His charade was effective, in large measure because his memory lapses were temporary. Despite his persistent drinking and increased irritability, Austin remained a commanding presence who functioned not just as a figurehead but as a real leader. In 1975, he unveiled plans for a new multimillion-dollar tower to soar twenty-six stories above the dwarfish old brick building next to it. The next year, reacting to the complexity of the worldwide industry, he reorganized the Company into three operating groups, nominally reporting to President Luke Smith. At that time, Coca-Cola Export finally transferred to North Avenue, firmly tucked under the corporate wing.
Based in Atlanta, all three group leaders were strong managers, any of whom might reasonably replace Austin instead of Smith. German Claus Halle, president of the Export Corporation until 1976, had survived the autocratic rule of Max Keith and brought an urbane, meticulous approach to his sector. South African Ian Wilson, who had learned under Austin during the fifties, emerged as an aggressive, cultured, hard-headed manager who had recently turned the ailing Canadian business around. Don Keough, an Iowa native, had arrived as part of the Duncan Foods purchase in 1964. A masterful speaker and marketer, Keough quickly sounded more like a traditional Coke man than anyone else.
THE CARTER CONNECTION
Austin’s control of the Company was highlighted by his much-publicized friendship with Democratic presidential nominee Jimmy Carter. When the peanut farmer had run for governor of Georgia in 1970 against Carl Sanders, a longtime friend of Coke, Austin had naturally supported Sanders, particularly since Carter publicly castigated “big business.” When it became clear that the man from Plains would win, however, Austin and his forces contributed $6,200 to his campaign. As it routinely did for Georgia governors, Coca-Cola flew the Company plane for Carter trips to conferences and paid for limousine service to and from airports. Like his predecessors, Carter reciprocated with almost obsequious gratitude, frequently requesting Austin’s counsel. Normally, businesses seek to influence local politicians, but in Georgia, that scenario was reversed. As one commentator noted, public officials received with an ice-cold Coke at North Avenue felt “honored, like the commoner invited to take tea with the Queen.”
In 1972, Carter revealed that he had ambitions beyond Georgia, asking Austin for Coca-Cola’s support if he ran for president. Austin laughed and said, “Sure,” never dreaming that the nationally unknown Carter would actually pull it off. Nonetheless, when the Georgia governor groomed himself by traveling overseas to Tokyo and Brussels—ostensibly to boost the state’s trade, but also garnering international experience and exposure—local Coca-Cola men squired him around the country, providing background information on the local politics, culture, and economy. With Austin’s sponsorship, Carter joined the prestigious Trilateral Commission as a fellow member.
In 1974, Carter bragged, “We have our own built-in State Department in The Coca-Cola Company. They provide me ahead of time with . . . penetrating analyses of what the country is, what its problems are, who its leaders are, and when I arrive there, provide me with an introduction to the leaders of that country.” Two years later, during the 1976 presidential campaign, Austin hosted a luncheon at New York’s swanky 21 restaurant, where Carter reassured nervous businessmen that his speeches about the “unholy, self-perpetuating alliances” between money and politics was just talk. “I will be a friend of business,” Carter told the assembled economic elite. “I would not do anything to subvert or minimize foreign investment.” When the Federal Election Commission ruled that the $500-a-plate dinner constituted an illegal campaign contribution, Austin, embarrassed, began to downplay his friendship with the Democratic candidate.
Nonetheless, in the closing days of the campaign, when Carter’s ambiguous positions on issues were pulling down his popularity ratings, he hired Tony Schwartz, a New York media consultant who had developed hundreds of Coca-Cola commercials. “Whether it’s Coca-Cola or Jimmy Carter,” Schwartz explained, “we don’t try to convey a point of view, but a montage of images and sounds that leaves the viewer with a positive attitude.” The commercial puffery worked. Carter assumed the mantle of leadership as a humble born-again Christian peanut farmer, an outsider who stood for justice and righteousness. He tapped quite an array of Coca-Cola figures—Charles Duncan became the deputy secretary of Defense (before graduating to secretary of Energy), Joseph Califano snagged HEW, Griffin Bell of King & Spalding served as attorney general, and law partners Charles Kirbo and Jack Watson remained close advisers. The “Georgia Mafia” was securely in power. Unfortunately, Carter and his cronies brought none of Coca-Cola’s good-old-boy political savoir faire with them to Washington. The hype had apparently gone to the new President’s head, and he really behaved as an outsider, disdaining normal protocol and alienating important Democratic figures such as Tip O’Neill and, almost as important, the press.
As a consequence, the media pounced on any morsel suggesting Carter’s favoritism, such as the President’s banishment of Pepsi from the White House and its replacement by Coke vending machines. When Bert Lance caught a secretary drinking Pepsi, a journalist overheard him ribbing her and reported it verbatim: “You know, ma’am, our crowd drinks a good old Democratic drink, Coke.” The president couldn’t even attend a National Gallery of Art exhibit of antique masks without newspapers noting that it was cosponsored by Coca-Cola and its Japanese bottlers. And when Jimmy and Rosalynn journeyed down the Mississippi on the Delta Queen, syndicated reporter Jack Anderson pointed out that the free publicity was a lifesaver for the failing tourist boat—which happened to be owned by the New York Coca-Cola Bottling Company.
Some reports had more substance, though. In 1977, when sugar prices dropped, a U.S. Trade Commission study recommended a two-cent duty on imported sugar to help protect domestic growers. Coca-Cola used a million tons annually, making it the world’s largest consumer. Lobbying through the Sugar Users Group (run by Coke man John Mount), the Company prevailed on Carter to approve a plan paying two cents a pound to the domestic industry, effectively keeping prices down. Indirectly, then, the taxpayers were subsidizing Coca-Cola. When Mount maladroitly commented that Coke would have to “call in a few chits” to ensure that things went their way, some congressmen labeled the piece of legislation the Coca-Cola bill.
In 1977, Paul Austin quietly flew to Cuba, where he held secret meetings with Fidel Castro—presumably to negotiate the Company’s return to the country, even though Coca-Cola officially held a $27.5 million claim against Cuba for confiscating its plants in 1961. His mission failed, except for some Havana cigars that Castro sent to Robert Woodruff by way of Austin. Having promised President Carter that he would report on his trip, Austin met with him briefly in the White House. When acid-penned William Safire learned of the episode, he concluded that it was a nefarious scheme to obtain Cuban cane. “The Carter-Coke-Castro sugar diplomacy is not merely a potential conflict of interest,” wrote Safire. “It’s the real thing.”
OPENING DOORS AROUND THE WORLD
Austin was more successful in negotiating for Coca-Cola’s entry into Portugal, Egypt, Yemen, Sudan, the Soviet Union, and China. Though none of these coups could be attributed directly to Carter’s intervention, the American president’s well-publicized bias toward the soft drink undoubtedly provided essential leverage. It just happened, for instance, that the long-awaited Portuguese permission coincided with the U.S. Treasury Department’s approval of a badly needed $300 million loan. Likewise, when Austin met with Anwar Sadat, delicately preparing to ease back into Egypt despite the Arab boycott, the Coke executive asked Sadat whether he should keep their wide-ranging discussion confidential or report it to his government. “I’d like very much if you would report it,” the unruffled Egyptian answered. “That’s the reason for our conversation.”
With the implicit Carter clout behind them, the Coca-Cola men triumphed in country after country—with the exception of India, where Coke departed in 1977 rather than reveal its formula to the government.*
Their achievements, however, came only after years of patient negotiations that predated any presidential aid, as with Bob Broadwater’s Moscow efforts. Although Pepsi’s exclusive Soviet cola contract ran through 1984, Kosygin’s men decided Coca-Cola could be served at special events. In 1978, Broadwater signed a contract to supply Coca-Cola to the Spartakiada, the Eastern Bloc sports festival, the following year. But that would only serve as a warm-up for the 1980 Moscow Olympics, where Coke paid $10 million for exclusive rights. Fanta Orange would fizz not only during the sporting events, but on a long-term basis throughout the Soviet Union. The real Austin plum, however, fell into his lap late in 1978, when Coke executive Ian Wilson, holed up in a Beijing suite, hammered out an arrangement with the Chinese Communists only days before the U.S. State Department normalized relations. Now, despite Mao Tse-tung’s pronouncement in his Little Red Book that Coca-Cola was “the opiate of the running dogs of revanchist capitalism,” the symbolic beverage found a home on the Chinese mainland.
PEPSI’S UNGENTLEMANLY CHALLENGE
While Coca-Cola grabbed headlines around the world, however, the business back home was stagnating, as Pepsi made inroads on the valuable take-home market, scooping Coke with one-and-a-half-and two-liter plastic bottles. As a symbol of Coke’s loss of direction, 1600 Pennsylvania Avenue, the Broadway production that had cost the company $800,000, folded after seven performances, as New York Times critic Clive Barnes pronounced it “tedious and simplistic.” While Coca-Cola switched to the lackluster “Coke Adds Life” campaign in 1976, Pepsi bounced back with its new invocation to “Have a Pepsi Day.” As usual, Coca-Cola maintained a product focus while its rival concentrated on lifestyles.
Almost by accident, however, Pepsi launched a simultaneous strategy in direct contrast to its traditional approach. Pepsi man Dick Alven had been sent to Dallas with the seemingly hopeless mission of injecting life into the business there, where Pepsi claimed a miserable 4 percent of the soft drink market. Alven convinced his boss that they needed drastic measures, so they petitioned Pepsi headquarters to allow them to use the local Stanford Agency instead of BBDO. Bob Stanford, who had discovered that Pepsi beat Coke in taste tests while promoting a 7-Eleven generic cola, suggested a daring assault on Coca-Cola. In 1975, Dallas TV stations aired commercials urging viewers to “Take the Pepsi Challenge,” showing candid shots of die-hard Coke consumers astonished to discover that they preferred Pepsi in blind taste tests. Only Pepsi would have stooped to such an outrageous, virtually taboo approach, since comparative ads were considered unsportsmanlike. Nonetheless, the results were indisputable: within two years, Pepsi’s Dallas market share jumped 14 percent.
At first, the local Coca-Cola franchise ignored the scurrilous new ads, pretending that their effect was temporary and unworthy of response. Then, however, Coke slashed prices, initiating a price war. In Project Mordecai, named after the Biblical figure who saved the chosen people from a plot to destroy them, Coke purchased huge chunks of airtime on all three networks to block Pepsi commercials. “One sip is not enough,” Coke spots asserted. Another featured a grizzled Texan complaining about the New York Pepsi types with their “little bitty sips, . . . skinny britches and pointy lizard shoes.” Echoing a racist line, he ended, “You’ve got to watch what you do down heah, boy,” and swigged a Coke. Other commercials tried to reduce the Challenge to absurdity, showing chimpanzees taking the taste test, or actors deciding which of two tennis balls was fuzzier. By mocking the Challenge, though, the Coke ads backfired. Pepsi men and viewers sensed their panic. Back in Atlanta, Coke’s technical men conducted their own secret tests, and, to their horror, they discovered that consumers actually did prefer Pepsi by a 58–42 split. Encouraged by the results, other Pepsi bottlers in the Southern Coke heartland adopted the Challenge, along with the aggressive Los Angeles franchise. By decade’s end, the Challenge commercials were airing in a quarter of the U.S. markets.
While Coca-Cola’s domestic market share remained relatively flat, Pepsi’s steadily rose throughout the latter seventies. In 1977, Pepsi’s advertising budget actually surpassed Coca-Cola’s for the first time, with each firm spending just over $24 million a year on their main brands. By the following summer, Nielsen market figures demonstrated that Pepsi had finally overtaken Coke in supermarket sales, which Pepsi dubbed the “free choice” arena. Defensive Coke men asserted that their drink still held an edge in the total retail outlets. “They must use some strange numbers,” speculated John Sculley, the combative young Pepsi-Cola president.
Because Coca-Cola still dominated the vending machine and fountain outlets, it maintained a considerable overall lead, but corporate pride and self-confidence suffered. The trends, too, were disheartening. In 1978, Coke products’ U.S. market share fell from 26.6 percent to 26.3 percent while Pepsi’s rose from 17.2 percent to 17.6 percent. At a time when every fraction of a percent amounted to millions of dollars, such shifts would have alarmed any company. For Coca-Cola, steeped in a corporate culture that rendered its primary product a religious artifact, the numbers were horrifying.
MULTIPLE HEADACHES
Coca-Cola men were equally paranoid about issues affecting the entire industry. The FDA ruled that saccharin, like cyclamates, caused cancer in laboratory rats and must therefore be prohibited under the Delaney Amendment. Responding to heavy lobbying from the diet industry, Congress voted a “moratorium” on the saccharin ban, but that had expired in May of 1978, and no one knew what lay ahead for all-saccharin TaB. Zero population growth represented a more ominous, long-range threat, however. Ever since a 1977 Business Week cover article had warned of “The Graying of the Soft-Drink Industry,” demographers had forecast a gloomy future. The baby boom was over, the domestic market seemed saturated, price wars raged, and future advances would be carved inch by inch.
In addition, colas, while still comprising over 60 percent of U.S. soft drink consumption, were challenged by a welter of new beverages aimed at more specific audiences. The segmentation of the soft drink market, gaining momentum during the 1960s, was a well-researched and financed war by the end of the seventies. Pepsi’s Mountain Dew, only a regional phenomenon as a hillbilly drink, surged ahead by “going into John Denver country,” as one wry analyst put it, with an ad campaign of “Hello sunshine, hello Mountain Dew.” Coke responded with Mello Yello.
Rather than setting the pace within the industry, The Coca-Cola Company had become reactive and fragmented. Although still a massive money machine, it seemed to meander aimlessly, without any particular sense of purpose. By the late seventies, only 70 percent of Coke’s business stemmed from soft drinks, as the increasingly confused Austin insisted on his shrimp farming, water projects, and the like, despite their slim or negative profit margins. Bottler consolidation had shrunk the number of U.S. franchises to 550, but that was still far too many. In 1977, Coke diversified into the wine business, but viniculture, unlike Coke syrup, required major capital expenditure and time for proper aging. Coke’s Wine Spectrum (created by combining several labels) never earned much money, while angry Southern Baptist stockholders complained that their pure Company should not promote alcohol.* Coca-Cola responded to its multiple problems by pouring unprecedented amounts of money into ad campaigns.
COKE AND THE DEATH SQUADS
Meanwhile, smoldering foreign crises exploded, as Coca-Cola’s cozy relationship with dictators blew up one after the other. In 1978, after the shah of Iran was deposed, the Ayatollah Khomeini handed over the nation’s Coca-Cola plants to the Association of the Oppressed, but the formerly downtrodden did not make good bottlers, and the business soon died. The following year, the Sandinistas threw Somoza out of Nicaragua. Adolfo Calero, the Coke bottler there, had opposed Somoza, who had jailed him (Jimmy Carter, friend of Coke, secured his release). Although Calero continued bottling as the eighties loomed, his strident criticism of the Sandinista leadership jeopardized the business.
The worst problem, however, loomed in neighboring Guatemala, where workers
in a Guatemala City bottling plant had unionized in 1975, sparking a chain of intimidations and violence that became very public news at The Coca-Cola Company’s annual Delaware meeting in May of 1979. The Company had always prided itself on its brief, untroubled yearly business affair, which usually lasted only fifteen minutes. In 1979, however, Sister Dorothy Gartland, a diminutive but strong-willed nun representing the two hundred shares of Coca-Cola stock owned by the Sisters of Providence, submitted a resolution calling for the development of minimal labor-relations standards in its worldwide franchises. Sister Gartland lamented a South African Coke franchise that employed black prisoners on work release, paying them only twenty-five cents a day. In Laredo, Texas, she continued, the Coca-Cola manager paid a $2.40 hourly wage to Mexicans, informing them that they were disposable. But the nun was most urgently concerned over the Guatemalan situation. To explain why, she introduced Israel Marquez, former general secretary of the Guatemalan Coca-Cola union, who had traveled from Central America to tell his story in person.
As the uneasy Coke executives listened to a translator, the Guatemalan delivered an emotional speech. A cooler repairman at the Guatemala City Coke bottling plant, Marquez spoke scathingly of John Clayton Trotter Sr., the Houston lawyer who managed the franchise for Texas widow Mary Fleming. Trotter, a tall, lanky right-winger with a fondness for polyester suits, perceived his workers’ unionization as a conspiracy fomented on the one hand by Communists and on the other by the competitive Pepsi franchise. According to Marquez, Trotter had at first unsuccessfully resorted to bribes, bullying, and legal maneuvers to quell the nascent union.
For God, Country, and Coca-Cola Page 49