
Introduction
Established over 130 years ago, Coca-Cola is a widely successful company known for its iconic soft drink: Coca-Cola or Coke. The company’s vision statement is as follows “Our vision is to craft the brands and choice of drinks that people love, to refresh them in body & spirit. And done in ways that create a more sustainable business and better-shared future that makes a difference in people’s lives, communities, and our planet.” Due to its lengthy history and apparent successes, Coca-Cola is a prime candidate for analyzing and discussing several macroeconomic principles.
Coca-Cola’s Comparative Advantage
A company has a comparative advantage when it can continually produce goods at the lowest opportunity cost compared to other producers and their rivals (Cowen & Tabarrok, 2020). Operating as the largest soft beverage company, Coca-Cola’s biggest rival company is PepsiCo (Hughes, 2022). Comparing these two companies shows that the comparative advantage lies with Coca-Cola. In 2021 Coca-Cola’s annual cost of goods sold was $15.357 Billion, a 14% increase from the previous year (CocaCola Financial Statements 2009–2022). In the same year, PepsiCo had an annual cost of goods sold of $37.075 Billion, a 16% increase from the previous year and well over twice as much as Coca-Cola’s (PepsiCo Cost of Goods Sold 2010–2022).
Additionally, Coca-Cola procured an annual net income of $9.771 billion, an astounding 26.13% increase from 2020. In 2021, PepsiCo gained an annual net income of $7.618B, a 6.99% increase from 2020. Coca-Cola has continually produced goods at a lower opportunity cost and gained a higher net income than its most significant rival, PepsiCo, maintaining a comparative advantage in the soft drink market.
Supply and Demand of Key Products
The law of supply and demand governs the relationship between the amount of goods and services available for people to buy and the amount of goods and services purchased (Cowen & Tabarrok, 2020). According to the official Coca-Cola website, the company's main products are its beverage concentrates, syrups, and finished beverages distributed through the world's most extensive beverage distribution system. Explaining the company's products and services, the website says, "We make our branded beverage products available to consumers in more than 200 countries and territories through our network of independent bottling partners as well as consolidated bottling and distribution operations who manufacture, package, merchandise, and distribute the finished branded beverages to our customers and vending partners" (Coca-Cola System).
Like any good or service, there are several contributors to changes in the demand for Coca-Cola's products. Some of these contributors include the product's price, perceived value, accessibility, marketing, changes in taste/fashion, and consumer income (Cowen & Tabarrok, 2020). For a classic product such as Coca-Cola, it is unlikely that there will be a sudden change in certain things, such as perceived value or taste, that would inflict damage to the demand for the product. Coca-Cola has spent over 130 years establishing its brand, gaining consumer confidence, and building perceived value. However, other contributing factors, such as product price, accessibility, and consumer income, could easily affect product demand. For instance, if a potential customer wishes to purchase a coke but has difficulty finding it in a store and can easily access competing products, Pepsi, for instance, may choose convenience and purchase from the competing brand.
Additionally, if both Coke and Pepsi are easily accessible, yet Pepsi is significantly cheaper, the customer is confronted with a dilemma of choosing between brand loyalty or saving money. It is impossible to know which the customer will choose, but the cheaper option is frequently more favorable to the consumer. Despite gradual price increases and other economic factors, demand for Coca-Cola products continues to increase. The company has matched its demand, maintaining a steady increase in net revenue while minimizing the increase in the cost of production.
Examination of GDP of Home Country and Key Market
Gross Domestic Product, GDP, is defined as “The market value of all finished goods and services produced within a country in a year.” Furthermore, GDP per capita is the Gross Domestic Product value divided by population(chap 26). Coca-Cola is an American corporation founded in Atlanta, Georgia, in 1886 (Coca-Cola History). The GDP of Coca-Cola’s home country, the United States of America, was approximately 23 trillion US dollars for the year 2021, according to recent research (GDP (Current US$) - United States Data). Mexico leads by a significant margin in the race for most Coca-Cola products consumed, with an average daily consumption nearly five times higher than the national average (Davies, 2020). Mexico maintained a GDP of $1.29 trillion for the year 2021. Even though it maintains a much lesser GDP than Coca-Cola’s home country, Mexico proves to be a key market for the American corporation.
Economic Fluctuations and Company Profitability
Like any other company, Coca-Cola is subjected to the economy's fluctuations regardless of whether they produce positive or adverse effects. When there is economic growth, there is an increase in wealth and a general increase in societal well-being. Studies show that wealthier nations typically enjoy exclusive benefits such as "higher infant survival rates, life expectancy, and nutrition, more educational opportunities, leisure, and entertainment, fewer conflicts such as civil wars and riots, and overall more material goods" (Cowen & Tabarrok, 2020). When there is a general increase in wealth, more money is circulated, and more purchases are made. If Coca-Cola maintains healthy business operations such as competitive marketing and pricing, it will likely see a positive adjustment to its profitability.
Patents allow innovators to protect their innovations for a designated period, typically 20 years. When a company acquires a patent, they gain monopoly power (Cowen & Tabarrok, 2020). The original Coca-Cola recipe was registered for a patent in 1893, and the company currently holds nearly 7000 patents across its numerous products (Coca-Cola). Acquiring patents could potentially positively affect the company's profitability as it gives the company a level of exclusivity. If they are the only company offering a specific patented product, they will likely produce a higher profit.
Conclusion
Since its founding, Coca-Cola has grown into an incredibly successful and well-known company. Their iconic products have gained them a loyal consumer base. Due to its success and sheer size, many economic theories such as GDP and Supply and Demand can be studied through the company’s materials. As the company continues to expand and improve, it will simultaneously continue to reflect established economic theories.
References
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Coca-Cola History. (n.d.). The Coca-Cola Company. Retrieved September 2, 2022, from https://www.coca-
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Coca-Cola System. (n.d.). The Coca-Cola Company. Retrieved September 2, 2022, from
https://investors.coca-colacompany.com/about/coca-cola-system
Cowen, T., & Tabarrok, A. (2020). Loose-leaf Version for Modern Principles of Economics (Fifth ed.). Worth
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Davies, P. (2020, August 20). With average daily consumption of 2.2 liters of Coca-Cola, Chiapas leads the
world. Mexico News Daily. https://mexiconewsdaily.com/news/with-average-daily-consumption-of-2-
2-liters-of-coca-cola-chiapas-leads-the-world/
GDP (current US$) - United States | Data. (n.d.). The World Bank. Retrieved September 2, 2022,
fromhttps://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US
Hughes, J. (2022, July 11). Coca Cola Competitors Analysis : Are They Still Leading? Business Chronicler.
Retrieved September 2, 2022, from https://businesschronicler.com/competitors/coca-cola-
PepsiCo Cost of Goods Sold 2010–2022 | PEP. (n.d.). MacroTrends. Retrieved September 2, 2022, from
https://www.macrotrends.net/stocks/charts/PEP/pepsico/cost-goods-sold