Inside Coca-Cola

by Neville Isdell

  When we were called, the minister asked us a few questions and eventually ruled in our favor. The Olayan family has the bottling franchise to this day, overseen by Suliman’s youngest daughter, Lubna. While in Saudi Arabia, we visited a private home where the Johnnie Walker Black Label flowed—along with the best wine—and everyone stood around the swimming pool drinking. The duplicity of the society was absolutely apparent. Not surprisingly, there were two sets of rules in this conservative, Muslim country. That was my first introduction to Saudi Arabia, which was not initially a positive one, and Saudi indeed turned out to be a tough market for Coke. Pepsi had entered the Israeli market in 1992 only after the Arab boycott was over. So while Coke was in exile, Pepsi had become deeply entrenched in Middle Eastern markets like Saudi Arabia.

  After the boycott ended, we hoped to initially gain a 20 percent market share in Saudi but fell short with only 9 percent, underutilizing our large new bottling plant. It was a miscalculation on my part. We were losing money but believed that if we could attack Pepsi’s profit center in Saudi Arabia, it would limit Pepsi’s investments in other countries in the region such as Jordan, Bahrain, and Dubai, where Coke was also struggling to rebuild. The Middle East was to provide me with many headaches over the next few years, and even today, Coke still trails Pepsi in some of the region’s countries. Egypt, where we negotiated the privatization of the bottler, was one where we achieved our vision, but I underestimated the strength of the Pepsi system in countries such as Saudi Arabia.

  Egypt had ejected Coca-Cola in 1967 during the Arab boycott but relented in 1979 following the Camp David Accords. The government still controlled the soft drink industry, with Pepsi leading in Cairo and Coke ahead outside the capital. Egypt later privatized the industry and I traveled to Cairo to gauge the challenge and inspect the assets the company would be purchasing from the government in a joint venture with the Alhak family. This was Egypt’s first privatization since the nationalization era of Nasser. The Coke bottling plant in Cairo was in terrible shape, more run down than those in the Philippines when I first arrived there. Worse, I spotted a building adjoining the plant that was adorned with a Coca-Cola sign. “It’s just another building we own,” an Egyptian government official told me. Yet something in the tone of his reply made me suspicious. After further research, I discovered the building was a brothel. Although it was probably far more profitable than the bottling plant, we told Egyptian officials, “The Coca-Cola Company isn’t buying a brothel.” We bought the bottling plant but not the brothel property.

  I focused on building sales in both the Middle East and Africa. I believed Coca-Cola had ignored Africa in particular and that there was huge growth potential there. That proved to be correct, although it has taken an enormous amount of work to achieve.

  Early 1989 produced signs that apartheid in South Africa might be thawing. President F. W. de Klerk was clearly softening his position, though it was still a whites-only government and Nelson Mandela remained imprisoned. Coca-Cola had divested in 1986, moved the concentrate plant to nearby Swaziland, and signed a licensing agreement with a newly formed, entirely independent South African company, National Beverage Services. The contract gave Coke a repurchase option when and if apartheid fell.

  National Beverages was managed by a former Coca-Cola executive, Sandy Allan, an energetic and knowledgeable (but stubborn) man who I felt did not always dot all the i’s or cross all the t’s, which would become an issue later in his career in implementing an antitrust settlement with the European Commission. Shortly before I left Germany for Atlanta, I phoned Sandy to tell him that in my new position as group president, I would oversee the relationship with National Beverages. “No, you won’t,” he replied. “Nobody does.”

  His boasts of independence slowly softened as the political climate in South Africa evolved and he could foresee Coca-Cola returning to exercise the repurchase option. In March of 1989, I asked Sandy to come to Atlanta and conduct a review of National Beverages. I knew all the South African bottlers, and they were telling me that Sandy was too autocratic and they wanted Coke to return with new management. At the same time, Carl Ware, a Coca-Cola public affairs executive and former president of the Atlanta City Council, was working with Bishop Desmond Tutu and other members of the opposition through a South African foundation Coca-Cola had established. Through these channels, Carl, an African American, gained invaluable information on the political winds in South Africa and built valuable and powerful relationships that would serve the company well. This was a source of friction with Sandy Allan, but the company was on a dual track in preparing for a new South Africa. Without Carl and his work, the standing of the company could have been greatly diminished. I maintained a close relationship with Carl and once visited the South Georgia farm where his family had worked as sharecroppers and which he now proudly owns. Carl walked five miles to school each way and was passed daily by the bus carrying the white students. While he was often abused by these students, Carl fondly remembered his father’s relationship with local white farmers.

  On one trip to Africa, I returned to Zambia for a very emotional visit. Pamela was with me and had been reluctant to go back, not wanting to see how Zambia had deteriorated in the sixteen years since our departure. Zambia was indeed run down and depressing, a very pleasant land with an economy ruined by extreme mismanagement. Yet it was heartwarming to greet my old colleagues, some of whom broke into tears. I was shocked, however, to learn that so many friends had died. This was Africa before the HIV/AIDS epidemic had fully swept the continent, yet life expectancy was still very low. We shouldn’t have been surprised that so many of our old friends were no longer there, but it was still very, very sad.

  At a bottler’s conference in Nairobi, I spoke from my heart, not as a Coca-Cola executive visiting from Atlanta, but as someone who lived twenty-six years of his life in Africa.

  Mike Hall, who had been my marketing manager in Australia and was now in charge of Africa, delivered a very powerful speech before mine, which I thought would be a tough act to follow. So instead of standing behind the podium, I sat on the edge of the stage, my legs dangling.

  “I’m home,” I told the bottlers. “Home is Zambia, but home is Africa. There is a magic about Africa that will never leave me. It is encapsulated by that magical aroma that is released from the arid earth that has not seen rain in four months. This is rebirth. The rain has fallen. We are going to regrow this business just like the maize grows when the rain falls.”

  The bottlers unexpectedly broke into applause. It was a very powerful moment. For both Pamela and I, the years we lived in Africa, those formative years, haven’t made us Africans, of course, but in many ways we feel like children of Africa. Hardly a year goes by without us taking some vacation time on the continent.

  After the bottler conference, Mike Hall and I, along with John Belcher, another Coca-Cola executive in Africa, traveled to Ethiopia, which was then just emerging from a long and brutal war over independence for Eritrea. Coca-Cola had a bottling plant in Asmara on the coast that had been knocked out of commission during the war, and we were scheduled to meet with Isaias Afwerki, the Eritrean freedom fighter, to see if we could get it up and running again. Afwerki was going to be the new president of Eritrea, and Asmara would be the capital of the new nation.

  We flew into Addis Ababa, the capital of Ethiopia. Since the war had only recently ended, the U.S. ambassador had not yet returned to the country. Our plane was among the first aircraft in there since the revolution.

  We drove from the airport to the Hilton hotel, passing burnt-out tanks and cars and young men walking around with AK-47s. We had a guard in our car with an AK-47 protecting us. At the Hilton, John had arranged for us to meet with a contact, the classic Mr. Fixit in Africa. The honorary U.S. consul general, an Ethiopian, joined us. He was amazed that we were able to make it into the country as the United States had not decided to bring in its ambassador yet. This was still very dangerous territory.


  Finally, we got in an old Mercedes-Benz, which had one shock absorber that was clearly not working. There were three of us in the back, Mike Hall, John Belcher, and I. Mr. Fixit squeezed in the front with the driver and the guy with the AK-47.

  We arrived at a house surrounded by a six-foot-tall concrete wall and four feet of barbed wire on top with big steel gates. There were guards outside. We were ushered into the house and were seated in a very large, dimly lit room to wait for Afwerki. Twenty minutes passed. I was getting quite nervous. My palms were sweaty. I’m now thinking I really made a mistake. Finally, Afwerki arrives. We shake hands. I had the foresight to dry my hands. Yet he had a very sweaty palm. I suddenly realized that he was more nervous than I was. He told me he had never met a foreign businessman.

  I started to feel as if I was in charge of the meeting and I could see Afwerki visibly relaxing as I talked about my view of Africa and how the continent had a great future. John Belcher then detailed what we needed to get the plant running in Asmara, including spare parts and a landing strip for the corporate aircraft. We reached agreement, shook hands, and happily got out of that walled compound. Eight weeks later, we were manufacturing Coca-Cola in Asmara.

  For Coca-Cola, which operates in 200 countries, these types of meetings come with the territory. There are constant wars and revolutions, natural and man-made disasters. More often than not, Coca-Cola is the last company to leave, if it leaves at all, and the first to return, a record of which the company and its executives are quite proud. Yet it is not always easy to do this and is often accompanied by many anxious moments.

  I discovered that Nigeria was a particularly troubled market, with absolutely abysmal conditions at the bottling plants. A good quality score is in the 90s but the plant in Lagos scored a 6, an absolute disgrace. Andrew David, a Greek Cypriot whose family owned a majority interest in the Nigerian bottling franchise, disputed those findings, saying his own inspectors had calculated a quality score in the 80s. “Are you calling my people liars?” Andrew said to me when I challenged his assertion and warned him that I had the authority to shut down the plant. We agreed to inspect the plant together with a group of technicians and as we were driving there, we passed two dead bodies along the road, apparently a common sight since none of the drivers bothered to stop. The inspection proved Andrew’s numbers wrong and the next morning at breakfast he was stone-faced and refused to talk to me as we toured another plant. I insisted that we have breakfast together the next day and there was a breakthrough. We developed a plan for revamping the business, bringing in new management both at the bottler and on Coke’s side. Andrew and I became very close friends after that confrontation and I later worked for him in Europe as part of a bottler merger we undertook. I was one of those whom he nominated to deliver a eulogy at his funeral in Athens. It was a sad affair as he was a great friend and great Coke bottler.

  The lesson I will never forget from that confrontation with Andrew is that a business leader should never be frightened by conflict, and should always find a good, honest solution that is pragmatic, not bullheaded. There were times in my career when I took the bullheaded approach and it was always a mistake.

  Back home in Atlanta, our family adjusted quickly, and really liked the American South. Cara thrived in her new school, Pace Academy. Yet we noticed that there was less interaction with Coca-Cola employees outside the office than there had been in the many outposts where we had been earlier stationed. This was home base and Coke employees were anchored in their schools, churches, and neighborhoods and therefore less reliant on each other. Also, I had reached a very high rank in the company and there was a palpable difference in how lower-level employees reacted to me. I remembered that Christmas Eve in Johannesburg when I was having drinks and discussing politics with my coworkers at the Sunnyside Park Hotel. That type of camaraderie is often missing when you are a group president. There is truth to the adage, “It’s lonely at the top.”

  With a territory that stretched from Iceland to South Africa and across to the far eastern USSR, half my time was spent away from Atlanta. The travel was brutal and the time away from home difficult for Pamela and Cara. “I miss you,” Pamela wrote in a message to me that she placed in my diary on July 11, 1989. Yet we tried whenever possible to offset the travel and hard work with family time and fun. I promised Cara that I would be with her on her thirteenth birthday, but I had a mandatory meeting in London that day. So I arranged for Cara to fly to London for the weekend. When Cara turned sixteen she and I took a trip to Uganda to see gorillas in the wild.

  I made my first trip to Moscow to set up a representative office there for Coca-Cola, considered such a major accomplishment that we held a celebratory dinner. My accommodations reminded me somewhat of the Crested Crane Hotel in Zambia, the inn where I had been forced to share a bed with a coworker so many years earlier, and where we had been served the same piece of tough meat at dinner and the next morning at breakfast. The Moscow hotel was not much better. The towels were good if you had an itchy back but in terms of absorption of water, very inefficient. The curtains in the room hardly blocked the light.

  Under the countertrade arrangement at the time, Coke would ship a small amount of concentrate to the state-owned bottling plants and would receive Soviet-made Lada cars that we would sell in Great Britain for hard currency. The cars were so poorly constructed, it would require three days of modifications in Great Britain before they could be sold. Pepsi, of course, had the much better countertrade product: Stolichnaya vodka. We were losing money in the Soviet Union, but maintaining a foothold for the future. This, to a slightly lesser degree, was the situation throughout the entire communist bloc in Europe.

  Then, the future arrived, on November 9, 1989. The Berlin Wall fell.

  I watched the event on CNN like most everyone else. Heinz Wiezorek, who had succeeded me as region manager in Germany, was traveling in the U.S. when the Wall fell, but the company reacted quickly to the historic moment, with two bottlers in West Berlin opening their warehouses and giving free cases of Coca-Cola to East Germans who poured across the border in Trabis, tiny cars literally made of plastic.

  “There were thousands of cars per day just circling the warehouse, which showed very clearly the hunger they had for Coca-Cola,” Heinz recalled.

  The question instantly arose: Would the bottlers in West Germany service this vast new East German territory or would the company create a new bottler in the East? Old issues about bottler consolidation resurfaced.

  I arrived in Berlin in January 1990, retrieving a piece of the Wall for Cara as a souvenir. The change in atmosphere was unbelievable. Doug Ivester, who was then head of Coke in Europe, and I met with senior East German officials, all of whom had submitted their resignations and were working on the transition. On my 1987 visit behind the Wall, one could see that the citizens were deeply afraid of the communist government. Now it was the communist officials who were in fear. They were literally sweating during our meeting, their roles in the new order now completely uncertain.

  “The West German bottlers would have loved if I had sold them the East,” said Heinz. “However, there was no West German bottler who wanted to buy the total.” The result would have been further fracturing of the system, the opposite of the goal both Heinz and I had been striving for, which was a single German bottler.

  As the West German bottlers began selling in East Germany, sometimes out of makeshift tents in empty parking lots, Heinz flew to Atlanta and asked for $450 million to build a company-owned bottler in the East. I fully agreed with Heinz. While Ivester was a strong proponent, there was some initial opposition at North Avenue. “There was a time when (company president) Don Keough said to me, ‘Sell it to the West German bottlers, don’t invest,’” Heinz recalled.

  This was typical of Don’s management style. He would always ask tough questions before supporting a major investment, hoping to reveal any doubts or flaws in the plan. He was a bear at first, but once the decision was made, he wo
uld support you, even if the results later proved to be unfavorable. It was a great lesson and one I always tried to follow.

  The East German venture, which I handed over to the Europe Group, indeed seemed like a risky one particularly since there was no way at that point to convert the East German mark, and no way to predict what the exchange rate would be once the currency was convertible. This was a risk we would have to take in all of the former Eastern bloc countries.

  Resistance diminished after Don and other top Coke executives toured East Germany and saw the progress the company had achieved in only a few weeks: Vending machines and fountain dispensers had already started to permeate the country. On the day Coca-Cola announced the East German investment, Coke stock jumped several points. Wall Street’s optimism was justified when the currency was finally converted.

  “We had a huge amount of money sitting in the bank,” recalled Heinz. “I will never forget one time when Claus Halle came and said, ‘Do you know you have seventy-three million East German marks sitting in your bank account?’”

  Less than three weeks after the Wall fell, I was in Moscow to celebrate a new symbol of the rapidly changing times. In subzero temperatures, my legs shaking from the cold, I turned a switch that illuminated a twenty-by-forty-foot red neon Coca-Cola sign in Pushkin Square. It was the first neon sign in the Soviet Union. Up to that point there had been no need for advertising because all businesses were state-owned. The future looked brighter indeed.

  On January 31, 1990, I attended the opening of the first McDonald’s in the Soviet Union, across Pushkin Square from the new Coca-Cola sign. The opening illustrated more than any event before it the absolute hunger and thirst citizens of the Eastern bloc had for the West. Thousands of customers waited outside in the cold for hours to get in. In that first day, the restaurant served thirty thousand people, a record for McDonald’s, and the rush did not abate. Even years later, there would be as many as five thousand people in line, regardless of the weather.