FMCG

by Greg Thain

  Where and When?

  The start-dates and locations of our FMCG Companies

  Coca-Cola

  Where Did They Come From?

  By 7th May 1886, the life of 53-year-old druggist John Styth Pemberton had been one of unrelenting failure. His quest to develop a winning patent medicine during his employment at, or part-ownership of, nine different pharmaceutical firms remained unfulfilled. But he was nothing if not indefatigable. The failures of his Extract of Stylinger, Globe Flower Cough Syrup, Triplex Liver Pills and Indian Queen Hair Dye, among many others, had not deterred him from his latest obsession – producing a non-alcoholic version of another of his flops, French Wine of Coca.

  Given that French Wine’s principle ingredients were alcohol and cocaine, it might seem strange today that all Pemberton wanted to take out was the alcohol. But in those closing years of the century, cocaine was enjoying a brief spell of popular acceptance and had already appeared in other patent medicines such as Dr. Tucker’s Specific and Dr. Mitchell’s Cola-Bola. Pemberton’s latest idea was to remove the mood-depressing alcohol and replace it with an extract of the African kola nut, a second stimulant which would compliment the already stimulating cocaine. So, a day later on May 8th 1886, when Pemberton, his business partner Frank M. Robinson and drug store owner Dr. Joseph Jacobs tasted the first ever glasses of Coca-Cola, it wasn’t just what was in the drink that upped their heart-rates and dilated their pupils, it was how it tasted: great. Did they at last have a contender for the American soft drinks market, already decades old, rapidly growing and coining in the cash even then? Who knew? Might their new and as yet unnamed idea conceivably do as well as – hold your breath! - Charles E. Hires’ Root Beer? Or even – Heavens above! - Lemon’s Superior Sparkling Ginger Ale?

  Rather better, as it turns out. Yet had it remained in Pemberton’s hands, it would simply have disappeared, let alone changed the world. Christened Coca-Cola by Frank Robinson, the product sold moderately well in the drug stores and soda fountains of Atlanta but was far from making Pemberton either rich or even debt free. When he fell ill the next year, he sold two thirds of his joint-ownership of the company, for the princely sum of $283.2, to the very man who had mixed the first glasses behind the counter of the drug store. The tired and disillusioned Pemberton would almost certainly have taken his drink to the grave.

  The lucky new man was Frank Robinson. He’d already come up with the name - and something that looked like Coke’s logo today - but he was saddled with a new partner who, a mere drug store counter jockey, had no resources to add anything to the sale and promotion of Coca-Cola. So Robinson approached a prosperous Atlanta drug-store owner and patent medicine manufacturer, Asa Griggs Candler. Candler bought out the jockey and Pemberton’s remaining stake for $550, and became the driving force of the new partnership. And here we leave John Pemberton, who died the following year, penniless and in an unmarked plot. His descendants would later try to sue their way back into part-ownership, but to no avail: it had all been legal.

  Candler had first fallen for Frank Robinson’s impassioned sales pitch because he found that drinking Coca-Cola cured his headaches, which was surely a blessing. But not a commercial one. Candler could already see that, for patent medicines, the writing was on the wall. The future, Candler realised, lay not in dubious medical claims but the simple act of refreshment. As well as clarity of vision, Candler also brought a nascent business drive and passion. His family, like many affluent Southerners, had been ruined by the Civil War, reduced from comfort to a near poverty which had also put paid to his hopes of studying to be a doctor. And although sales in the initial couple of years were uninspiring - 1,500 gallons of syrup in 1887 rising to only 2,200 in 1889 – the perceptive Asa Candler saw in Coca-Cola a vehicle both to restore his family’s lost fortune and – how sweet was this? – one that might ultimately re-conquer the hated North that had taken it all away .

  Thus fuelled, his passion for Coca-Cola knew no bounds. And he also really liked the drink: he was convinced that if people knew it like he did, he’d need armed guards on the plant to keep the thirsty hordes at bay. Finally, he succeeded in communicating his commitment to the miniscule sales team and took every opportunity to do so, although perhaps one very powerful ally he enlisted for the sales pitch also helped stir the team’s blood: his favourite means of ending sales meetings was a rousing rendition of Onward Christian Soldiers.

  How Did They Evolve?

  Asa Candler realised from the start that there was a two-fold secret to selling a refreshing beverage: make it available to as many customers as possible and make it available where they bought its competitors. This meant soda fountains, located primarily in drug stores. He beefed up the summertime sales force by hiring cotton buyers, unemployed at that time of year, and sent them far and wide. By 1902 the product was for sale as far away as New England, whilst syrup would soon be manufactured in Chicago, a wholly necessary regionalisation of syrup production as the Pemberton formula didn’t have a long shelf life. Robinson and Candler, an experienced druggist in his own right, tinkered endlessly with the recipe until they had something both delicious and amenable to far-flung distribution.

  By 1891, syrup sales had rocketed to nearly 20,000 gallons and would double again the next year, despite the beginnings of a press campaign against the evils of cocaine that continued for fifteen years. In response, Candler made the somewhat rash commitment to give up Coca-Cola if cocaine could ever be shown to be addictive. Fortunately, the challenge was never accepted. Meanwhile, the Candler sales and promotion machine, a robust combination of what we’d now call push and pull sales techniques, shifted into gear. The travelling cotton buyers were given a vast armoury of incentives, from any and every kind of branded merchandise, free shipping, stockist rebates and free-trial Coke customer vouchers which they could hand out to anyone who looked interested, all fully-funded by Coca-Cola. Candler also believed strongly in advertising, often spending up to 25% of the now rapidly rising annual income. Within ten years, Coca-Cola would be the single most advertised product in America. Candler paid himself and his staff a pittance. Do these facts – aside from the salaries – begin to ring a few more modern bells?

  The next major step was bottling. Candler was at best lukewarm and, once again, Coca-Cola was by no means first on the scene: by the time Pemberton had tasted his first glass in 1886 there were over 500 bottling plants in America, primarily of soda water. But bottling and particularly sealing technology was not what it is now. Product went flat quickly and the glass bottles were prone to exploding without notice. So when, for his approval, Candler was unexpectedly sent the first ever two-dozen case of bottled Coca-Cola by entrepreneur Joseph Biedenharn, he was less than enthusiastic, although he grudgingly acceded to Biedenharn’s logic: taking the drink to the people might well be simpler and more effective than taking the people to the drink. A bottle, after all, is easier to ship than a body.

  The solution lay in technology. Until the widespread adoption of the Crown Cork bottle top, patented in 1892, the market for bottled carbonated drinks remained small and Candler uninterested, although he did grant a handful of bottling licenses to various small-time operators, probably to forestall their pestering. In 1899, however, he was approached again, this time by two Chattanooga lawyers, Benjamin Franklin Thomas and James Brown Whitehead, who pushed him hard. There were, they argued, almost limitless possibilities for incremental sales via nationwide bottling. Candler was so dubious he granted them what, on the face of it, was the biggest giveaway in business history: the franchise to bottle and sell Coca-Cola everywhere in the United States, apart from the small territories of Biedenharn and others. The lawyers sealed the deal for one US dollar. In due course, and in a very lawyerly fashion, the deal got better yet: Thomas and Whitehead never paid up.

  A forever outstanding buck now bought Thomas and Whitehead the rights to set up bottling plants almost anywhere in America, to sell the bottled product to whomsoever they chose at t
he locked in price of 5 cents and, while simply purchasing simply the syrup form Coca-Cola, to enjoy at no charge – remember that Coke still fully-funded everything – a wealth of promotional materials and nationwide advertising. There was just one problem – capital. Even one bottling plant, let alone the 1,020 that would be in place by 1917, was entirely beyond their means. Indeed, so gloomy did the prospects look for making any money from the license that Whitehead sold half of his share for $5,000.

  Their brainwave, which made them fabulously wealthy, was to create entire dynasties of equally wealthy bottling families by dividing up the country and sub-licensing the franchise to large numbers of people who did have the capital, granting them an exclusive territory in perpetuity. Thomas and Whitehead didn’t bottle Coca-Cola at all; they simply wholesaled the syrup to people who’d bought the licenses from them. The results? Coca-Cola became absolutely omnipresent in the US and its bottling network persisted for almost all of the company’s history. Admittedly, Coca-Cola was not the instant goldmine it very soon became, and many territories changed hands before the system bedded down, but the die was cast, and the pathway to wealth – the six-lane highway to wealth – was truly open..

  Of course, Coca-Cola spent hundreds of millions – less a dollar, of course - to buy back bottling many decades later, but this was far from the one-sided deal history and business historians often suggest. As early as 1905, there were 241 Coca-Cola bottling plants, a level, speed and sheer volume of capital investment the parent company could no more have managed than the lawyers. In addition, the bottlers, at least in the early years, added more than just the hard cash they had paid for the licenses and the plant. Most were hard-driven and hard-driving entrepreneurs who injected a raw energy into the system that no mere employee would have been likely to match. While the bottling franchise system made a lot of people wealthy – and all good franchises do - the system also gave Coca-Cola a breadth and depth of national distribution at a speed undreamed-of by other soft drink companies. Everyone did well from the deal.

  With no need to worry about a sizeable chunk of the distribution network and, more importantly, no need to raise capital to fund it, the company was free to concentrate on what it did best: driving soda fountain distribution and creating consumer demand for the single, graspable, easily marketable product that was Coca-Cola. The decision by Candler to focus on just one brand was also crucial to the speed in which the brand name spread, although Candler had not always shown such single-mindedness. When he bought his interest in Coca-Cola, his various other companies had manufactured a range of various other drinks. But he cast them all aside. To Candler, Coca-Cola was never just a drink, it was the drink. Such focus on the product range of one made marketing a much easier proposition: concentrated in content and unprecedented scale.

  The early years of the 20th-century saw two crucial changes to building the brand’s appeal. In 1902, tired of the endlessly negative press, Candler finally agreed to remove cocaine from the recipe, using spent coca leaves instead. The advertising also shifted its ground and began to focus on a single, key element: refreshment. Consider one nationally advertised 1905 message: Relieves Fatigue and is Indispensible for Business and Professional Men, Students, Wheelmen and Athletes. Or: Relieves Mental and Physical Exhaustion and is the Favourite Drink for Ladies When Thirsty, Weary and Despondent. In 1908, a message that was plastered over 2.5 million square feet of prime advertising real estate plus countless promotional items from clocks to Japanese fans simply proclaimed: Good to the Last Drop. That same year’s syrup was a shade less than 2.9 million gallons, a more than three-fold increase in five years. Was this the start of modern copywriting?

  Whilst advertising and the relentless programme of opening new soda fountain accounts were the main preoccupations of Coca-Cola head office, the owners of the bottling franchise, Thomas and Whitehead, were creating the bottle, the final piece of brand iconography. They wanted a bottle that would sell Coca-Cola not only full but empty or even broken. They wanted a bottle that could be recognised in the dark. In 1915, a committee made up of Thomas and other key bottlers ran a bottle beauty contest. The winner came from the C.J. Root Company of Indiana, whose designers aimed to mimic the shape of the coca bean but had actually copied that of the cacao bean. Patented by Root in 1915, the most profitable entomological error in history was launched. Sales reached 7.5 million gallons and topped $10 million for the first time.

  The brand was in pretty much national distribution, clearly heading for both omnipresence and omnipotence, as per the God of Candler’s sales pitch-closing hymn. But it wasn’t quite there yet. Sales in the Western US were tiny compared to the brand’s southern heartland, so opening more accounts was still the mantra of the company, now under the sole direction of Candler, Frank Robinson having retired in 1914. However, Candler was increasingly distracted by a much less productive activity, lawsuits with copycats. While the company’s zeal in chasing down and obliterating any and every threat to the brand’s uniqueness was a key factor in its growth, by 1916 Candler was ailing under the strain. His election as mayor of Atlanta was a sort of final straw. He divided his stock between his wife and five children and left them to run things.

  At first glance, the family seemed to manage pretty well. The 1916 syrup sales of 9.7 million gallons essentially doubled to 18.7 million in three years. But the sales model, once predominantly consumer pull, had become one of unrelenting stock pressure push. The company’s 75,000 soda fountain accounts were being pressured to take more and more syrup. But the company was doing less and less to sell it through. Advertising expenditure, Candle’s sacrosanct long-term investment, fell by 6% in 1917.

  In September 1919, when the family sold their entire stock to Atlanta financier Ernest Woodruff - a fact Asa Candler, grieving over the recent death of his wife, discovered after the event – it was difficult to escape the conclusion that the family had been goosing the numbers to get a top dollar price, which they did at $25 million. This was a huge purchase at the time, the largest ever in the South, and had required the involvement of some of the wealthiest Wall Street firms of the day. Woodruff was now leveraged up to the eyeballs, a problem enough for any new owner of an unfamiliar business. But his worries paled into insignificance when Samuel Candler Dobbs, the new president, forward-bought vast quantities of sugar in 1920 at 28 cents a pound. The price promptly dropped to two. Woodruff and his wealthy partners were almost bankrupted. Just to stay in business they had to raise another $20 million - almost as much as they had paid in the first place.

  Another major woe for the new owners was a major bust-up with the bottlers, provoked by the company’s attempt both to increase the syrup price and strike out the in-perpetuity clauses in the franchises. The unsustainability of 18 million gallons a year, a slashed advertising budget and a de-motivated set of bottlers wreaked further havoc; sales stalled in 1920, dropped 15% the next year and a further 3% the year after. Woodruff, not a young man, gave up. In 1923 he stepped down, replacing himself as CEO with his 33-year-old son, Robert W. Woodruff. If he was going to go belly up, he would do so in hands he trusted.

  Robert Woodruff was leaving a reasonably successful career in the motor trade for the herculean task of sorting out a company many now believed to have been simply a flash – if a somewhat sustained flash – in an essentially southern pan. But Woodruff Junior brought an astute mind to what could have been an insuperable problem. He immediately realised that Coca-Cola’s evident disfunctionality had two roots. Firstly, as Coca Cola was now available in virtually every soda fountain in the country, the sales push model made no sense at all. It had run its course. Constant pressure to buy more Coca-Cola syrup could do nothing at all for sales and great deal to disillusion soda fountain owners with Coca-Cola and drive them into the arms of friendlier competitors. Secondly, the company syrup salesmen and the bottlers’ jobbers had begun to compete more for each other’s slice of the pie rather than grow the size of the pie itself. To solve these de
structive problems, Woodruff would spend most of the 1920s making two major, and crucial, changes, to his style of marketing on the one hand and his business support (in the shape of the bottlers) on the other.

  The first major change Woodruff made to his own sales organisation was to decentralise it. Until this point everything had been run out of Atlanta and, as the company’s distribution base had multiplied and sales skyrocketed, the Atlanta system had become increasingly unwieldy and unresponsive. So he set up two wholly owned sales corporations, one for Canada (which housed the company’s second-largest syrup plant), and one for the US, split into five sales divisions, which themselves were divided again into first sixteen and then twenty sales districts. Then, in 1927, the company held a national sales conference in Atlanta, which Woodruff opened by telling every salesman that he or she was fired, but should report back the next day to learn more. It was what you might call a cultural paradigm shift. In the event, the following morning they all turned up, to hear they were all being offered jobs in the new service department, that they were no longer syrup-pushers but retail sales experts whose only job was to help their accounts sell more Coca-Cola. Woodruff might just have sat back - the company had reached a new sales peak of 22.8 million gallons that year – but he didn’t; he was convinced the push model had to go.

  Winning the bottlers over was a more nuanced challenge. Bottlers had other options. Although the company discouraged it, many had taken on the bottling of other products to leverage their substantial capital investments. In fact, around one-third of Coca-Cola bottlers’ capacity was being used for other brands. Woodruff quickly realised that whilst he could never win total loyalty to the Coca-Cola Company, total loyalty to the Coca-Cola brand might well be a different matter. The first job was to settle the contract disputes, which centred on syrup price and the perpetuity agreement. The first was decided through the courts: syrup price could go up in response to ingredient price. As to perpetuity, Woodruff honoured the original deal: perpetuity would remain in place.