The Coca-Cola Company and Business Trends
by John D. Breen
University of San Francisco
December 1996
Businesses neither derive from nor exist in a vacuum. Rather, they emerge from, evolve in, and are influenced by the trends of the society in which they operate. That that society today comprises the greater extent of the globe renders cognizance of this fact essential.
Although each business is affected by the social, technological, economic, and political trends of its time, it is the successful company that anticipates emergent trends, recognizes their arrival, and responds to their effects. Few companies can navigate the boisterous sea from which these trends emerge, and those that do typically survive the first wave only to be overwhelmed by what Ian Morrison terms ‘the second curve’[1].
Among the exceptions is a Southern company that converted a patent medicine into perhaps the most familiar brand in world history. The number of countries into which The Coca-Cola Company reaches exceeds that of the United Nations. Only the expression ‘OK’ is more common throughout the world than ‘Coca-Cola’. With few exceptions, the Company has been masterful in its response to those trends which regarding its operation are either driving (positive) or dragging (detrimental).
Company legends of humble origin notwithstanding, Coca-Cola was born of its time, and survived – and ultimately thrived – because its leaders made wise and/or fortuitous decisions. Those of the latter description were not necessarily of the former; yet fortune is often the handmaiden of effort, and in 110 years Coca-Cola has been blessed with both.
Coca-Cola and Social Trends
The Early Years
The United States of 1886 varied considerably from those of the previous generation, and the century since has witnessed changes unparalleled in the annals of history. The world into which Coca-Cola was born comprised the small yet bustling Southern city of Atlanta, the streets of which were filled with harried businessmen, a righteous temperance movement, a population of poor dietary habit, and an inordinate number of pharmacies. The pharmacies were supplied by a coterie of medicine men who descended on the city in the aftermath of the War Between the States. Among them was Dr. John Pemberton, who concocted the original version of Coca-Cola.
Pemberton, like his contemporaries, was responding to ubiquitous headaches, indigestion, and morphine addiction induced, respectively, by an accelerated pace of business, a diet loaded with meats and starches, and war veterans who suffered perpetual pain. Furthermore, during Atlanta’s hot summers the demand for instant refreshment was insatiable. Coca-Cola was prepared quickly, and ubiquitous soda jerks were happy to oblige. Meanwhile, the Women’s Christian Temperance Movement and others of like disposition engineered the prohibition of alcohol in Atlanta from July 1886 to November 1887. For Pemberton, these represented driving social trends, to which his formulation of a beverage that relieved and refreshed was a response deserving approbation.
Nevertheless, his cola drink was only one among many until Asa Candler acquired Pemberton’s patent in 1888.
The Progressive Era
Candler, a former druggist, incorporated The Coca-Cola Company in 1892, and guided it successfully around some of the most daunting social obstacles it ever would encounter. The progressivism of the era inspired demands for purity in foods and drugs, and a backlash against many of the patent medicines that Coca-Cola initially represented.
Upton Sinclair published The Jungle in 1906, and its ramifications spread beyond the Chicago meat packers he excoriated. The WCTU reemerged claiming Coca-Cola contained minute quantities of both alcohol and cocaine, and that therefore the drink should be banned. In June 1907, a similar assessment caused the Army to ban the beverage. For a product which purported to be ‘the National Drink’, this was an unwelcome blow. Coca-Cola’s initial foray into Cuba was disrupted when indigenous competitors referred to the drink as ‘subtle poison’[2], retarding international expansion for years. Caffeine also was interpreted as dangerous. These trends were reinforced by a 1906 Atlanta race riot that many attributed to deleterious effects of cocaine on the minds of blacks. The confluence of these forces almost destroyed Coca-Cola.
To these challenging social trends, Company responses were mixed. Because Candler recognized that removing negligible quantities of cocaine would constitute admission that the secret formula included it, he initially declined to do so, opting instead to de-emphasize Coca-Cola’s medicinal attributes while advertising its delicious, refreshing characteristics.
The significant effect of this decision was not to alleviate health concerns, but to expose Coca-Cola to the mass market. As a medicine Coca-Cola was advertised to the ill; as a refreshment it was advertised to the thirsty. The Coca-Cola logo appeared in mainstream periodicals and newspapers, on pencils and on calendars, before the eyes of every potential consumer.
The strategy was extremely beneficial, and sales soared. Health concerns persisted, however, and by 1905 Candler had indeed removed cocaine from the formula. To placate advocates, ads in 1911 refrained from showing children consuming Coca-Cola; they did not resume until 1986.[3]
Coca-Cola’s loyalty to its tradition is often a recipe for success; however, many considered its stubborn refusal to recognize the danger cocaine connoted to be misguided. Nonetheless, Coca-Cola weathered the 1910s, and in 1919 Candler’s heirs sold for $25 million a company he purchased for $2,300[4]. The Company was purchased by a syndicate led by Ernest Woodruff, president of the Trust Company Bank of Georgia. It was his son who would transform Coca-Cola into the global icon it is today.
‘The Pause That Refreshes’
Thirty-three year old Robert Woodruff became president of Coca-Cola at the onset of the Jazz Age in 1923. With his finger on the pulse of the time, Woodruff determined to eradicate from Coca-Cola ads any defensive assertions or negative connotations. Gone were reassurances regarding caffeine content; invoked were images of active, healthy, and happy people enjoying the drink.[5]
These images nicely complemented the pervasive preoccupation with social status that permeated the 1920s. Also endemic in the 20s was a frantic lifestyle precipitated by the diffusion of electricity, telephones, and the automobile. Encapsulated in the famous 1929 reminder that Coca-Cola was ‘the Pause that Refreshes’, relief, rather than life’s hectic pace, was emphasized in Company ads.
Moreover, as America for the first time saw industry and services each surpass agriculture as sources of employment[6], Coca-Cola invoked nostalgia by commissioning artists such as Norman Rockwell to associate Coca-Cola with peaceful serenity.[7] For all of these responses to social trends of the 1920s, in addition to his incipient forays into the European market, Robert Woodruff deserves considerable credit.
Although the 1930s were dominated by the Great Depression, one would never know it by examining Coca-Cola ads of the period. Reasserting itself as a respite from the drudgery of daily life, Coca-Cola subliminally sought the adult buyer while subtly reaching her children. The means by which it did so were consistently positive and indisputably effective. Movies were becoming a common diversion for those who could afford them, and Coca-Cola was quick to capitalize. The Company arranged for extensive film placement of its product, thereby inducing viewers to purchase it when the occasion arose. The concept again associated Coca-Cola with life’s pleasures (e.g. movies), and boosted sales nationwide.
While the Company maintained its unwritten policy against showing children consuming Coca-Cola, that policy did not preclude it from targeting them in its ads. To attract children, Coca-Cola in essence created the contemporary image of Santa Claus. Until 1931, Santa had been portrayed as tall and gaunt and in suits of various colors. That year, Coca-Cola commissioned a Swedish artist, Haddon Sundblom, to paint sundry portraits of what has become the ubiquitous incarnation of St. Nicholas. Rotund, merry, and cloaked in Coca-Cola red, this Santa refreshed himself with the drink after each Christmas Eve. By associating itself with and reinventing a cultural icon, Coca-Cola reinforced its positive image to a weary country. To do so while simultaneously aligning itself with the most significant American holiday was a stroke of genius. The cultural eminence of Coca-Cola was manifested when it was awarded the first contract for the 1939 New York World’s Fair.[8]
Always Coca-Cola
The 1940s were of course dominated by World War II, and the effects of that war on Coca-Cola were monumental. While wars are by nature catastrophic and dragging trends on society, certain segments of the community nevertheless benefit. For Coca-Cola no event in its history has been as strong a driving force as was WW II. As it did during the Depression, the Company resolutely avoided negative imagery, focusing instead on the relief its product provided returning soldiers and the women who awaited them. The Company continued to attract kids by distributing booklets illustrating and describing war planes. While these were positive responses to what seemed a dragging trend, a ramification of the war about which the Company could and did do very little was the fact that a majority of its employees was drafted.[9]
After World War II the trends with which Coca-Cola had to concern itself were of an increasingly global nature. In France, though recently liberated by American troops and on the receiving end of the Marshall Plan, the prospects were anything but promising. The French have always jealously guarded their cultural traditions, and they were therefore extremely skeptical of the American soft drink. By 1947 skepticism evolved into hostility as nationalistic politicians and special interests inspired mobs to overturn Coca-Cola trucks, smash bottles, and deface advertisements.[10]
The Company weathered the storm, however, by shrewdly making friends of its natural enemies. It signed bottling contracts with wine, beer, and local soft drink interests, thereby acquiring political and social allies.[11] The trouble subsided, and Coca-Cola retained its position in France. Nevertheless, obstacles mounted around the world: in Egypt, rumor spread that the principle ingredient in Coca-Cola was pig’s blood, thereby violating religious tenets while provoking disgust; in Japan, the drink ostensibly sterilized women, while in Brazil it rendered men impotent. Meanwhile, from Trinidad to Austria to Switzerland, natives feared ‘Coca-Colonization’.[12] The Company again supplied a shrewd response, refusing to dignify ridiculous assertions while incessantly invoking the brand name.
Coca-Cola was prohibited from Japan until 1959, at which time it was available only on US military bases. When in 1961 the restrictions were lifted, the Japanese people greeted the introduction of Coca-Cola with the approbation with which they did most things American. Capitalizing on local enthusiasm, Coca-Cola was prominent at the 1964 Tokyo Olympics, and by 1968 had acquired 50% of the Japanese market.[13] Cognizant of Japan’s affinity for coffee, Coca-Cola in 1975 introduced its Georgia Brand, thereby reasserting itself in a country that had recently suffered a recession. To satisfy divers tastes in the most competitive soft drink market in the world, Coca-Cola by 1991 offered 174 different products in a market comprising 5,000 offerings. To accommodate this assortment in a nation short on refrigerator space, the Company has inundated Japan with vending machines.[14] Thirty years of such maneuvering has propelled the discriminating Japanese market to eighth on the Company’s per capita consumption list.[15]
Coke Are It
The American consumer has also become more selective in the last generation, rendering brand loyalty obsolete. The degree to which a consumer is discerning with regard to brand is often that to which he is educated.[16] Whereas in 1900 only 2% of 23 year olds possessed college degrees, by 1960 almost 20% did, and by 1990 almost 30% did.[17] (Appendix A) This implies, though it does not ensure, a higher paid, more judicious consumer. Moreover, the 1950s ‘baby boom’ produced a greater number of tastes to which to tailor. This was therefore a negative trend for a company such as Coca-Cola that featured one dominant brand.
To answer meticulous consumers, Coca-Cola diversified, and in the 1960s and 1970s introduced such products as Sprite, Tab, and Mr. Pibb. In 1985, as market share continued to shift to arch-rival Pepsi, Coca-Cola for the first time altered its sacred formula. The strategy was initially a disaster, and a torrent of response compelled the Company to retract. One respondent stated that ‘Changing Coke is like God making the grass purple.’[18] In its rush to keep up with the times, Coca-Cola had underestimated its place in the American psyche. The reintroduction of the original drink as Coca-Cola Classic inspired a response so positive that it not only relegated ‘New Coke’ to only 3% market share, but also reclaimed its lead over Pepsi.[19] Rarely has a miscalculation been so serendipitous.
Coca-Cola and Technology
The Industrial Revolution
Almost without exception, technological trends since 1886 have been driving trends for Coca-Cola. The drink was formulated in an era during which the steam engine, the telegraph and the advent of electrical power were but three means by which the pace of daily life was accelerated. The transformation from a placid, rural society to a frantic industrial one is not unaccompanied by stress and nervous tension. Coca-Cola was concocted largely for the purpose of alleviating such conditions.
The industrial revolution would have other beneficial ramifications for Coca-Cola, particularly with its spread of railroads. That the Company was born in a rail hub was particularly fortuitous, and it wisely utilized rails to distribute its syrup to its growing legion of fountains and bottlers. For its response to the automobile, however, Coca-Cola should not be emulated.
Asa Candler regarded the “horseless carriage” as a passing fancy for which his Company had no use, thereby dismissing what in only two decades would become the primary means of American transportation. Another innovation to which Candler was unreservedly cool was, ironically, bottling. Indeed, in 1899 he sold the rights, in perpetuity, to two Chattanoogans. Candler ignored the fact that America was on the move, clinging instead to his belief that Coca-Cola should derive primarily from high class soda fountains. Furthermore, he did not trust bottlers to maintain the integrity of his drink.
Fate proved Candler wrong, yet propitious. Despite his lack of prescience, Candler inadvertently established a remarkable franchising system by which Coca-Cola would be introduced nationwide. A dragging trend to which Coca-Cola responded favorably with technology was the rationing of sugar and coal during World War I. The Company devised a means by which sugar and water could be mixed without heat, thereby reducing the cost of fuel and saving considerable time by not having to allow syrup to cool. This remains the mixing method today.[20]
Radios, Planes and Automobiles
The fact that the automobile defied Candler’s prediction was advantageous to his successor. Automobile registrations increased from 1,258,062 in 1914 to 26,501,443 in 1929[21], inspiring a concomitant rise in highway construction and usage. As former president of White Motor Company, Woodruff had no compunction about bottling for the driver. He recognized that as more Americans patronized gas stations, such places would provide a perfect outlet for the pause that refreshes.[22] Another driving technological trend in the 1920s and 30s was that toward omnipresent refrigeration. Unlike Candler, Woodruff realized the opportunity bottling presented and its indispensability with respect to placing Coca-Cola in the home or in the car. Toward this end, the six-bottle carton (i.e. six-pack) was introduced as another means by which Coca-Cola was placed ‘within arm’s reach of desire’.[23]
Two other technological innovations, radio and air transportation, were driving trends for Coca-Cola in the 1930s. (Appendix B) Recognizing that the economic contraction would keep people home, Coca-Cola committed itself to radio advertisements in 1930. Like its print ads, the Company remained positive and noncontroversial over the airwaves. Meanwhile, for those who did venture out, airlines were emerging to answer their purpose. Woodruff’s friend Eddie Rickenbacker founded Eastern Airlines, which immediately began serving Coca-Cola.[24] For using technology to make America’s favorite beverage an omnipresent symbol of the good life, the Company deserves praise in the 1930s.
The Information Age
The Second World War consumed most capital during the 1940s, thus limiting technological innovation or rendering it unavailable to a mass audience. During the 1950s, however, the television spread to enough homes that it could not be ignored. (Appendix B) It as much as anything else was responsible for the steady decline of the soda fountains, as people ventured home rather than to the counter for entertainment.
Though the eroding fountain market was a dragging trend for Coca-Cola, it was an inevitable one to which the Company responded quickly. Sponsoring such shows as Ozzie and Harriet and The Mickey Mouse Club, Coca-Cola retained the positive, wholesome image it had cultivated on radio. By the early 1960s, the preponderance of the Company’s advertising strategy involved television.[25]
In 1970 the Company derived approximately 50% of its net revenues from international markets. For this Coca-Cola can thank the television, the telephone, and the personal computer. Each of these devices has enhanced the evolution of what Theodore Leavitt terms the ‘Republic of Technology’, in which the tendency is for ‘everything to become like everything else.’[26] By this Leavitt implies corporations must standardize advertisements for a world audience rather than a domestic one.
Coca-Cola was among the first to recognize and respond to this trend, creating economies of scale in marketing and management. The diffusion of information has also opened markets to which the company had previously had only limited access. Totalitarian states such as those in China and the Soviet Union were unable to defend against the facsimile or the personal computer, each of which blurred the distinction between ‘national’ and ‘cultural’.
Though anathema to the culture as defined by the ruling state, western products such as Coca-Cola were now craved by those of the captive nation. [27] Coca-Cola was characteristically swift in response. Though his rouble had been conceded to Pepsi in 1972, the average Russian in 1995 consumed six Coca-Colas annually, while in China the Company expanded at an annual rate of 38%.[28]
A technological trend to which Coca-Cola was slow to respond was that involving the formulation of ever-popular sugar-free juices. Though sugar obviously must be extracted to produce such drinks, extraction by itself would violate the Federal definition of a ‘juice’. To maintain clarity and color, processing and storing are more vital for juices than for typical soft-drinks. Though it has since responded, Coca-Cola was initially blind to these developments. Meanwhile, Pepsi’s investments culminated in the release of Slice, the first major salvo in the war over nutritious carbonated drinks.[29] It was at about this time that, rather than respond to the increasing demand for variety, Coca-Cola used technology to alter its signature brand.
Coca-Cola and Economics
Conquering the Business Cycle
Coca-Cola was born in an age of unprecedented economic expansion and volatility. Since 1800 the economies of the countries comprising the Organization for Economic Cooperation and Development have grown an amount equal to that of the preceding millennium[30]. Meanwhile, since the advent of the Federal Reserve System in the United States, and the abandonment of the gold standard worldwide, business cycles have been more frequent and inflationary than those of the 19th century[31]. Nevertheless, for a product interpreted by many as a luxury, Coca-Cola has been remarkably immune to macroeconomic downturns. Moreover, the Company has profited greatly by a global economy, the diminished resistance of developing nations to foreign investment, and by its responsiveness to those trends.
From 1891-93, in the midst of a severe economic depression, Coca-Cola sales increased from 20,000 gallons to 35,360 to 48,427.[32] In 1907 a run on the Knickerbocker Trust Company in New York precipitated a bank panic which exacerbated a five month-old recession.[33] While the nation reeled, Coca-Cola was prosperous enough that Asa Candler could prevent an Atlanta real estate panic by purchasing $1 million homes and reselling them at affordable prices[34].
Although his action did not directly improve the fortunes of Coca-Cola, neither did it do them damage. Moreover, the goodwill he generated emboldened the Company somewhat against persistent consumption slumps. Sales continued their ascent during the depression of 1920-1, and the Great Depression of 1929-33 and the ensuing slump of 1937-8 were anything but for Coca-Cola. Similar results have been recorded despite recessions in 1949, 1953-4, 1957-8, 1960-1, 1970, 1973-5, 1981-3, and 1990-1. This constitutes an impressive record of response to recurring and significant economic headwinds.
To say that Coca-Cola merits anything but credit for its response to economic downturns would be foolish. The ability to sustain a healthy profit margin while maintaining low prices has been a remarkable depressionary antidote. Nevertheless, the Company has been anything but perfect in its reaction to economic trends.
Perhaps the most glaring error transpired in 1920 when the Company, following war-induced sugar rationing and unable to obtain Cuban sugar at a reasonable price, purchased 4,100 tons from Java for 20 cents a pound. Within weeks one of Cuba’s sugar plantations undermined its cartel, and offered sugar for 15 cents, and ultimately for nine cents per pound. The Java purchase forced Coca-Cola to retain high prices despite lower priced competition.[35] Sales growth decreased, but rebounded the following year. The Company deserved criticism for this action, because it failed to consider the effect an impending recession would have on sugar suppliers.
Robert Woodruff in 1928 furtively sold his 6,800 shares of Coca-Cola stock, thereby revealing foresight which was as prescient for the nation as it was inaccurate for his Company. On October 29, 1929, Coca-Cola stock opened at $137, and the stock market crashed. Though at the end of that year the stock listed at $133.75[36], by November 15, 1935 the Company announced a 4:1 split from a price of almost $200. a share. Furthermore, the stock had been added to the Dow Jones Industrial Average in 1932.[37]
Meanwhile, real GDP did not surpass its 1929 level for ten years.[38] Coca-Cola reacted to the depression by reducing costs to boost productivity, and by increasing its presence in cash-poor schools and offices by supplying free pencils, calendars, &c. engraved with the Coca-Cola logo. The advertisements and philanthropy bolstered the Company’s image and sales, while answering the need for supplies at the targeted institutions. Although Woodruff misjudged implications on his personal finances, his Company earned praise for its actions during the depression.
International Economics
Despite moderate success since Robert Woodruff assumed the presidency, international expansion was not extensive until World War II. Economically, the war involved rationing of products (including Coca-Cola), price controls, and taxes on perceived ‘excess profits’. Although it was unable to reverse the first of these trends, and was indeed imposing on itself the second, the Company to avoid the excess taxes brilliantly promoted its wartime efforts to highlight its indispensability. The promotion was successful, and no additional taxes were levied on the Company.[39] To underscore the importance the government imputed to Coca-Cola, taxpayer money defrayed new bottling plants throughout Europe and North Africa during the war. These plants reverted to the Company thereafter.
After the war, the Marshall Plan and the World Bank were instrumental in promoting business interests in damaged or underdeveloped areas.[40] The former was crucial in funneling American tax dollars to the redevelopment of Europe, including substantial provisions for Coca-Cola bottling plants, while the latter facilitated the Company’s excursions into South America.
While the war had established a Coca-Cola presence in Europe, South America had been unaffected. Woodruff therefore commissioned surveys of populations in Uruguay, Brazil, and Argentina, and on the basis of these opened plants throughout the continent. To obtain funding, Woodruff’s close friendship with President Eisenhower was no doubt beneficial.[41] Though poverty and government price controls hampered initial expansion, the Company soon utilized local bottlers and truckers, thereby incurring goodwill while reducing costs.
Since the U.S. closed the international gold window in 1971, multinationals have had to concern themselves with volatile exchange rates. Indeed, since the advent of flexible rates in 1973, the dollar has ranged in value from 80% to 175% of its 1980 value.[42] (Appendix C) Furthermore, from 1970 to 1994, dollar transactions as a percentage of international trade have declined from 90 to 50%, while those of yen have increased from 1 to almost 40%, prompting some analysts to wonder whether the latter currency will replace the former as the standard for such trade.[43] While such vagaries are detrimental trends, Coca-Cola’s transnational operations shield the Company from wild fluctuations and uncertainties while availing itself of relative price advantages.[44]
The 1990s have seen the culmination of what began in the aftermath of World War II as the General Agreement on Tariffs and Trade. To date this culmination has accompanied the formation of regional blocs such as NAFTA, the European Economic Community, and the Association of Southeast Asian Nations, a group with which US trade is almost 50% larger than that with the EC.[45]
The danger, of course, is that these entities will become intra-national trading zones rather than international ones. Again, Coca-Cola defends itself with its universal presence, and the global market allows it to standardize its marketing campaigns. A small world enables the company to cut costs by doing one promotion globally.[46] Language barriers are overcome by such as the polar bear campaign which use no speech or text except the Company logo. These strategies, among others, have effected a 245% rise in Coca-Cola stock since 1990, by all accounts an unequivocal success. (Appendix C)
Inflation
The most conspicuous economic trend of this century is inflation; for Coca-Cola, it has also been the most deleterious. Although inflation is government induced and therefore a political phenomenon, convention dictates that a discussion of it be included within that of economics. Four events have precipitated the rampant inflation for which this century is infamous: the creation of the Federal Reserve System in 1913, the Legal Tender Act of 1924, the Bretton Woods Accord of 1944, and the closing of the international gold window in 1971. While other factors were contributory, these events, by bestowing upon governments a monetary monopoly, encouraged a proliferation of fiat money, a steady depreciation of currencies, and a concomitant rise in prices. (Appendix C) Indeed, the enormous expenditures accompanying the wars of this century could only transpire under a monopolized fiat standard.
The Coca-Cola Company responded favorably to each inflationary trend. The easy credit and consequent inflation of the 1920s was reflected not in the CPI, but in the stock market. Robert Woodruff, to whom profligate spending and debt were abhorrent, resisted the over-expansion endemic among firms during the period, and Coca-Cola stock therefore averted a major collapse.
The Company was less deft in its reaction to inflation in the late 1940s, for while it made the right decision, it did so reluctantly and belatedly. Woodruff recognized the value of tradition, and one to which he clung most fervently was the nickel Coke. Nevertheless, that price was undercutting many bottlers, some of whom exceeded the price of their own volition.
By 1951, the nickel Coke was a memory in most regions, and was not mentioned in ads; by 1955 even Woodruff had to relent.[47] The inflation of the 1970s prompted the Company to address a situation it had long regretted. Since 1899, it had maintained a fixed contract with bottlers that mandated a set price. With general prices skyrocketing, profit margins were therefore severely restricted. After years of wrangling, in April 1979 the Company, under anti-trust investigation for the exclusive nature of its franchising system, convinced most bottlers to modify the contract.[48] The Company had alleviated the pain of a perpetual thorn in the side.
The Knowledge Society
While capital has been the driving economic entity of the 20th century, and labor of those that preceded it, knowledge has emerged as that of the 21st. The ability to rapidly acquire, process, and utilize information is that on which successful organizations are increasingly dependent. The process requires workers skilled not with their hands, but with their minds, and that they become specialists.
An amalgamation of educated specialists within an organization necessitates a means by which each of them may transmit his knowledge throughout the organization. Alternatively, the organization itself must consolidate its mission. [49] Corporations have recognized the importance of knowledge, and in 1995 spent almost $1B on knowledge management consultants, of which approximately $600M was spent in the US. [50]
Among the companies that have hired chief knowledge officers is The Coca-Cola Company. With operations throughout the world, the issue is of particular importance to Coca-Cola as it expands to and within countries with a limited supply of knowledge workers. Furthermore, the Company has responded to increased global competition by shedding marginal operations, such as wineries, and directing its considerable knowledge of the soft-drink industry toward maintaining global dominance of it.
Coca-Cola and Politics
Wars and Progressives
Theodore Roosevelt dubbed the Spanish-American War the ‘Splendid Little War’. Though many would disagree, The Coca-Cola Company might not be among them. It was the fruits of this conflict which provided the Company international markets in Puerto Rico and Cuba, from which it would obtain sugar and to which it would sell its drink. Negative effects of this war included a Congressional tax of 1898 on medicines, which at the time Coca-Cola was considered.
Though Asa Candler paid the tax, he then sued for every penny prior to repeal in 1901.[51] In 1906, at the behest of Dr. Harvey Wiley, the Pure Food and Drugs Act passed, mandating that all ‘poisonous’ substances be listed on a product’s label. Though one of its targets, the Company supported the act, thereby appearing virtuous and claiming the title of the ‘Great National Temperance Beverage’.[52]
The act compelled the Company to recoil at the negative connotations of Coke, the colloquial nickname for its drink. During the teens, as in subsequent years, however, the Company jealously guarded its trademark, and charged with infringement those who would use similar names for their drinks. In 1920, Supreme Court Justice Oliver Wendell Holmes ruled that Coca-Cola was ‘a single thing coming from a single source’, and that ‘the drink characterizes the name as much as the name the drink’. Though the Company was not finished with such cases, future ones would be easier to win.[53]
The effects on the Company of the two world wars were notably different. Those of World War I were detrimental, in particular laws which rationed sugar and increased by 10% the taxes on soft drinks. Because the Company had a fixed-price contract with bottlers, it feared significant losses from the high costs these laws would impose. Wisely, the Company arranged with bottlers a war-induced temporary price increase for syrup. The nickel retail price was retained and sales soared.[54]
Contrarily, World War II was beneficial for Coca-Cola. At the outset, Robert Woodruff declared that ‘every man in uniform gets a bottle of Coca-Cola for five cents, wherever he is and whatever it costs our company’.[55] The Company in 1942 sold 23,000 bags of stockpiled sugar to the military in an act that would contribute to both domestic goodwill and international expansion.[56] From Europe, Woodruff’s close friend Dwight Eisenhower requested a steady supply of Coca-Cola for thirsty, homesick troops. Needless to say, the request was granted, and an army of Coca-Cola Technical Observers followed the troops to Europe. The war and the Marshall Plan that followed did more than anything else to launch Coca-Cola overseas.
International Politics
As Coca-Cola spread abroad, it met resistance in foreign governments. Of such, perhaps the most notable example was that of India. The Company entered India in the early 1950s, at which time it established plants which received imported concentrates. In 1958, the Indian Government permitted the Company to make concentrates in India, using imported raw materials. By 1970 the Company maintained 22 bottling plants in India, and by 1977 controlled 45% of the market.
Because in 1977 the Indian subsidiary repatriated more in profits than it earned from exports, the government refused it further import licenses. Moreover, the Reserve Bank of India in 1977 mandated that by April 1978 multinational companies must convert to Indian ones with no more than 40% of equity in foreign hands. This provision jeopardized Company control of trade secrets, including its secret formula. Rather than foreclose its most strategic asset, Coca-Cola abandoned a market from which it had generated pretax profit margins of 55-60% and return on investments of approximately 800%. [57]
The Company encountered political trends in the 1960s and 70s that were almost universally negative. Foremost among them were the Vietnam War, the Six Day War of 1967, and the Yom Kippur War of 1973, each of which adversely affected the Company’s international operations.
Coca-Cola in 1965 considered expansion into the Soviet Union, but reconsidered when media reports implied the profits in the USSR would assist American enemies in Vietnam. Coca-Cola deferred, and the Soviet Union, due largely to the influence of former Pepsi lawyer Richard Nixon, was ultimately lost to that company in 1972.
In 1966, Coca-Cola denied a franchise to an Israeli bottler, and was accused by the Anti-Defamation League of complicity with the Arab Boycott of Israel. Though the charges were without merit, the Company granted an Israeli franchise the ensuing year. Thereafter followed the Six Day War, and Arab sentiment turned against Israel’s ally and its most conspicuous company. The Yom Kippur War six years later further damaged Coca-Cola in the hot, dry (in both senses) Arab nations, in which it stood to lose $20M annually.[58]
Despite that sacrifice, the Company deserves credit for its response to a situation in which Scylla could be avoided only by smashing into Charybdis. Mutual satisfaction of Israeli and Arab was obviously not possible. Recognizing that, Coca-Cola honored its commitment to its new Israeli franchise, and though it lost considerable Arab market share, retained the much larger Jewish market in the United States.
Consolidation
For much of this century, and particularly since the second world war, the trend among governments has been of consolidation rather than federalism or decentralization. Notable examples of this trend include the forceful occupation and absorption of neighboring countries by the Soviet Union, Nazi Germany and Imperial Japan. Among the less obvious examples are the ill-fated League of Nations following the first world war and the extant United Nations in the wake of the second. While these latter are not of the violent nature of the former, they are nevertheless indicative of governmental consolidation and an erosion of national sovereignty.
Also prevalent since World War II, and especially of recent vintage, is the propensity of governments to enter into regional trading blocs. Though ostensibly for the purpose of expanding trade and reducing restrictions on it, these blocs also involve each of the participatory governments in the internal affairs of the others.
Environmental laws and labor practices of a member nation may be subject to the scrutiny of others within the bloc. These blocs have arisen throughout the world, and are epitomized by such as NAFTA, the EC, and APEC. The impetus, however, was the GATT launched after World War II, which has since mutated into the World Trade Organization. This body comprises 126 nations, and claims final authority over numerous policies of each. Growth of GATT and the subsequent WTO has been steady since its inception. (Appendix D)
For Coca-Cola, a company with a global vision and dependant on global trade, consolidation and the blurring of national borders it implies is a positive trend. The Company has responded with vigorous campaigns throughout the world which have increased market share in virtually every country in which it operates. Approximately 80% of profits are derived from these international markets, far in excess of the 20% claimed by its principle rival. (Appendix D) Coca-Cola earns praise for its response to governmental consolidation through trade zones.
Laudable Past, Promising Future
The environmental trends described in this paper represent but a fraction of those coincident with the history of The Coca-Cola Company. That notwithstanding, those described yield ample evidence of the general effectiveness with which the Company anticipates, recognizes, and responds to trends that confront it. The struggle, however, is continuous, and is perhaps best encapsulated in the words of Coca-Cola marketing director Fred Dickson: ‘We sell Coca-Cola to a vast , fickle, forgetful public. Right now some new trend may be starting that will change the whole contemporary scene’.[59] If past is prologue, that trend will not long remain a mystery to The Coca-Cola Company.
[1] Morrison, Ian:The Second Curve: Managing the Velocity of Change;Ballantine Books, New York, 1996.
[2] Pendergrast, Mark: For God, Country and Coca-Cola: The Unauthorized History of the Great American Soft Drink and the Company That Makes It; MacMillan Publishing Company, New York, 1993; p.115.
[3] ibid, p.121.
[4] Bryson, Bill: Made In America: An Informal History of the English Language in the United States; William Morrow and Company, Inc., New York, 1994; p. 205.
[5] Pendergrast, p.163-4.
[6] The hitchhiker’s guide to cybernomics; The Economist, The World Economy Survey, September 28, 1996; p. 7.
[7] Pendergrast, p. 165.
[8] ibid, p. 198.
[9] ibid, p. 207-8.
[10] Kahn, E.J., Jr.: The Big Drink: The Story of Coca-Cola; New York, Random House, 1960; p. 28.
[11] Stubbs, Roy: Compilations on France; Atlanta, The Coca-Cola Company, 1951; p. 333.
[12] Pendergrast, p. 244-5.
[13] Louis, J.C. and Louis, J.C. and Yazijian, Harvey; The Cola Wars; Everest House, New York, 1980; p. 156.
[14] Read, Molly; ‘How Coke Makes a Bundle in Japan’, The Atlanta Business Chronicle, November 4, 1991.
[15] Cohen , Roger; ‘For Coke, World Is Its Oyster’, New York Times, November 21, 1991.
[16] Morrison, p. 72.
[17] Herrnstein, Richard J. and Murray, Charles; The Bell Curve: Intelligence and Class Structure in American Life, Free Press, New York, 1994; p. 31-3.
[18] Allen, Frederick; Secret Formula: How Brilliant Marketing and Relentless Salesmanship Made Coca-Cola the Best Known Product in the World, HarperCollins, New York, 1994; p.414
[19] ibid, p.417.
[20] International Directory of Company Histories, Vol. 1: The Coca-Cola Company, 1988; p. 233.
[21] Johnson, Paul: Modern Times: From the Twenties to the Nineties, Revised Edition; HarperCollins, New York, 1991; p. 223.
[22] Oliver, Thomas; The Real Coke, The Real Story; Random House, New York, 1986; p. 18.
[23] Pendergrast, p. 167.
[24] ibid, p. 184.
[25] ibid, pp.261-2
[26] Bartlett, Christopher A. and Ghoshal, Sumantra: Transnational Management: Text, Cases, and Readings in Cross Border Management, Second Edition; Irwin, Chicago, 1995; p. 184, p. 324.
[27] Drucker, Peter: Post-Capitalist Society, HarperCollins, New York, 1993; pp. 144-5.
[28] The Coca-Cola Company: 1995 Annual Report, pp. 31,34.
[29] Foster, Richard; Innovation: The Attacker’s Advantage, Summit Books, New York, 1986; pp.254-6.
[30] Making waves; The World Economy Survey, The Economist, September 28, 1996; p. 8.
[31] Rothbard, Murray: America’s Great Depression, Richardson & Snyder, Inc., New York, 1963; p. 30-3.
[32] Pendergrast; p. 62.
[33] Friedman, Milton and Rose: Free To Choose: A Personal Statement, Avon Books, New York, 1979; p. 63.
[34] International Directory of Company Histories, Vol. 1: The Coca-Cola Company, 1988; p. 232.
[35] ibid; p. 142.
[36] Financial Topics, The Coca-Cola Company Financial Division for the Industry and Consumer Affairs Department, May 1996.
[37] ibid; p. 177.
[38] Gordon, Robert J.: Macroeconomics, Sixth Edition; HarperCollins, New York, 1993; p. A2.
[39] Rubicam, Raymond, ‘Senator on Advertising’, Business Week, November 20, 1943; p. 111.
[40] Ambrose, Stephen E.: Eisenhower: Soldier and President, Simon and Schuster, New York, 1990; p 227
[41] ibid, p.221, 239
[42] Gordon, p. 418.
[43] ‘Will the Yen Replace the Dollar?’; Federal Reserve Board of San Francisco Economic Letter, October 18, 1996.
[44] Drucker, Peter F.: Managing for the Future: The 1990s and Beyond; Truman Talley, New York, 1993; p. 34.
[45] ‘Trade Liberalization in the Pacific Basin’; Federal Reserve Board of San Francisco Economic Letter, November 8, 1996
[46] Cohen, Roger; ‘For Coke, World Is Its Oyster’, New York Times, November 21, 1991.
[47] Pendergrast, p. 255-7.
[48] ibid, p. 323-4.
[49] Drucker, Peter; ‘The Age of Social Transformation’, The Atlantic Monthly, November 1994, pp. 53-80.
[50] Bank, David; ‘Know It Alls’, The Wall Street Journal, November 18, 1996, p. R28.
[51] Allen, p.43.
[52] Pendergrast, p. 111.
[53] ibid, pp. 143-4.
[54] ibid, pp. 129-30.
[55] Coca-Cola Company: An Illustrated Profile; Atlanta, The Coca-Cola Company, 1974; p. 77.
[56] Pendergrast, p. 200.
[57] Negandhi, Anant R., Policy Making and Control in International Organizations, Case 4-1: The Coca-Cola Company, 1985; pp. 159-177.
[58] Pendergrast, p. 291.
[59] ibid, p. 290.
