The Coke Machine (11 page)

And it wasn’t enough to get more people to drink Coke products—it was also important for those already drinking Coke to drink more of them. Company statistics showed that of the 64 ounces the average person drank in a day, Coke products accounted for just a miserable two of them. It was Zyman’s job to think of ways to get people to increase that number; after all, in his native Mexico, it was common for people to drink three or four cans a day. “These are the consumers you want,” he said. “And you want to make sure that you capture all of them.”

Zyman came up with a new concept he called “dimensionalizing,” which he defined as giving people more reasons to drink beyond Coke’s “original selling proposition.” If a person had eight drinks a week because he was thirsty, then telling him to be sociable might drive that up to ten. “Then you have to create a new reason after 10,” said Zyman. In order to get a better handle on the various reasons to drink Coke, the company had 3,600 super-consumers—whom they called, without irony, “heavy users”—to keep diaries of all of the occasions when they drank, which the marketers called “need states.”

The research was enormously successful, revealing 40,000 separate occasions when the test subjects might pop open a can. Zyman distilled them down to thirty-five different reasons to drink Coke, or “dimensions,” including: “Coke is part of my life. It understands me. Cool people drink it. People of all ages drink it. It has a bite and a distinctive taste. It comes in a contour bottle. It is modern, funny, emotional, simple, large, friendly, consistent, and everywhere.” Of course, such an approach to advertising raises the question: At what point are you anticipating customers’ needs and at what point are you creating them? Coke didn’t dwell on the question long. For each attribute, the marketers designed a different ad, rolling them all together in a new campaign under the slogan “Always Coca-Cola” (which had the delicious double entendre of harkening back to Coke’s heritage while encouraging consumers to drink it at every occasion).

At the same time, Zyman shook up Madison Avenue by spreading work among different agencies, having them compete for Coke’s vast advertising war chest. Along with Apple and Nike, Coke even began to contract out to Hollywood powerhouse Creative Artists Agency, which created one of Coke’s most compelling symbols. During the 1993 Academy Awards presentation, TV viewers were introduced to a computer-generated family of polar bears watching the northern lights in a vast expanse of ice with nothing to break up the monotony but the familiar logo of Coca-Cola. The bear clan returned for the following holiday season, Coke’s most successful branding of Christmas since it introduced its Santa Claus ads in the 1930s.

The polar bears were the perfect new branding agent in an era when branding was king. A few years after New Coke taught the Coca-Cola Company the value of its brand name, the rest of Wall Street learned the same lesson when Philip Morris cut the price of its Marlboro cigarettes by 20 percent to compete with generics flooding the market. Immediately Philip Morris’s stock dropped, along with Coca-Cola and many other brands, as the financial press rang a death knell for the brand.

A few weeks after the incident, Goizueta called Wall Street analysts down to an emergency meeting in Atlanta. “We are getting a bum rap,” he whined. “It’s one thing when your stock drops 10 percent because of a mistake your company has made . . . but it’s something else . . . when it drops because of a business with totally different financial and social dynamics.” For the next four hours, he patiently explained why people might not pay for a Marlboro but they would pay for a Coke. And he was right. Coke’s stock righted itself in a few weeks.

As Naomi Klein recounts in her book
No Logo
, the real lesson of “Marlboro Friday” was that companies needed to invest more money in branding, not less. The companies that succeeded after the recession of the early 1990s were those that wrapped consumers in their products, creating not just an association with their product but a complete lifestyle—think Starbucks, Disney, Apple, Calvin Klein, and Nike. “And then there were companies that had always understood that they were selling brands before product,” writes Klein, citing Coke at the top of her list. As Disney opened Disney Stores in malls across America, Coke followed suit on a smaller scale with Coca-Cola stores in New York and Las Vegas and the original World of Coca-Cola in Atlanta.

The man responsible for of Coke’s new success, however, didn’t live to see it for very long. In 1997, Goizueta was one of the wealthiest people in America—personally worth more than a billion dollars—and because most of his wealth was tied up in stock, he was able to avoid paying virtually any personal income tax. But just at his moment of greatest triumph, he discovered he had lung cancer. Within a year, he was dead.

 

 

 

Goizueta’s sudden departure
was a blow to the company’s image on Wall Street, as well as a threat to its ties to the all-important beverage analysts that could keep pushing Coke’s stock price into the stratosphere. Though no one knew it, Goizueta’s death would coincide with a dramatic turnaround in the fortunes of the company. At the time, however, it seemed like the executive he left in charge would pick up his mantle without missing a beat.

Douglas Ivester was, if anything, more relentless about Coke’s need to grow. Joining Coke as an accountant in 1979, he constantly had an eye on the bottom line. “From his earliest moments at the company, he saw Coke’s business as a numbers game—one he could win,” writes
New York Times
business reporter Constance Hays in her book
The Real Thing: Truth and Power at the Coca-Cola Company
. As Hays describes, it was Ivester who pushed through the greatest revolution in Coke’s structure, ensuring unlimited growth in its stock, at the same time finally getting the bottlers under control.

Starting in the early 1980s, the company began buying up any bottlers that were for sale, spinning them off into a new company called Coca-Cola Enterprises. The Coca-Cola Company made sure to own 49 percent of outstanding shares of the new company, giving it control without any of the risk or liability. No longer bound by Thomas and Whitehead’s original contract, Ivester and company forced the new bottling company to accept a new contract that allowed the price of syrup to fluctuate at whim.

Over the next decade, the Coca-Cola Company replicated the Coca-Cola Enterprises model with bottlers in other countries as well—creating less than a dozen “anchor bottlers” all over the world, including the San Miguel Group in the Philippines, T.C.C. Beverages Ltd. in Canada, Panamerican Beverages (later Coca-Cola FEMSA) in Latin America, and Coca-Cola Amatil in Australia. Meanwhile, the tremendous debt accumulated from buying these bottlers was rolled right off Coke’s books, onto the balance sheets of the bottlers.

The new arrangement, called by Ivester “the 49 percent solution,” was enthusiastically embraced by Goizueta, who called it “a new era in American capitalism.” When the dust had cleared, however, it looked more like a scheme from the parent company to cook its books. By owning a controlling interest in its bottlers, Coke could ensure that it hit its earning targets throughout the ’80s and early ’90s. Whenever the company didn’t grow in sales, it could still force bottlers to buy syrup, ensuring profits for the parent company; how they sold that syrup was the bottlers’ problem.

Not that parent Coke was about to let its bottlers go under, of course. If it appeared that a bottler wasn’t going to make ends meet, the company would give rebates at the end of the year in the form of “marketing support” so they made just enough profit. Even as the anchor bottlers were under constant pressure to sell as many soft drinks as they could to eke out a minimum profit, they were also free to take on enormous amounts of debt—at one point, Coca-Cola Enterprises’ debt was half its annual revenues—since lenders rightly assumed that the parent company would never let its franchises fail.

The system worked beautifully through the late ’80s and early ’90s to drive stock price and soft drinks sales. When Goizueta suddenly died, it was only natural that Ivester should take control. Where Goizueta was charming inside and outside the company, however, Ivester had a reputation for being a cold numbers-cruncher—an “iceman” in the eyes of fellow employees. Employees were all but forbidden to talk about their work outside of Coke headquarters, and some even suspected their phones were tapped.

But Ivester was ambitious. Where Woodruff saw putting Coke “within an arm’s reach of desire,” Ivester waxed on about a “360-degree landscape of Coke,” the red-and-white swoosh in every direction a customer looked. “What I always wonder is, Why not?” he said in a speech to the National Soft Drink Association. “Why can’t we keep this up? Just look around! The world has more people, in more countries, with more access to communication and more desire for a higher standard of living and quality products than ever before.” In his mind, Ivester lumped a higher “standard of living” with consuming more sweet sugary Coke, the ultimate international status symbol—shades of Candler putting Coke bottles into the hands of the fashionable set in turn-of-the-century ads.

In one notorious speech to employees, Ivester cued the background noise of howling wolves, comparing the Coke company to a wolf among sheep and all but howling along. In truth, though, Pepsi was on the ropes by the mid-1990s, its market share stagnating. Coke showed no quarter, forcing food distributors to refuse to carry Pepsi if they wanted to keep their accounts for Coke. Convenience stores, meanwhile, had to agree to increasingly restrictive advertising agreements if they wanted to stock Coke in their store—agreeing not to hang signs for other products, or committing 70, 80, or even 100 percent of the available shelf space for soft drinks to Coke. (Eventually, Royal Crown Cola sued in Texas for violations of antitrust laws, earning a $15.6 million verdict.)

Even as it was dominating the field, however, Coke was having difficulty meeting its high earnings expectations year after year, especially as the market for soft drinks became increasingly saturated. Pepsi solved its problem, in part, by diversifying, buying up first Frito-Lay and then Gatorade and becoming as much a snack food vendor as a soda company. (Soft drink sales now account for less than 20 percent of Pepsi’s business.) But Coke saw its future in liquid, specifically in carbonated soft drinks, which still make up more than 80 percent of its sales. It would need new markets to swim in, and so it redoubled its efforts to put its red-and-white dynamic ribbon within all 360 degrees of customers’ sight lines.

In all of the pressure to continue expanding, Ivester and company never asked: Did the world really
need
all of that Coke? The answer to that question took them completely by surprise. After years of drinking more and more gallons of sugar-laced beverages, people finally couldn’t ignore the consequences of all of that consumption in one area: their health. As it turned out, increasing evidence showed that Coke was not only “biggering” its own beverage sizes, sales, and profits—but also “biggering” American waistlines. The ensuing controversy over soda’s role in a burgeoning crisis of obesity and diabetes presented the company’s biggest challenge in more than a century, finally putting the brakes on its engine for growth.

 

 

 

In actuality
Coke had been here before. When Coca-Cola first gushed from Gilded Age soda fountains, it was touted as a panacea for anything that ailed you. Within just a few decades, however, the tide turned on Coke, with the public increasingly questioning whether that bottle full of fizz could really be all that good. The drink hadn’t quite lived down its associations with cocaine, for starters. In the early years of Coke, the press stirred up sensational visions of “Coke fiends,” hopped up on Coca-Cola terrorizing good southern women. (The overtly racist coverage said more about the anxieties of the South after slavery, since the fiends were invariably black and the women invariably white.)

By the turn of the century, however, there was a wide backlash against patent medicines in general, as muckraking newspaper and magazine stories, starting with a series by Samuel Hopkins Adams in
Collier’s
in 1905, exposed what was really in those elixirs—including chloroform, turpentine, and an awful lot of alcohol. At the same time, the publication of Upton Sinclair’s
The Jungle
, which blew the lid off the dangers and lack of sanitation in the meatpacking business, led to increasing strictures on what food manufacturers could put in the products that Americans ate. It was the dawn of the Progressive Era, a reaction to the excesses of Gilded Age capitalism, in which government increasingly clamped down with increased regulations.

In this general climate, one man emerged as the flawed hero of the consumer movement—Dr. Harvey Washington Wiley, the head of the government’s Bureau of Chemistry. Wiley nearly single-handedly railroaded a new law, the Pure Food and Drug Act (commonly called the Pure Food Law), through Congress in 1906. It proceeded on a simple if suspect proposition—that adding artificial preservatives and colorings to food or patent medicines made them less wholesome. Due to the “increased amounts of poisonous and toxic matters in the system,” Wiley testified before Congress, “the general vitality of the body is gradually reduced. . . . Even old age, which is regarded as a natural death, is a result of these toxic activities.” Wiley proved his theories with his celebrated “poison squad,” a group of young men to whom he and his colleagues fed all manner of suspect food additives, including large quantities of boric, sulfuric, and benzoic acid to see if it made them sick. The experiments weren’t exactly scientifically rigorous—lacking, for example, a control group or measures to account for preexisting medical conditions of the unfortunate crew, but the publicity they engendered gave public support to the idea of a new law. Congress passed it on June 30, 1906.