by Greg Thain
The next task was to give the bottlers the tools they needed to do a better job for Coca-Cola than for its competitors. The six-pack, widely available since the early 1920s, was proving a valuable tool in getting Coca-Cola into the home. But what was really needed was an improvement to impulse buying. Six-pack and soda fountain buyers could have their Coca-Cola cold, whilst idle, on-whim-sales often led to a hot drink or nothing. To ensure cold Cokws for everyone, the company energetically developed the famous top-loading Coca-Cola coolers, first launched in 1929 and distributed to retailers of all kinds for the cost price of $12.50 against a typical retail of $90. Who wouldn’t adorn his premises with a deal like that, especially when slipping a Dr. Pepper in there meant that you just lost your fridge? For the first time, bottled sales now exceeded fountain sales. And retailers flocked back to Coke.
With over 1,250 bottlers and over 2,000 jobbers servicing over 900,000 retail outlets, head office could now concentrate on their real responsibility: advertising. And just at the right moment, the next man to overhaul the fortunes of the company would enter stage left. Archie Lee was an ex-newspaper man who had joined Coca’s agency D’Arcy in 1920 and almost immediately invested $1,000 in Coca-Cola stock, which gave him a reasonably significant stake in the selling power of his work. It wasn’t until 1926 that he was regularly producing ads for Coca-Cola, warming up with some fairly mundane lines such as Nature’s Purest and Most Wholesome Drink and The National Family Drink, before hitting the jackpot in 1929 with The Pause That Refreshes, which turned out to be the brand’s strapline for the next thirty years. In the first year of airing these four magic words, the company spent half a million dollars pushing them, almost ten times the amount Charles E Hires was spending on the its root beer.
As he moved from an obsession with incremental distribution towards incremental sales per point of distribution, Woodruff was also re-starting the company in the international market. Just as Candler had seen advertising as a sacrosanct investment that would pay back in due course, Woodruff took the same approach internationally. Rapid development of overseas distribution, despite the massive financial and logistical headaches that would come, was a price worth paying. Touchstone for the benefits of going abroad was the company’s activities in Canada, where per capita consumption in the principal cities was higher than in the US outside its southern heartland.
Building an export business wasn’t simple. Woodruff had travelled to Europe in 1925 to see the retail and competitive landscapes for himself and he saw that much technical work had to be set in train. Syrup (which contained all the sugar) was too expensive to ship, so the company developed a concentrate to which bottlers would now add their own sugar as well as the water and carbon dioxide, even though in some countries this meant tweaking the production process to accommodate beet sugar in place of cane. It worked. By 1930, prompted by Woodruff’s ceaseless urgings, there were over sixty bottlers in twenty-eight countries servicing sales in seventy-six countries - more than double the number four years previously - with virtually all the bottlers being wholly owned by a company subsidiary set up specifically for the purpose.
Even during difficult the 1930s, in the domestic market and internationally, the company maintained its strategies, executing both with a remorseless focus that the concentration on just one brand allowed it to do. Coca-Cola would prove itself not only recession-proof but crash-proof: sales and earnings took a drop for just one year of the Great Depression. 1934 profits of $14 million doubled by 1940, at which point war stepped in. General Dwight Eisenhower in particular, plus the US government, was very good for Coca-Cola. Every soldier, sailor, airman or airwoman, no matter where they served on the globe, should be able to buy a Coke for five cents. As soon as Eisenhower arrived in North Africa, America’s first landing on foreign soil, he was cabling the War Office demanding that eight Coca-Cola plants be set up right behind him. The sites of dozens marked across the map the progress of his armies. The emotional value of the brand to America, to Americans and their servicemen everywhere may just have been incalculable.
But then the war ended. And even to the most myopic of company executives, one thing could not be denied: Coca-Cola had a direct competitor. Keep doing the same thing but more so had been a stupendously successful strategy since Woodruff had taken the helm, but after thirty years of unbroken success, any system gets sloppy. Coca-Cola bottlers, many in their third generation of family ownership, had gone the way of the scions of many third generation family-owned businesses, losing their cutting edge as they accumulated expensive ornaments to their life-styles. And so, as wealthy, playboy Coca-Cola bottlers toyed with their expensive lunches, Pepsi bottlers, long denied a seat at the top table, were not just picking up left-overs but starting to remove the plates.
Pepsi executives, having to scrap for every sale, had been far more innovative than their Coca-Cola counterparts, launching a bigger bottle than the Coke 6.5 ounce but one which they sold at the same five cent price. Next to Coke, the Pepsi brand meant value. Meanwhile at Coca-Cola, the 6.5 oz. bottle that had served an estimated 220 billion Cokes had become something of a straitjacket. Timid managers had veered away from launching a new size that could not retain the original shape, while lazy bottlers turned down anything that looked like it might make their lives harder, which meant anything new or different. When an 8% slump in 1954 sales and profits coincided with a Pepsi surge into double digits, both company and indolent bottlers were finally goaded into action. Ten and twelve ounce bottles were catapulted into the marketplace, together with a 26-ounce guzzler size for America’s rapidly growing number of household refrigerators. The bottlers, many of them encountering declining sales for the first time in their lives, grudgingly got up off their pampered behinds and did some work pushing the new sizes into stores.
Unfortunately for all concerned, the company’s advertising guru, Archie Lee - so venerated in the company that Woodruff had been best man at his wedding - had died in 1951. And you could tell. The advertising the company churned out during the first half of the 1950s had none of his quality. So disappointing was the work that in 1955 the company switched advertising agencies to McCann Erikson, who already had a foot in the door: the agency was working for the company’s export division. There is some irony here. Whilst Coca-Cola was still the undisputed boss in on the international stage, with operations in 105 countries, in its American home market it was now taking its lead from a company with sales less than a quarter of its own.
McCann Erikson executives convinced the company they had to get into the trenches and fight the upstart Pepsi head on. New Archie Lee-like advertising slogans that proclaimed the superiority of Coke were rapidly rolled out: Be Really Refreshed and No Wonder Coke Refreshes Best. So far so OK: but one final company taboo had also to be confronted. For it wasn’t just Pepsi that was doing well. Soft drinks everywhere were doing well. Coca-Cola was not simply competing with Pepsi-Cola, but with a host of beverage companies with a host of different brands. And it was coming off worst. Woodruff finally bit the bullet. The single brand strategy was past its sell-by date.
How Did They Build The Modern Business?
When Coca-Cola purchased the Minute Maid Company in 1960 via an exchange of stock, the story of a brand became the story of a beverage company. The Minute Maid business had appeared during the Second World War on the back of its invention of a powdered orange juice process it made for the Army. It then developed this process into a concentrated frozen orange juice that was by far the category brand leader. Coca-Cola at first ran its new – and first - acquisition as an essentially stand-alone division, encouraging brand developments such as Hi-C fruit drinks and even instant coffee and tea. But perhaps the company’s greatest influence on its new acquisition was in its marketing. Coke repositioned orange juice away from the breakfast-table and out into the world, transforming it into a beverage to be enjoyed throughout the day. In doing so, of course, it pitched orange juice as an alternative to Coke, a major mind-sh
ift for the company. Not that it mattered much in practical terms, since there were now so many alternatives, one more wouldn’t make much difference. And it would give them a share in what was a new market for them: something that wasn’t a Coke.
Coca-Cola executives now realised that Coca-Cola was the Model T of the beverage industry, good for everyone any time, and only one colour as long as it was very nearly black. But other manufacturers had adopted the General Motors strategy and had been busily segmenting the market. There was no reason, insiders argued, that Coke couldn’t do both in tandem. This led to the 1961 launch of Sprite, aimed at a lemon-lime drink market first opened up, and then completely dominated, by Seven-Up, which had been around, mostly unchallenged, since 1929. Seven-Up was big, too: it accounted for a full one-sixth of total industry volume.
And the decision to adopt brand differentiation put new spirit into the former one-brand conglomerate; it now had a hit list and it was hungry in a whole new way. So where next? The answer was something relatively new, the diet drink. But here they must tread carefully. Although diet drinks had been around for at least twenty years, they had been so unpalatable that only the most committed of slimmers would touch them. Once again, however, technology intervened. By 1960, advances in sweeteners created a drink you could swallow not merely without pain but with pleasure, an opportunity first seized by the Royal Crown Company with its Diet Rite Cola which immediately bagged 50% of the diet soda market. Keen to avoid any and all risk of tainting the Coca-Cola brand itself, Tab was launched in 1963 with no reference anywhere on the label to the Coca-Cola Company. In fact, Tab was much more like a private label product a supermarket might produce, which probably accounted for the brand reaching only number three in the diet cola category. However, when Fanta was added to the product range, the company found itself with a brand portfolio broad enough to meet most needs, particularly from company-owned vending machines in which, since more brands always meant more sales, operators were increasingly keen give their customers a choice.
Coca-Cola was now looking in a number of different directions and, in 1964, with the purchase of Duncan Foods, it expanded into the tea and coffee categories. But it was not to be torn away from what had become its latest near-obsession: the development of new soft drink brands. Somewhat fortuitously, and even before the acquisition of Minute Maid, Coke had been working on the use of citrus essences to mask the aftertaste of artificial sweeteners, a technology at the heart of the next launch, Fresca, in 1966. Fresca was a calorie-free, grapefruit-flavoured soft drink targeted at a more discerning adult palate. It was a better bet than Tab, successfully creating a niche in a fairly difficult market. Thus, thanks to brand diversification, in 1967 Coca-Cola still claimed the top spot in the carbonated beverages market. Its 30.4% share was more than double that of upstart Pepsi, which had gone through its own period of apparent mojo-loss. Still more pertinent was that within the market itself, per capita consumption, driven by the baby boomers and lifestyle changes, was heading remorselessly upwards, reaching twenty-six gallons per head per year in the US, and closing in on king coffee which led the way with thirty-eight. Good times ahead whoever you were.
Another key industry change, driven partly by the same demographic and lifestyle trends, was the switch from returnable bottles to non-returnable bottles and cans. Both had been around for at least a decade, primarily in retailer private label offerings (the retailers hadn’t wanted to get involved with processing returnables), but hadn’t caught on because of the higher retail prices involved. However, the American Can and Steel Institute popularised returnability with a $9 million promotional campaign in the early 1960s, selling the benefits of the casual and the care-free. When you were cruising the strip in your T-Bird, did you really want to bother hoarding your empties? Of course you didn’t. And when cans reached a double-digit share of the market, the Glass Containers Manufacturers Institute finally fought back with their own $7 million campaign for the one-way bottle. Coca-Cola was quick to get on board, producing ads pushing the casual image of a trend that clearly signalled modern, and bullying the bottlers to get on the bandwagon. By the end of the decade, 40% of the industry’s products came in one-way containers in what had become an irreversible trend.
Modernity was also to be found in Coca-Cola’s advertising. Its 1967 campaign kicked off with For the Taste You Never Get Tired Of, itself just a warm up act for the true blockbuster, 1969’s It’s The Real Thing. Finally Archie Lee’s ghost had been laid to rest (or disinterred) and the company had advertising that both equalled Archie’s and echoed in the brevity of The Pause That Refreshes. The new and startling campaign prompted the biggest brand overhaul in history, with what the company code-named Project Arden (after the cosmetics brand, Elizabeth Arden). There was to be a new packaging theme that would entail the complete replacement of the now countless items of permanently placed Coca-Cola promotional merchandise, a challenging project since the company had kept no records of where it had all been placed. The changeover consequently took years to complete, which fortunately spread the astronomic cost over several financial years.
So Coca-Cola entered the 1970s in very good shape. During the previous decade, per capita consumption of carbonated soft drinks had increased a whopping 80%, which, with a rising population, had almost doubled industry volume. Due partly to the expansion of the product range, the Coca-Cola Company had beaten the rest of the market. Sales throughout the 60s increased by 250% and earnings trebled. The company was, by some distance, the world’s largest producer of soft drinks, citrus products and, somewhat surprisingly for a so brand-led company, private label instant coffee and tea. In 1970, the company even took a plunge into the water market, although not consumer bottled water, at that time a tiny market for health cranks. It purchased a maker of water-pollution equipment already installed in around half of the non-communist world’s water treatment plants. The acquisition would come in especially useful, as continued international expansion was taking Coke into countries where decent water supplies could pose huge problems.
The early 1970s also saw the company getting to grips with a problem that had concerned it for some time, the bottlers, who had returned to their somewhat lethargic ways; the rising market of the 1960s had effectively done most of their work for them. Not that they were ecstatic about the relationship either. They had loyally backed Tab and Fresca and been distinctly underwhelmed by the outcome, especially given the existence of much better-performing brands they could be bottling much more profitably. So the relationship between the company and its bottlers had become fractious.
A particular difficulty for Coke was that the increasing size and geographic reach of the major retailers was now far exceeding the historic bottler territories, compromising supply lines. But changes in the bottler network gave a clue to solving the problem. Closely located regional bottlers had begun to merge, and several were now large enough to attract the interest of the bigger businesses that had begun acquiring franchises from third and fourth generation families keen to cash in their inheritances. Wometco, for example, owned Coke bottling franchises in the US, Canada, the Bahamas and the Dominican Republic. Wouldn’t it make perfect sense for Coca-Cola to do the same? It would, and it did. Coca-Cola’s $64 million purchase of the Atlanta franchise took the company to ownership of 10% of the US network. But when Twentieth-Century Fox tried to buy a bottler, Coca-Cola saw the real danger: at worst the loss of control of the entire network, and at least the loss of the ability to bend the bottlers to the company’s wishes.
So Coca-Cola once again tried to change the bottler agreements to let it adjust the syrup price at will, not just in response to movements in the price of sugar. But the bottlers were no longer family affairs. They were run by huge conglomerates that could pack a punch and they rebelled, exactly what the company had begun to fear. The crunch came in 1978. The big bottlers knew full well that Coca-Cola was making plenty of money on its sugar dealings, so fought the company’s proposal aggre
ssively, demanding the right to be supplied not with syrup but with concentrate so they too could buy and profit from the sugar, which many were big enough to do. A deal was finally struck: after a price hike of 24%, the bottlers could buy a concentrate which would go up in price in line with the Consumer Price Index. But the battle scarred the company. They did not like being held to ransom by firms as big and mean as they were. When the right time came along, something would have to be done.
Not that the company didn’t have other things to worry about. In 1975 their arch rivals launched The Pepsi Challenge. Initially dismissed, it succeeded well enough to eat away at both Coca-Cola’s market share and its corporate self-confidence. Pepsi’s success was followed by the company’s first exit from an overseas market, when the Indian Government’s demands to indianise all foreign-owned companies would have obliged Coke to hand over its secret formula, code-named 7-X, to Indian-owned bottlers. They refused point blank and quit India. It wasn’t a particularly substantial market – just 1% of global output – but it was an embarrassing slap in the face to this most global of companies. Then Pepsi stole a march by securing the exclusive rights to Russia, although Coca-Cola more than made up for the Indian and Russian disappointments with its Chinese coup, exclusive rights to market cola in China, granted indefinitely.
But despite the China deal and another breakthrough advertising campaign with Mean Joe Green, Coca-Cola in the 1970s was losing ground. In 1979, PepsiCo total sales finally surpassed Coke’s. That this was in large part due to PepsiCo’s ownership of Frito-Lay rubbed salt into the wound; owner Herman Lay had first offered it to Coca-Cola but they had turned it down. Further bad news arrived beneath the flag of the now ubiquitous Pepsi challenge: sales of Pepsi actually exceeded those of Coke in take-home sales. Coke’s overall lead was now totally dependent on its massive lead in vending and food service contracts.
