Asia Time Online - Daily News

Search Asia Times

Advanced Search

 
Global Economy

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 exposť 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.)
Nov 11, 2004
Asia Times Online Community



 

Live and work in the USA


 

No material from Asia Times Online may be republished in any form without written permission.
Copyright 2003, Asia Times Online, 4305 Far East Finance Centre, 16 Harcourt Rd, Central, Hong Kong