Number
30
The Coca-Cola Company
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It’s odd to think of a company like Coca-Cola as being in need of an overhaul. Its products, after all, are sold in every corner of the globe and have dominated the soft-drink industry for more than a century. But even companies that change the world can take missteps and stumble, and Coke is no exception. Forget all the mesmerizing slogans and heartwarming ads; the distinctively shaped bottles and nostalgic memorabilia; the high-profile presence everywhere from sports arenas and fast-food restaurants. Coke may be “the real thing,” as first proclaimed in 1942, but it knows it won’t stay that way without a substantial makeover.
The Atlanta-based company is hardly at death’s door, of course, and it remains the top purveyor of soft drinks on earth. Its hugely popular menu of products, now sold in 200 countries, includes the world’s first and third best-selling beverages (CocaCola Classic and Diet Coke) as well as about 160 other soda pops, coffees, juices, sport drinks, teas, and bottled waters boasting a virtual who’s-who of familiar brand names (Sprite, Barq’s, Cherry Coke, Fanta, Minute Maid, Hi-C, Fruitopia, Butter Nut, and POWERaDE among them). Even its ubiquitous red-and-white logo and associated imagery are in demand, with licensed Coke merchandise widely available through retailers such as Wal-Mart and F.A.O. Schwarz, along with a corporate Web site.
But there also have been extensive tarnishes to the company’s public image and fiscal fitness in recent years that demanded serious attention. These included a racial discrimination lawsuit filed by black employees in the United States, an extensive product recall, stymied expansion efforts in Europe, a controversial severance package awarded to a recent CEO who vacated his position after just two turbulent years, a strained relationship between the company and its critical network of independent bottlers, and a steep and continuing stock price decline.
As befits a world-changing corporation, however, such attention has indeed been paid since a new top executive took control at the turn of the millennium. And while beverage industry analysts described even his initial moves as comprising the most significant “sea change” that Coke had undergone in decades, the company indicated that such 21st-century fine-tuning of its 19th-century product was not yet complete.
Soft drinks have always been an odd product. Their history dates back to 1767, when carbonated water was introduced. This so-called “soda water” was flavored for the first time in the 1830s. Various con men, hucksters, and legitimate entrepreneurs have been trying to find profitable ways to peddle it ever since. The longest lasting of these efforts initially appeared in 1876, when Charles Hires sold his root beer as medicine. A long line of hopeful competitors—including Dr Pepper—followed. Among them were Coca-Cola in 1886, and Pepsi-Cola in 1890. All were originally considered medicinal products, with Coke supposedly good for headaches, indigestion, and hangovers. One of its earliest sales slogans was “The Ideal Brain Tonic.”
Once the century turned, the soft drink was publicly repositioned as a beverage for everyone. Colas monopolized the market from the start, with Coke and Pepsi beginning their lifelong battle for industry supremacy. Coke moved to sew up massmarket sales by granting exclusive bottling rights to a pair of men in Chattanooga, Tenn. The contract, for one dollar, also marked the birth of the company’s unique strategy of using independent bottlers to mix specific ingredients locally and deliver the resultant product. Aggressive expansion was also a big part of the early plan. By the time Atlanta banker Ernest Woodruff and a group of investors bought the company for $25 million in 1919, some 1,000 of these bottlers were making CocaCola available across the United States, Cuba, Puerto Rico, Panama, the Philippines, and Guam.
Robert W. Woodruff, Ernest’s son, took the corporate reins in 1923 and embarked upon a remarkable six-decade stewardship that elevated Coca-Cola from mere beverage to world’s most valuable brand. Under his watch Coke first began emphasizing bottle sales over fountain sales. It kicked off a long-standing relationship with the Olympics by giving the U.S. team 1,000 cases of Coke before it left for Amsterdam in 1928. It regularly introduced memorable ad campaigns with catchy slogans such as “The Pause that Refreshes,” “It’s The Real Thing,” and “Things Go Better with Coke.” It promised “every man in uniform… a bottle of Coca-Cola for 5 cents, wherever he is and whatever it costs” during World War II. It even hired Edgar Bergen and his wooden sidekick Charlie McCarthy in 1950 to star in a live network television show. Nothing seemed out of reach, and consumers responded in droves. Soda-pop became king of all non-alcoholic beverages, and Coke was the industry leader.
One increasingly influential customer base that did not come running, however, was the American dieting public, which collectively turned its back on all soft drinks because of their high sugar content. Royal Crown, a competing cola, first reached out to this rapidly proliferating demographic group in 1961 with an artificially sweetened caffeine-free drink called Diet Rite. Coke entered the fray with Tab in 1963. The industry was still a long way from capturing popular attention and successful mass sales, but it ultimately would prove as commercially significant to its industry.
The Coke bottle was so recognizable by that time and such a symbol of America and consumerism, that Andy Warhol incorporated it into popular works of art later in the 1960s (along with Campbell Soup cans and Marilyn Monroe portraits). The company turned that image on its ear in the following decade, marketing itself as a feel-good consumable that was perfect for the fractured times. The zenith of this effort came in 1976, when a group of young people from around the world assembled on a hilltop in Italy to produce what was perhaps the most indelible advertising jingle of the era: “I’d like to teach the world to sing, in perfect harmony. I’d like to buy the world a Coke, and keep it company.” (The commercial proved so popular, Coke refilmed it on the same hilltop for a 1990 Super Bowl broadcast with 16 members of the original cast and their children.)
Nothing stays the same in the corporate world, of course, and Pepsi’s sales were rising faster than Coke’s when Roberto C. Goizueta was named board chairman and chief executive officer in 1981. In the 16 years that followed until his cancer-related death, Goizueta made his mark by introducing Diet Coke (which immediately became so popular it revolutionized the market segment as well as the company’s profit picture) and New Coke (which was laughed out of the picture by universal rejection almost immediately upon its highly touted release). When Pepsi diversified by acquiring restaurants like Taco Bell and Pizza Hut, Goizueta countered by buying Minute Maid orange juice, Butter Nut coffees and teas, and Hi-C juice drinks. In 1995, Financial World magazine ranked Coke the most valuable brand in the world. But within two years, Goizueta was dead and M. Douglas Ivester had been appointed to fill his shoes.
Although total sales of Coke and other company products in markets from Luxembourg to Turkmenistan exceeded 1 billion servings per day as the end of the century neared, all was not well. The company’s carefully cultivated goodwill among consumers, regulators, and bottlers was battered regularly by errors of commission and omission. Cheaper new competitors were appearing in parts of Europe, South America, and Asia. Global efforts at retaliation were alienating local officials. Sales projections proved unattainable. Bottlers were coerced into major new acquisitions, and the cost of their raw materials was continually increased although they were constrained from commensurately raising prices. And while Goizueta remained a revered corporate legend despite his New Coke fiasco, the ill-fated Ivester was universally denigrated for the mess in which Coca-Cola now found itself.
Not surprisingly, Ivester’s term in office ended quickly and unceremoniously just as the new millennium began. (He was given a golden parachute that totaled an estimated $120 million and raised hackles long after his position was vacated.) He was replaced by Douglas N. Daft, a 56-year-old Australian who had been with Coke for three decades.
Because he had risen up through the ranks, Daft felt he knew exactly what needed to be done—and he immediately set about doing it. Within months, he had decentralized operational and marketing functions worldwide to give local managers more authority, slashed costs dramatically by eliminating 6,000 jobs, disbanded the in-house advertising agency that ran the flagship account during the 1990s, redirected the previous focus on licensed-product sales from in-house retail stores to cyberspace, appointed a respected second-in-command, convinced the company’s highest-ranking black executive to rescind his recently tendered resignation, and met with the Rev. Jesse Jackson to discuss the discrimination lawsuit and related matters. He also publicly conceded that Coke could not meet long-term earnings-growth targets, and acknowledged past managerial mistakes.
With extensive experience selling Coke abroad—where most future growth will undoubtedly be realized—Daft is positioned perfectly to restore the company’s glory. The key to his plan is transferring authority to local managers, who will make critical determinations on products, advertising, and other vital matters according to local tastes. Observers, as always, will be watching closely to see whether Coke remains “the real thing”—or becomes a relic of the past, much like those long-forgotten hangover and indigestion cures that surfaced with it more than a century ago.