As if to symbolize the dramatic changes, the wrecking ball smashed into the sixty-three-year-old red-brick building on North Avenue to make way for a fancy new entrance rotunda. The squat, solidly built veteran of the cola wars resisted demolition as nostalgic older employees looked on, but the job was completed by the fall. Memorial bricks, distributed to every Coke employee as souvenirs, served as the only link to the past. Goizueta, suddenly the media’s darling, dominated a spring 1983 issue of Business Week in a cover story on “Coke’s Big Market Blitz.” At a press conference for one hundred market analysts late in 1983, the confident CEO declared that the Company intended to double its size by the end of the eighties. To emphasize his determination, he held the meeting in a Boston bottling plant with a backdrop of three million cans stacked twenty-five feet high that would, he told the audience, land in vending machines and on grocery shelves within forty-eight hours. Emanuel Goldman, a longtime follower of the Company, proclaimed that “the giant has awakened.” Adweek named Goizueta the Marketer of the Year, while Dun’s Business Month praised him for running one of America’s five best-managed companies.
1984
The next year only intensified Goizueta’s triumph. The Cuban had established a dynamic eighties management style while capitalizing on the nearly century-old asset of Coca-Cola’s identification with American culture. Naturally, Coke became the official soft drink of the 1984 Summer Olympics in Los Angeles, where everything coalesced for the soft drink concern—projecting an active, healthy, athletic worldwide image, with competitors drinking gallons of Coca-Cola and Diet Coke right there next to Hollywood, where Columbia slaked the country’s thirst for entertainment. Even the nation’s “Teflon” president, a former movie star, signaled the triumph of image over substance, the apotheosis of the soft drink mentality. As a conservative Republican, Reagan was primarily a Pepsi man, but what did it matter?*
Increasingly, the two cola giants were squeezing competition out of vending machines, fountain spigots, and grocery shelves. The much-publicized “cola wars,” while real enough on one level, actually benefited both brands. There was no more essential difference between Coke and Pepsi than the line separating most Democrats and Republicans. When Reagan hired Pepsi advertising guru Phil Dusenberry to produce his 1984 campaign commercials, it was not so much an endorsement of a particular brand of soft drink as an indication that, in America, politics had been reduced to the art of master image manipulators. Even Walter Mondale’s most cutting criticism of Reagan during the campaign—“Where’s the beef?”—derived from a fast-food commercial.
“I’m always going to be searching for emotion,” Dusenberry told reporters. “In an age when most products aren’t very different, the difference is often in the way people feel about [them].” In his Reagan spots, Dusenberry highlighted elderly couples smiling and holding hands, children playing, and important officials meeting in the Oval Office. What they were discussing seemed immaterial—the fact that they conveyed a serious, competent atmosphere sufficed.
It was so evident that Reagan would win by a landslide that the Coke PAC contributed no money at all to Walter Mondale, even though the Southern soft drink company traditionally supported Democrats. Instead, $5,000 went to Reagan, while Jesse Jackson got $1,500, since Coke wanted to avoid accusations of racism. At the same time, the Company contributed $1,000 to archconservative Jesse Helms for balance.
Researchers of the eighties, whether working for political campaigns or soft drinks, honed sophisticated techniques for identifying target groups to an extent that would have alarmed cola drinkers had they been privy to insider documents. At the end of 1984, the depth researchers at Lintas developed a profile of the “typical” Coca-Cola and Diet Coke user. According to the study, Coca-Cola drinkers possessed rigid personalities; a drink should taste a particular way. They lived in a “traditional reality based on early experiences, stereotypes and cultural generalizations.” To a Coke drinker, the world should remain immutable, ruled by “certain self-evident truths.” The researchers also identified a feeling of resignation and “lack of personal control.” Consequently, Coca-Cola drinkers demanded immediate gratification and didn’t really worry about putting on weight.
Diet Coke consumers, on the other hand, felt that “the world is changeable” and that they could exercise personal control and a degree of choice. Capable of long-range planning, they could delay gratification. While Diet Coke drinkers, like their Coca-Cola counterparts, often valued family relations, they sometimes assumed alternative family roles with greater flexibility. “Both the husband and wife could work, the husband can go shopping and prepare a dinner while the wife comes home late from the office.” More critical, Diet Coke drinkers cared deeply about personal appearance.
Though the Lintas researchers didn’t mention it, 1984 Diet Coke consumers might snort a line of cocaine or two while seeking self-fulfillment. The Peruvian drug, popular with the upper crust in 1885 and 1925, once more enjoyed a vogue with hedonistic Yuppies. T-shirts with “Cocaine” written in Coca-Cola script caused consternation at North Avenue, where no one discussed the soft drink’s coca leaf content, decocainized or not. As a defensive measure, the legal department reversed its long-standing taboo against the logo’s use on anything except the soft drink. Now, the Company licensed script Coca-Cola for clothes, furniture, toys, clocks, art objects, and innumerable other items. By selling the rights to quality manufacturers, the lawyers hoped to ensure easy prosecution of violators.
Aside from the embarrassing cocaine connection, the Goizueta regime seemed charmed, an energized juggernaut that couldn’t fail. By then, Coca-Cola had jettisoned low-margined Aqua-Chem, Wine Spectrum, and shrimp farming. Ghostbusters, the highest-grossing Columbia film ever produced, provided ideal tie-in opportunities for local bottlers. A new Coca-Cola USA tower rose steadily over North Avenue. A toll-free 800 line allowed instant feedback from consumers, while the just-established Coca-Cola Foundation provided a high profile for corporate donations. Diet Coke leapfrogged past 7-Up to become the third-best-selling soft drink in America. The Company signed Julio Iglesias, the popular Spanish crooner whose records trailed only Elvis Presley and the Beatles in global popularity, to woo swooning older women, foreign consumers, and thirty million Hispanics in the United States.
By the time Brian Dyson summoned his bottlers for another “Get-Together” in Atlanta five years after his promise to shake things up in 1979, he was bursting with self-confidence, having overseen the refranchisement of over 50 percent of Coca-Cola’s bottling territory. Coke commanded a 37 percent share of the U.S. market. Despite Burger King’s defection to Pepsi in 1983, the Atlanta firm controlled a whopping 63 percent of the fountain business. “We believe in two eyes for an eye and two teeth for a tooth,” Dyson boasted, “and if our competitor swats us in the face, we will turn around and knock the hell out of him.” He promised the assembled bottlers, “We will go for it. Ready, Fire! Aim.”
Roberto Goizueta had every reason for self-congratulation. Since he had assumed the presidency in the spring of 1981, Coca-Cola stock had appreciated 95 percent, including dividends, more than doubling the performance of the S&P 500 index. The Company had recently demonstrated confidence in its own future by repurchasing six million shares of common stock. Still, Goizueta felt uneasy. When someone told him that he looked nervous, the Cuban replied, “We live nervous.” Now he uttered a prophetic warning: “There is a danger when a company is doing as well as we are. And that is, to think that we can do no wrong. I keep telling the organization: We can do wrong and we can do wrong big.” In April of 1985, a shocked nation learned just how right he was.
__________________
* In the meantime, word of the defiant secretary’s letter spread through the efficient Company grapevine, and Dianne Smith won folk hero status. One clever employee posted a sign in the foyer. “Why worry about pigeons in the park,” read the query, “when there are turkeys in the tower?”
* Initially,
Coca-Cola was sweetened with 50 percent HFCS, 50 percent sugar. Beginning in November 1984, Coke in the United States was sweetened completely by HFCS, although cane and beet sugar remained in the formula elsewhere.
* Four years later, Zash and Mendez declared bankruptcy, but the union workers occupied the plant, claiming that the owners had milked the franchise before closing its doors to defeat the union. Again, the IUF called for a boycott and Coca-Cola once more forced a solution, locating Carlos Porras Gonzalez, a Salvadoran economist, to restart the bottling plant.
* As he threw the bottle, the Coke commando screamed an epithet in Filipino. Relating this incident, Isdell paused. “I won’t say what I said.” When urged to supply a paraphrase, he responded, “Beat Pepsi,” and laughed.
* By the eighties, Coke and Pepsi didn’t crawl out on unnecessary limbs. If a trend manifested itself, they figured they could use their enormous advertising budgets and distribution systems to dominate with the brands.
* Reagan cabinet member Casper Weinberger was on the Pepsi board, but Reagan also had Coke ties. From 1954 to 1962, he had hosted TV’s General Electric Theater, and Robert Woodruff was a long-time GE board member. Reagan’s older brother, Neil “Moon” Reagan, worked for McCann-Erickson in Los Angeles, where he cultivated the Hollywood crowd for Coke.
~ 19 ~
The Marketing Blunder of the Century
To the Master Dodo this concerns: What ignoramus decided to change the formula of Coke?!?! The new formula is gross, disgusting, unexciting, and WORSE THAN PEPSI!!
—Coke Consumer, Anniston, Alabama, May 12, 1985
As the company coasted triumphantly into mid-decade, one nagging problem refused to go away. For twenty years, the market share of the world’s most famous drink had steadily declined. In 1984, Coca-Cola lost one percent of its market share, while Pepsi-Cola gained one and a half points. The Company had tried everything—massive, effective advertising; aggressive marketing; price promotions; almost universal distribution—and nothing had halted the slide. It was difficult to avoid the conclusion that, just as the Pepsi Challenge had asserted, the real problem was the product’s taste. People no longer appreciated the Coca-Cola bite. They wanted a sweeter drink.
Late in 1983, Goizueta had authorized the Mexican wunderkind Sergio Zyman to spearhead a supersecret new project and ordered Mauricio Gianturco to speed up his search for a cola flavor that would trounce Pepsi in taste tests. The ultrasuspicious Zyman wrote his own reports and shredded all memos. As with the Diet Coke project, he kept changing the code name from Zeus to Tampa, then Eton, and finally Project Kansas, in honor of Kansas editor William Allen White, who would have hated the idea of changing Coca-Cola if he’d still been alive. After all, White had called the drink “the sublimated essence of all that America stands for.” While the technical department rushed to concoct a winning formula, Roy Stout’s market researchers asked sample consumers a long list of questions, based on the supposition that the Company had “added a new ingredient” that rendered Coca-Cola “smoother.” The results indicated that 11 percent of the exclusive Coke drinkers would be upset, but Stout figured half of them would get over it. The remaining 5 percent probably would remain angry.
No one dared to say explicitly that Coke was planning to alter its formula. Even John Bergin of McCann-Erickson remained unaware of the Company’s plans, though he might have guessed. In 1982 and 1983, he and Zyman toured the country for “focus groups” composed of local consumers, primarily to test potential commercials. At the end of each session, however, the moderator presented an unrelated scenario. Pretend, he told them, that a great new formula for Product X had already been introduced in a nearby city, where everyone loved it. Now it was coming to this town. Would you be in favor of it? No one objected to a new, improved Budweiser or Hershey Bar, but Bergin was astonished at the outburst over Coca-Cola. “Goddam it, don’t tell me you’re taking my fucking Coke away!” The focus groups also revealed another disturbing fact. Although many interviewees forcefully asserted that Coca-Cola was their favorite drink, when asked what cola they actually drank, they wavered—Coke, sure, but sometimes Pepsi or even the generic store brand if it was on sale. Stout thus discovered that while Coca-Cola had a place in the heart, it wasn’t necessarily in the refrigerator.
In the fall of 1984, Gianturco finally devised a new cola that, he assured Zyman and Stout, would beat Pepsi. Sure enough, Stout’s blind taste tests showed that consumers preferred the new formula by a six-point margin. Enormously excited, Zyman convinced Dyson that the time for action had arrived. The “ready, fire! aim” philosophy had worked so far, and this audacious, bold move would prove Coca-Cola’s flexibility and leadership to any doubters. At almost the same moment, Scott Ellsworth was interviewing Pepsi’s Dick Alven for a Smithsonian Institution oral history of Pepsi. Alven told Ellsworth that the Pepsi Challenge had been completely halted, but that “it’s a nice thing to have in your arsenal. See, for them to put that thing to rest totally, they would have to do something to their formula—I mean dramatically—and I don’t think they’re going to do that. It’s too risky.” Alven noted that Coca-Cola was, after all, a good product that sold a lot of drinks. “It’s kind of dangerous for them to play with it.”
Goizueta, who had promised in 1981 that he was willing to reformulate “any or all of our products,” didn’t question the new recipe, but he wasn’t sure it should replace the standard drink. Why not call it Coke Two or some other name? There were multiple objections to that idea, though. The product called “Coca-Cola” had to be the best, number one. It just wasn’t conceivable to market a better-tasting drink as a competitor. Such a move would also probably split Coke drinkers into two smaller shares of the market, allowing Pepsi to emerge as the undisputed leader. Nor could the Coke men alter the formula quietly. Consumers would notice an entirely different flavor complex, and then the Company would have to lie to the public or admit tampering with the world’s most famous secret formula. Clearly, they must introduce the new flavor with great fanfare.
Aside from these considerations, the Company never publicly acknowledged another underlying motivation to replace the old formula. New Coke would contain no decocainized coca leaf, and the never-ending rumors about the drink’s supposed drug content could finally be put to rest. Furthermore, Reagan’s announced determination to eradicate the South American coca plantations made Company officials nervous, even though their supply grew in fields owned by the Peruvian government. As head of the technical division in the late seventies, Roberto Goizueta had encouraged Dr. Andrew Weil, who planned to market a coca-based medicinal chewing gum, because a legitimized coca leaf might “take the heat off of Coca-Cola,” as Weil put it. Weil even persuaded Goizueta to pay $10,000 for an Ecuadoran conference on coca, but nothing ever came of the project.
ROBERT WOODRUF F’S WILL
Over the Christmas holidays of 1984, Roberto Goizueta, Don Keough, Brian Dyson, and Ike Herbert decided unanimously to change the world’s best-known product just short of its hundredth anniversary. First, however, they needed the Boss’s blessing. Robert Woodruff had celebrated his ninety-fifth birthday a few weeks earlier. Despite his failing hearing and sight, he had lost none of his mental acuity. On New Year’s Day, Goizueta made the pilgrimage down to Ichauway. Alone with the old man, the Cuban CEO kept his story short and simple, reviewing the rationale for the formula modification—dwindling market share coupled with a superior new taste. In the end, Woodruff agreed, convinced that Goizueta was right and that tastes had shifted.* It was more important that Coca-Cola be the best-tasting drink in the world than to cling to an outmoded formula. Strangely, though, the Boss couldn’t eat his dinner that night. The next morning, he refused his customary huge breakfast. An era was ending, and Robert Woodruff would end his life with it. The Boss demonstrated the remarkable power of his will one last time. He simply stopped eating.
As Woodruff literally shrank from life, Edith Honeycutt, his father’s old nurse, cared fo
r him. Connected to intravenous tubes in his private suite at Emory Hospital, Woodruff held her hand and asked, “Honey, where am I?” When she told him, he whispered, “Don’t you ever leave me.” She recited his favorite poem, Rudyard Kipling’s “If,” as she had many times before, and, as always, he cried at the last line: “And—which is more—you’ll be a man, my son!”
Honeycutt knew why he cried. No matter what Robert Woodruff did, it had never been enough for his father. When Ernest Woodruff visited Ichauway in his final years, for instance, he had been horrified by the number of servants and guests and had predicted his son’s imminent bankruptcy. Now, as Robert Woodruff lay dying, the man everyone called Boss, one of the world’s most brilliant entrepreneurs, reverted once more to his unhappy childhood. Despite a lifetime of achievement, he would never be a real man in his father’s eyes.
In a rare moment of public introspection, Woodruff once recalled his youth, when he sought answers not from his disapproving father, but from Samuel Jones, a neighboring parent who understood his “boyish and immature searching after the realities of life.” As they were talking one day, Jones asked the boy to jot down the greatest things life had to offer. Woodruff wrote “wealth, power, influence, genius.” The older man nodded and said those were fine goals, but that he had left out the greatest of all—peace of mind. “I’m not sure I have [ever] achieved what he suggested,” Woodruff said. “Some drive has always impelled me to keep reaching—struggling.”
For God, Country, and Coca-Cola Page 54
