The moral, obviously, was to pursue other alternatives. Overseas, Fanta was sold in a hundred and eighty-eight countries, but since 1986 it hadn’t even been available in the United States, where it had the image of an old-fashioned orange or grape soda pop. Coke’s Minute Maid orange juice lagged far behind Pepsi’s premium Tropicana brand, and its Dasani bottled water, introduced in 1999, trailed Pepsi’s Aquafina.
Coke did make moves into non-carbonated beverages in the first two years of the new century. It made sense for the Company to purchase established brands that could take advantage of Coke’s marketing muscle and ubiquitous distribution system. On November 20, 2000, Doug Daft announced a bold bid to purchase Quaker Oats, owner of Gatorade, the dominant sports drink that held 83 percent of the category, dwarfing Coke’s Powerade imitator. Coke agreed to pay $16 billion for Quaker, intent on owning Gatorade, but also acquiring Cap’n Crunch cereal, Quaker Oatmeal, Rice-A-Roni, and Aunt Jemima pancake mixes. Regulations would require Coke to keep these food products for two years, but then analysts expected them to be spun off for $5 billion or so.
The following day, a jubilant Daft posed for pictures with the Quaker CEO, but that evening, during a long meeting of the Coca-Cola board, a unanimous vote vetoed the deal. Warren Buffett, Coke’s major shareholder, apparently feared the deal’s impact on his holdings. Although the board issued a statement affirming its “enthusiastic support” of Daft, the new CEO was publicly humiliated, and Pepsi subsequently swooped in and bought Quaker. “The collapse of the deal leaves Coke without a clear strategy for pulling ahead in the noncarbonated beverage business,” observed the New York Times, “the only rapidly growing segment of the soft-drink industry.”
Coke did make smaller acquisitions, buying the P. J. Bean Company of Ozone Park, New York, in order to get its Planet Java bottled coffee drinks, hoping to make it a competitor to Frappuccino, the successful Starbucks/PepsiCo joint venture. Then the Company purchased Mad River Traders, a small Connecticut firm that made juices and teas such as Mountain Style Lemonade and ginseng-fortified Forbidden Fruit. In its biggest and most effective grab, Coke bought Odwalla, maker of fruit and vegetable juices, based in Half Moon Bay, California, for $181 million.
The Company created a few beverages from scratch, but they were late imitations of front-runners. KMX, a caffeinated energy drink meant to compete with Red Bull, was a flop. In Brazil, Coke introduced Kuat, a drink made from guarana (an Amazonian fruit with caffeine, reputed to be an aphrodisiac) to compete with the dominant Guarana Antarctica. Most significantly, it created Simply Orange, a not-from-concentrate orange juice, to challenge Tropicana Pure Premium.
Recognizing that the Company was perhaps too big and bureaucratic to be creative, Coke in March 2001 also funded a new subsidiary called Fizzion, which would provide $250,000 seed money to each of fifteen start-up ventures it hoped to recruit for its incubator offices near Coke headquarters. The idea was to promote services and products that could help the Company. But Fizzion soon fizzled.
Reaching out in other directions, Coca-Cola expanded its joint venture for ready-to-drink teas and coffees with Nestle, renaming the effort Beverage Partners Worldwide. The Company also announced a joint marketing effort with Procter & Gamble in which Coke would distribute Pringles potato chips—about the same size as its beverages—in vending machines. In return, P&G would help Coke add nutritional supplements to new drinks. In May 2001, Doug Daft revealed that in Cape Coral, Florida, Coke and P&G were test-marketing Elations, a drink containing glucosamine, supposed to slow cartilage deterioration. Daft called Elations, aimed at the geriatric market, “youth in a bottle,” and said that he hoped it would eventually be available “in every gas station, supermarket and convenience store in America.”
But his elation was short-lived. The drink disappeared in the midst of a rancorous breakup with Procter & Gamble. Coke belatedly realized that selling P&G’s Pringles and Sunny Delight juices would displace its own drinks, and that it could add its own nutritional supplements without P&G’s help. Procter responded by suing Coke, claiming that the Company was stealing its trade secrets for calcium fortification.
While Coca-Cola struggled, an aggressive Pepsi surged. It purchased SoBe, the hip purveyor of Zen Blend, Tsunami, Strawberry Carrot Elixir, and other “functional beverages” that promised health benefits by including ingredients such as ginkgo, bee pollen, St. John’s wort, and kava kava. Pepsi snagged the Big Boy chain’s business from Coke. To reignite interest in the cola wars, Pepsi resumed a version of the venerable Pepsi Challenge campaign, pitting Pepsi One against Diet Coke in blind taste tests.
In March 2001, the iconoclastic Motley Fool’s financial advisor Matt Richey compared Coke and PepsiCo, pointing out that, while their sales figures were remarkably similar, Coke carried a market capitalization nearly double that of Pepsi. “There’s a myth to dispel here,” wrote Richey. “Pepsico is growing sales four times faster than Coke; Pepsico has a better ratio of cash versus debt. . . . There’s no doubt which company is running the better operation here.”
For the first three months of 2001, Coca-Cola was the worst-performing stock in the Dow Jones Industrial Average, plummeting 25 percent. In a call with analysts and reporters, Doug Daft admitted, “The past year has been incredibly challenging on many levels.” Veteran beverage analyst Manny Goldman summed up the general reaction. “Come on, this is Coca-Cola! It has the greatest distribution in the world, fabulous brands, a history of great marketing, and this is the best they can do?”
FLAILING AND FAILING
It almost seemed that Doug Daft was jinxed. The bad news just kept coming. In Senegal, the Company suspended production when a “moldlike substance” was found in Sprite and Coca-Cola bottles. In France, Coca-Cola bottles with a “packaging defect” that might cause the glass to splinter were recalled. In Belgium, Fanta Pomelo, a newly developed citrus drink following Daft’s “think local” initiative, was withdrawn because it changed color and developed an off-taste when exposed to light. Coming so soon after the huge 1999 Belgian health scare, the recall was particularly unfortunate.
In October 2000, a Coke shareholder sued the Company for having misled investors and artificially boosting the share price by requiring bottlers to buy more concentrate than they needed—a practice known as “channel-stuffing.” RC Cola won an anti-trust case against Coca-Cola that provided evidence of the heavy-handed bullying tactics employed during the Ivester era. “Coca-Cola products will occupy a minimum of 100 percent total soft-drink space,” read one agreement with an Arkansas drugstore chain. Other restrictions allowed competitive brands to appear only on bottom shelves. Coca-Cola Enterprises offered “clean agreements” to grocery stores in Phoenix, Arizona, giving them extra discounts on wholesale Coke if their weekly newspaper ads didn’t include other drinks. “They call it clean,” said a local RC Cola and 7-Up bottler. “Clean us out is what they did.”
Looking for evidence of similar practices overseas, European Union investigators conducted dawn raids in Coke’s British, Belgian, and Spanish offices, while Costa Rica’s anti-trust commission began an inquiry into whether Latin America’s biggest Coke bottler, Panamerican Beverages, had tried to shut out competitors the same way. As Coke’s business declined, its bottlers suffered. Panamerican fired 3,300 employees. Coca-Cola Enterprises, the dominant U.S. bottler, axed 2,000 workers.
Increasingly, The Coca-Cola Company was perceived as offering unhealthy beverages. In 2001, Coke got terrible press for its campaign called H2NO, urging restaurants to discourage customers from drinking tap water rather than soft drinks. Of course, Dasani, which was specially treated tap water, was a different matter. “Coca-Cola now seems eager to promote water,” a cynical journalist noted, “just not the free kind.” When Coca-Cola signed a $150 million deal to make Coke the only global marketing partner for the film Harry Potter and the Sorcerer’s Stone, demonstrators protested, even though the Company was supporting literacy programs as part of the promotion. �
�It’s a betrayal of [author J. K. Rowling’s] audience to allow Harry Potter imagery to be used to sell junk food to kids,” said Michael Jacobson of the Center for Science in the Public Interest, who dismissed soft drinks as “liquid candy.”
The public schools of Madison, Wisconsin, had signed a three-year contract with Coke in 1997, giving the schools a $100,000 signing bonus and $515,000 in upfront commissions. But in 2000, loud public opposition led the Madison school board to cancel a renewal of the deal, even though Coke offered another $100,000 bonus, promised to reduce the advertising on its high school vending machines, and agreed to loan the district four vending machines in which they could put whatever nutritious drinks they chose. The following year, a study of Massachusetts children indicated that one extra soft drink a day gave children a 60 percent greater chance of becoming over-weight. Coke announced that it would include its juice, milk, and water products in school vending machines and would end exclusive contracts in a few districts, but the concern over childhood obesity would only build, along with criticism of Coca-Cola.
Coke appeared to be under siege internationally as well. In July 2001, the International Labor Rights Fund, in conjunction with the United Steelworkers union, filed a lawsuit in federal district court in Miami against The Coca-Cola Company and two bottlers for complicity in the murder and intimidation of union employees at Colombian Coke bottling plants.* The most explosive charges involved the Bebidasy Alimentos plant in Carepa, owned by Miami businessman Richard Kirby. Three union organizers had been killed there in the mid-1990s, allegedly with the approval of the plant management. A spokesperson for Coke denied any culpability, insisting, “We adhere to the highest standards of ethical conduct and business practices,” but the accusations were destined to plague the Company for years to come.
Meanwhile, in Asia, Coca-Cola served as a convenient symbol for U.S. capitalism and imperialism. In October 2001, the radical People’s War Group bombed a Coke plant in southern India in protest of the American invasion of Afghanistan. A month later, Maoist rebels attacked a Coca-Cola factory in Nepal.
In reaction to the problems besieging him from all sides, Doug Daft made a flurry of personnel changes. President and COO Jack Stahl, who was still identified as an Ivester apostle and who had opposed the Quaker/Gatorade purchase, found himself shut out of important meetings. He departed on March 5, 2001, having signed an agreement not to say anything “disparaging” about Coca-Cola. Three days later, Steve Heyer, a hotshot executive at Turner Broadcasting, was hired as an apparent heir to Daft, swiftly moving up the ladder from job to job.
In July, Daft summoned Brian Dyson, sixty-five, out of retirement to serve for a two-year term as a vice chairman and COO, a stopgap measure. Dyson was identified with the New Coke debacle and had had a rough time as head of Coca-Coca Enterprises, but Don Keough liked him and remembered his stirring speech to the disheartened bottlers back in 1989, in which Dyson said, “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.” But Coke’s twenty-first-century problems wouldn’t yield to Dyson. A week after Dyson came aboard, Charlie Frenette, who had served as chief marketing officer, then head of Coke’s European and African operations, resigned, signing a gag order similar to Stahl’s.
In October 2001, Coke announced a confusing reshuffle of its ad agency assignments, with most assignments going to the Interpublic Group and WPP Group. Most Coca-Cola Classic ads were consolidated at McCann Erickson, part of Interpublic. Sprite, which had been handled by Lowe Lintas for years, was shifted to Ogilvy & Mather, part of WPP, because Steve Heyer was impressed with the agency. At the same time, Diet Coke was snatched from Wieden+Kennedy and given to Lowe Lintas. In the most dramatic shift, Powerade, Dasani, and Minute Maid advertising went to Foote, Cone & Belding, part of Interpublic. Until then, Foote, Cone had created Pepsi’s ads for the directly competing drinks, Gatorade, Aquafina, and Tropicana. Pepsi sued to prevent the admen from revealing their marketing strategies. In November, the companies reached a settlement, agreeing that the Foote, Cone creatives who had worked on the Pepsi accounted couldn’t make Coke ads until the following summer. “The good news is that it’s over,” said an ad executive. “I’d like to get back to the business of advertising instead of testifying.”
In the welter of confusion plaguing his first two years as Coke’s CEO, the desperate Daft reached back to his Asian past and hired a feng shui expert to study the chi of the Coca-Cola headquarters on North Avenue. The feng shui master moved furniture around, repositioned mirrors, and removed a table and potted plants from Daft’s office to create a more open space for good energy flow. And he placed a large ceramic rooster near Daft, presumably to add to his power aura. But the changes did little other than to make some insiders conclude that Daft was, indeed, daft.
PLAYING NOT TO LOSE
Over the next two years, Steve Heyer’s prominence within the Company became ever more apparent as Daft got quieter. In March 2002, a journalist observed that Heyer was “an aggressive force at Coke and may be gunning for Daft’s job.” In May, the fifty-year-old Heyer became the head of the company’s Latin American division. In December, he was named president and chief operating officer, as Brian Dyson once again retired.
Smart, abrasive, and self-assured, Heyer was expected to shake things up. In the slick 2002 annual report, which came out in the spring of 2003, Daft unaccountably wasn’t in a photo of top Coke executives, while Heyer appeared front and center, sitting on a table around which others stood or sat. Amidst swirling speculation that he might stage a coup, Heyer reassured everyone that Daft was “going to stick around for a long time,” and that “so far as I’m concerned, my ambitions have been paid in full. If this is my last job at the Coca-Cola Company, that’s great.” Few believed him. “Clearly he has a strategy that’s not yet been revealed to Wall Street,” said an investment banker. “I’ve got to believe that he’s going to do something transformative.”
The first tangible results of Heyer’s handiwork appeared at the onset of 2003. With much fanfare, Coke unveiled ads with a new slogan, “Coca-Cola . . . Real,” hearkening back to the venerable Real Thing era. Heyer gave the campaign to a relatively small upstart agency, Berlin Cameron, which previously had handled only Dasani and Mello Yello. Rhythm-and-blues singer Mya and hip-hop artist Common sang “Real Compared to What?” in a rip-off of a classic jazz song. In one ad, Common (born on Chicago’s South Side as Lonnie Rashid Lynn) maintains the common touch by rejecting plans for a toy action figure modeled on him. The idea, of course, was that he remained authentic, like the “real” Coca-Cola.
Actor David Arquette and his wife at the time, Courtney Cox, appeared in a lowkey ad in which Cox shares a single bottle of Coke with her husband by loading his glass with ice so that she gets all of the remainder. In another spot, sexy actress Penélope Cruz, dressed in a clinging halter top, walks into a bar and downs an entire bottle of Coke in one gulp, as stunned customers stare. She burps loudly, then smiles demurely. The ads weren’t bad, and they were a distinct improvement over the “vertiginous photography . . . kids on street luges [and] grinning ethnic actors trying to look gently urban” that critic Bob Garfield despised.
Yet all the new ads had a slightly negative twist, and the slogan was just about as dull as the failed “Coca-Cola, Enjoy.” The ads didn’t reverse the shift toward supposedly healthier alternatives. Nor did Coke’s sponsorship of American Idol, the top-rated TV talent contest, where contestants sipped Coke while sitting on Coca-Cola-red sofas in front of screens with spinning Coke bottles. “There’s something a bit sad about how the ground has shifted under Coke,” observed one journalist. “At this point when it comes to the flagship brand, Coke is no longer playing to win; it is playing not to lose, clinging to the one magic formula it could always count on.” To stem the tide, the company introduced Vanilla Coke and Diet Coke with Lemon. The two line extensions temporarily boosted sales in the cola categ
ory, but they had no staying power. Diet Coke ads featured yet another slogan, “Do What Feels Good,” showing a young man and woman who end up dancing in a movie theater aisle after lip-synching to Casablanca lines. Sweet, but the ads didn’t lift sales.
The Company continued its efforts to add non-cola beverages. It tried another line extension, Sprite Remix (to offer a “tropical taste”), which bombed. With more success, the company brought Fanta back to the United States, introducing four sexy multi-ethnic women dubbed the Fantanas, who dressed in color-coded hot pants to represent Strawberry, Grape, Pineapple, and Orange. In television spots the sexy Fantanas magically appeared to offer hydration. “Wanta Fanta? Don’t you wanta, wanta Fanta, don’t you wanta?” they sang seductively. Coke was clearly appealing to horny teens who would mentally replace “Wanta Fanta?” with another F-word.
The Company introduced BeginIt, a whey-fruit drink, and Swerve, a vitaminfortified dairy beverage, as healthy alternatives, but few swerved out of their way to buy them. Plain old water seemed the most hopeful “new” drink, so Coke bought Valser, a Swiss bottled-water company, and Neverfail Springwater in Australia. The Company ramped up marketing efforts for Dasani, shifting from the traditional emphasis on purity to show attractive young people cavorting, flirting, dancing, and romancing between slurps of Dasani. In one commercial, a young black couple grope each other in an elevator while a security camera captures the steamy scene, but it turns out they’re married. “There are no spas, babbling brooks or yoga,” a Dasani brand manager noted. Coke priced Dasani as a mid-range water, below the imported Evian and above the cheaper Dannon, both of which the Company also distributed. Coke announced plans to introduce Dasani to the European market soon.
For God, Country, and Coca-Cola Page 70
