Providentially, the disaffected bottler located Emmet Bondurant, who had already established a reputation for championing unpopular causes. Representing the ACLU, for instance, Bondurant had destroyed Georgia’s loyalty oath. In February of 1980, only months before Schmidt appeared, Bondurant had gone beyond the bounds of Atlanta propriety, however, when he took on King & Spalding in a sex discrimination suit. “You’ve lost your damn mind!” a fellow lawyer told him. “Suing King & Spalding—Good God Almighty—in Atlanta!” Now, Bondurant agreed that Schmidt did indeed have a case, and in 1981 he brought a class-action suit for Schmidt and seventy other disgruntled bottlers. Bondurant, who professed admiration for Atticus Finch, the courageous Southern lawyer in Harper Lee’s To Kill a Mockingbird, saw himself as a moral crusader, the underdog’s last hope. He began to amass material for the case.
THE SPARKLE OF DEATH
As a new Coca-Cola civil war brewed, however, Goizueta was relieved to resolve two other menaces he had inherited from the seventies. The IUF had ushered in the new year with a Coke boycott because of the Guatemalan atrocities. On January 2, 1980, the IUF mailed a gory picture of Pedro Quevedo, a slain Coca-Cola union organizer, to its affiliates. The international union flexed its muscles as Coca-Cola bottling lines clattered to a halt in Finland, New Zealand, and Sweden, with threatened stoppages in six other countries. The relatively brief pause in Coca-Cola’s production delivered its intended message to the Company. Hastily, Latin American Coke chief Ted Circuit assured the union, the nuns, and other critics that John Trotter’s contract would be canceled in September of 1981.
Unfortunately, the assurance failed to prevent more bloodshed. In May of 1980, four more Coke union members were killed, including Marion Mendizabal, the third murdered union secretary. Letters from Amnesty International members poured into Guatemala. Throughout Latin America, angry protesters ripped down point-of-purchase signs and, by changing one word, converted them to placards with the chilling legend, “Coca-Cola: La Chispa de la Muerte”—“Coca-Cola: The Sparkle of Death.” IUF head Dan Gallin insisted that The Coca-Cola Company act immediately to get rid of Trotter. In July, as the situation deteriorated, Goizueta, now president, directed Ted Circuit and Company lawyers to fly to Geneva to confer with Gallin. As a result, Circuit arranged for Antonio Zash, a Mexican McCann-Erickson executive with operating experience, and Roberto Mendez, a Mexican Coke plant manager, to buy out Trotter. The Company, however, supplied most of the purchase price and retained some managerial control over the franchise. In December, Zash and Mendez signed a union contract, and the Guatemalan crisis was over for the time being.*
The quick, bold action to halt the boycott was characteristic of Goizueta, who understood that Coke men couldn’t simply sit in Atlanta and wait for the world to come to their door. By flying directly to Geneva, they had signaled their willingness to compromise. Goizueta was also ready to risk criticism from hard-line industrialists who would never negotiate with an international union. While Coke men denied that they had done any such thing, they were clearly playing with semantics. “If this isn’t a negotiating situation,” Gallin crowed, “I don’t know what is. Our objectives were exactly what we got.”
GETTING AGGRESSIVE WITH BOTTLERS
The month before Circuit flew to Switzerland, another seventies headache was laid to rest. In June of 1980, the Soft Drink Interbrand Competition Act passed both houses of Congress. Finally assured of exclusive territorial rights, bottlers could thumb their collective noses at the FTC. Without the grassroots clout of the small-town bottler, the bill would never have become law. Ironically, though, the law’s passage cleared the way for Brian Dyson and his aggressive team to hasten the demise of the small bottler.
Free of the FTC threat, which had discouraged potential franchise buyers, a flurry of mergers and acquisitions commenced, and the price of bottling territories, held down artificially for many years, spiraled dizzily. Many longtime family names sold out, retiring on the proceeds. Big Coke not only encouraged sales of weak bottlers, it actively promoted consolidation, sometimes buying an interim equity position while looking for a new owner. Still, Dyson, Keough, and Goizueta repeatedly vowed that they had no intention of assuming permanent ownership. In fact, the Company jettisoned its Baltimore plant and Dyson promised to unload other Company-owned bottlers unless they performed well.
In 1980, Pepsi’s John Sculley, who sensed a worthy opponent in Dyson, decided to push the Pepsi Challenge nationally, hoping to maintain the momentum of the late seventies and retain leadership in the supermarkets. Sculley faced unexpectedly violent opposition from within his own ranks; terrified Pepsi bottlers begged him to “stop this madness,” convinced that in their territory, Pepsi would lose the Challenge, or that Coke would initiate vicious price wars. Their apprehension was justified. Dyson reacted by funneling Company money into areas where the taste tests ran. At one Challenge campaign kickoff, Coca-Cola trucks surrounded the Pepsi plant in an attempt at pure intimidation. The Company hired Mean Joe Greene to wield a sledgehammer against Pepsi vending machines at Coke rallies. Dyson’s blunt message to Pepsi bottlers, as Sculley interpreted it, was “if you’re in the Challenge program, we’re going to go out and kill you.” Nonetheless, the taste test continued to plague Coca-Cola.
FINDING A BETTER DIET DRINK
As early as 1979, Goizueta had directed Mauricio Gianturco and his technical people to launch work on Project David, an ultimately unsuccessful attempt at a cola formula to trounce Pepsi in taste tests. Frustrated in the sugar cola arena, he now focused on a drink that would outperform Diet Pepsi, since the fast-growing diet segment would soon account for 20 percent of the entire soft drink market. Goizueta and Dyson agreed that Sergio Zyman should head the diet project. The brilliant, aggressive, multilingual young Mexican had been lured from Pepsi along with a raft of other key employees active in the Challenge campaign—a reversal of the Coke defections led by Al Steele thirty years earlier. In February of 1980, Zyman initiated Project Harvard. Zyman fashioned a number of code names for the new product he was working on—Fresca Plus, Lucy, Shrimp, and BPS, which stood alternatively for “Bottler Productivity Study,” “Best Product Under the Sun,” or “Beat Pepsi Soundly.” If the Mexican had really proposed any of these silly names, Austin and other Coke executives wouldn’t have been disturbed. The whole point of the project, however, was to utilize the “brand equity” of the Coca-Cola name. The new product, Diet Coke, would constitute a “line extension.”
To lend the magical Coke name to any other soft drink was heretical. When a few daring Company men suggested the idea in 1963 when TaB was invented, Austin had condemned them for it. Now, TaB held a commanding lead over all other diet drinks. Why would the Company want to cannibalize its venerable drink with another diet entry? Furthermore, wouldn’t another product with the Coke name simply dilute the brand, confuse consumers, and contribute to already poor bottler morale?
Zyman, Dyson, Keough, and Goizueta were convinced, however, that the introduction of Diet Coke would energize the business. As Zyman put it in a February 1980 memo to Brian Dyson, “Over the last few years, the Company has drifted . . . to a perceived image of a traditional, sedentary, conservative company.” The bold introduction of Diet Coke would have a “tremendous impact” on this image, revitalize the bottlers, and capitalize on the Coca-Cola name. It would also be profitable, since a saccharin-sweetened drink wouldn’t cost as much to produce. The timing was demographically perfect as well: the aging baby boomers weren’t drinking fewer cola drinks, as doomsayers had warned, but were switching to diet drinks as part of the emerging fitness craze. Zyman concluded that “competition cannot duplicate this effort,” simply because there already was a Diet Pepsi. Because Coke had held back so long, this late bloomer would have an enormous catalytic effect, motivating bottlers to “go out and really get aggressive.” In short, concluded the Mexican marketer, “this could be the silver bullet.”
Then Paul Austin abruptly and inexpl
icably pulled the plug on Project Harvard in a cryptic April telegram to Don Keough, who was plotting strategy with Zyman and Dyson in Buenos Aires. Convinced of the project’s wisdom and urgency, Goizueta sought Woodruff’s support. He had learned his lesson from the corn syrup presentation—to win approval from the Old Man, it was necessary to argue the case in its simplest terms. Besides, Woodruff displayed limited patience and attention span. Goizueta explained that the market share for sugar colas had been declining for years, while diet drinks were steadily growing. “In a few years, Mr. Woodruff, we might have to rename this operation The TaB Company if we don’t do something.” When his trusted “partner” described it that way, Robert Woodruff readily agreed to Diet Coke, but Austin still stood in the way. The Boss took care of that, too. When the board convened on August 6, Goizueta was elected chairman of the board and chief executive officer to replace Austin upon his retirement, which would occur on March 1, 1981. Posing for pictures after the board meeting, Goizueta looked like a movie star, while Austin, looming beside him like a great disheveled bear, grimaced a thin-lipped imitation of a smile. Immediately afterward, Goizueta gave Zyman the go-ahead.
THE AUSTIN LEGACY
Following his retirement, Austin was finally diagnosed with Alzheimer’s disease, and, after a swift decline, he died in 1985 at seventy. Although his troubled final years tend to obscure his achievements at Coca-Cola, his overall record reveals the astonishing growth he fostered. In 1962, when he assumed the presidency, the Company was still essentially a one-drink outfit with bland, old-fashioned advertising and deep-seated corporate racism. Profits amounted to $46.7 million on sales of $567.5 million, with the overseas branches accounting for 30 percent. Austin provided visionary, professional management, deftly guiding the Company through the difficult sixties and seventies. Under his supervision, the Company introduced a rainbow of drinks for a segmented market, developed a social conscience—albeit under considerable pressure—and aired some of the most powerful commercials ever made.
Austin’s greatest legacy, however, was his globe-girdling zeal in spreading the business to country after country. By the end of 1980, Coke earned $422 million on revenues of nearly $6 billion—a tenfold increase over 1962—and 65 percent of the profit flowed from outside the United States. Even Austin’s pet projects—his ill-fated shrimp farming, desalinization plants, and whey-based nutritional drinks—reflected a curiosity and daring that the Company had never seen. “Paul was too big for Coca-Cola,” mused his friend Ian Wilson, who quit the same day Austin retired. “His vision was too broad to be satisfied selling colored carbonated sugar-water.”
UPENDING SACRED COWS
Soon after the Coca-Cola board announced that Goizueta would succeed Austin, Company managers from around the world convened in Atlanta for their annual October meeting, where they usually presented a five-year plan for their sectors. Goizueta, assuming that no one could see ahead that far, requested three-year plans instead. Once again, Goizueta asked “questions and questions and questions” of his ill-prepared executives, who dubbed the collective two-week grilling the “Spanish Inquisition.” Frustrated that Coke men were simply reacting to competition in setting their goals—with some going after increased sales, some market share, and only a few concerned over return on capital—Goizueta felt that something had to be done.
Determined to shake up the staid, stuffy Company, Goizueta labored over an aggressive strategy statement. Within a month of his official investiture as CEO in March of 1981, he summoned the top fifty Coca-Cola managers from around the world to a five-day conference in Palm Springs, California. “A company starts to worry about holding on to success when it’s decided it has more to lose than it has to gain,” he told them. “At that point, it gets timid and overly concerned with appearances.” Goizueta promised that the days of Coca-Cola’s passivity were over. “Those who don’t adapt will be left behind or out—no matter what level they are.” He flatly stated that “there are no sacred cows.” To prevent competition from winning, Goizueta stressed, he would consider “the reformulation of any or all of our products.”
Goizueta’s carefully crafted Strategy for the 1980s was passed out at Palm Springs and reprinted for widespread distribution to financial analysts, the media, and Coca-Cola employees. At the heart of the innocuously worded statement lay the profit target—“a rate substantially in excess of inflation, in order to give our shareholders an above average total return on their investment.” In order to accomplish that, the document warned that the Company would probably diversify. Ruling out heavy industry, Goizueta promised to search instead for “services that complement our product lines and that are compatible with our consumer image.”
Although few people, including the media, took Goizueta terribly seriously, his managers soon discovered that he followed through. Those who bucked Goizueta’s authority or failed to address the bottom line effectively were ruthlessly weeded. “Roberto was a tyrant,” Sam Ayoub recalled. “Fire him!” was often the peremptory order, but Ayoub usually arranged for a gentler exit with an early retirement package.
On the surface, though, it was business as usual at Coca-Cola for the rest of 1981. Brian Dyson strove for further bottler consolidation and rejuvenation of the domestic system, producing a motivational film in which Coca-Cola men shot it out in a Western-style gunfight against Pepsi’s “Big Blue Gang.” As a climax, a tank clanked over a hill and blew a Pepsi vending machine to bits. Dyson also attempted to placate disaffected bottlers by allowing them to choose from alternative seasonal commercials and by responding more promptly to local problems. Most bottlers were pleased when Goizueta announced his intention of boosting the Company’s domestic earnings, since they felt that their importance had diminished with increasing income from abroad. Goizueta wanted to achieve a 50–50 balance by the end of the decade. With the dollar strengthening against most other currencies, it made sense to look for more profits at home. In addition, foreign sales had flattened in 1980, due partially to record rainfall in Japan.
IN THE PHILIPPINES: #/&$ PEPSI!
The dismal performance of Coke’s business in the Philippines also contributed to the poor showing overseas. Where Coca-Cola had once ruled the market, Pepsi now dominated with a 70 percent share. Andres Soriano Jr., the heir of an enormously influential, wealthy family, had neglected his Coke franchise in order to push his beer business. In the meantime, Pepsi dumped huge amounts of money into its company-owned Philippines plant. The haughty Soriano refused to listen to the bright young men Coca-Cola sent to him, dismissing them as “pipsqueaks.”
Clearly, drastic measures were necessary. Breaking precedent, the Company bought a $13 million 30 percent equity position in the business in return for managerial control. Neville Isdell, an impressive 6'5" Irishman summoned from a Coke post in Australia, quickly assessed the situation in June of 1981. Although a basic infrastructure—over a thousand delivery trucks and 7,500 employees—was already in place, dispirited workers perfunctorily bottled in filthy plants. Isdell set out to instill pride and aggression into the employees. While the Sorianos had worn a traditional upper-class barong tagalog, Isdell deliberately fostered an informal, gutsy image, sporting a T-shirt with the Coca-Cola logo. He inspected every toilet, not only to promote cleaner hands on the bottling line, but to deliver the message that he cared about plant conditions.
With twelve-ounce and liter packages, as well as new flavors such as Mello Yello, Isdell sought to rejuvenate the market, holding a spirited rally for each product introduction. For Mello Yello, advertised as “the world’s fastest soft drink,” he wore running shorts and led the workers in push-ups and a sprint around the bottling plant. To dramatize the liter, Isdell proved he was literally willing to work in the trenches with his employees. Wearing Army fatigues, he led a military-style rally, hurling a Pepsi bottle against a wall.*
The new approach galvanized the workers. Within a year, Coke’s Philippine share grew by 30 percent even as the local economy
took a 4 percent dive, and within two years Coke had overtaken Pepsi. By decade’s end, Coca-Cola would command 71 percent of the business, neatly reversing the market-share figures at the beginning of 1981. Lauded as a hero, Isdell rose quickly in the Company. More important, a long-standing taboo had been broken. Big Coke clearly could take an equity position in its own bottlers with impressive results. The lesson was not lost on Goizueta, who would soon lead the Company into many such ventures.
JESSE JACKSON PUSHES COKE
In 1981, Goizueta and Keough, while searching for ways to show the world that Coke had revived, encountered the exact type of publicity they did not need. Reverend Jesse Jackson, the outspoken, politically ambitious civil rights activist, turned his attention to Coca-Cola. To some degree, his call for more jobs for African Americans repeated CORE demands twenty years previously, but neither Coca-Cola nor the South were overtly racist anymore. In fact, the soft drink company supported local black colleges and the NAACP and other civil rights groups; 24 percent of the Company’s workforce was African American. Like others before him, Jackson chose Coke not so much because of any glaring corporate abuse but because the firm was so temptingly vulnerable because of its cherished image. In July, he and his Chicago-based People United to Save Humanity (PUSH) threatened to launch a boycott—euphemistically termed a “withdrawal of enthusiasm”—if Coke did not bow to their demands. Jackson complained that there were no black-owned bottling plants or syrup wholesalers nor was there an African American on the board of directors. While Coke spent over $500,000 on ethnic ad agencies, that wasn’t enough, considering the $169 million budget for annual advertising.
For God, Country, and Coca-Cola Page 52