For God, Country, and Coca-Cola

by Mark Pendergrast

In 1978, when repressive General Romeo Lucas Garcia stormed to power in Guatemala, sporadic violence escalated into a bloodbath, as the notorious Secret Anti-Communist Army (ESA) and its death squads terrorized the country. A few days after Marquez narrowly avoided death from gunfire at his Jeep, union leader Pedro Quevedo was murdered, shot twelve times while delivering Coca-Cola. Soon afterward, Marquez’ tenant, mistaken for the union man, fell in a machine gun barrage. After a third attempt on his life, Israel Marquez reluctantly fled Guatemala, seeking refuge in nearby Costa Rica. Although he could not prove it, Marquez was absolutely certain that Trotter had collaborated with the death squads in plotting the violence directed at the union, although there was no evidence linking him with any specific incident.

  As the flood of Spanish was haltingly translated into stories of atrocities in some faraway banana republic, the executives in the Delaware boardroom stirred uneasily. Marquez told them that after he left Guatemala, Manuel Lopez Balam replaced him as union secretary. Just a month before the board meeting, Balam’s throat was slit as he retrieved a case of empty Coke bottles from a grocery store. “Besides being inhuman,” Marquez concluded, “the situation is also one of poor economics. Coca-Cola’s image in Guatemala could not be worse. There, murder is called ‘Coca-Cola.’”

  For a moment, there was a stunned silence. Then Paul Austin swiftly concluded the meeting. The nun’s labor resolution, he said, would mean an “unnecessary intrusion into the internal activities of . . . affiliates” and would be difficult to foist upon independent bottlers. “While lamenting the problems in Guatemala,” he said, “we also must respect the laws and processes of other nations.” The board meeting ended in a chaos of loud protests from the minority stockholders, while Austin slammed his gavel.

  Austin’s performance was uncharacteristic of the man who had displayed such concern for migrant workers when testifying before the Senate nine years before; that spring he was often confused and belligerent, as he entered the serious second stage of Alzheimer’s. Nonetheless, his statement accurately reflected the Company policy of denying responsibility for independent bottling franchises. Since Coke affiliates now bottled in 135 countries, the implications of the proposed resolution were mind-boggling. If the Company really assumed responsibility for the welfare of workers in every plant, it could easily devolve into a nightmare for the personnel department—not to mention the public relations team.

  The Guatemalan situation refused to go away, however, and Marquez’ dramatic recitation caused headlines across the country, including the Wall Street Journal. During the summer of 1979, as the killings, kidnappings, and beatings proliferated, Amnesty International and the Swiss-based International Union of Food and Allied Workers’ Associations (IUF) joined the chorus of voices demanding that The Coca-Cola Company replace Trotter and his management. Although the Company dispatched security chief Leo Conroy to Guatemala for a week-long investigation, the ex-FBI man failed to uncover evidence directly linking Trotter to the killings, which was hardly surprising, since Conroy spoke no Spanish, didn’t meet Trotter, and never even entered the bottling plant. Confidentially, Conroy told another Company man that he wouldn’t return to Guatemala. “It’s not safe there,” he said. “I value my life!”

  Brandishing Conroy’s report, Coke executive Don Keough told critics that the Company couldn’t proceed without proof. “We have revulsion and are embarrassed by the kind of shenanigans Mr. Trotter is doing,” Keough said, “but we haven’t got the luxury to operate in any environment but the legal one.” In fact, the Company would have loved to dump Trotter, but they didn’t want to look as if they were yielding to external pressure. Under Trotter’s mismanagement, Coke’s market share in Guatemala City had dwindled to 30 percent. He also bottled Dr Pepper, 7-Up, and other flavors, despite Coca-Cola’s protests, and there were allegations that he had charged the Company for import taxes he never had to pay.

  Unfortunately, the wily Texan knew that he could now charge an outrageous amount for the troubled bottling plant, since the Company yearned so desperately for him to disappear. Consequently, Company men decided to wait until 1981, when the franchise contract was due to expire. With more blood than syrup flowing at the Guatemalan bottling plant, however, Coca-Cola’s critics grew more shrill. Congressman Donald Pease escalated pressure on the Company by writing a letter to President Carter about Coke’s “callous disregard” of the “wave of murder, torture, kidnapping, and intimidation.” Citing Carter’s close ties to the soft drink concern, Pease demanded action. The “confidential” letter was leaked to the press and widely publicized.

  AMENDING THE SACRED CONTRACT

  While Don Keough realized that the situation in Guatemala was spiraling out of control, a battle much closer to home diverted his attention. Company executives had decided that many of their domestic troubles were attributable to the ancient bottling contract, which did not allow for increased labor costs, advertising, overhead, or ingredients besides sugar. In late 1977, with inflation raging, Paul Austin directed President Luke Smith to secure a contract amendment at all costs, now that the Thomas Company no longer stood in the way.

  If anyone could pull off such a seemingly impossible task, it was Smith, a traditional, warm Southerner whom the bottlers loved and trusted. Although a nucleus of faithful franchises agreed that the Company needed some relief in order to advertise more effectively, Smith’s proposed contract amendment, allowing the Company unlimited flexibility in pricing syrup, proved a hard sell. In May of 1978, Smith and Keough took what derisive bottlers called their “dog-and-pony show” to six meetings around the country to persuade hesitant bottlers to sign.

  Bill Schmidt, whose grandfather first bottled Coke in 1901, exemplified the devout Coca-Cola man, having just opened a museum full of memorabilia and artifacts inside his Elizabethtown, Kentucky, bottling plant. At first, he listened with an open mind to the Company presentation, but he was disgusted by the Company’s high-handed amendment. Finally, as he recalled later, “it just boiled up in me,” and he penned a series of protests sent to a growing list of fellow bottlers. Unintentionally, Schmidt found himself the unofficial leader of the opposition. The most divisive issue to hit Coca-Cola since its great internecine battle of the early twenties, the amendment split men whose forebears had pioneered the business.

  Both sides argued that the still-pending FTC assault on the exclusive territorial provision supported their position. Schmidt’s contingent, the “unamended bottlers,” argued that it was unwise to tamper with the contract until the FTC matter was settled, since it might rouse the bureaucrats to greater efforts. Luke Smith wielded the potential dissolution of territories as a club, as he had with the Thomas Company—just in case the FTC case went against them, the bottlers should sign the amendment to ensure they had a contract.

  Into this maelstrom stepped Brian Dyson, an Argentinean brought in to assume control of the U.S. division of the Company. When his friend Don Keough begged him to leave his position as head of the South Latin America Division, Dyson initially demurred. “Why don’t you get an American?” He knew that the American system was in chaos, and if he failed to turn it around, it could signal the end of his career. Keough remained convinced, however, that Dyson could salvage the situation. After all, the Argentinean had cut his teeth on the business in Venezuela, one of the few places where Pepsi utterly dominated the market. As a consequence, Dyson was accustomed to scrapping for every sale. In addition, the Argentinean, a grandson of British immigrants, was tall, lean, athletic, and urbane. Moving to Atlanta in August of 1978, he immediately tangled with the bottlers in the amendment dispute.

  The next month, the Company finally yielded to criticism, modifying the amendment to put a ceiling on the amount the syrup price could be raised. Now there would be two sliding scales—one for sugar and one for the “base element” of all other ingredients, tied to the Consumer Price Index. As a bonus, the Company agreed to eliminate the awkward BX pre-mix syrup, with its artificiall
y inflated price, and to allow amended bottlers to purchase concentrate instead of bulky syrup. Schmidt still objected, since the CPI rose more quickly than inexpensive ingredients. Nonetheless, after hard lobbying, the Company finally succeeded in signing more than half the bottlers by April of 1979, when two huge outfits, New York and United, capitulated.

  THE GREAT GET-TOGETHER

  The agreement arrived just in time for Brian Dyson’s June Great Get-Together, a gigantic San Francisco convention—the first bottlers’ assemblage since the “Real Thing” campaign, launched in Atlanta ten years before. Still battered and divided over the amendment issue and discouraged by Pepsi’s advances, the bottlers warily gathered to see what this South American would say. Hardly any of them had seen him in person, much less heard him speak. After the customary Broadway-style song-and-dance number, the tall, angular Dyson somewhat nervously approached the podium, clutching the traditional six-and-a-half-ounce bottle. As he spoke, his image was projected onto a huge video screen.

  “In recent times,” Dyson told the bottlers, “we have all been through a period of self-appraisal.” Ears pricked up. Perhaps he would actually acknowledge some of their problems instead of making the expected rah-rah speech. After mentioning the amendment debate, he ticked off the decade’s disasters—the FTC, energy crunch, sugar crisis, saccharin attack, refund legislation, consumer movement, inflation, wage and price controls. He admitted that Coke’s corporate share had grown a mere three-tenths of one percent in ten years. “In the same period, Pepsi’s [Cola] corporate share has grown from 21.4% to 24.2%.” The bottlers collectively gasped. Dyson had broken all precedent and uttered the “P” word in front of most of America’s Coca-Cola men. Pepsi, Dyson continued, had labeled Coca-Cola “the nostalgia company, an enterprise that is wholly preoccupied with its past glories.” If so, the Company was doomed. But, Dyson promised, “we are willing to do whatever is necessary for as long as is necessary to turn this business around. . . . Together, we must fix the problem, however long it may take.”

  Dyson clearly meant business, but could Big Coke really deliver? As a first step, the bottlers knew they needed a spectacular ad campaign. Could McCann pull it off? On the big video screen, the new commercials took over. “Have a Coke and a smile,” sang effervescent young people. “It makes me feel goo-oo-ood, / it makes me feel nice, have a Coke and a smile.” They danced energetically about. Coke fizzed and gurgled. In the audience, feet tapped. This was all right. It sounded like something Bill Backer might have written, though he had recently left McCann to form his own agency. “That’s the way it should be, / and I’d like to see / the whole world smiling with me.”

  In between screenings of the new ads, deadly serious marketing man Bill Van Loan explained that just as the macho cowboy was associated with Marlboro cigarettes, “the world of smiling Americans can be literally owned by Coca-Cola.” But it couldn’t be just any smile. “It must always come out of the product itself.” Unlike Pepsi’s ads, which urged people to join some mythical group, the new Coke commercials featured the product as hero. “Coke causes the smile.”

  In most of the ads, though, the rehearsed smiles were too obviously forced, with one extraordinary exception. While others flashed vignettes, this one conveyed a heartwarming story. As wounded black Pittsburgh Steeler “Mean” Joe Greene limped down a stadium tunnel toward the locker rooms, a shy, moonfaced boy holding a sixteen-ounce Coke timidly called after him: “Mr. Greene, Mr. Greene.” The defeated football player half turned. “Yeah?” he snarled. The kid stammered, “I just want you to know I think, I think you’re the best ever.” Unmoved by this praise, Greene grunted, “Yeah, sure,” and started to leave. In desperation, unable to think of anything else, the boy offered his Coke but was rebuffed. “Really,” he persisted, “you can have it.” With resignation, Greene relented, upending the bottle and draining it in one long, glorious chug. The music swelled while joyful voices harmonized, “Have a Coke and a smile.” As the boy turned away dejectedly, the player, now thoroughly refreshed, shouted “Hey, kid!” and threw him his jersey. Flashing an incredible smile that made all right with the world, he headed for the lockers.

  The Mean Joe Greene drama created an instant sensation. Though it wasn’t planned for airing until a year after the campaign’s introduction, bottlers mobbed Bill Van Loan after the presentation, demanding its immediate release. Thousands of viewers wrote to thank the Company for the greatest commercial they had ever seen. The media liked it just as much, running articles on Mean Joe’s performance in Newsweek, People, Sports Illustrated, and the New York Times, while the Steelers’ line-man/actor appeared on Good Morning America and Today television shows. The ad even inspired a made-for-TV movie. Greene revealed that the effort had consumed three grueling days, in part because Tommy Oken, the ten-year-old actor, kept muffing his lines on account of his genuine awe for Greene. The final day, the football player guzzled eighteen 16-ounce bottles of Coca-Cola, and still managed to smile.* “When Joe turns around at the end,” one literate Coke executive said, “he looks like he’s playing Othello.” It was, former Pepsi ad-maker John Bergin noted ruefully, “the perfect commercial.”

  A STAB IN THE BACK

  The Coke bottlers felt encouraged as they left the great convention hall that June of 1979. Shortly afterward, however, they received a Mailgram from Paul Austin that radiated shock waves throughout the system. The beloved Luke Smith, only sixty years old, was “retiring for personal reasons,” Austin announced. “The board has not named a successor. I will assume the additional duties of the presidency.” Rumors flew within the Coca-Cola family as to what had really happened. Everyone in the Company understood that Luke Smith had almost single-handedly secured the amendment signatures of the majority of the bottlers. He had cajoled, charmed, threatened, pled; had crisscrossed the country, spent hours on the telephone. To relax, he took two weeks in August to putter around Lake Lanier, just north of Atlanta, on his houseboat. On a Friday, he got a call over the radiophone from Fil Eisenberg, Coca-Cola’s chief financial officer. “Paul wants you out,” Eisenberg told Smith.

  No one ever knew exactly why Austin had suddenly fired Smith, though Austin’s rapidly progressing Alzheimer’s certainly contributed. At the Great Get-Together in June, Austin had fumbled through brief comments, refusing to allow the video cameras to project him onto the big screen, which would have shown his quivering facial expression. Later that year, he flew to New Orleans to deliver a speech and forgot why he was there. Even without a diagnosis, Austin realized that something was terribly wrong with him, and his reaction was to cling desperately to power.

  A Business Week headline blared, “SUCCESSION AT COKE IS A HORSE RACE AGAIN.” Austin created the new position of vice chairman and named six men to the post, any of whom might assume control. Within the Company, the arrangement was soon dubbed the “vice squad,” or “beauty contest,” with bets on the winner. Business Week picked Don Keough, though insiders thought South African Ian Wilson a more likely candidate. In fact, Wilson himself was quite sure he would be chosen, since both Woodruff and Austin had privately told him he was the one. At any rate, as one journalist noted, “Austin does not look like a man thinking of retirement.” Though he was approaching his sixty-fifth birthday, the board could extend his mandatory retirement year by year.

  As Austin failed, his wife grabbled power within the Company. The former Jeane Weed, a Mississippi native, was a secretary at the Chicago bottling company when Austin met her in 1950. Now, as her husband grew more confused, she tried to help, taking particular interest in plans for the nearly completed Tower. Mrs. Austin raised the hackles of traditional employees with her approach to interior decorating, replacing classic Norman Rockwell Coca-Cola paintings with avant-garde artists. Disaffected employees called her Mrs. Vice Chairman, while others placed grades such as D-plus or F on her paintings.

  STUMBLING INTO THE EIGHTIES

  Late in 1979, when the huge old Coca-Cola Spectacular, which had
blinked the time and temperature in Atlanta’s Margaret Mitchell Square for thirty years, crumbled to make way for a park, the demolition was emblematic of Company morale, which had never dipped so low. The approaching eighties found Coca-Cola in disarray, except for one brilliant new commercial.

  The bottlers remained divided and angry. The courts had ruled against the Company in the FTC case, with overriding legislation still pending. Market share was slipping, and the Company had severed communication with the financial press. Nuns and labor leaders protested death squad killings in Guatemala. Anita Bryant, “the voice that refreshes,” shrilly crusaded against homosexuals. In 1979, Coca-Cola stock was worth less than its value at the beginning of the decade, despite a two-for-one split in 1977 that was supposed to encourage the small investor. While reported annual growth for the decade registered 12.5 percent, the 7.1 percent inflation rate reduced that to an unimpressive 5.4 percent.

  Even Coke’s much-publicized friendship with Jimmy Carter didn’t prevent the president from declaring a U.S. boycott on the 1980 Moscow Olympics to protest the invasion of Afghanistan, rendering Coke’s exclusive contract with the Soviets meaningless. Besides, association with Carter was becoming a liability, with the peanut farmer appearing powerless and indecisive in the face of spiraling inflation and the Iranian hostage crisis. Paul Austin, wandering the top floors of the North Avenue Tower, screamed, “Get out of my office!” in the wrong executive suite, while his wife antagonized everyone. The six vice chairmen jockeyed for position, and Robert Woodruff, nearing his ninetieth birthday, was reportedly near death from pneumonia.

  No one would have guessed that a hopeful new era was about to commence, sparked by a frustrated secretary’s letter.

  __________________