How They Started Page 23
The Coca-Cola Company
The Coke side of business
Founders: John Pemberton (creator) (shown) and Asa Griggs Candler (business founder)
Age of founders: 55 and 35
Background: Pharmaceuticals and sales
Founded in: 1886
Headquarters: Atlanta, Georgia
Business type: Beverage manufacturer
Everyone has sampled the “Coke side of life.” Its trademark scripted, bright red logo can be seen all over the world—from English pub umbrellas to football stadiums, from Chinese shop signs to a 20-foot-tall neon sign in Times Square. It’s no exaggeration to say that The Coca-Cola Company has a presence in every country in the world, and arguably it was the world’s first truly global brand. It has been declared both the world’s most recognizable trademark and the world’s most popular branded drink.
Making medicine
Yet this amazing success story had very humble beginnings. A pharmacist from Atlanta named John Pemberton invented a new “medicine” called Coca-Cola. One afternoon in 1886, when workers were building the Statue of Liberty in New York Harbor, John was experimenting in his backyard with combinations of ingredients in a three-legged brass pot to try to develop a new medicine. He came up with a fragrant, caramel-colored liquid. Out of sheer curiosity, he took it to neighboring Jacobs’ Pharmacy, where he added carbonated water. After testing it on customers, who all thought it was something special, Jacobs’ Pharmacy started selling it as a medicine for 5 cents a glass (the equivalent of about a dollar today). John claimed his new drink cured diseases, including morphine addiction, dyspepsia, neurasthenia, headache, and even impotence.
Coca-Cola was first sold as “medicine” for 5 cents a glass in pharmacies.
In the first year, John sold just nine glasses of Coca-Cola a day, making around $50 in total ($1,170 today). It had cost John $70 to create and advertise the drink, so he incurred a loss. But he persevered. Encouraged by the drink’s popularity with customers, John remained convinced he would eventually make something of it.
First named Pemberton’s French Wine of Cola, the alcohol in the drink was quickly replaced by sugar to make it more appealing to drink. The drink was renamed Coca-Cola by John’s bookkeeper, Frank Robinson, who also wrote the name for the logo in the distinctive script that is still in use today. The name is derived from two key ingredients: leaves from the coca plant and the caffeine-rich kola nut. Until 1905, the drink even contained traces of cocaine, added for its medicinal effects.
John’s young company started to grow sales of its drink by getting other pharmacies to sell Coca-Cola too. It sold 25 gallons of syrup to drugstores and made sure that all the stores that sold the drink had hand-painted Coca-Cola signs to help promote it. John persuaded six local businessmen to invest in the company to help him finance this expansion.
Coca-Cola’s famous advertising campaigns have roots in its early history: soon after the drink was created, John placed the first newspaper ad in the Atlanta Journal, inviting people to try “the new and popular soda fountain drink.”
Sadly, John died in 1888 and never saw his drink concoction taken to the masses. The person to do this was Atlanta businessman Asa Griggs Candler, who bought the rights to the drink for $2,300 ($54,400 today). It took Asa three years to secure rights to the business, as a very ill John had also sold rights to another businessman and given exclusive rights to his son, which took some time to unravel.
Asa had a vision for the product: to turn the now-popular drink from a beverage into a business. He disbanded the pharmaceutical arm of the company and partnered with his brother, John Candler, and John Pemberton’s bookkeeper, Frank Robinson. Together they raised $100,000 ($2,370,000 today)—then a very substantial sum—to kick-start the business.
In 1891, Asa had full control of the business, and within a year he had increased sales of Coca-Cola syrup tenfold. In 1893, the company was incorporated and The Coca-Cola Company was officially born.
The company soon began a huge marketing campaign, using new advertising techniques. To spread the word, Asa gave away coupons for free Coca-Cola samples in newspapers, and offered pharmacists two gallons of the syrup if they agreed to give away one gallon’s worth when people produced his coupon. He supplied the pharmacists with urns, clocks, calendars, and scales all bearing the brand name. The combination of strong branding and a drink that appealed to so many people worked wonders, and sales grew fast.
Just four years later, in 1895, Asa had grown demand for his product so much that he needed to build syrup plants in Chicago, Dallas and Los Angeles. He declared to his shareholders that “Coca-Cola is now drunk in every state and territory in the United States.” Given the far reach of today’s mass media, it might be easy to miss just what a major achievement in advertising this really was. This, after all, was an era in which it took days to travel across the country. Likewise, there was no radio or television, and so to achieve product placement in every state so quickly was quite phenomenal.
The combination of strong branding and a drink that appealed to so many people worked wonders, and sales grew fast.
Until 1894, Coca-Cola was sold only by the glassful. But then a Mississippi businessman named Joseph Biedenharn had the idea to bottle Coca-Cola at his factory. He sent a dozen bottles to Asa; Asa hated the product and quickly dismissed it. He overlooked this crucial development again in 1899 when two lawyers from Chattanooga, Tennessee, Benjamin F. Thomas and Joseph B. Whitehead, secured exclusive rights from Asa to bottle and sell the beverage in nearly all of the states, for only $1. In fact, Asa was so sure that this idea would amount to nothing that he didn’t even bother collecting the dollar!
This was the start of Coca-Cola’s unusual corporate structure, which continues to this day. The Coca-Cola Company supplies syrup, called concentrate, to customers all over the world. Some of these customers are restaurants and bars, which sell the drink by the glass, much like the original pharmacy customers. The other group of customers are bottling companies, which add carbonated water to the syrup in a factory and bottle it for sale in shops.
Thomas and Whitehead began by opening bottling plants in Chattanooga and Atlanta, but soon realized there was a far better way for them to distribute bottled Coca-Cola across the country. The two Chattanooga lawyers were joined by John Thomas Lupton and the trio split the US into three territories, selling bottling rights to local entrepreneurs. Not only did this reduce the amount of capital the lawyers needed, as local entrepreneurs used their own money, but it also provided local knowledge and the commitment of business owners, which would have been very hard to set up any other way. The first sub-licensed bottler began in 1900, and by 1909 there were 400 Coca-Cola bottling plants across America.
By the turn of the century, Asa had increased Coca-Cola’s sales to 40 times its 1890 level, and his continuing advertising campaign and his free samples had spread the name “Coca-Cola” across the country.
Coca-Cola’s bottle progression over nearly a century.
Bubbling overseas
The drink was first taken overseas by Asa’s son, Charles, on a trip to London. Charles took a jug of syrup with him and gathered modest orders for five gallons. Coca-Cola was first sold in England on August 31, 1900, and gradually it built enough momentum to be sold in London’s prestigious Selfridges department store and the London Coliseum.
After seeing the success of the bottled drinks, The Coca-Cola Company decided to license out bottling rights to overseas territories itself. The first international bottling plants began in Canada, Cuba and Panama in 1906; plants in the Philippines and Guam followed shortly afterward in 1912. As he had done so effectively in America, Asa supported the new supplies of drinks with a thorough marketing campaign, to ensure that Coca-Cola’s bright-red logo was seen in stores and cafés everywhere.
Of the companies granted rights to bottle Coca-Cola around the world, most were brewers. This worked well, as the brewers already had bottli
ng plants and expertise, so it was relatively easy and quick for them to add the new drink to their range. The brewers also already had distribution networks through their existing customer base, which meant that Coca-Cola had access to stores, bars and restaurants far faster than it would have done had it set up a brand-new business from scratch in a new country.
As he had done so effectively in America, Asa supported the new supplies of drinks with a thorough marketing campaign, to ensure that Coca-Cola’s bright red logo was seen in stores and cafés everywhere.
The drink had become very well known, and it was clearly successful, so inevitably a number of competitors appeared—though, of course, none knew the precise recipe for the drink, which was kept secret. The Coca-Cola Company grew concerned that it was too easy for customers to be given a different drink and mistakenly think it was “The Real Thing”—which meant not only that Coca-Cola would lose out on the sale but, if customers didn’t enjoy the rival drink, that it would lose out on future sales, too. Something had to be done. So the company decided to come up with a distinctive bottle to ensure its product stood out. In 1915, following a design contest, the now-famous bottle was introduced. Created by the Root Glass Company of Terre Haute, Indiana, the winning design was chosen for its attractive and original appearance and because, even in the dark, people could easily identify it.
New leadership, new vision
After nearly three decades of turning the drink into a substantial and successful business, Asa eventually sold the business in 1919 to Ernest Woodruff for $25 million (worth roughly $315 million in today’s money); his son Robert Woodruff became president in 1923. The company was reincorporated as a Delaware corporation and listed on the New York Stock Exchange, selling 500,000 shares to the general public at $40 per share. Coca-Cola was now firmly established as an American icon, but Woodruff’s mission was to go global. His vision was to create a brand that was “in arm’s reach of desire.”
During the 1920s and 1930s, Woodruff set his sights on international expansion. When he took over in 1923, Coca-Cola was strongly established in North America, had some bottling arrangements in South America, and had just opened its first European bottling plant in France. From this base, Woodruff’s Coca-Cola went on to open additional plants in Guatemala, Honduras, Mexico, Belgium and Italy in the 1920s. In 1926, Coca-Cola set up a Foreign Department, which became the Coca-Cola Export Corporation in 1930. In all the countries Coca-Cola expanded into, a creative, vibrant and culturally relevant advertising campaign followed.
A significant international move occurred in 1928, when Woodruff began a partnership with the Olympic Games in Amsterdam. A thousand bottles of Coca-Cola accompanied the US team, and the drink was on sale in the Olympic stadium. Vendors wore caps and coats emblazoned with the Coca-Cola logo, and the drink was also sold at surrounding cafés, restaurants and stores.
Elsewhere, Woodruff affixed the company logo on everything from Canadian racing dog sleds to bullfighting arenas in Spain. By the start of World War II, Coca-Cola was in 44 countries. A marketing genius, Woodruff continued to develop the company’s successful, but limited, line. He introduced the six-pack (making the drinks more transportable and encouraging people to buy in bulk) and the open-top cooler. Coca-Cola was available in vending machines from 1929 and was advertised on the radio from 1930. In 1935, bottlers hired women to act as door-to-door salespeople for the drink, with a target of 125 calls per day.
In all the countries Coca-Cola expanded into, a creative, vibrant and culturally relevant advertising campaign followed.
In a marketing scheme that was to have repercussions for little children everywhere, Coca-Cola’s famous red-suited Santa Claus made his debut at Christmas 1931, banishing the long-established and previously unchallenged green Santa into the mists of time.
Santa Claus dressed in red is now a globally recognized figure.
Coca-Cola’s wartime effort
Throughout World War II, Coca-Cola continued to manufacture, offering the drink for 5 cents to any serviceman, whatever country he was in, regardless of the cost to the company. Bottling plants were opened to supply troops with the drink, following a request from General Eisenhower himself on June 29, 1943. Eisenhower asked for the shipment of materials for 10 bottling plants to be sent to North Africa along with three million bottles of Coca-Cola and enough supplies to make the same amount twice a month. Coca-Cola responded within six months, setting up a bottling plant in Algiers.
In all, 64 bottling plants opened during the war, and more than five billion bottles of Coca-Cola were consumed by service people. Mobile service stations were also taken to the battlefields, and people throughout Europe and the Pacific had their first taste of the drink. These wartime bottling plants were later converted and run by local civilians, who continued to produce and sell the drink even after the Americans had left.
Promoting global happiness
Postwar America was the perfect place for Coca-Cola to expand: people were embracing a carefree lifestyle, and Coca-Cola’s advertising mirrored this desire, with images of loving couples at the drive-in and happy families driving around in shiny cars. Coca-Cola continued to be served at soda fountains and was now added to the menu in ice cream parlors.
The company still had just one product, albeit an extraordinarily successful one, and it began experimenting with new flavors. In the 1950s the company introduced Fanta (which was originally concocted in wartime Germany), followed by Sprite in 1961, Tab in 1963 and Fresca in 1966. Coca-Cola acquired the Minute Maid Company in 1960, branching out into juices. New lines of Coca-Cola were also introduced in 1960, along with bigger bottles and metal cans.
The 1950s and 1960s saw bottling plants built in more countries, expanding into new markets in Cambodia, Montserrat, Paraguay, Macao and Turkey. During the 1970s and 1980s, many of Coca-Cola’s small and medium-sized bottlers joined forces to better serve their growing international customer base. By 1969, for the first time, Coca-Cola sales in international markets exceeded those in the US.
In 1971, Coca-Cola created a particularly special television advertisement, which featured young people from all over the world gathered on a hilltop in Italy to sing, “I’d Like to Buy the World a Coke.” Coca-Cola had made its mark on the international market, and for a time it was seen as an icon of unity in an era that had not yet grasped the consequences of globalization. Significantly, in 1978, the People’s Republic of China declared The Coca-Cola Company as the only company allowed to sell packaged cold drinks in China.
Intelligent risk-taking
In 1981, Roberto C. Goizueta became chairman of the board of directors and CEO of The Coca-Cola Company. Goizueta’s mantra was to take the company forward with a strategy he called “intelligent risk-taking.” This began with the introduction of Diet Coke on Independence Day 1982, the very first extension of the Coca-Cola trademark. Coca-Cola’s archrival, Pepsi, had released its diet version of the drink in 1963 with great success. Despite its comparatively late entry, within two years Diet Coke had become the top low-calorie drink in the world. Coca-Cola might have been slow on the uptake, but it quickly followed Diet Coke’s inception with a range of alternatives, including Caffeine-Free and Cherry Coke.
Goizueta’s riskiest initiative began in 1985, when he released what was deemed “New Coke,” which marked the first change in recipe in 99 years. Why fix something that isn’t broken? The data suggested there were cracks at the seams. Coca-Cola’s share of the soft drinks market decreased from 60 percent at the end of World War II to less than 24 percent in 1983, in large part due to its new rival, Pepsi. Coca-Cola’s share price had also decreased by 2.5 percent in the preceding four years (that might sound like a small percentage, but it represented a drop in market capitalization of $500 million). Pepsi had directly challenged Coca-Cola’s success in the marketplace by conducting blind taste testing on the streets of America, with many people opting for the sweeter Pepsi. This marketing campaign helped Pepsi overtake Coca-Col
a in supermarket sales.
New Coke passed taste testers’ approval in extensive testing before launch, as most preferred it to Pepsi; however, it didn’t succeed in the marketplace. In an unprecedented expression of brand loyalty, people demanded their old Coke back. Coca-Cola received over 40,000 letters from customers pleading for the old recipe, and the company’s phone lines were continually overloaded. After the reintroduction of Coca-Cola Classic, the market share of New Coke in the Cola beverage segment (which continued to be sold alongside Coca-Cola Classic), ultimately fell from 15 percent to 1.4 percent. Pepsi declared itself the victor of the so-called “cola wars.” The company listened, and after 87 days of New Coke, the company started supplying the original Coca-Cola again under the banner of “Coca-Cola Classic.”
Its return was momentous: ABC News anchor Peter Jennings interrupted regular programming to share the news with viewers, and speaking in the US Senate, Senator David Pryor called the reintroduction “a meaningful moment in US history.” More importantly, Coke’s sales leapt up, reclaiming the top spot, which it has never lost since. New Coke was eventually discontinued, and the original recipe is still used today.
The company listened, and after 87 days of New Coke, the company started supplying the original Coca-Cola again under the banner of “Coca Cola Classic.”
In an effort to help manage the now-substantial network of bottlers, the company set up Coca-Cola Enterprises Inc. in 1986. This new public company was intended to organize the bottling partners and ensure that they could meet the international demand for Coca-Cola. The company follows the same approach today: Coca-Cola works with local bottlers, some of which are public companies while others are independent and family-owned. Significantly, the majority of them are not owned by Coca-Cola. The bottling plants (of which there are now nearly 300) package, distribute and market the product.