To What Extent has the Takeover of Rwenzori Bottling Company by Coca Cola Uganda been an Effective Strategy?

4341 words (17 pages) Business Assignment

12th Jun 2020 Business Assignment Reference this

Tags: Business AssignmentsFood and DrinkCoca ColaBusiness Strategy

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INTRODUCTION

In 1995 South African Bottling Company (Sabco) secured the Century Bottling Company Ltd in Uganda. The Century Bottling Company now has two plants one in in Mbarara and another in Namanve Mukono. One of the main objectives of most businesses is growth and Coca cola Uganda Ltd is no exceptional. Coca cola Uganda has used external growth that involved a conglomerate acquisition. This is an amalgamation of businesses that are completely in distinct or diversified markets. Coca cola Uganda Ltd bought of Rwenzori bottling Company. However, Coca cola Uganda produces and markets soft drinks. It therefore operates in the soft drink industry. On the other hand, Rwenzori Bottling Company produces and sells mineral drinking water industry. It is against this background that the researcher investigates the effectiveness of such a growth strategy. Specifically, the essay answers the research question: “To what extent has the takeover of Rwenzori bottling Company by Coca cola Uganda ltd been an effective growth strategy?”.

This research will be of great value to Coca cola Uganda ltd because it will aid them to assess the success of this strategy and be able to address the shortcomings of the strategy The research will also benefit other businesses that may be keen on using this strategy as they will be able to see the pros and cons of this growth strategy. Finally, the research will be valuable to other researchers in this area of study.

The research is connected to the topic of Growth and Evolution that deals with different methods of businesses.

METHODOLOGY

Secondary Sources

In order to answer the research question successfully, both secondary data and primary data were used. Secondary sources included Business Management textbook by Paul Hoang, 3rd edition. This was used to get definitions and relevant business theories used in this essay. It is a reliable source because it was approved by the IB. The researcher also used Business Studies, 4th edition textbook by Dave Hall and others for the same purpose as the first one. The researcher also used Coca cola Uganda websites to get information about the takeover of Rwenzori bottling Company. Information available here is up to date and specific about the topic under investigation. However, there could be biases in an attempt to protect the reputation of the company.

Other sources that were consulted and used include: Coca-Cola Uganda Ltd web page, using the Coca-Cola web page gave the researcher ideas of any latest news or improvement that can be used to answer the research question but also gain more information about the organization such as any new drinks added, any job vacant spots etc. The website is updated on a daily basis but it doesn’t contain information that will directly answer the research question since it only has broad or general information such as Coca cola’s vision and mission.

The other main secondary source that was consulted were news articles about the take over of Rwenzori bottling company by Coca cola Uganda ltd. This was mainly used to figure out when and why the takeover took place. This also helped to tell as a little more information about the companies.

Primary Sources

Interviews were conducted with the Internal manager of Coca cola Uganda ltd to get information about the current situation of the company and the future prospects after taking over Rwenzori bottling company. This is a reliable source because the researcher is getting direct information from one of the decision makers of this takeover. Also the data is confidential and unique since the research is done first hand and no one else has access to the information.

However biases could not be ruled out because the Coca cola Uganda ltd might fear giving out their information since there is high competition in the soft drink industry. This problem was overcome by cross checking with the information on Coca cola’s website and information obtained from the general manager of Rwenzori bottling company.

BUSINESS THEORY (Findings)

Growth and Evolution

Growth and evolution is a theory that clearly explains how a business or businesses grow. For the takeover of Rwenzori bottling company by Coca cola Uganda ltd, is known as an external growth strategy

This external growth is shown in a form of a takeover of Rwenzori bottling company by Coca cola Uganda ltd, which took place on the 14th February 2015.  The takeover of Rwenzori bottling company by Coca cola Uganda ltd lead to a fast growth of Coca-Cola Uganda Ltd since Rwenzori was and is still one of the leading producers of pure natural water in Uganda. These businesses are both powerful business and since Coca cola decided to takeover Rwenzori bottling company, it is to help solve the problem of high competition in the soft industry between it and its main competition the Crown Beverages Company (Pepsi ltd).

Having taken over Rwenzori bottling company, Coca-Cola was looking for ways to reduce the rate of over competition. The reasons why Coca-Cola ended up choosing Rwenzori out of the other water companies in Uganda was because Rwenzori had a strong brand name and with this Coca-Cola was going to get more customers or consumers. The other reason was that Rwenzori had strong growth potential that would make it easier for Coca-Cola since they won’t have to suffer much in making sure that the business is doing well.

After the takeover of Rwenzori bottling company there was an increase in the profit by 36 % in 2017 in the Coca cola Company. It is a slow growth but there is still a sign that shows there is growth in the business. There was also a reduction of the struggle of finding resources, since their drinks or beverages are 50% water then it made it easier for them to get the source of water. There was also an increase in the amount of bottled drinks produced in a day. Before the amount of cases that were made was 120,000 which then increased up to 180,000 cases. This is because with the new manufacturing bottling line they had before they used that of Rwenzori to boast them up since Rwenzori only produces 300,000 cases per day.

This takeover helped Coca-Cola Uganda to reduce competition since in the marketing industry some of the competitors are Water companies such as Aqua sipi, Riham, Wavah waters, Highland etc. (citation 2). This is because the consumers of the soft drinks might be worried about the health and will decide to take water instead. The takeover helped them to also reduce competition with the Crown Beverages Company (Pepsi), in a way that Coca-Cola now works with another company that has a powerful brand name in Uganda. With the help of Rwenzori’s strong brand name and it’s own strong brand name, this will help Coca-Cola’s new products such as fuse tea, have a better chance of survival in the market industry.

After the takeover of Rwenzori bottling company by Coca-Cola Uganda ltd, it took a great number of employees (14,000) who were from Rwenzori but after a little while another majority were fired.

The increase in the number of employees is another way of growth since the company obtained new skills and experiences. The new workers at the company share new ideas to the company since they have different experiences and skills from their previous jobs. But also there will be more open spaces open in the company since the company has become very big. This also shows that the company has grown.

There were challenges that both Coca-Cola and Rwenzori faced while going through the process of the takeover for example: redundancies, there was a majority of job losses after Coca-Cola took over Rwenzori. This was because some of the people were not necessary, for example; they didn’t need two finance directors.

Cultural clash, there was a bit off misunderstanding at the beginning of the takeover this was because the people kept bringing in new information and when Coca-Cola staff didn’t agree with Rwenzori staff the same thing happened vice versa. This happens because they both have different ways of corporation.

Table showing the market share of Coca-Cola Uganda ltd after the takeover of Rwenzori bottling company.

2016 2017 2018 2019
% of market % of market % of market % of market
21.7 23.9 24.2 30%

According to the table we see a slight increase in the market share year after year. This shows that there is a good chance that the takeover of Rwenzori bottling company by Coca-Cola Uganda ltd will be a successful decision made by both companies.

STEEPLE Analysis

STEEPLE: This is a strategic planning tool helpful when it comes to making a strategic positioning or decision. They are used to analyze the external factors affecting the business. The STEEPLE analysis in full is Social, Technological, Environmental, Economic, Political, Ethical and Legal. The STEEPLE analysis shows the opportunities and threats that Coca Cola Uganda Ltd could face in Uganda’s bottling market, which could affect the future or further decisions.

STEEPLE factor: Social

According to the latest census figures, Uganda’s population has increased up to 45.4 million people. The age group, Coca-Cola set for their product is 12 and above. The drinks made by Coca-Cola Uganda Ltd are only allowed to be advertised to the above age group. Coca-Cola Uganda Ltd is facing a lot of problems concerning health and this is about the people who are reaching the old age. They are worried about their health and want to live longer so there will be high demand for a wide range of healthier drinks. There is also a high complaint that the drinks contain too much sugar which the elders think is bad for the children. To try and solve this problem Coca-Cola Uganda Ltd has introduced zero cola, which contains no sugar and also fuse tea, which is a healthier drink for the kids.

STEEPLE factor: Environmental

Both Coca-Cola and Rwenzori are located at Namanve Mukono district, which is in between Seeta trading center Uganda and Bweyogere trading center Uganda. The reason why Coca-Cola chooses to position it self in Namanve rather than Kampala is because the above-mentioned trading centers are one of the busiest trade centers. And not only is it the busiest trade center but also where its competitors (Crown Beverages Company) are located. This makes Coca-Cola keep an eye on the Crown Beverages Company and gain information they can use to solve their problem. In addition since Rwenzori is also close to Coca-Cola this made it easier for the takeover to take place.

STEEPLE factor: Technological

Coca-Cola Uganda recently in August 23, 2018 invested in a new manufacturing line that cost UGX 30.7 billion to help them bottle more (citation 3). The new bottling line will be able to produce 24,000 bottles more per hour. Due to the improved technology, Coca-Cola Uganda will be able to increase profit levels since they are bottling more than before. This means that there will be hire of new employees since the company will be producing more products and also improving on the present markets. As Coca-Cola keeps advancing its technology (manufacturing line), they will introduce new products.

STEEPLE factor: Economic

Uganda’s GDP per capita has increased by 5.5% in the year 2018. This shows that Uganda’s economy is improving slowly every year. In the trading section of Uganda’s economy, Coca-Cola Company is playing a big role. This is in a way that they have managed to employ turns of jobless people. Coca-Cola is also supporting Uganda’s economy in a way that they pay UGX 140 billion for taxes annually. This also shows that Coca-Cola is serious about doing business in Uganda and supporting the economy. While Coca-Cola improves on their business they are supporting Uganda’s economy.

STEEPLE factor: Political

Coca-Cola has tried to make it’s product community friendly such as in a way that it started to write on the bottle in the language that people in Uganda uses and understand. Not only has it done this but has also helped advertise information the country needs to know on its bottle. Coca-Cola has also decided to consider the Muslims in Uganda and write something for them not only that but also when there are important celebrations taking place in the country they have also helped to spread the word through out the country with their advertisements on the bottle.

Mini Conclusion

While looking at the STEEPLE analysis of Coca cola Uganda ltd, the researcher noticed that there were good factors that supported the decision of Coca cola Uganda taking over Rwenzori bottling company made was affected. For example; when looking at the STEEEPLE factor technology, we notice that with the new manufacturing line, they didn’t need to fully relay on the manufacturing of Rwenzori just incase they manufacturing line was to get damaged they have backup. This decision would benefit Coca cola in a way that its consumers will feel like they are being heard since they are considering their wants and needs such as health factors.

SWOT Analysis

The SWOT analysis is a business tool that is used to identify the strengths, weakness, opportunities and threats of a business. This tool can be used to approach the current and future situation of a brand, business proposal or decision-making. The tool will be used during the research to figure out the strengths, opportunities, weaknesses and threats that Coca-Cola Uganda will face after making the decision to takeover Rwenzori Water Company.

Strengths

Rwenzori Water Company has a strong brand name or identity, with this Coca-Cola made the right decision since they also have a strong brand name. Two companies with the strong brand name means that there is better business because they will have strong customer loyalty. Coca-Cola chooses Rwenzori because they are also a bottling company just like Coca-Cola meaning both companies have highly skilled workers and a good corporate image. Just like Coca-Cola Uganda Ltd, Rwenzori Water Company’s product is on high demand in the market of Uganda which means with them having high demand for the products, the business will grow.

Weaknesses

Coca-Cola’s main competitors are Crown Beverages Company (Pepsi). But unlike Pepsi that has moved on from only making soft drinks and now has snacks and foods. Because of this, they are put back behind in competition since Pepsi has snacks like lays chip and others. This weakness will prevent or delay the business from achieving its goal.

The other weakness is that Coca-Cola has got complaints form its consumers or customers about the drinks being so sweet and they are worried for their health problems. And it is known that carbonated drinks are a big influencer of some of the health consequences.

Opportunities

Because of Coca-Cola’s weakness Rwenzori has come to help them solve the problem of competition in a way that Rwenzori doesn’t only produce water but also have some snacks that the do as part of their business. And now that Coca-Cola has some what solved that problem they can focus on making new products or even introducing new products into the market.

Because Coca-Cola is 50% water, they have easy access to the source since they will be working with Rwenzori, which is a water company, and this means less money is spent on find resources. In addition, this also means that they will no longer worry about the water supply and concentrate on creating new products that will then be used to reduce competition in the market industry.

Another opportunity that Coca-Cola has if it takes over Rwenzori is that, since people are worried about their health, they have water which will be considered a product of Coca-Cola which shows the consumers that they are showing some sense of caring.

Threats

The threats that Coca-Cola Company might face are that there are more plastic bottles that are being used since Rwenzori mineral water is packaged in a plastic container. This is a possible threat because they will be focusing on how to reduce the impact of their plastic in the environment that they will have no time to create new products and think of their competitors.

Another threat that Coca-Cola might face is that the climate change, soon there will be humid temperatures, which means that there will be limited amount of water. And Coca-Cola needs water to make their products and if they only have Rwenzori as their water suppliers then they will suffer since they have no other connects. They will have no other connects because they will feel like they are wasting money on resources when they have Rwenzori.

CONCLUSION

With the help of the primary and secondary information obtained, the research question “To what extent has the takeover of Rwenzori bottling Company by Coca cola Uganda ltd been an effective growth strategy?” has been answered. With the idea of Coca-Cola Uganda ltd taking over other businesses, they should also try and think of other innovative strategies or methods to keep possession and enlarge their consumer base and also target the complaints made by their consumers. .

To a greater degree, the takeover Rwenzori bottling company by Coca cola Uganda ltd has helped Coca-Cola widen its market share by 68% and reduce the effort used to find a water resource. But most of all this takeover has lead Coca-Cola to stand at a high place for less competition in the marketing area. The amount of bottles produced per day has increased since there are now two bottling plants working together to produce what their consumer’s want and need.

According to the STEEPLE analysis, Coca-Cola has made an effective use of the social, technological, economic, environmental, political, and ethical opportunities existing in Uganda. Therefore it is more likely if it keeps possession and also seizes the opportunities, which will lead to higher chances that its market share will improve quickly. Nevertheless, based on its SWOT analysis, the threats and weakness, Coca-Cola should work hard to get rid of them so as the chances of their market share reducing can come down. Although to get rid of these threats and weakness it is going to be quite costly.

After the takeover of Rwenzori bottling company, Coca-Cola Uganda was saved by the fact that Rwenzori had other snacks instead of just water in their company right before the takeover took place such as small biscuits etc. This saved Coca-Cola’s brand name in a way that their number one competitors Crown Beverages Company (Pepsi ltd) was a head of them since they also have their own food branch such as lays chips and other snacks. Because of this takeover Coca-Cola can now focus on creating more drinks to put out in the market but should also not stop thinking about this issue and should continue to add more food or snack ideas, which will help support Rwenzori snacks and food section. But there has been a high increase of the use of plastics since both Rwenzori Water Company and Coca-Cola Uganda Ltd products are packaged in plastic container. The recommendation is that Coca-Cola to start bottling its products in aluminum cans, which will reduce the high use of plastics since Rwenzori doesn’t have a second option to place their products. Coca-Cola could also have some researchers research about different safe methods of packaging their products so as it doesn’t affect the environment.

In order to successfully survive in the market industry of competition, Coca-Cola Uganda took a big step in to making the decision of taking over Rwenzori bottling Company. These companies don’t have a lot in common the only similarity is that they are both bottling companies. This takeover has been a successful decision made by Coca-Cola because it’s competitor Crown Beverages Company (Pepsi ltd) doesn’t have a comeback on how to solve the problem of Coca-Cola working with a big company that has a strong brand name. With both Coca-Cola and Rwenzori having a strong brand name, who can say that there will be no success. Coca Cola Uganda ltd took over Rwenzori Bottling Company and owns 11.3 per cent of the company this made the opportunity for growth in both businesses open and help with economic development and the growth of the future in both businesses.

Citations

  1. Beverages, Coca-Cola. “Sustainability.” CCBA, 2018, www.ccbagroup.com/sustainability/.
  1. Businesses, Ugandan. “Uganda Mineral Water, Bottled Water in Uganda, Rwenzori, Highland, Aqua Sipi, Wavah and Riham.” About Uganda, 4 Dec. 2018, www.aboutuganda.com/uganda/food-drink/uganda-mineral-water.
  1. Company, Coca-Cola. “Cola Beverages Africa Uganda Invests 8.35million in Brand New Manufacturing Line.” Coca, 2018, www.coca-colaafrica.com/stories/brand-new-manufacturing-line-in-uganda.
  1. Eye, Big. “Rwenzori Mineral Water Contributes Ugx 150 Million to MTN Kampala Marathon.” BigEye.UG, 31 Oct. 2017, bigeye.ug/rwenzori-mineral-water-contributes-ugx-150-million-to-mtn-kampala-marathon/.
  1. Frue, Kiesha. “SWOT Analysis of Coca Cola.” PESTLE Analysis, 22 Nov. 2016, pestleanalysis.com/swot-analysis-Coca-Cola/.
  1. Hargrave, Marshall. “The founding of Investopedia.” investopedia.com. Dotdash, 30 Mar. 2019. Web. 29 Aug. 2019.
    <https://www.investopedia.com/terms/m/merger.asp>.
  1. Imma, Hope. “Coca Cola Takes Over Rwenzori Water.” Western Uganda’s Biggest Radio., 28 Nov. 2014, croozefm.com/Coca-Cola-takes-Rwenzori-water/.
  1. Kaketo, Moses. “Moses Kaketo.” Newz Post, 26 Mar. 2017, newz.ug/why-ugandans-are-abandoning-rwenzori-water-market-share-drops-to-45-percent/.
  1. Larubi, Pat Robert, et al. “Crown Beverages Awarded 2018 Bottler of the Year by PepsiCo.” Online News from Uganda and the East African Region – Soft Power News, 22 Apr. 2019, www.softpower.ug/crown-beverages-awarded-2018-bottler-of-the-year-by-pepsico/.
  1. News, Market. “SABMiller Acquires Uganda’s Rwenzori Beverages.” Reuters, Thomson Reuters, 19 Feb. 2010, www.reuters.com/article/sabmiller-uganda/sabmiller-acquires-ugandas-rwenzori-beverages-idUSLDE61I14220100219.
  1. Reporter, Vision. “Nile Breweries Acquires Rwenzori Beverages.” Www.newvision.co.ug, 2013, www.newvision.co.ug/new_vision/news/1295713/nile-breweries-acquires-rwenzori-beverages.

Appendix

Interview with Coca-Cola’s Finance manager

Date: 19th March 2019

  1. What is your title at Coca-Cola?

Finance manager

  1. Who are your main competitors in Uganda?

Crown Beverages Company (Pepsi)

  1. Roughly what market share do you have in Uganda currently?

30% of market share

  1. What marketing strategies do you use to promote your business?

Advertisements on television, posters, radio stations and even participating as sponsors for marathons.

  1. Who are your major customers?

The public

  1. What challenges did Coca-Cola face after merging with Rwenzori?

After the merger there was a fight between the two companies on who should take over what positions since the company didn’t need two finance mangers etc. There was also cultural clash since we were different companies bringing in different ideas and this took up most of the time before we managed to settle.

  1. What major strengths does Coca-Cola have over its competitors?

Rwenzori doesn’t only produce water but also have some snacks that the do as part of their business. And now that Coca-Cola has some what solved that problem they can focus on making new products or even introducing new products into the market.

  1. What are the futures plans of Coca-Cola?

To solve the problems of their consumers or customers, to introduce new products into the market since they have plenty consumers or customers that have brand loyalty. To increase their customers and also the number of bottles produced since there is a high demand.

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