GLOBAL IS THE WHOLE POINT, STUPID
As Coke prepared to enter the twenty-first century, then, it was beset with worries. During the first two quarters of 1999, the Company’s worldwide volume declined for the first time in a decade, while net income dropped 13 percent in the first quarter, then 21 percent in the second, in the wake of the Belgian health scare. At the Company’s annual meeting in Wilmington, Delaware, Ivester admitted that every major market outside the United States was “stagnant or slumping,” which had a “gravitational pull on earnings and volume.” Even the domestic volume fell one percent in the second quarter because of retail price hikes. During 1999, U.S. soft drink per capita consumption dropped for the first time in decades.
The vaunted anchor bottler program appeared to backfire as well. The huge bottlers, in which Big Coke held substantial shares, were struggling in the difficult economic climate. In Brazil, for instance, cheaper, inferior local soft drinks called “Tubainas” were cutting into Coke’s dominant market share. As a result, anchor bottler Panamco—saddled with debt from purchasing the Cisneros bottlers in Venezuela—reported its first loss. Meanwhile, Australian anchor bottler Coca-Cola Amatil suffered in the troubled Asian economy. Former chief executive Norbert Cole, ousted during a restructuring, sued Coke, claiming that it had hurt Amatil by forcing it to give up its European holdings. Big Coke’s equity income from its ownership in bottlers dropped from $155 million in 1997 to $32 million in 1998, and it promised to dwindle further in 1999. The anchor bottlers, which were supposed to be Coke’s growth engine, now needed cash infusions in the form of increased marketing funds or improved infrastructure. In 1998, for instance, Coke pumped $1.84 billion into its bottlers, of which $1.2 billion went to Coca-Cola Enterprises.
With many bottlers working at partial capacity, Coke hoped to fill the bottling lines with Orangina and Cadbury products, but both deals ran into regulatory roadblocks early in 1999. A French appeals court ruled against the Orangina deal. Australian and Mexican regulators vetoed the Cadbury sale, and the European Union asserted its authority to stop it as well. Although the Company revised its Orangina and Cadbury proposals to attempt to meet regulatory objections, both deals fell through.
While such problems might have given other CEOs sleepless nights, Doug Ivester appeared unfazed, as did his stockholders, who lined up for his autograph at the 1999 annual meeting. “Our long-term growth potential remains unchanged,” Ivester said. “Our system has never been better equipped to convert that potential into long-term value.”
It appeared that the CEO was correct. Even as the global economy bottomed in early 1999, Coca-Cola continued its implacable world conquest, fueled by a product that cost almost nothing to produce, with one of the highest profit margins on earth. While it promised to pump close to $1 billion into Brazil over the next three years, Coke bought a 20 percent stake in Peru’s Inca Kola, a popular yellow bubblegum-flavored drink invented in 1935.
With Big Coke as the midwife, two major Japanese bottlers merged to form Coca-Cola West Japan Company, Coke’s eleventh anchor bottler, in which the Company held a 5 percent interest. In Europe, a huge Greek bottler merged with Coca-Cola Beverages PLC to form Hellenic Bottling (Big Coke owning about a quarter share), the second-largest world bottler after CCE. In its Middle East and North African division, Coke forged ahead of Pepsi with a 41 percent market share, opening new bottling plants in Saudi Arabia, Eritrea, and Algeria.
The Company continued its relentless marketing initiative around the world, offering larger sizes and multipacks in Germany, lowering prices in South Africa, promoting a “Win Millions” contest in Thailand where consumers could win a million baht in gold, and enticing Venezuelan consumers with free product and prizes such as houses, salaries for a year, and a free shopping spree. To help restore the faith of Belgian consumers, the Company offered Coke-embossed cell phones for half the going rate if they would only drink one hundred Cokes. In India, the Company sponsored a thirty-city concert tour by singing sensation Daler Mehndi and launched Sprite as “refreshingly honest.” In troubled Indonesia, Coke’s new ad slogan urged: Teguk Lagi, Semangat Lagi!—“Drink Again, Be Spirited Again!”
Even in the disastrous Russian economy, the Company persevered with a “Drink the Legend” campaign, based on an old Russian folktale to appeal to resurgent Russian nationalism. Early in 1999, Ivester flew to Ukraine to open a new $100 million bottling plant, emphasizing that Coke’s belief in the future of the former Soviet Union was unshaken. Although its most popular drinks worldwide were Coca-Cola, Fanta, Sprite, and Coca-Cola light, the Company owned more than 160 brands worldwide.
The Company took portions of its memorabilia on the road as the Traveling World of Coca-Cola. In Paris, the Louvre even hosted a popular exhibit of sixty original Coca-Cola paintings. The Company launched a range of international fashion and sports clothing, signing up partners for its Coca-Cola Wear label.
Back in the United States, third-generation Coke-bottling man Charles Frenette took over as global marketing director when Sergio Zyman left, with a mandate from Ivester to stress local marketing initiatives around the world. While advertising might be high profile, it had not been the driving force behind Coke’s recent market growth. It was the execution on the ground, with the proliferation of vending machines, promotions, and interactive consumer experiences, such as the new NASCAR “Wall of Speed,” in which fans could drive their own cars in a “virtual reality” race. Roberto Goizueta himself had observed, “You let me have the bottling plants and the trucks and the highly efficient systems, and I’ll let you have the TV commercials. I’ll beat you to a pulp over time.” Even with ads, the content wasn’t as important as the ubiquity in places such as premovie spots or the burgeoning Internet.
Frenette, who had proven his ability to grow the business in South Africa, was friendly, customer oriented, and maintained a low public profile—the opposite of Zyman. Frenette orchestrated a co-promotion with AT&T, affixing free calling cards to millions of fountain-beverage cups to appeal to teens. The promotion was designed not only to sell more soft drinks but to garner important marketing information as the cards were used. The new marketing head didn’t rush to change the agency-du-jour smorgasbord he inherited from Zyman, but he apparently did ask the agencies to modify the quick-cut, disco-beat, techno-hip Coke ads—which old-style Coke adman Bill Backer called “mean-spirited and self-absorbed” and John Bergin termed “bizarre and uncommunicative”—and refocus on the traditional Coke heart tug. In one spot, a solemn little boy, watching a heart-rending performance of Pagliacci from the wings, walked onstage to give the suffering opera clown a Coke. It was a subtle tribute to the old Mean Joe Greene ad. Sprite, the fastest-growing U.S. soft drink, continued to thrive with its anti-hype “Image Is Nothing” campaign.
Frenette initially floundered when it came to long-troubled Diet Coke advertising. In 1998, his advertising head, Ian Rowden, ran two-year-old ads while trying to come up with something new. Frenette was never billed as an advertising man, but he excelled as a marketing pro. In 1999, he offered excerpts of six bestselling novels in Diet Coke twelve-packs, spurred by research indicating that diet soft drink consumers tended to be affluent, well-educated, voracious readers. The romance novels—including an excerpt from best-selling Nora Roberts, who admitted to being a Diet Coke addict herself—appealed to Diet Coke’s primarily female constituency, though there was also an excerpt from an Elmore Leonard thriller for the men.
Finally, Frenette settled on “Live Your Life” as the diet drink’s slogan. Featuring liberated, self-assured, svelte young women, the Wieden+Kennedy ads had a clever edge. In one, a beautiful young woman stopped in the middle of a desert for a Diet Coke. When a good-looking man pulled up and got out, she watched his car roll over a cliff without stopping it, then casually asked, “Do you need a ride?” In another spot, after interviewing a cute young blond, the head of a video dating service observed, “Sounds like you have a pretty good life.” Takin
g a long, ruminative sip from her Diet Coke, the young woman said, “Thank you,” in a tone of sudden revelation and left without completing the interview, as the slogan “Live Your Life” appeared. The message? To be fulfilled, you don’t need a man: you just need Diet Coke.
Meanwhile, Coca-Cola intensified its drive to penetrate schools to snare youthful consumers early. “Whether it’s a morning pick-me-up, a lunchtime refresher or for after class with friends,” a Coke internal organ advised, “students want their drinks easily accessible.” School officials, eager for soft drink money to supplement their meager budgets, agreed. The Colorado Springs School District signed a ten-year exclusive contract with Coke that guaranteed to bring in $7.5 million—provided, that is, that its 32,500 students bought a sufficient number of soft drinks from the schools’ vending machines. A school district official wrote a letter to each of the principals. “We must sell 70,000 cases of product,” he wrote, “at least once during the first three years of the contract.” To do so, he urged schools to “allow students to purchase and consume vended products throughout the day” and to add more coolers. “The Coke people surveyed the middle and high schools this summer and have suggestions on where to place additional machines.” The school official signed off as “The Coke Dude.”
In 1998 and 1999, hundreds of schools became active participants in marketing soft drinks, signing up for exclusive Coke or Pepsi deals in a veritable feeding frenzy.* “This contract is a godsend,” a procurement director for a Washington, D.C., public school said as he signed on with Coke, allowing the schools to pay for bus tokens for needy students and to replace textbooks. In yet another Colorado contract, a school district planned to build a new stadium with the Coke cash windfall, as well as to improve computer and video technology and boost literacy programs. “Kids and teachers who spend hour after hour after hour in school get thirsty,” a Coke spokesman observed. “Every time they consume a beverage from home, it’s a lost revenue opportunity for the school [and Coke]. So it’s kind of a ‘win win win.’ It’s good for us, good for people who are thirsty who want our products, good for schools.”
Coke soon received an unexpected bonus. Although it was illegal to sell soda as part of the school lunch program, many schools began to give away soft drinks in order to lure students on open campuses into staying for lunch. When Senator Patrick Leahy and several other politicians from milk-producing states proposed legislation to close this loophole, the American School Food Service Association objected, defending the give-away soft drinks as the only way to keep some school lunch programs alive. Ever since John Pemberton, Coca-Cola purveyors had known that “sampling” programs were an excellent way to build business. Now, the schools were doing it for them!
Several new Coke ads made an unabashed appeal to high school students. In one spot, a teenage boy taking an exam reached up and grabbed a Coke that magically appeared overhead. He and a beautiful classmate were lifted up into a fantasy sky of blue. In another ad, a teenager went on and on about philosophical matters until his bored girlfriend suggested, “Do you wanna have a Coke and make out?” In a surreal ad called “Machine Teen Central,” active teens swarmed around a Coke vending machine. Fueled by soft drinks, they rode bikes up buildings, glided above the earth on skateboards, and finally tossed schoolbooks into the air to form a stairway to heaven, the book covers changing to a Coke logo.
Unlike Pepsi, with its lip-synching six-year-old consumer, Coke stuck to its seldom-breached rule that it should not show human children under twelve drinking the beverage. But that didn’t stop Coke from conveying the appropriate message. In a feel-good polar bear ad, Momma Bear lured a wayward baby cub into swimming to safety by offering a Coke. In another spot, baby robins in a nest fought amongst themselves until Mom flew up with a Coke. “Hey, Mom, you rock,” one of her chicks said as he sucked down a Coke.
Roberto Goizueta had always said that Coke products should be more popular than water. In 1999 Doug Ivester went his old mentor one better, introducing a new bottled water called Dasani—an invented word with an African/Italian ring that supposedly connoted crisp purity. Coke had considered a bottled water product for a long time but could never figure out how to make its customary profits. It hit upon a plan to sell its bottlers a patented mix of minerals, which they would add to regular municipal water and bottle in light blue bottles.
With all of this activity, Ivester didn’t appear to be worried. “I have to chuckle sometimes,” he said, “when I read that some analyst is fretting about our ‘global exposure.’ I hate to tell them, but that’s the idea.”
IVESTER’S SUDDEN DEPARTURE
But time was running out for the unflappable Ivester, though he didn’t know it. He remained supremely competent, ruthlessly aggressive, and thoroughly imbued with the Coca-Cola spirit, but no one ever accused him of excessive charm or tact. In September, Ivester created a furor when he revealed that Coke was testing a new vending machine that would automatically charge more in hot weather. “This is a classic situation of supply and demand,” the CEO said. “If demand increases, the price tends to increase. . . . In a final summer championship, when people meet at a stadium to have fun, the utility of an ice-Cold Coca-Cola is very high. So it is fair that it should be more expensive.” The media jumped all over Ivester’s gaffe, with Jay Leno making jokes about it on late-night TV. The Company assured consumers that the machine was merely being tested and had not been installed anywhere, but the damage was done. Ivester remained unconcerned. “It’ll blow over in a day or two,” he told a colleague. But it didn’t. Over a thousand cartoons mocked the greedy hypothetical Coca-Cola vending machine.
As that flap spilled over into October, Ivester appointed three new senior vice presidents in a reorganization that still left him without a number-two chief operating officer. One new VP was Doug Daft, an Australian who had run the Asian Coke division. That realignment prompted a frustrated Carl Ware to resign, since he would now have to report to Daft rather than directly to Ivester. Ware, the Company’s highest-ranking black executive, announced his imminent departure just as the racial discrimination lawsuit was heating up.
That same November, Ivester decided to raise the price of Coca-Cola concentrate by seven percent, much more than the rise of general consumer prices, in order to boost earnings and please financial analysts. The bottlers, who had to absorb the price increase, were infuriated. Summerfield “Skey” Johnston Jr., the head of giant bottler Coca-Cola Enterprises, complained to the legendary Don Keough, seventy-two, who had served as a Coca-Cola consultant to the board until 1998, when Ivester had failed to renew his contract.
Keough didn’t like Ivester, whom he regarded as a cold fish. “To be a dour, uptight person selling Coca-Cola is a contradiction in terms,” he observed in a thinly veiled reference to Ivester. Now Keough talked to Herb Allen and Warren Buffett, the two most powerful members of the Coca-Cola board of directors, who were major shareholders as well.
Allen and Buffett arranged to meet Ivester on Wednesday, December 1, 1999, in Chicago, where the Coke CEO had a meeting with McDonald’s executives. That afternoon, the three converged in the airport hangar for private executive jets. The meeting didn’t last long. Without sitting down or removing their coats, Allen and Buffett told Ivester that they wanted him to resign.
The following Sunday, at a specially convened board meeting, the board made it official. The following day, Doug Ivester, only fifty-two, announced his premature retirement in a few months. Starting immediately, Australian Coke executive Douglas N. Daft, fifty-six, would step in as president and chief operating officer. He would become the CEO when Ivester departed. Leaders in the business world, even other Coca-Cola executives, were stunned by the news.
Doug Ivester had presided over a disastrous end to the twentieth century, during which Coke’s share price fell to a heart-stopping low of $47 in October 1999 before staggering back to drift in the $60s. “The last two years have been a pseudo-trauma for Coke on so many fronts
,” observed a Merrill Lynch analyst. “When it rains, it pours. But they were in a monsoon.” The disastrous Belgian health scare, the failed attempts to buy Orangina and Cadbury Schweppes, the racial discrimination case, the resignation of Carl Ware, the uproar over the price-adjusting vending machines, and the bottlers’ fury over the price hike for concentrate—they had all been too much for the board.
In a way, the departing CEO was a scapegoat. Had Goizueta lived, he would have faced the same disasters—a global economic downturn flowing out of Asia, a stronger dollar hurting overseas profits, and the rest. Conceivably, however, the astute, aristocratic Goizueta would have moved more quickly to counter each threat to his beloved company. And Goizueta would have sought help from Don Keough.
Ivester’s refusal to appoint a second-in-command may have sealed his fate. Some stockholders faulted him for failing to repurchase huge chunks of stock to stem the share price tumble. All in all, Ivester probably fell, like Caesar, from a “thousand cuts,” as one observer put it. And certainly, Ivester’s lukewarm personality did not win him many close friends in the company.
Now, of course, the big question was what would happen to Coke.
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* The lawsuit, which Pepsi lost two years later, was symptomatic of Enrico’s new litigious strategy. Pepsi had already sued Coke in India (where Coke had returned in 1993), accusing its rival of unfairly hiring away Pepsi employees, and in France Pepsi had filed a motion to block Coke’s proposed purchase of Orangina. In Italy, Pepsi was delighted when the government began an antitrust probe against Coke.
* In 1980, there were 353 Coke bottlers in the United States. By 1999, there were 96.
For God, Country, and Coca-Cola Page 68
