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BOOK
REVIEW
The real American fizz
The Real Thing: Truth and Power at the Coca-Cola Company by Constance
Hays
Reviewed by Chanakya Sen
For more than 100 years, Coca-Cola has symbolized much more than a carbonated
drink. It has been an experience flowing over time and space, a comforting
souvenir of bygone eras, "a bottle of optimism, the liquid substitute for
liberty beckoning toward the 
American way". Constance Hays' biography of the world's best-known brand
romanticizes the brown refreshment's vigor and sparkle and at the same time
highlights the murky underworld of American big business.
The mentality of the Coca-Cola Co is the key to understanding the shimmering
successes and despairing depths the brand has journeyed. Its dedicated chief
executive officers "cannot sleep at night if they knew that a store somewhere
in the depths of the nation, any nation, was not selling Coca-Cola". The
biggest soft-drink company in the world already sells 310 billion bottles a
year but wants Coke consumption to keep on growing endlessly. Company goals
include vanquishing not Pepsi-Cola, but substitutes for thirst such as coffee,
tea, milk and water. In investor Warren Buffett's words, "having everybody
drink nothing but Coke" is the overarching purpose. Marketers envisage a
360-degree landscape of Coke to increase the global per capita consumption of
the drink.
Bottlers are indispensable partners of the company, delivering Coke to
consumers through franchises and sub-franchises in far-flung corners. Bottling
of Coke began in 1894, replacing soda fountains. Early bottlers used horses or
mules to pull wagons of Coke, catching the US consumerist boom. Bottlers became
important leaders within the social hierarchy they occupied, "as indigenous to
the American scene as the post office or the fire department". From Day 1,
disagreements and hostility raged between independent bottlers and the company,
which supplied the syrup concentrate. Coke executives felt they could gather
greater cash by selling in the company's own bottles. Decades of litigation and
mistrust led Coke to unchain itself from the leaden bottling system.
Bringing bottlers into line to satisfy the company's control mindset was
achieved in 1986 with the inauguration of Coca-Cola Enterprises, a
Coke-controlled mega-bottler and consolidator. It gobbled up bottling
territories to concentrate more power in the Coke tower in Atlanta, Georgia.
Many independent bottlers were forced to sign revised contracts allowing
frequent price jack-ups for syrup. Coke's profit-sharing percentage in bottler
earnings rose under the new setup. The company took 80% of the profitability
from the value chain and left only 20% to the bottlers. Coke's soaring profit
margins in turn made it more attractive for investors.
Mesmerizing Wall Street by painting upbeat financial pictures of the company
has been a trademark of Coke chairmen. It ensured the continuous rise of share
price for years. Economists were amazed by a company that sold the same product
for generations and yet had "sexy growth" and unlimited prospects - "a hot
stock at the age of 100-plus". In trying to win over financial analysts,
marketing funds claimed an ever-larger proportion of Coke's corporate budget.
Advertising touched US$2 billion by 2000, capitalizing on local market-specific
public consciousness.
In the 1960s, Coke's stock was a plodder, generating solid returns but doing
nothing spectacular. A conservative percentage rise in value per annum was not
acceptable to Coke's hubristic honchos of the 1980s and '90s, who were
dissatisfied with the idea of natural growth. Coke had to be turned into a
"can't-miss stock" for investors to come in running. Maintaining a marvelous
consistency of earnings by driving possibilities to their limit contributed to
the ascent of Coke's share price.
Coke's role in uplifting the city of Atlanta has been outstanding. As the
company blossomed, so did Atlanta, known as a confused southern metropolis in
American lore. "Success of the Coca-Cola Co amounted to a demonstration that
Georgia can float and handle big enterprises." Atlanta's image in the world
rose due to Coke. The 1996 Olympic Games bid succeeded because of the
company's behind-the-scenes lobbying of Atlanta as a global player for bagging
a prime-time marketing chance. Coke's 1984 epic centennial celebration cost
US$30 million, the world's grandest industrial birthday party, and brought
pride and wonder to Atlanta. No tourist to Atlanta misses the World of
Coca-Cola Museum.
In 1985, Coke altered the legendary syrup formula and introduced New Coke, a
sweeter and less fizzy drink, to shield consumers from the spreading influence
of Pepsi. The shame of losing the No 1 position in the cola war to an "upstart"
was too awful and humiliating for Coke's visionaries. The New Coke gamble was
motivated by blind taste tests, where drinkers preferred the sweeter, less
sharp taste of Pepsi to Coke. However, it turned into the biggest marketing
flop in modern business history. Dissenting Coke executives themselves felt
that New Coke tasted just like Pepsi and was a disaster in the making. Across
the US, Coke loyalists rose in indignation and demanded the old formula back.
Bottlers, even those singing the company's tunes, rose up in arms. Just 78 days
after New Coke was unveiled, the company bowed to universal pressure and
brought back the famed original Coke. New Coke threatened briefly to bring the
mighty Coke empire crashing down.
In the 1990s, Coke penetrated emerging overseas markets with foresight and
planning. Some 70% of the company's earnings came from foreign sales by 10
large-scale "anchor bottlers" that served like factories printing money for the
mother company. Wherever circumstances presented new markets, Coke was ready
for them, rushing in to exploit. The way Coke unplugged and pushed out Pepsi
from Venezuela in 1996 was a memorable lesson in cutthroat competition. In
exchange for opening up, transition governments in Eastern Europe and Central
Asia used Coke's presence as a stamp of political approval. "If Coke was
investing, they must be doing something right."
By 1997, internal power wrangles and rivalries emerged in the form of a tussle
between two distinct camps within the company - operations executives who
traveled the planet to sell Coke, and financial experts who came from
accounting firms with management-consulting backgrounds. Coke was also
embroiled in accusations of intimidating customers and competitors through
arrogant exclusive agreements that aimed to exterminate all rivals. To many,
Coke's bullying restrictive trade actions negated the notion of "an America
where people were entitled to a choice". In 1998, France repealed Coke's
acquisition of Orangina as a monopolistic purchase.
Coke's name figured in racial controversies again and again. Black employees of
Coke sensed hostile and discriminatory work environments. Only a handful of
senior executives were black and even they felt that they were racially
humiliated, ignored, overlooked or unacknowledged. One black female employee
whooped, "Where am I? In the '50s?" Blacks were clustered in the lowest-paying
jobs and confined to certain lowly departments and roles. Coke pay scales
varied based on color. More than the lawsuits, negative publicity on these
counts hurt Coke's self-projection as a simple "moment of pleasure" for all
manners of people.
The 1998 recession in Japan threw Coke's fifth-largest and high-return market
on to the rocks. Germany, the fourth-largest, also underwent depressed
sales. The Russian ruble's collapse came synchronously and drove Coke's volume
and earnings targets down for the first time in ages. Indonesia, former
Yugoslavia, Latin America and India, all brought bad news in earnings. The
inflated Coke share price tumbled after an exposé of its dubious financial
relationship with its mega-bottler. A lawsuit alleging violations of antitrust
laws through restrictive marketing terms for advertising signs, shelf and
refrigerator space forced Coke to pay $15.6 million in damages. The attempt to
take over Cadbury Schweppes backfired through legal rejections in Australia,
Mexico, Canada and the European Union.
By 1999, Coke was wobbling on five continents. Belgium ordered an unprecedented
removal of Coke soft drinks from stores after several schoolchildren reported
sickness from drinking them. The recall spread to other countries, as Coke gave
no plausible explanations for what went wrong. In the end, it had to issue a
public apology to the people of Belgium. Coke's benevolent image suffered yet
again when its chairman admitted that the company was testing a new vending
machine with electronic capability to change prices based on the weather.
Another stock-price plunge ensued.
With a cupful of woes, Coke's board of directors fired the chairman.
"Equivalent of an assassination, [this] rocked the company, alarmed Atlanta and
unsettled Wall Street." The troubled inside a global giant was laid bare.
Belief in the unlimited growth of demand for Coke darkened. In a major
restructuring beginning in 2000, Coke was made smaller and nimbler. A bid to
acquire Quaker Oats was scrapped. Some 6,000 workers lost jobs and an
about-turn was made by bringing back a localized bottling network. "An American
icon crumbled."
Power intrigues, personality clashes, over-ambition, twisted business tactics
and global economic fluctuations brought Coca-Cola to its knees. Unlike Enron,
WorldCom and AT&T, though, Coke will inch its way back. No matter how
crooked its dealings, it is, after all, a mirror of the American way of life
like no other. Real American fizz never fizzles out permanently.
The Real Thing: Truth and Power at the Coca-Cola Company by Constance
Hays. Random House, New York, 2004. ISBN: 0-375-50562-8. Price: US$25.95, 398
pages.
(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact
content@atimes.com for information on our
sales and syndication policies.)
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