Inside Coca-Cola

by Neville Isdell

  We also offered the Chauhan brothers the bottling franchises in Mumbai and part of Delhi, a lucrative proposition. We haggled over the price, eventually settling on $40 million.

  Prakash was willing to sell but his older brother Ramesh had cold feet, reluctant to relinquish the title of India’s soft drink king; his picture frequently graced the cover of magazines. Ramesh finally relented, but not happily. He and his wife sobbed at the contract signing in Atlanta.

  The Chauhans graciously hosted a party at their home in Mumbai and unfortunately I fell ill on the return flight, immediately taking an antibiotic that I had with me for just this type of emergency. Upon arriving in Atlanta, I instructed my driver to take me directly to Piedmont Hospital. Doctors told me it was an amoebic infection called Shigella, not from the food at the party but from earlier handshakes, which is the main means of transmission, and I was out of commission for a week.

  The Chauhan’s astrologer told them the closing had to take place at 3 P.M. on a Saturday afternoon. It was scheduled for November 11, 1993. John Heaton and Jay handled it while I was upstairs working in my office. The usual haggling made it likely that the astrologers would be sorely disappointed. As midnight approached, John suggested that the parties sign one of the shorter documents and complete the remainder the following day.

  We had captured a 60 percent market share, a major coup. India was a tough market, however, where media-fueled controversies cropped up continuously, sometimes over the smallest of matters.

  We celebrated our first franchise bottler in India in late October 1993 in Agra, home of the Taj Mahal. It was a huge event, covered by international media. “Neville, we have a problem,” one of Coke’s public relations executives told me. A reporter had spotted a young boy working on the bottling line. The reporter wanted to write a story that Coke was using child labor upon its return to India. We assured the reporter that there was no child labor and we rushed to track down the boy in question. It turns out he was not a worker but the son of a plant employee, proudly inspecting the assembly line in a white lab coat. It was one of those moments when I thought everything was going to fall off a cliff: from pride in reentering India to absolute disaster over child labor.

  The headaches were well worth it, although it took time. Coke’s sales volume in India jumped 50 percent in the first two years and captured almost two-thirds of the market. Despite that success, Jay Raja resigned from the company in 1995, after being hammered for two years from both sides: Indian media accused him of trying to kill a national icon, Thums Up, to promote Coke and Fanta, while Coca-Cola executives at North Avenue, including Douglas Daft who was then in charge of Asia, made the opposite charge. Sergio Zyman, the father of New Coke who resigned after the 1985 debacle and was rehired in 1993 as the company’s chief marketing officer, was, in fact, lukewarm about Thums Up. Many executives, Jay and myself included, believed it would be disastrous to kill Thums Up. Even Don Keough, then the company president, questioned at the time of the purchase whether we should keep Thums Up. Wouldn’t that mean having two colas in the Indian market? I replied that Thums Up was not a cola but a pepper drink, similar to Dr. Pepper. Don asked me what the Indian customers believed Thums Up to be. Some customers believed it was a cola, I had to admit, but they were wrong, and there was no “cola” in the brand name. Don smiled and agreed that we should keep Thums Up. Even to this day, Thums Up is the top cola in India.

  The Chauhan brothers contributed further to Jay’s headaches. They were minority owners of Gujarat Bottling Company, a Coke bottler, which sold its assets to Pepsi. So Jay was confronted with a Coke bottler working out of a Pepsi-owned bottling plant. Coke sued and won a restraining order barring GBC from bottling Pepsi products, a move that Jay believed kept Pepsi from conducting similar raids on other Coke bottlers in India. Yet Daft scolded him for “unnecessarily” damaging relations with the Chauhan brothers.

  Daft also pushed Jay to build a large-scale consolidated bottling system in India. “I will show you what a world class system looks like by replicating China in India,” Jay recalls Daft as saying. Daft’s thinking was correct in the long term. The Indian market was so price competitive, given the country’s extreme poverty, that it would only turn a profit if the bottling system was extremely efficient and low cost.

  Yet Jay argued, correctly, that India’s infrastructure was not yet prepared to handle a large company-owned bottling system and that it would be better to work with the franchised bottlers to improve their plants. Also, Jay worried that abandoning the Indian bottlers would be a violation of the company’s pledge to the Indian government to support an indigenous, independent industry.

  Meanwhile Zyman blocked Jay’s efforts to sign a young cricket star, Sachin Tendulkar, as a Coke spokesperson, arguing that it would be a waste of money. Pepsi signed Tendulkar instead and he turned out to be one of the best cricket players of all time. In early 2011, Coke signed him, although he is now nearing the end of his career.

  Jay’s resignation was unfortunate. He was a valuable leader and proved to be correct on many crucial points, while laying the foundation for a market that would eventually become lucrative for Coke. Sales in India grew steadily over the years and today it is one of Coke’s fastest-growing markets, holding four of the top five brands: Thums Up, Limca, Sprite, and Fanta. Still, it was not until 2009 that Coke finally made a profit in India.

  At the time of Jay’s departure, I was no longer in charge of India. Doug Ivester had by then been named company president, succeeding Don Keough, who retired as Robert Goizeuta ushered in a new, younger generation of executives, clearly setting up Ivester as his successor. Ivester’s promotion effectively ended John Hunter’s ascension. Yet John, who had been Keough’s choice to be president, stayed on as head of international. In 1995, Ivester took Europe out of Hunter’s portfolio and gave it to me. This fractured my relationship with Hunter, who I had happily worked both for and with. He had engineered the Philippines deal that had been so pivotal to my career. John believed I had lobbied for Europe, which was not the case. The new president asked me to run Europe and I accepted. It was as simple as that yet it did mean that I was effectively John’s peer, reporting directly to Ivester. Together with Jack Stahl, the U.S. president, we were the three operating heads. John stayed on for another year but it was terribly awkward. I would attend the monthly meetings John had with his direct reports, but I was not working for him. He didn’t like that at all. “I hope we can get past this,” I said once to John. “I don’t think we ever can,” was his reply. Time heals, of course, and John and I are now good friends again, occasionally having dinner and socializing together. He would have been a strong company leader, but that was not to be.

  With Europe now part of my territory, I had, by the mid-1990s, reached a very high-profile position at Coca-Cola. My territory generated a third of the company’s profits.

  It was in this job that I soon had my own Sergio Zyman stories to tell. During a meeting in Madrid, Gavin Darby, who ran Northwest Europe, made a presentation before Ivester, the company president, and other executives from Atlanta. Gavin’s presentation went on a bit too long. Sergio started yawning and eventually lay on the floor, pretending to be asleep. I looked at Ivester but he said nothing. This is the license that Sergio had. He was very close not only to Ivester, who had no background in marketing and was in line to be the next CEO, but also to Roberto. Sergio was Mexican, and Roberto, Cuban. They spoke Spanish to each other at company functions.

  I asked to see Ivester after the meeting and we went for a walk where I flatly told him that Sergio’s behavior was unacceptable. “The fleas come with the dog,” Doug replied. “He’s a great dog. We’re just going to accept the fleas.”

  Sergio also clashed with Weldon Johnson, who ran Latin America. Sergio pushed to have him removed. After Weldon left the company, a triumphant Sergio walked into my office and asked me if I had a nickel. I fished one out of my pocket.

  “This is going to be the b
est advice you’ll ever get for a nickel,” Sergio told me. “Resign now. You’re next after Weldon.” For the first time, I felt uncomfortable in the executive suites of the Coca-Cola Company, and began thinking of how I could get out.

  The CEO’s position was clearly not in the cards for me. At lunch one day in the North Avenue dining room, Roberto told me he planned to remain as Chairman and CEO for a long time. Eventually Ivester would take over as CEO and Roberto would stay on indefinitely as chairman, a part-time position that would have suited Roberto since he usually arrived at work around 8 A.M. each day and went home around 4 in the afternoon. He was a strategist and a delegator. As part of this strategy, Roberto planned to beef up the duties and pay of the group presidents, of which I was one, giving them a larger role in running the company. However, I would still be part of a corporate bureaucracy, a situation in which I never really flourished. While not politically inept, I was politically uncomfortable, and it sometimes showed. I wanted to run my own company, having always performed the best in situations, such as the Philippines, where I was in charge.

  At the same time, I began considering my retirement—which I planned for a time between my fifty-fifth and fifty-eighth birthdays—with three goals in mind: to be physically active, stay intellectually engaged, and spend time with Pamela.

  I discussed my future with Roberto and Doug Ivester, telling them that in the last few years of my working career, I wanted to run a publicly traded company. Given that I could retire at fifty-five and cash in all my restricted stock and stock options, this would be financially attractive. Roberto and Doug decided to create a company for me, Coca-Cola Beverages, which would be formed by consolidating the bottlers in Europe and would be traded on the London Stock Exchange. It was just in time. Soon afterward, the ages at which restricted stock options could be exercised was raised to fifty-eight.

  As we worked out the details for CCB, it became increasingly obvious that Roberto was ill. A chain smoker, Roberto never went to the doctor for checkups. Over time, we’d begun to notice that he’d become forgetful, complaining at monthly management meetings, that we, the senior managers, had failed to inform him of key actions and events, when clearly we had. Doug Ivester convened an important meeting of top executives, telling us, “Roberto is ill. You’ve all seen it. We’re going to have to help him, but in effect, we’re going to have to run the company.”

  About nine months later, on October 18, 1997, Roberto died of complications from lung cancer. He was only sixty-five. I saw Roberto at Emory University Hospital three days before he died. “Take care of my company,” he told me. Roberto had an incredible seventeen-year tenure as Chairman and CEO, increasing the company’s market value from $4 billion to $150 billion. In 1996 alone, stockholders saw a forty-six percent return. Only today has the company’s market value matched its peak under Roberto’s leadership. As expected, the board picked Ivester as the new Chairman and CEO.

  That fall, I prepared to leave for London, hoping to officially wrap up my duties in Atlanta by the end of 1997. Yet it took until February for Ivester to name my replacement. I was technically leaving Coca-Cola since CCB would be a separate company. As I was preparing to walk out the doors of North Avenue, the secretaries discovered that there had been no farewell planned for me by the Coca-Cola Company, so they hastily prepared a small get together. Ivester was not there. And I never received a formal farewell from the Coca-Cola Company.

  In London we rented a charming two-bedroom flat. Pamela and I decided that there would be no need to move our entire household again—as we had so many times before—since we believed this would be the final chapter of my career. We also knew this was going to be a short assignment, probably no more than three or four years. So Pamela would stay put in Atlanta and would visit me in London when I was there. Since I was the CEO of the new company, I controlled my own travel schedule and could be in London whenever it was convenient for her. Cara was then a student at the University of South Carolina, a true Southern girl after all her world travels.

  CCB was a fun job from day one. I was away from an increasingly toxic atmosphere at North Avenue, on my own in London. Financially, I was secure for life, with my Coca-Cola stock options and pension. I was not only running my own company but creating it as well.

  My task was to take the European business of the Australian-based bottler, Coca-Cola Amatil, combine it with Coca-Cola’s Italian bottling business, and float it as a new company on the London Stock Exchange. In February 1998, I started working alone out of my hotel room in London, assembling a team. I hired Craig Owens, who was then heading the company-owned bottler in France, as chief financial officer. Craig is now CFO of Campbell Soup Company. John Culhane moved from Atlanta to become chief legal counsel. I recruited Cynthia McCague, then working in London for Coke, to be human resources director and Gavin Bell to handle investor relations. We worked in a one-room office, slowly building up to the stock float. The proceeds from the stock issue would go to Coca-Cola Amatil, so Craig and I had long discussions with the Amatil executives about their expectations for the initial stock price. Craig, Gavin, and I toured Europe and the U.S., briefing investment houses on the stock and gauging interest. Anyone who has ever done an IPO knows that this is an exhausting and boring process: eighty-nine meetings in three weeks, repeating the same presentation over and over again. Investors apparently liked our management team and they liked having a new Coca-Cola company entity. We were thirteen times oversubscribed for the stock and in June 1998, we gathered with the investment bankers to set an opening price. In fact, I had made a mistake in agreeing to a wide price band, not believing that the top of the band would attract so many investors. Amatil execs, on the phone in Sydney, were so enthused about the oversubscription that they wanted to offer the stock at a price even higher than the band we had established, making the shares more expensive and at the same time, adding pressure on me, the founding CEO, to deliver earnings results to justify the inflated price.

  I was taken aside by the lead investment banker, an aristocratic Englishman who told me I really did not understand how it all worked. “This is your first IPO, is it not?” he asked. “Well, the sellers and the bankers set the price. You have no say in this.”

  My reply was blunt. “Who are you going to get to run the company?” I asked. “If you go outside the band, I’m not going to run it.” My job was to maximize return for Amatil, but not beyond the price range upon which we had previously agreed. They tried to push me and I pushed back. I won the battle. On July 13, 1998, the stock debuted on the high end of the band, with a market value of $2.72 billion.

  Six weeks after the successful and lofty stock float, Russia suffered a severe financial crisis, triggered by the earlier Asian crisis that had suppressed demand for commodities such as oil, a crucial export for the Russian economy. Fortunately, CCB had no business in Russia, but the crisis there dampened stock prices worldwide. CCB stock dropped and our new investors were very unhappy. Friends of mine who had purchased stock lost money. Even when I left CCB in 2001, the stock price had not recovered to its initial offering price. In addition to the Russian economic meltdown, Coke sales were hurt by a contamination scare in Belgium in 1999. Belgium was not a CCB bottler and the scare turned out to be just that, with no contamination ever proven. Yet Ivester did not manage the controversy well, his career was damaged and, temporarily, sales and profits in Europe decreased.

  All along, CCB was seen as a way to consolidate Europe into a single bottler. The most obvious target for a merger was Coca-Cola Hellenic, based out of Athens and owned by the Leventis family. The family bought the Greek bottling franchise from Coca-Cola in the 1970s and turned it around. They still owned Nigeria and also had plants in Ireland, Russia, Romania, Bulgaria, and other parts of Eastern Europe.

  Andrew David ran many of the family businesses including the bottling operations. It was he whom I had confronted in Nigeria over subpar bottling plant conditions, and with whom I had subsequently b
ecome close friends. Andrew had an affinity for Ireland, having attended Trinity College, and was an avid rugby fan. So we forged a strong relationship over the years.

  We agreed that HBC and Hellenic would merge and I would run the joint company. We would have to move the stock listing to Greece, otherwise it would be seen as a sale rather than a merger, and the Leventis family would be subject to heavy taxes. The merger was completed in August 2000, creating a new company called Coca-Cola Hellenic Bottling Co., one of the largest Coke bottlers in the world. The Leventis family received about 23 percent of the stock in the new company. Coca-Cola still owns 24 percent of CCHBC. Sadly, Andrew David died shortly after the merger. His brother, George, who took over as chairman, felt that I had out-negotiated Andrew. I don’t believe I had, but George and I were never close.

  The other piece of the European consolidation puzzle was Coca-Cola Enterprises, the Atlanta-based bottler which owned the franchise in Great Britain. Early in the life of CCHBC, I met with Summerfield Johnson, then CEO of Coca-Cola Enterprises, at Andrew David’s flat in London and we held a long discussion. Summerfield seemed interested in some sort of merger but later phoned me to say the timing was not right. The deal was never consummated.

  Hungary was one particularly tough challenge, where a price war raged between Coke and Pepsi. Each time Pepsi dropped prices, the Hungarian bottler felt compelled to match it; a game of chicken. My experience in the Philippines kicked in and I assured the Hungarian management that Pepsi was hurting as badly as Coke was and that Pepsi was lowering prices only with the help of an unsustainable subsidy from the parent company. “We’re going to lead a price increase,” I told the Hungarians. We raised prices and Coke sales were down for about three weeks before Pepsi followed suit and matched the increase. It was a nervous three weeks for me.