No wonder Doug Daft fled Atlanta to return to his native Australia even before Isdell showed up in June. During his first months on the job, Isdell kept a low profile. Even though a former colleague called Isdell “the best speaker and communicator that I’ve seen at Coke,” the new CEO took a vow of public silence for his first a hundred and twenty days, as he hopped around the globe to assess the state of the far-flung Coca-Cola empire.
What he found was disheartening, “an atmosphere of fear and disaffection,” as he later admitted. He found managers who were out of touch or incompetent. Bottlers in Mexico and Brazil were unhappy with the Company’s advertising, which Isdell called “atrocious.” Isdell inherited C2, a newly introduced mid-calorie cola that was neither a real diet drink nor a full sugar offering. Overpriced and poorly marketed, it failed.
Steve Heyer had championed C2 and the advertising Isdell despised. Worse, Heyer had deeply offended McDonald’s, Coke’s most important fountain customer, by gloating over a new contract with Subway, inaccurately implying that Subway got better terms. On his first day on the job, Isdell flew to Chicago to assure the McDonald’s CEO, “I will fix the problem.” Heyer seemed oblivious to his fate, calling Isdell a “terrific guy” and asserting that they would be “great partners.” But Heyer was forced to announce his impending departure less than two weeks after Isdell took the reins at Coke.
Isdell began to fill management gaps. He named fellow Irishman Irial Finan, another Coke veteran, as head of Coke’s bottling investments, Chuck Fruit as chief marketing officer, and Cynthia McCague as head of human resources. But he didn’t name a new president to replace Heyer. “I simply did not believe that there was anyone in the company at the time who was qualified for the job,” he recalled, “which illustrates how badly flawed Coca-Cola’s succession management had been.”
ENDING THE SILENCE
When Neville Isdell became CEO in June 2004, Coca-Cola stock sold for a bit over $51, but it sank below $45 by September 1. Summer soft drink sales had slumped, in part because of bad weather (cool, with lots of hurricanes) and obesity concerns, but mostly because giant bottler Coca-Cola Enterprises kept raising prices as part of its strategy to optimize profits rather than volume. Four analysts downgraded Coke shares. On Wednesday, September 15, Merrill Lynch cut its recommendation from “buy” to “neutral,” and the stock fell to $41.
Isdell had sworn not to speak in public until October, but he broke his silence that day. He was amazingly blunt. “We have a lot of good people, but not much depth in talent.” There was no silver bullet that would turn things around. The key to restoring a “winning culture” was attending to the nitty-gritty details, “the millions of things that need to be done right every day.” Yes, the relationship with CCE was fraught with tension, but the two cousin companies were talking about how to fix it. “We need to anticipate and meet the needs of increasingly health-conscious consumers,” he said, but Isdell insisted that “carbonated soft drinks can grow. They’re the largest beverage category in the world, and they’re the most profitable.” Most of that growth would come from outside North America, notably in China, India, Indonesia, Brazil, and Africa. He promised to hold a meeting for stock analysts in two months.
His candor didn’t help. On September 17, Coke shares dipped below $40. Isdell later admitted, “There were legitimate concerns that if the share price dropped too low, the Company could be a takeover target,” either from a leveraged buyout or a Nestle merger. “We had to grow revenue and improve the bottom line to move our stock price up again, or we risked losing control of the Company.”
Behind the scenes, in mid-October Isdell flew to Brussels to meet with the European Commissioner for Competition, Mario Monti, agreeing to a settlement of the five-year-old EU anti-trust investigation. Coke would allow some competitive drinks to be sold in its coolers, along with other concessions and promises that would, Monti announced, “level the playing field.” The Company admitted no guilt and paid no fine. The two men hit it off. Later, after Monti left his position, Isdell asked him to join Coca-Cola’s international advisory board.*
As expected, third-quarter results for the Company, announced in late October, were dismal. Volume had increased only 1 percent worldwide and had fallen 3 percent in North America. When Isdell met with stock analysts at New York’s Plaza Hotel on November 11, he made “no grand pronouncements, no rosy promises.” Don’t expect 2005 to be much better than 2004, Isdell warned. But over the long haul, he expected sales volume growth of 3 to 4 percent annually. He announced a permanent $400 million annual increase in marketing, boosting the total yearly expense to well over $2 billion. “The opportunities out there are absolutely enormous,” Isdell emphasized, but the Company needed better execution around the globe, along with effective advertising and new products. “We want our people to believe they can succeed again.”
THE COCA-COLA MANIFESTO
To re-instill that confidence, in March 2005 Isdell began a four-month process, kicking it off in a London hotel with a three-day meeting with a hundred and fifty top Coke executives, who were shocked to see enlarged quotations from an internal employee survey on the walls. “We don’t trust management,” read one. “Our marketing is terrible,” asserted a second assessment. “We have no strategy,” lamented another. Isdell split participants into small groups for the first day of the “catharsis stage,” as he put it. The next day, he opened up the floor for discussion. One executive suggested that Coke needed to buy another large company, as Pepsi had long ago purchased Frito-Lay snack foods. “Why would we buy another company when we can’t seem to figure out how to run this one?” Isdell asked. “Or do we need to buy another company in order to run ours because we can’t?”
Over four hundred Coke employees took part in this intensive self-assessment, which ultimately produced a large-print pamphlet entitled “Our Manifesto for Growth,” a kind of capitalist reverse spin of the Marx-Engels Communist Manifesto. “In recent years, we’ve lacked a clear direction and a common understanding of our purpose as a company,” it began. “We’ve dealt with challenges reactively and separately, not as a team. We’ve been too focused on the short term.”
The pamphlet contained no startling innovations, but plenty of hackneyed aphorisms. “Accountability: If it is to be, it’s up to me,” for instance, or “Innovation: Seek, imagine, create, delight.” At its heart were five Ps. Not surprising, the first was Profit, followed by People (“being a great place to work where people are inspired”), Portfolio (a wide range of beverages), Partners (“a winning network” of bottlers and customers), and, finally, Planet (“being a responsible global citizen”).
The “Manifesto” was vague on details, but at least it acknowledged that there was a problem and provided a blueprint of sorts. Most importantly, it involved employees, convincing them that management actually cared about them. “It became their plan,” Isdell said. “They owned it and believed in it. No edict from the mount or sales job was needed.”
A YEAR OF TRANSITION
As predicted, 2005 proved to be a wait-and-see year, with the stock bumping along just over $40. In March, Isdell appointed two high-profile managers. Mary Min-nick, forty-five, a twenty-two-year Coca-Cola veteran who had been running Coke’s Asian operations, moved to Atlanta as the head of marketing, innovation, and strategic growth, a new position. She thus became the most powerful female leader the Company had ever had.* With her tough, demanding personality, she was dubbed Scary Mary and Minnick the Cynic. Some observers speculated that she might become Isdell’s heir apparent, though Irial Finan and Don Knauss, head of Coke North America, were also seen as contenders.
At the same time, Isdell brought back Muhtar Kent to run a newly designated division covering North Asia, Eurasia, and the Middle East, which included Japan, China, and Russia. Kent, fifty-two, a Turkish-American, had worked as Isdell’s right-hand man in Eastern Europe as Coke moved quickly to build market share after the end of the Cold War in the early 1990s. “
We were corporate cowboys,” Isdell recalled fondly. But in 1998, Kent had resigned from Australian bottler Coca-Cola Amatil two years after he shorted its stock just before the bottler announced disappointing results, which gave the appearance of illegal insider trading. Kent claimed that his financial advisor had shorted the stock without his input and that the timing was a “bad coincidence.” His reputation tarnished, he gave up his $324,000 profit and paid the cost of the investigation.
Since then, Kent had been CEO of Efes Beverage Group, a Turkish Coke bottler and beer brewer. The scandal was “in the past,” a Company spokesman said, while Isdell praised Kent for his “deep understanding of building brands and operations in developed and developing markets.”
In 2005, the Company began to move new alternative drinks into the pipeline. To compete in the “energy drink” category of high-caffeine drinks, pioneered by Red Bull and now led by drinks called Rockstar and Monster, Coke introduced Full Throttle, marketing it to young blue-collar macho men, “the guy’s guy,” as a manager put it. Vault, touted as a hybrid citrus-energy drink, was Coke’s new attempt to compete with Pepsi’s Mountain Dew, following the demise of Coke’s ill-fated Surge in 2002. Powerade Option was intended to compete with Pepsi’s Propel Fitness Water, a flavored vitamin-enhanced water.
But the biggest gamble was the June introduction of Coca-Cola Zero, a second low-calorie cola. Diet Coke, already a huge success, primarily attracted women. Coke Zero was supposed to appeal to weight-conscious men who didn’t want to be seen drinking a “diet” soda. The Company dispensed twenty million free samples, along with a TV spot featuring G. Love (Garrett Dutton) singing a version of the classic 1971 Hilltop commercial, recast as “Chilltop” and capped by the tagline “Everybody Chill.” Filmed on a Philadelphia rooftop, the spot was a kind of hip-hop desecration of the original: “I’d like to teach the world to chill, / Take time to stop and smile. / I’d like to buy the world a Coke / And chill with it a while.”
The campaign flopped, with lackluster initial sales. In trying to position Coke Zero as a no-calorie alternative to Coke Classic without cannibalizing Diet Coke sales, the vague ads failed to convey the essential message that Coke Zero had zero calories. In September, Isdell directed flavor scientists to use the original Coca-Cola formula for Coke Zero, sweetened in the United States with aspartame and acesulfame potassium. In November, new commercials carried the message “Coca-Cola taste, zero calories. . . . Try to believe it!” Isdell insisted that Coke Zero was meeting expectations, but its future remained uncertain.
Coca-Cola’s marketing efforts also remained uncertain. Mary Minnick nixed new Coke Classic ads prepared under Steve Heyer. They were never made public. In July 2005, she held a meeting in Paris with eight advertising agencies, asking them to submit ideas to reassert Coca-Cola’s iconic status. Wieden+Kennedy, a Portland, Oregon, agency, won the shootout, stealing most of the Coca-Cola Classic ad assignments from Berlin Cameron, which Heyer had championed. Nonetheless, Berlin Cameron’s swan song was a hit, a Christmas ad bringing back the beloved Coke polar bears, along with cute Coke-sipping penguins.
CONFRONTING CONFLAGRATIONS
Neville Isdell spent much of 2005 trying to put out fires. In April, the Company reached a settlement with the Securities and Exchange Commission, agreeing to strengthen its internal accounting controls, and the Justice Department simultaneously closed its two-year investigation. Coke paid no fine and neither admitted nor denied the channel-stuffing allegations.
But the problems caused by the obesity epidemic wouldn’t go away. Coke agreed to put clearer calorie content on its labels, but that didn’t mollify critics who wanted sugary Coke products out of schools. In June, New Jersey became the first state to ban soft drinks from high schools. In August, the American Beverage Association* announced that Coke, Pepsi, and the rest of the soft drink industry would voluntarily ban sugar sodas in elementary and middle schools but would still allow half of their high school vending machines to carry soft drinks.
With thirty-eight states considering school nutrition legislation, this partial retreat didn’t satisfy critics, who also pointed out that Minute Maid orange juice contained more calories than the equivalent amount of Coca-Cola, and that sports drinks contained about half the calories of soda. In November 2005, lawyers who had successfully conducted class-action suits against tobacco took aim at soft drinks. Law professor Richard Daynard said that soft drink coolers were “a little like having a cigarette machine in a school.” They planned to sue on the grounds of deceptive advertising, arguing that school vending machines implied that the contents were good for students. Caffeine and sugar were a “toxic cocktail that children cannot easily refuse,” another lawyer said.
The tide of public opinion was shifting. Even Coke’s hometown paper, the Atlanta Journal-Constitution, editorialized that “schools ought to end their unholy alliance with the soft drink industry,” arguing that “the lawyers shouldn’t stop with soda” and should also tackle junk food.
“I don’t think there is anything inherently wrong with carbonated soft drinks,” Neville Isdell responded defensively, but “certain consumer perceptions” needed to be addressed. To do so, Coke had established the Beverage Institute for Health and Wellness to support nutritional research, education, and outreach, and to help create healthful drinks. The Step With It! program, begun under Daft, had reached over one million students. Coke now enlisted bicycle racer Lance Armstrong and other sports figures to promote “Live It,” a program to encourage sixth-graders to exercise and eat a balanced diet. None of the material featured the Coke logo, but the nutritional advice didn’t mention beverages either.
Obesity wasn’t just an American problem. According to the World Health Organization, over 1 billion adults were overweight, and “obesity has reached epidemic proportions globally.” In response, Coke funded “Active Factor” sports activities in Australia, sponsored bicycling in Denmark, worked in Thailand to promote “Thai Kids on the Move” in schools, and started exercise programs in Korea, Italy, and China. In the Philippines, Coke piloted Nutribreak, providing juice drinks and protein-rich food supplements to prevent malnutrition.
Yet Coca-Cola also helped to fund the Center for Consumer Freedom, a corporate front group that had originally defended the tobacco industry. In 2005, the CCF took out full-page newspaper ads lambasting the “food police” and trial lawyers who “force-fed a steady diet of obesity myths.” A Coke spokesman acknowledged that the Company gave money to CCF to provide “another voice in the debate,” though she added that Coke did “take the obesity issue very seriously.”
Isdell presided over his first annual shareholder’s meeting in April 2005, fielding a variety of hostile comments about the Colombian murders, water depletion in India, childhood obesity, and plastic bottles. “As a former student activist,” Isdell said with apparent sincerity, “I came to the Colombia issue with an open mind. But ultimately I came to the conclusion that the allegations are not true.” He cited a recently completed investigation by Cal Safety, a California monitoring firm Coke had hired. But when Ray Rogers, head of the Killer Coke campaign, got to the microphone, he lambasted the report as “tantamount to the fox guarding the henhouse,” since Coke had paid for the investigation. Cal Safety had looked only at current conditions at Colombian bottlers, not at the murders of the past. Rogers and college student activists called for an independent investigation.
The University of Michigan threatened to ban Coca-Cola products if the Company didn’t commission an independent audit. Coke demurred, fearful that the results could be used in the pending lawsuit, and the university threw Coke off campus at the end of 2005, joining eight other U.S. colleges where the soft drinks were no longer allowed.
The previous month, the International Labor Rights Fund brought suit against Coca-Cola and a Turkish bottler for firing employees who had tried to unionize. When they occupied an Istanbul bottling plant, they and their family members were beaten by police. Coke said
that the protestors had worked for a third-party contractor, even though their job was to deliver Coca-Cola products.*
Throughout 2005, Coke’s water usage in India continued to cause problems. As the Plachimada plant remained closed, Coke noted that local water supplies continued to dwindle anyway. Elsewhere, protests in Mehdiganj escalated. “My crops stopped growing,” complained a farmer just outside the bottling plant. “My mango trees are without fruit.” Yet the beverage industry accounted for only.02 percent of India’s water use, while 81 percent was used for irrigation. “There were two million wells in India 30 years ago,” wrote Michael Specter in a New Yorker article the following year. “Today, there are 23 million. . . . As sources dry up and wells are abandoned, farmers have turned on each other.” Others committed suicide. But Coke was the most popular villain.
“Why would we want to destroy something or drain something that is so critical to our business?” asked Harry Ott, director of Coke’s new Global Center for Water Excellence. Coke was using water not only for its beverages but also for washing and processing. The Company began rain-harvesting efforts, claiming to return much of the wastewater to aquifers, but in a drought, there was little rain to harvest.
For God, Country, and Coca-Cola Page 73
