For God, Country, and Coca-Cola

by Mark Pendergrast

  In the meantime, Lintas’s Coca-Cola Classic advertising remained closer to traditional Coca-Cola values, overplaying the all-American nature of the drink with the slogan “Red, White & You.” Instead of celebrating Coca-Cola Classic as an integral part of everyday life, these ads, aired during soap operas and the Cosby Show, harkened back to the overpatriotic “Look Up, America” campaign of 1974, replete with the Statue of Liberty, the Grand Canyon, rural folk, and celebrities sprinkled throughout for good measure. Although the Company spent far more on New Coke ads than on efforts for Classic, the new formula’s share continued to slip as Classic climbed. The kids loved Max Headroom, but they failed to translate their affection to the vending machines, or they misunderstood which Coke he was touting. By the end of April, two weeks before the centennial bash, New Coke had fallen below a 3 percent market share, while Classic had fizzed past Pepsi to regain the overall sugar cola lead. The final blow came when McDonald’s switched its huge account to Classic. Since one out of every twelve Americans passed through the Golden Arches daily, that amounted to a gigantic vote against New Coke.

  AN EXPENSIVE HISTORY LESSON

  It cost The Coca-Cola Company $4 million to research and develop New Coke. The masses of data, the taste tests, the well-honed strategy had failed to reveal just how well Asa Candler and Robert Woodruff had done their jobs. Coca-Cola, as much icon as soft drink, stood for traditional values. In the shifting kaleidoscope of the late twentieth century, Americans felt rootless and ill at ease. Computers seemed to know more than people. Avuncular Walter Cronkite had retired and no longer calmed the national psyche every night. The Latin mass no longer soothed with its sonorities. The full-service filling station was a rarity, and the old-fashioned soda fountain lingered in just a few anachronistic small Southern towns.

  Only Coca-Cola stayed the same—the perky, fizzy, social drink that made instant friends of strangers, gave a little jolt of energy, rewarded hot work on a summer day. In the stampede to assign blame for the New Coke debacle, many American consumers and veteran bottlers sneered at the “Latin mafia” of Goizueta, Zyman, and Dyson. Since they weren’t “real” Americans, how could they comprehend the nation’s passion for good old Coke? This racist scenario didn’t factor in Keough, who jokingly referred to himself as the “token American” at the Company, and who was just as sure as Goizueta about New Coke’s ultimate triumph. The corporate blindness stemmed not so much from geography or cultural background as from the eighties mentality. Aggressive, ruthless, and cocky, the new team wanted to repeat the blockbuster breakthrough of Diet Coke. In the process, they overlooked the most vital emotion of all—love.

  The American public loudly and clearly taught the corporate strategists a history lesson. Like William Allen White, they revered a drink that symbolized America, that was associated with almost every aspect of their lives—first dates, moments of victory and defeat, joyous group celebrations, pensive solitude. As a poetic Texas consumer had written in his June 1985 love letter to the drink, “Whenever things began to look too bleak, I’d come over and pick you up, we’d share a few minutes together, and I would be comforted. And do you remember the times I and our friends shared concerns when you were around? It seems as if the richest hours of my life have been shared with you.” As a result of the New Coke disaster, original Coca-Cola garnered much more than $4 million worth of publicity, rendering the Company’s horrendous advertising irrelevant. The venerable cola roared back to claim its lead as the premier American soft drink. Unintentionally, Goizueta and Keough had converted the gigantic marketing blunder into a commercial coup.

  __________________

  * Since Goizueta and Woodruff were alone during this crucial meeting, we have only Goizueta’s word for what took place. While no one has accused Goizueta of telling an untruth, many old-time Coca-Cola men adamantly refuse to believe that Woodruff would ever have sanctioned a changed formula. Others question whether he could hear well enough to understand what Goizueta was saying or speak clearly enough for a real assent to be understood.

  * Liberated by Woodruff’s death, Jones soon became absorbed in administering Ichauway, which he converted to an environmental preserve, where biologist identified over nine hundred species of plants among the longleaf pines—the largest single tract still in existence anywhere in the world.

  * In September 1979, Coke marketer Peter Sealey wrote a memo about then-tentative plans for New Coke. “The brand cannot be made new or improved,” he observed, “for to do so would destroy the mystique, mystery, and lore that surround the brand and constitute its heritage. In the minds of our consumers, the brand cannot be improved.” Obviously, no one paid attention to his memo.

  * During the New Coke debacle, Ronald Reagan endured a cancer operation, death squads terrorized Guatemala, ten thousand died in a Bangladesh cyclone, and Lebanese Shiites hijacked an airliner, but apparently none of these events compared to the tragedy of the altered Coca-Cola formula in the eyes of the media or Coke consumers.

  * Although the Company did not respond to the New Coke douche query, the answer was “No,” according to a scientific study conducted by a group of Harvard Medical School researchers who found that Coca-Cola Classic killed five times as many sperm as New Coke. The researchers didn’t recommend any form of post-coital douche, however, since “sperm can make it into the fallopian tubes in minutes.”

  ~ 20 ~

  The Big Red Machine

  Can Big Red make its soda as ubiquitous as water? . . . One gets the feeling there’s a recurring nightmare in the marketing department of Coca-Cola USA. A plane goes down in the desert. Everyone is safe, everyone is sound. They make their way to an oasis. Plenty of food. Plenty of water. Plenty of shelter. But no Coke machines.

  —Jeffrey Scott, Adweek, Dec. 12, 1988

  For four days, Coca-Cola literally painted Atlanta red for its $23 million centennial bash. John Pemberton would have retreated hastily to his laboratory if he had stumbled into the Omni on the evening of May 7, 1986, where laser beams blazed, miniature Coke trucks zipped up and down the aisles, a Coca-Cola blimp floated overhead, and scantily clad dancers twirled to loud music—all to honor the moment when the kindly pharmacist and morphine addict perfected the formula.

  The Company outdid itself to impress the 12,500 bottlers who came from all over the world. First, 650,000 dominoes toppled across six continents, brought live by satellite to the audience. The Nairobi segment nearly stopped the chain reaction, since gigantic African moths kept knocking over the carefully stacked pieces ahead of time. It wasn’t terribly clear what the point of the topple was—perhaps it was a play on “Catch the Wave” or a demonstration of the Company’s global connections—but it was great fun, particularly since the final domino in London triggered a bomb that blew a huge Pepsi bottle to smithereens. Celebrities galore studded the festivities. Dick Cavett hosted the domino topple, for instance, wryly inquiring of a Swahili-speaking spokesman via satellite, “So, do you have any hobbies?” Merv Griffin was there, since Coca-Cola had just purchased his television production interests, including Jeopardy! and Wheel of Fortune. Chuck Berry twanged his guitar and one-footed it across the stage, Kool and the Gang electrified, Marilyn McCoo crooned, Lionel Hampton and his orchestra swung.

  The multimedia show, narrated by Ike Herbert, covered all of Coca-Cola’s history in typical Company fashion, presenting it as a seamless success saga, the rise of a humble drink to deserved greatness. Herbert, the quintessential marketing man, noted that “people in remote corners of the world who don’t even know the names of their own capital cities know the name Coca-Cola,” because “we’ve been able to infiltrate Coca-Cola into the minds and hearts and lives of everyone everywhere.” Throughout the audience, bottlers cheered and stomped as singers chanted the refrain, “Take it to the people.”

  The assembled throng was, as Herbert said, “one family with one mighty voice raised in bold self-congratulation.” Just before midnight, a seven-and-a-half-ton birthday c
ake was wheeled onto center stage, where, instead of a gigantic party girl, a fourteen-foot Coke bottle rose from the middle of the cake as loyalists sang “Happy Birthday.” On Saturday, almost everyone in Atlanta turned out for a parade down Peachtree Street with over a hundred floats and five hundred thousand balloons wafting the Coca-Cola logo skyward. Two members of the Coca-Cola Collectors Club (who had met and fallen in love amidst the memorabilia) exchanged marriage vows on a float. Mickey Mouse and Goofy cavorted for Coke, along with Uncle Sam and a tinsel-haired Statue of Liberty, also celebrating her hundredth anniversary. Thirty marching bands blared, while Miss Universe and America’s Junior Miss waved to the crowd. Although the colossal event went off without a hitch, some demonstrators carried anti-apartheid placards admonishing the Company to “Get Coke out of South Africa.”

  Underlying the celebration was an uneasy, unspoken awareness of the recent New Coke debacle. While Company officials had promised that the new formula would be available around the world by the centennial, it had never traveled beyond Canada and the United States. The formula change’s failure in America shook the confidence of Coke men around the world, however. In private interviews, Goizueta continued to describe New Coke as “the product of the future,” but its highest market share was already receding into the past. In one of the few minor crises during the big parade, a walking can of New Coke symbolically deflated in midstride.

  ASSESSMENT AT MID-DECADE

  Well aware of their awkward situation, Roberto Goizueta and Don Keough emphasized to the assembled bottlers that the Company was in excellent shape. In fact, it really was. Despite—or because of—the New Coke fiasco, the Company’s soft drink market share in the United States had swelled to 39 percent versus 28 percent for Pepsi. Between them, the two giants were squeezing out other players. “Coke and Pepsi Stomp on the Little Guys,” a 1985 Fortune headline had bluntly stated. Just before the centennial, Pepsi announced it was buying 7-Up, and Coke countered by attempting to gobble Dr Pepper. The FTC intervened to prevent both deals, which was pretty much what Coke had anticipated, but the Company didn’t really care. Not only had Coke Classic surpassed other sugar colas, Sprite had surged past 7-Up in the lemon/lime category.

  The Company’s entertainment sector also raked in money from videocassette sales and TV show syndication, but Columbia’s creative endeavors proved embarrassing flops—and there were a great many of them, since Coke pushed the movie company to disgorge a glut of films such as Perfect, Crossroads, and The Slugger’s Wife. One forgettable effort, Fast Forward, cost $17 million, netting only $500,000 at the box office. Nor did Columbia’s television shows fare any better, despite Peter Sealey’s focus groups and surveys. All five of the Company’s productions that season were canceled, killing any future syndication possibilities. To Goizueta’s chagrin, the media paid no attention to the overall health of the bottom line, instead gloating over the box office failures. “Coke: Flat in Hollywood,” Newsweek’s headline read, while Business Week asked, “Columbia Pictures: Are Things Really Better with Coke?” Stung by the criticism, Goizueta hoped that the forthcoming Ishtar, the expensive comedy starring Dustin Hoffman and Warren Beatty, would reverse the studio’s public fortunes.

  By that spring of 1986, Goizueta had accomplished his every goal. Earnings per share averaged 10 percent per year, and the stock had shot up from $35 in 1980 to $120, which spelled a compounded annual return of 24 percent compared to 13 percent for the S&P 500. As he had predicted, the domestic operations were now accounting for about half of the Company’s profits. What difference did it make whether New Coke and Columbia were causing bad publicity? “My job is not to be right,” Goizueta philosophized. “It is to produce results.”

  IVESTER THE FINANCIAL WIZARD

  Goizueta owed many of those results to a bright young Georgian named Doug Ivester, who was promoted to chief financial officer when Sam Ayoub retired at the end of 1984. Despite his folksy accent, Ivester, a shrewd businessman, perceived that strategic debt could boost the bottom line, particularly if he recycled the borrowed money for a sizable return. By the time of the centennial celebration, Coke maintained a 20 percent debt-to-equity ratio, up from virtually nothing five years before. Besides, the new debt load reduced the corporate tax rate from 45 percent to 39 percent because of deductible interest payments. Ivester also brought financial innovation to the film industry when he sold Columbia’s accounts receivable for cash. This process, known as “factoring” in the garment industry, had never been applied to Hollywood. TV stations didn’t have to pay for syndication rights until shows aired, which could entail a delay of several years. By selling the receivables, Ivester gained immediate access to the money.

  By increased debt offerings, lowered percentages of dividend payouts, and inventive financing, Coca-Cola found itself sitting on enormous piles of cash, amounting to some $1.5 billion by its centennial year. Goizueta, Keough, and Ivester faced the pleasant though difficult task of allocating the funds. In the past, excess cash had been used for more subsidiary acquisitions and repurchase of the Company’s stock. Now, Goizueta clearly wanted to refocus the Company on its primary mission of worldwide soft drink saturation.

  LOOKING OVERSEAS

  He had good reason. Late in February of 1985, the dollar peaked. Concentrating on U.S. investments during the decade’s first half made sense because of the muscular dollar. During the latter part of the eighties, however, the massive U.S. trade and budget deficits drove the dollar to 70 percent of its top value by the end of 1990. Against specific currencies, such as the Japanese yen, it lost nearly half of its buying power. Although the dollar’s demise spelled disaster for most American firms, it furnished a wonderful opportunity for the multinational Coca-Cola. Sales in Germany or Japan yielded fatter profits due to favorable exchange rates. As Goizueta and Keough hastened to point out, Americans accounted for less than 5 percent of the world’s population. The other 95 percent remained a largely untapped market. Goizueta thus decided to pursue the same hard-driving strategies in countries around the world as he had already in the United States.

  The possibilities were tantalizing. If the rest of the world’s human beings drank anywhere near the same amount of Coca-Cola as the typical American, the Company would experience more than exponential growth. By 1986, every man, woman, and child in the United States drank an average of 660 eight-ounce soft drinks every year. The steady growth of American soft drinks per capita had overtaken beer in the early sixties and swept past coffee and milk in the late seventies. By 1986, it had surged beyond imagination. “Right now,” Roberto Goizueta informed the assembled bottlers at the centennial, “in the United States, people consume more soft drinks than any other liquid—including ordinary tap water.” The Coke CEO then painted a glorious scenario. “If we take full advantage of our opportunities,” he said, “someday, not too many years into our second century, we will see the same wave catching on in market after market, until, eventually, the number one beverage on earth will not be tea or coffee or wine or beer. It will be soft drinks—our soft drinks.”

  Internationally, Coke led Pepsi 3-to-1, and the gap between American and foreign consumption beckoned the eager Coca-Cola men. In Africa, per capita amounted to only 4 percent of the U.S., while the economically surging Pacific Rim stood at 8 percent. In Western Europe, where Coca-Cola dominated competition, the per capita remained 23 percent of that in America, while Latin America held at 29 percent.* The future for soft drinks, as Don Keough told Beverage Digest, appeared rosy. “As population centers become more complex, potable tap water is very difficult to find, and there is an anti-alcohol phenomenon here and abroad.” Fizzy, enjoyable, tasty soft drinks could jump into the thirst gap.

  Keough, the Company motivator, concluded the centennial celebration with a magnificent proof of the Coke system’s power and unity, asking everyone present—over twelve thousand people—to stand and hold hands. “This is the world of Coca-Cola,” he told them. “What other international group
in the world could do this right now? From every continent, from every culture, over 125 countries in this room. The United Nations can’t do it. We’re not mad at anybody. We love each other. Can you feel the energy—can you feel the love—can you feel the affection?” The bottlers left Atlanta with Keough’s words ringing in their ears, returning to their corners of the world with renewed inspiration. “You are the Michelangelo of Coca-Cola in your territory,” Keough had told them. “And tomorrow the canvas for Coca-Cola as we begin that second century is blank, is bare. You are the artist.”

  THE TRIPLE A’S

  While the bottlers may have been the “artists,” Keough and Goizueta, exceedingly aggressive tutors, often grabbed the paintbrush right out of the bottlers’ hands. By the time of the centennial, the Company had already taken a 49 percent equity position in the ailing Taiwanese bottler and had divulged a partnership with Cadbury-Schweppes in Great Britain to take effect in 1987. Inspired by the results in the Philippines, Coca-Cola went on to form joint ventures in country after country throughout the remainder of the decade. In the past, the Company had assiduously avoided the “vertical integration” that buying bottlers implied. Consequently, the quality of the market depended on how motivated or competent the bottlers were. In addition, a certain cultural fatalism had hampered growth in selected countries. In Great Britain, for instance, Coke men always blamed their lackluster showing on the drizzly weather, along with the British penchant for quaffing warm beer; they simply weren’t used to ice-cold drinks. Similarly, the reasoning went, the French would never accept Coca-Cola because they loved their wine too much and objected to the Americanization of their culture.