For God, Country, and Coca-Cola

by Mark Pendergrast

  While coping with such allegations, Austin and Duncan also strove to accommodate themselves to the women’s liberation movement. Throughout the early seventies, women gradually struggled into lower and middle level positions previously occupied only by men at The Coca-Cola Company. In 1973, the Refresher profiled Carol Hinkey, the first female field representative. While she “lives and works in a man’s world,” the article assured any threatened males that she was “amply feminine.”* In the same year, the Company conducted an internal “social audit” to determine how well it was coping with affirmative action and women’s issues. The consultant’s report specified that “considerable progress” had been made but there was “still some distance to go.”

  For the first time, Coca-Cola employees convened in small groups to discuss something beside the wonders of the soft drink. In “normative sessions,” they spoke freely in a kind of business-sponsored encounter group. Mary Gresham, who had started working in the mailroom in 1943 and had slowly wended her way up to a managerial position in the advertising department, found herself in an all-women’s seminar. The young secretaries complained that men addressed them by their first names, while expecting a “Mister” in return. Gresham finally broke in: “They can call me anything they want, if they would only pay me the same salary as the man whose job I took.” The meetings resulted only in men cracking jokes. “I hear you’ll be calling me by my first name now,” one told Gresham with an edge in his voice. Diane McKaig, hired away from HEW to advise Coca-Cola on how to deflect threats from the consumer movement, was one of the few women who commanded a decent salary.

  Even powerful men weren’t always safe, however. With Austin in Africa on an extended 1974 trip, Robert Woodruff decided that the time was ripe for a power shift. He prompted an independent consultant to suggest that the president of the Company needed to receive more authority—that is, Duncan should really guide Coke. Woodruff had acted prematurely, however, before Duncan had sufficient support at the board level. When Austin returned from overseas and found what had happened, he angrily went straight to the board, demanding Duncan’s resignation. In a thunderous session, he won his point, the first man ever to stand up to Woodruff and survive.

  The relationship between Paul Austin and Robert Woodruff had always been a peculiar love/hate affair. “One minute they were as close as son and father,” an associate recalled. “The next, they were spitting at each other like two cats.” Now the younger man had seemingly asserted his independence of the aging company patriarch once and for all. Woodruff recovered from two successive strokes early in 1972, but his health gradually declined throughout the decade. In the ousted Duncan’s place, Austin promoted J. Lucian “Luke” Smith, a popular traditional Coca-Cola man who had joined the Company in 1940. Although a bright man, Smith was no dynamic leader, looking to Austin for ultimate guidance. Most important, from Austin’s viewpoint, Luke Smith had a fine relationship with the all-powerful bottlers—a relationship soon to become crucial.

  THE THOMAS COMPANY AND THE FTC TANGO

  By the beginning of the seventies, Coca-Cola clearly had too many bottlers. From a peak of 1,200 in the twenties, the number of American Coke franchises had dwindled to 800 by 1970, but almost two-thirds of them carbonated their syrup in cities with populations of fifty thousand or fewer. While the small-town bottler remained a Company tradition, he simply wasn’t terribly efficient in the modern marketplace. The Company facilitated mergers and sales with a new Bottler Consolidation Department. In the century’s early decades, the independent franchise system had effectively disseminated the soft drink throughout the United States. Now, however, the fifty-mile-radius territories, appropriate for the horse and buggy, proved minuscule to tractor trailers thundering down American superhighways with full loads. High-speed bottling and canning lines could spurt enough product to cover whole states. Supermarket chains such as Winn-Dixie or Safeway didn’t want to negotiate with multiple local bottlers offering different services and prices. Coca-Cola faced stiff competition not only from Pepsi but generic colas mass-produced for private-label sale in the chains.

  Because of the perpetual bottling contract, however, the Company had limited power to enforce change—unlike Pepsi, where Walter Mack had commenced with larger territories, fewer bottlers, and more flexibility. Consequently, Pepsi could easily offer lower prices to large national outlets. When Coca-Cola Company national sales representatives negotiated cut-rate deals with supermarkets, bottlers who hadn’t been consulted resented the intrusion, since they were forced to sell for a narrow profit margin. An intolerable tension built inside the Thomas Company territories, where silver-haired DeSales Harrison still held absolute sway, collecting a 12.5-cent tithe on each gallon of Coca-Cola syrup sold to his bottlers, making it almost impossible to match Pepsi’s prices.

  In 1973, Harrison died, and Company men immediately negotiated to acquire the Thomas Company, whose territory contained over a third of the U.S. population. Even though past offers had failed, Paul Austin was more optimistic this time around, for several reasons. First, the inflation of the early seventies was gnawing away at the 12.5-cent fixed income of the Thomas Company. Second, “allied brands” such as Sprite, Fanta, Fresca, and TaB were steadily eroding Thomas Company profits, since the perpetual contract applied only to Coca-Cola with an added pittance for TaB. As more products came on line—such as Mr. Pibb, a 1973 creation designed to challenge Dr Pepper—the Thomas bargaining position would weaken.

  The real pressure, however, stemmed from the pending FTC case against the exclusive franchise system. While ostensibly The Coca-Cola Company fought valiantly against the FTC, there were strong hints that it wanted to lose the case in order to weasel out of the perpetual bottling contract. When a Taft, California, bottler sued the Company for permission to sell product in an adjoining territory, Coca-Cola responded with an ingenious argument. If the Taft businessman or the FTC won, Luke Smith served notice, the Company intended to use the ruling as an excuse to abrogate the sacred perpetual contract. Without the exclusive territory clause, the Coke lawyers argued, the entire contract could be declared null and void.

  Smith’s threat panicked the Thomas Company managers. Through the grapevine, they learned that Austin believed further negotiations were unnecessary, since he thought that, given time, the contract would be worthless anyway. Soon thereafter, Thomas Company representatives agreed to a price of $35 million, and in 1975 the sale was consummated. Viewed by most standards, the price seemed absurdly high for rights that had been given away by Asa Candler in 1899. By the seventies, the parent bottling company performed no major useful function. From the Company’s point of view, however, it was a bargain, since it was paying over $8.5 million annually under the old Thomas contract, and the price rose each year. Within four years, the purchase would pay for itself.

  A FORCED LOOK UPWARD

  The shorter duration of ad campaigns provided another indication of the Company’s concern over its bottlers. As soon as they launched a slogan and song, the McCann men began brainstorming a new one, since the bottlers and their wives tired of whatever they saw on TV long before anyone else. And the bottlers had to be appeased, since they were paying for half of the enormous television budget. Consequently, in the summer of 1974, the Company introduced a new twist on the “Real Thing” theme, even though the McCann men had been generating powerful commercials. Ike Herbert, the normally placid Coke director of marketing, grabbed Bill Backer by his bow tie. “Give me a campaign that’ll make the bottlers come to their feet,” he told him, “or I’ll have your balls.”

  By that time, the country’s gloom had deepened. Nixon remained in the White House under a state of siege as the Watergate hearings revealed the underside of American politics. The OPEC countries, in retaliation against U.S. support of Israel, imposed an oil embargo, and the energy crisis worsened. With the dollar devalued, inflation hit double digits. The unemployment figures swelled. The Vietnam War was clearly lost. Since Coca-Col
a symbolized America more than any other product, Company executives perceived the country’s faltering self-image as a direct threat. Pulling back from messages of worldwide brotherhood, they directed the McCann men to implement an ad campaign that would renew American pride.

  In response, Bill Backer created “Look Up, America” in march time, orchestrated with plenty of brass. Unabashedly patriotic, the first commercial portrayed the Liberty Bell, Niagara Falls, the Empire State Building, cowboys, pounding surf, a farm family dining on roast beef, amusement parks, the Rocky Mountains, a bald eagle, a county fair, buffalo stampeding, a square dance, a corn harvest, a softball game, a football player, and a marching band—all in sixty seconds. “We’ve got more of the good things in this country than anywhere else in the world,” a narrator informed viewers. “Have a Coke and start looking up!” The soft drink men actually believed that they could swing the nation from despair to joy. “It’s up to people like us,” an executive told employees, “to dispel the nation’s mood of gloom.” A month after the campaign debuted, word circulated that Nixon would announce his resignation in a televised speech on August 8, so Coca-Cola bought prime-time slots on all three stations just prior to the speech, repeating the maneuver the next day before Gerald Ford was sworn in as President. “Let in the sunny side of living,” Backer’s lyrics entreated. Regardless of who was in the White House, Americans should remember their priorities and keep on drinking Coke.

  The ads weren’t nearly as effective as their predecessors. They seemed forced. The march tempo and voice-over announcer weren’t as memorable or singable as Backer’s best efforts. “Look Up, America” did, however, match the country’s frantic desire to deny its faltering economy and loss of world power. As the bicentennial of 1976 approached, Americans whipped up an artificial patriotic fervor, and the Company announced that it was sinking $800,000 into sponsoring 1600 Pennsylvania Avenue, a Broadway show written by Alan Jay Lerner and Leonard Bernstein, intended as an upbeat American history lesson.

  THE INITIATION OF A CUBAN REFUGEE

  Worldwide sales for the first quarter of 1975 reached all-time highs, but the figures hid an alarming trend. In the United States, gross sales had actually fallen below those of the previous year. Despite the bravura of Coke’s ads, Pepsi was slowly gaining in the domestic market, causing Paul Austin to value the international business even more. To keep tabs on the far-flung Coke empire, Austin went outside the normal Export hierarchy, relying instead on high-level technical men such as Cliff Shillinglaw, mixer of the top-secret 7X formula, who traveled the globe to monitor ingredients. Since only two or three men in the Company knew the formula at any one time, they never flew on the same airplane. In 1974, Shillinglaw, in the Far East to retrieve some cassia leaves, felt chest pains as he boarded his plane for London, where he intended to replenish the European 7X supply. Once in England, he suffered a serious heart attack.

  In Atlanta, news of Shillinglaw’s critical condition provoked a frantic transfer of power and knowledge. Asa Candler had passed the secret to his son Howard, who in turn had taught the company’s first chemist, W. P. Heath. In 1948, Dr. Heath had given the 7X formula to his successor, Orville May, who had initiated Cliff Shillinglaw in 1966. Now, in February of 1974, Dr. May came out of retirement to instruct a young Cuban chemist named Roberto Goizueta (pronounced Goh-SWET-a), who had fled his native land in October 1960 when Castro was poised to nationalize the business.* Aide Joe Jones informed Robert Woodruff that Dr. May had also shown Goizueta “the system for purchasing the highly sensitive ingredients. Roberto is now our full-fledged No. 2 man in this area.” On March 15, May and Goizueta, on separate planes, flew to London to rebuild the 7X inventory.

  In the meantime, Bob Broadwater, returning from a negotiation session in Moscow, picked up Shillinglaw’s cassia leaves in order to smuggle them to Atlanta. “I was afraid I’d get caught,” Broadwater recalled, “so I stuffed them into the Russian fur hat I was wearing.”* Despite the anxiety at the top echelon, the situation was soon resolved. Broadwater arrived at headquarters with the cassia. Mild-mannered Goizueta, who had been brought to Atlanta and groomed by Shillinglaw, quietly assumed much of his ailing boss’s authority. Although Shillinglaw recovered in due time, he never regained his former stature, and he died in 1979. Most significantly for the Company’s future, Roberto Goizueta had entered the inner circles of power.

  PURPLE PROBLEMS IN JAPAN

  By the early seventies, the Japanese business had blossomed into the largest Coke market outside the United States. In 1973, Japan contributed 18 percent of Coca-Cola’s entire corporate profit, despite an increasingly militant consumer movement and administrative mishandling. When “Emperor” Hal Roberts, the head of Coca-Cola there, died of cancer in 1971, Paul Austin named Masaomi Iwamura as president of the Japanese Export business, making him the first native manager of an American company in Japan. A brilliant chemist, Iwamura turned out to be a miserable administrator. “He had a complex mind that saw 27 alternative plans of action,” a colleague remembered, “but he couldn’t get himself to take any of them.” Iwamura, a member of the prestigious Samurai class, also refused to speak to Nisaburo Takanashi, the Tokyo bottler descended from lowly merchant stock.

  To make matters worse, the huge twenty-six-ounce Home-Size bottles received an inordinate amount of attention from the Japanese media when a few of them exploded and the American area manager failed to offer the traditional Japanese apology. “The Coca-Cola Company wasn’t about to say, ‘Oh, we’re sorry this lady got her eye put out,’” a Coke veteran explained. “We were afraid she was going to sue.” Even as Austin directed that the big bottles be encased in protective plastic, regardless of the extra cost, an even greater disaster struck in Japan. An active consumer movement spurred a crisis by objecting to the artificial coal-tar coloring in Fanta Grape. Protesters smashed vending machines, and sales plummeted. In response, the Company developed a new version tinted with real grape skins. It tested well in the winter, but by the summer of 1974, Fanta Grape on shelves all over the country fermented, leaving an unpleasant though harmless precipitate in the drink. “It looked like a snowstorm in the bottle,” a Coke man recalled. Millions of recalled cases, poured into the ocean, literally turned Tokyo Bay purple for several days.

  In 1975, a desperate Austin placed a telephone call to Morton Hodgson, enjoying his poolside retirement in the Virgin Islands. “I’m in big trouble out in Japan,” Austin told him. “We’ve lost half of our net profit in less than eighteen months, and that’s big enough to jolt the entire Company’s balance sheet.” At first, Hodgson demurred when Austin asked for help. “Why don’t you send out some of your young tigers?” Austin explained that he needed someone with plenty of experience in converting bottling plants from mismanaged jokes into money-making outfits. “The real reason I want you to go,” Austin admitted, “is that the Japanese revere ancient things, and you are an old bastard.” Knowing Hodgson’s sensitivity to accusations of nepotism, Austin didn’t mention one other crucial element in his scheme—Hodgson was Robert Woodruff’s nephew.

  When the impressive Coca-Cola veteran, then sixty-six, emerged from retirement to head the Japanese business, the bottlers were suitably humble. The legendary Old Man was sending his own beloved kin to save them. Unlike Iwamura, who was kicked upstairs to supervise a worldwide technical project, Hodgson immediately established cordial relations with the Japanese bottlers. He apologized profusely to the media for the Fanta fiasco, promising to restore goodwill and harmony. With a battle cry of “Back to the Basics,” Hodgson applied time-honored marketing techniques, concentrating on better service to dealers and consumers. He arranged “Sawayaka Tours”—weeklong sightseeing tours to Paris and other European cities—for Coca-Cola bottlers and prominent sake store owners. A “Big Sky and Big Sound” sweepstakes attracted twenty million entries. A new ad campaign, “Come On In, Coke,” featured American, Italian, and British youth joyously imbibing. The Company introduced Georgia Coffee,
a canned sweetened coffee product, with a commercial spoof on Gone with the Wind in which the Rhett Butler character chose the drink over Scarlett O’Hara. When Hodgson left Japan three years later, sales for Coca-Cola products had surged to record highs.

  “A MASTER AT FAKING IT”

  By the time Hodgson retired for the second time in 1978, it was clear to everyone close to Paul Austin that something was wrong. He kept inexplicably forgetting things. Bob Broadwater first noticed trouble late in 1975: “I knew Paul was drinking a little, and I just put it down to that. We all did.” At the age of fifty-nine, Austin had begun the slow, terrifying descent into Alzheimer’s disease. Throughout the latter part of the decade, as his condition gradually worsened, Austin reacted defensively. “He was a master at faking it,” Broadwater remembered. Always an austere, aloof figure, Austin now withdrew from all but his closest associates.