Soft drink, hard sell
July 18, 2004 | 12:00am
What could be more pop, and more American, than the image of Coca-Cola, the sugar-and-water beverage that, even after 100 years on the market, is still available practically everywhere in the world? And yet, as Constance Hays’ unauthorized account of the Coca-Cola story makes clear, what lies behind the brown coloring and the fizzle is not always pleasant refreshment.
Coca-Cola began in the late 1800s, when Southern businessman Asa Candler purchased the Coke formula from its inventor, John Pemberton. At the time, it had been dispensed by pharmacies from soda fountains, sold as a "cure-all" largely because of its carbonation, which was thought to aid in digestion and get rid of headaches. Coke also had a few other mystery ingredients in the mix back then, including extract from coca leaves – the stuff of cocaine. No wonder folks were lining up for that five-cent dose of Coca-Cola! At the time, of course, cocaine was not an illegal drug; it was even doled out by doctors as an analgesic. Coke eventually phased out the "coca" (though it kept the caffeine), and began an arrangement with Coke bottlers in the early 1900s that would haunt the company for the better part of a century.
To Coca-Cola’s enduring horror, Candler had signed an agreement with independent bottlers that allowed them to purchase the Coke concentrate (which could then be mixed with carbon dioxide and water) at fixed prices "in perpetuity." This short-sighted deal enabled small businessmen around the country to get quite rich selling a lot of Coke, a situation that bothered the Coca-Cola company no end.
It took a later Coke executive, Doug Ivester, to figure out a loophole in 1982. At the time, Coke was a fast-growing brand name, raking in profits not only in the US but all over the world. Still, good, steady growth was never enough for Coke: it wanted total domination. Ivester had a plan: buy up most of the scattered Coke bottling operations around the globe, put them under an umbrella company called Coca-Cola Enterprises which would hold slightly less than 50 percent of the bottling operation but still be allowed to name directors to its board, and then – the icing on the cake – offer the new company as an IPO on Wall Street.
Bingo! Coke figured out how to control its bottlers, and became a magic stock at the same time, trading at up to $89 per share in its heyday.
Then it all came crashing down.
As Hays’ title suggests, "Pop" has a number of connotations. In its golden age, the Coca-Cola name was a piece of "pop" Americana – a triumph of branding and customer loyalty. Everyone knew Coke: its taste, its color, its logo. Sure, it was just sugar and water, a simple "pop" drink; but to those who sold Coke, it was "a little moment of happiness." "We don’t sell funeral vaults," noted one jocular Coke executive. "We sell a happy thing."
But the other connotation of "pop" is that of a bubble bursting, and this is the story driving the second half of Hays’ book.
Perhaps the first sign that Coke was not invincible came with the now-infamous "New Coke" campaign back in 1985. As Pepsi started taking a bite out of Coke’s market and the company’s former giant Robert Woodruff lay on his deathbed, new chairman Robert Goizueta – a Cuban exile who worked his way up from lowly bottler to chief executive – decided to tinker with the sacred Coke formula. The New Coke was a colossal dud, dismissed by most shareholders with a horrified gasp ("It tastes just like Pepsi!") and New Coke became industry shorthand for a very bad, expensive flop.
But one bad idea aside, Goizueta was the type of manager who exemplified Coke’s synchronization with the American Dream. After fleeing Castro’s Cuba, he joined the company as a bottle filler and eventually became a head taster of the concentrate. His friendliness and dedication to Coke ("his veins bled Coke red") made him the first pick of aging founder Woodruff.
Hays contrasts this type of old-school, hands-on manager with Ivester, a bottom-line Coke strategist who some called "The Ice Man." In one incredibly bad year under Ivester, Coke had a product recall in Belgium (after hundreds of schoolkids reportedly got sick drinking from Coke cans), a racial discrimination lawsuit in Atlanta and a media flap after Ivester revealed to a reporter that Coke had new technology that would enable it to raise prices on vending machines automatically – especially during hot summer months.
"This is a classic situation of supply and demand," Ivester said coolly and logically. "If demand increases, the price tends to increase. Coca-Cola is a product whose utility varies from moment to moment. In a summer final championship, when people meet in a stadium to have fun, the utility of an ice-cold Coca-Cola is very high. So it is fair that it should be more expensive."
Such HAL-like remarks did not endear Ivester to shareholders, who voted him out in 2001. But Coke’s stock had already gone flat, and part of it had to do with changing market tastes. By the late ‘80s, people no longer craved sweet, sugary drinks as much, and Coke faced bigger and bigger slices into its market from bottled waters, juices and other beverages. Rather than adapt their strategy to fit the changing times, Coca-Cola went after these competitors like a pit bull, buying up the competitor brands and trying to block them from being sold in stores through "exclusive" contracts with retailers. It was a hard-sell approach that backfired on Coke as the market flatlined.
Former executives speak of a "Coke culture" that may have fueled the company’s blind ambition, maybe even its arrogance. Retailers who didn’t devote most of their premium shelf space to Coke had their supply cut off. Coke employees are forbidden to drink, or even speak the name of, rival beverage Pepsi – they must call it "our imitator." One executive describes a "cultish brainwashing" among Coke managers.
Coke will endure, of course. Its classic red-and-white can and script logo will continue to sell billions per day around the globe. But it may never go beyond the pop of its own bubble, and this account, which is neither "authorized or endorsed by the Coca-Cola Company," certainly shows that life is not always so sweet at the soft drink giant.
Coca-Cola began in the late 1800s, when Southern businessman Asa Candler purchased the Coke formula from its inventor, John Pemberton. At the time, it had been dispensed by pharmacies from soda fountains, sold as a "cure-all" largely because of its carbonation, which was thought to aid in digestion and get rid of headaches. Coke also had a few other mystery ingredients in the mix back then, including extract from coca leaves – the stuff of cocaine. No wonder folks were lining up for that five-cent dose of Coca-Cola! At the time, of course, cocaine was not an illegal drug; it was even doled out by doctors as an analgesic. Coke eventually phased out the "coca" (though it kept the caffeine), and began an arrangement with Coke bottlers in the early 1900s that would haunt the company for the better part of a century.
To Coca-Cola’s enduring horror, Candler had signed an agreement with independent bottlers that allowed them to purchase the Coke concentrate (which could then be mixed with carbon dioxide and water) at fixed prices "in perpetuity." This short-sighted deal enabled small businessmen around the country to get quite rich selling a lot of Coke, a situation that bothered the Coca-Cola company no end.
It took a later Coke executive, Doug Ivester, to figure out a loophole in 1982. At the time, Coke was a fast-growing brand name, raking in profits not only in the US but all over the world. Still, good, steady growth was never enough for Coke: it wanted total domination. Ivester had a plan: buy up most of the scattered Coke bottling operations around the globe, put them under an umbrella company called Coca-Cola Enterprises which would hold slightly less than 50 percent of the bottling operation but still be allowed to name directors to its board, and then – the icing on the cake – offer the new company as an IPO on Wall Street.
Bingo! Coke figured out how to control its bottlers, and became a magic stock at the same time, trading at up to $89 per share in its heyday.
Then it all came crashing down.
As Hays’ title suggests, "Pop" has a number of connotations. In its golden age, the Coca-Cola name was a piece of "pop" Americana – a triumph of branding and customer loyalty. Everyone knew Coke: its taste, its color, its logo. Sure, it was just sugar and water, a simple "pop" drink; but to those who sold Coke, it was "a little moment of happiness." "We don’t sell funeral vaults," noted one jocular Coke executive. "We sell a happy thing."
But the other connotation of "pop" is that of a bubble bursting, and this is the story driving the second half of Hays’ book.
Perhaps the first sign that Coke was not invincible came with the now-infamous "New Coke" campaign back in 1985. As Pepsi started taking a bite out of Coke’s market and the company’s former giant Robert Woodruff lay on his deathbed, new chairman Robert Goizueta – a Cuban exile who worked his way up from lowly bottler to chief executive – decided to tinker with the sacred Coke formula. The New Coke was a colossal dud, dismissed by most shareholders with a horrified gasp ("It tastes just like Pepsi!") and New Coke became industry shorthand for a very bad, expensive flop.
But one bad idea aside, Goizueta was the type of manager who exemplified Coke’s synchronization with the American Dream. After fleeing Castro’s Cuba, he joined the company as a bottle filler and eventually became a head taster of the concentrate. His friendliness and dedication to Coke ("his veins bled Coke red") made him the first pick of aging founder Woodruff.
Hays contrasts this type of old-school, hands-on manager with Ivester, a bottom-line Coke strategist who some called "The Ice Man." In one incredibly bad year under Ivester, Coke had a product recall in Belgium (after hundreds of schoolkids reportedly got sick drinking from Coke cans), a racial discrimination lawsuit in Atlanta and a media flap after Ivester revealed to a reporter that Coke had new technology that would enable it to raise prices on vending machines automatically – especially during hot summer months.
"This is a classic situation of supply and demand," Ivester said coolly and logically. "If demand increases, the price tends to increase. Coca-Cola is a product whose utility varies from moment to moment. In a summer final championship, when people meet in a stadium to have fun, the utility of an ice-cold Coca-Cola is very high. So it is fair that it should be more expensive."
Such HAL-like remarks did not endear Ivester to shareholders, who voted him out in 2001. But Coke’s stock had already gone flat, and part of it had to do with changing market tastes. By the late ‘80s, people no longer craved sweet, sugary drinks as much, and Coke faced bigger and bigger slices into its market from bottled waters, juices and other beverages. Rather than adapt their strategy to fit the changing times, Coca-Cola went after these competitors like a pit bull, buying up the competitor brands and trying to block them from being sold in stores through "exclusive" contracts with retailers. It was a hard-sell approach that backfired on Coke as the market flatlined.
Former executives speak of a "Coke culture" that may have fueled the company’s blind ambition, maybe even its arrogance. Retailers who didn’t devote most of their premium shelf space to Coke had their supply cut off. Coke employees are forbidden to drink, or even speak the name of, rival beverage Pepsi – they must call it "our imitator." One executive describes a "cultish brainwashing" among Coke managers.
Coke will endure, of course. Its classic red-and-white can and script logo will continue to sell billions per day around the globe. But it may never go beyond the pop of its own bubble, and this account, which is neither "authorized or endorsed by the Coca-Cola Company," certainly shows that life is not always so sweet at the soft drink giant.
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