The Global Center for Water Excellence was part of the fifth P, “Planet,” in the “Manifesto for Growth.” In July 2005 the Company published “Toward Sustainability,” in which Isdell wrote, “The issues facing the world are more urgent than ever—and they affect us all. If local communities suffer from water scarcity, so do we. If HIV/AIDS ravages the communities in which we operate, the people impacted are our employees, our customers and our consumers.” The Company would focus on water, AIDS, and health and wellness (obesity) issues. Coke began an effort to use less water in its plants, to improve wastewater treatment, and to promote access to clean, safe drinking water.*
As the largest private-sector employer in Africa, Coca-Cola was directly affected by the massive AIDS pandemic there. Coke offered voluntary testing and anti-retroviral treatment to all its employees, supported public education programs, and used its delivery trucks to distribute condoms along with soft drinks.
“Toward Sustainability” highlighted Coke’s school exercise and nutrition programs and its purportedly healthy drinks. “We increasingly provide low- and no-calorie alternatives, juices and juice drinks, water, sports and energy drinks, teas, coffees, soy-based drinks, and fortified beverages with nutritional benefits.”
Of course, Coca-Cola profited on such drinks, but it was clear that Neville Isdell was trying to reclaim what former CEO Paul Austin had called the “halo effect.” With ever-greater scrutiny of every ingredient, however, that wasn’t easy. For instance, Human Rights Watch had recently documented the use of child labor on El Salvador’s sugar plantations that provided sweetener for Coke. Children as young as 10 hurt themselves while swinging machetes. Though no children worked in the sugar refineries, “child labor is a problem on family-owned farms and farm cooperatives in El Salvador,” Coke acknowledged in “Toward Sustainability.”
TURNING POINT
Although challenges remained (and new ones continually surfaced), by early 2006 Isdell’s game plan appeared to be working. In February, the Company announced an encouraging 4 percent volume increase in 2005. In April, just before the annual shareholder’s meeting, the University of Michigan ended its Coca-Cola ban after Coke arranged for a third-party investigation of bottler labor practices in Colombia, to be conducted by the International Labor Organization (ILO), an agency of the United Nations. Coke had also asked The Energy and Resources Institute (TERI), a respected nonprofit with Asian offices, to look into water depletion allegations in India. And Isdell had hired Ed Potter, a veteran labor lawyer, as director of global labor relations.
As usual, Ray Rogers of Killer Coke was first to the microphone at the annual meeting, calling the planned ILO investigation “a new scam,” but the day belonged to Isdell. “We are well on our way to becoming the company you expect us to be,” said the CEO. “My message to you today is that the transition is complete.” Coke’s first-quarter profits rose 10 percent, with sales volume up 5 percent. Demonstrating faith in its future, Isdell said that the Company planned to buy back over $2 billion of its own shares that year. With less fanfare, he had elevated Muhtar Kent to a new position in charge of all Coke operations outside North America, indicating that Kent might be a candidate to succeed him.
Coca-Cola Blak, a coffee-flavored cola, had just been introduced. Tab Energy, directed at women, would soon debut. As part of its partnership with Nestle, Coke planned to introduce Enviga, a green tea product that claimed to burn calories so that it was in effect a super-diet drink.
“Welcome to the Coke Side of Life,” the new advertising campaign, featured “the best Coke advertising in a long, long time,” according to Advertising Age’s Bob Garfield, highlighting “the fizzing, bubbling sound of a soft-drink pour . . . one of the most fetching, evocative and appetizing sounds on earth.” In another cute spot called “Ringtone,” a boy sitting on a park bench next to an attractive girl makes odd cell phone noises to attract her attention, then fishes a Coke out of his backpack, holds it to his ear, and says, “Hello?” He hands it to the charmed girl, saying, “It’s for you.” It was the best-liked TV spot of the month.
To reverse declining sales for Sprite, Coke introduced edgy ads for the lemon-lime drink. One featured two sumo wrestlers, one painted green, the other yellow, smashing into a young man to create the “lymon” flavor in what Coke dubbed “sublymonal” advertising. Viewers could record the commercials, find hidden codes, and plug them into www.sublymonal.com for more content or prizes. The weird ads were aimed at teens.
The Sprite ads were first steps towards interactive online advertising. At the same time, MyCokeRewards.com allowed consumers to open accounts and accumulate points by entering codes found under bottle caps and inside twelve-packs. Within a year, five million people had signed up and claimed prizes such as video rentals, magazine subscriptions, music downloads, or more Coke beverages. Every second, an average of seven codes were entered. The site allowed Coke to compile digital profiles of consumers, collecting “psychographic” information about their interests and tastes. As more TV viewers fast-forwarded past commercials, Coca-Cola Zero sponsored “Gold Rush,” an online game in the form of a seven-week reality series in which actors quaffed the diet drink.
ESPIONAGE, PESTICIDES, AND NEGOTIATIONS
On Wednesday, July 5, 2006, Joya Williams, 41, a Coca-Cola administrative assistant, was arrested for trying to sell trade secrets to Pepsi. In May, a letter postmarked from the Bronx had appeared at Pepsi headquarters, offering “very detailed and confidential information.” It was signed by “Dirk,” purportedly a Coke executive. Pepsi promptly turned the letter over to Coke, which called the FBI. In the subsequent sting operation, “Dirk” (Ibrahim Dimson of the Bronx) demanded $75,000 for an undisclosed new Coke product sample and $1.5 million more for additional items. In June, Coke security cameras caught Joya Williams stuffing documents and a liquid container into her bag. It transpired that Dimson and Edmund Duhaney, who lived in the Atlanta suburb of Decatur, had served prison time together, and that Williams was a friend of Duhaney’s.
The two men took a plea bargain, but Williams insisted that she was an innocent dupe. Yes, she testified, she had taken the documents and a sample drink home, but only to catch up on work. Her boss, Javier Sanchez Lamelas, was in charge of marketing soft drinks with the sacred Coke name, and she was under huge pressure. The Coke account was “like a whole city without that company,” she said. Lamelas was “very in your face, not patient, no mistakes.” Among the documents she had taken were “Red Books,” confidential marketing reports covering demographics and consumer trends. Coke’s lawyers went berserk when the judge said he planned to allow nearly seven hundred pages of documents to be made public, and he backed down.
To no one’s surprise, Williams was found guilty and sentenced to eight years in prison. The conspiracy to sell Coke secret documents was amateurish and naive, and the “trade secrets” probably didn’t amount to much, but the incident revealed the pressure-cooker atmosphere inside the North Avenue headquarters.
On the other side of the world, a more serious trade secret was threatened. In August 2006, the ever-volatile situation in India exploded, as the New Delhi–based Center for Science and Environment claimed that it found twenty-four times the allowable pesticide level in Coke and Pepsi products. India’s Supreme Court consequently ordered both companies to disclose their ingredients, recalling the time in 1977 when Coke had withdrawn from India rather than reveal its secret formula. Coke managed to avoid that catastrophic outcome, but three states banned soft drink sales in schools and government offices, Kerala banished them completely, and protestors smashed bottles.
Coke denied the allegations, citing its own lab results, but the Company remained vague about the actual pesticide content because there probably was a small amount in the drinks. India’s groundwater was badly contaminated, and most food products contained pesticide residue. As one Indian defender noted, however, “One can drink a can of Coke every day for two years before taking in as much p
esticide as you get from two cups of tea.” Coke ran an ad asking, “Is There Anything Safer for You to Drink?” Most effectively, the Company ran a TV ad featuring Aamir Khan, a hugely popular Indian movie star noted for his social responsibility. Khan examined a test tube held by a man in a white lab coat inside a Coca-Cola bottling plant, then grabbed a Coke Classic from the manufacturing line and gulped it down. He invited viewers to visit a bottling plant themselves, and several thousand did. Sales ticked up. The crisis was over.
Coca-Cola simultaneously maneuvered to still the shrill voice of the Killer Coke campaign. Ed Potter, Coke’s director of global labor relations, called Terry Collings-worth, the lawyer for the International Labor Rights Fund, whom he had known for years. “Terry, you and I can work on this together,” Potter said. “I’ve got to make my daughter happy!” It turned out that Potter’s daughter, a college student, had exclaimed, “Dad, you’re not going to work for Killer Coke, are you?” when he told her about his new job. In August 2006, Collingsworth and Potter set up mediation among Coke, the lawyers, and Sinaltrainal, the Colombian union. In October, Miami judge Jose Martinez, after sitting on the case for five years, dismissed the alien tort lawsuit, saying that there was insufficient evidence to link the Coke plant managers with paramilitary executioners. He warned against “unwarranted international fishing expeditions against corporate entities.”
Collingsworth agreed to delay filing an appeal, pending the outcome of negotiations. As a sign of good faith, Sinaltrainal was supposed to curtail its public complaints about Coke. The outlines of a settlement were quickly roughed out. Coke would compensate Colombian victims and their families and would agree to a new workers’ rights policy. And the lawyers would call off attack dog Ray Rogers’s Killer Coke campaign. But agreeing on precise details wasn’t so easy. The negotiations, which were supposed to take six weeks, dragged on for a year and a half.
BOTTLER TENSIONS
Back in the United States, tensions between The Coca-Cola Company and its bottlers grew intense during 2006, starting in January when Walmart asked Coke to deliver Powerade to Walmart warehouses. Until then, bottlers had always delivered right to store shelves, making sure products were well displayed. But such service added to costs, and Walmart demanded the new setup. Fearful that Walmart might otherwise create its own sports drink to replace Powerade, the Company agreed, asking its two largest Coke bottlers to begin shipping to Walmart warehouses, allowing the giant discounter to stock the shelves. Fifty-six smaller Coke bottlers sued Big Coke and Coca-Cola Enterprises, its largest bottler, claiming that direct store delivery was “at the core of successful marketing.” There hadn’t been such internecine strife since the 1970s. “It’s like suing your family,” said the CEO of Ozarks Coca-Cola Bottling. “I’m not saying our underwear has Coca-Cola on it, but just about everything else does.” A year later, the suit was settled. Warehouse delivery for selected products would continue, with the bottlers receiving some of the resulting profits.
Meanwhile, giant bottler CCE thumbed its nose at Big Coke by carrying non-Coke products such as Arizona Tea, since Coca-Cola’s Nestea, part of its ailing partnership with Nestle, wasn’t selling well, and neither was Coke’s new Gold Leaf bottled tea. Neville Isdell thought that CCE execution was “very poor” and pressured for the removal of CCE chief John Alm, who departed at the end of 2005. But the new CCE chief executive, John Brock, annoyed Isdell by launching a series of price increases, which eroded Coke’s market share. Big Coke responded by raising concentrate prices. “It was a bitter tit-for-tat exchange,” Isdell recalled.
The frustrated Coke CEO launched Project Diesel, an effort to merge the remaining independent bottlers with CCE for cost efficiencies. The CCE board rejected the plan. Isdell asked the Coke board to approve a hostile takeover bid for CCE, but the board feared a bidding war or an outside buyer. Isdell backed down.
SUSPENDED FROM SCHOOL
The simmering controversy over soft drinks in school also came to a head in 2006, as Connecticut voted to bar all sodas from its schools. Coke had been negotiating with the class-action lawyers and the Center for Science in the Public Interest, hoping to stave off a lawsuit. Coke executives held simultaneous discussions with the American Heart Association and former President Bill Clinton’s foundation, finally arriving (along with other soft drink firms) at a voluntary solution. Coke, Pepsi, and others would phase out the sale of all soft drinks in all public and private schools over a three-year period.
Isdell complained that it made no sense to exclude diet sodas while sugar-laden sports drinks and juices were permissible. His advisors told him that the problem was the artificial sweetener aspartame, widely rumored to cause everything from blindness to multiple sclerosis. Annoyed, Isdell correctly observed that “there is absolutely no evidence of any health risk from aspartame.” A few days later, after Isdell presented the Fulbright Prize for International Understanding (sponsored by Coke) to Bill Clinton, he commended Clinton for drinking his customary Diet Coke, then lamented, “It’s a terrible pity that kids are no longer going to be able to drink it in high schools.” Clinton subsequently intervened, and diet sodas were put back on the approved list.
When the agreement was announced in May 2006, Professor of Law Richard Daynard crowed, “This would not have happened but for the threat of litigation.” Michael Jacobson, head of the Center for Science in the Public Interest, groused, “I’d like to get rid of the Gatorades and diet soft drinks completely,” but his critique was muted, and there would be no class-action lawsuits.
HEIR APPARENT
As 2006 came to an end, Isdell promoted Muhtar Kent as president and chief operating officer, anointing him as the clear heir to the Coke throne. That year, Kent had overseen an impressive 6 percent increase in international sales. Isdell called Kent “a man of the highest integrity and deepest skills.” Kent dismissed his short sale of his own company’s stock as an “honest mistake 10 years ago that’s been fully investigated and fully resolved.” Now he planned to focus on re-booting sales of carbonated soft drinks in North America.
By that time, Don Knauss, sensing that Kent would be appointed ahead of him, had departed to become CEO of Clorox. He was replaced as head of Coke’s North American business by veteran J. Alexander “Sandy” Douglas. Having been passed over, Mary Minnick left Coke a few weeks later, and Kent then had two other Coke marketing executives reporting directly to him.
It soon became apparent that Isdell and Kent were real business partners, with what Isdell called “an absolute level of trust” in each other. When Coke bought an ailing bottler in the Philippines, which was in Kent’s international domain, he asked Isdell, “You go and do the launch, would you? You’ve got real equity from your days there.” Isdell called them “two halves of a whole. Each of us runs half a company.” Kent asserted, “We have the same passion for the business, the same priorities.”
Those priorities had been to turn around international problem markets in the Philippines, India, Japan, and Nigeria, all now growing again. “But North American is still a market that is leaking in the bucket,” Kent said. During the first quarter of 2007, international sales volume rose 9 percent, but North American volume fell by 3 percent. Isdell noted that 95 percent of the world’s population lay outside North America, so that’s where most future growth would be. Nonetheless, the home market remained crucial.
Kent admitted that he was “unpleasantly surprised by how deep some of the problems were” in the United States. He recalled that in the 1980s, he used to take groups from Eastern Europe to America to see how Coca-Cola did it right. Yet “the Polish market is today infinitely better looking and better managed,” he said. It all came down to the nitty-gritty details. Coke signs must be everywhere. Packaging has to attract impulse buyers. The price has to be right. So does the marketing.
GETTING THE TARGET OFF THEIR BACKS
In January 2007, Coke bought a Super Bowl ad for the first time since 1998, even though a thirty-second t
elevision spot cost $2.6 million. One of the ads, an animation, imitated the video game Grand Theft Auto, in which a young man in a leather jacket leaps out of a car on a tough city street, grabs a Coke in a store, then yanks a terrified driver out of his convertible. But the protagonist pays the storeowner and gives the driver a free Coke, as he throws cash into the guitar box of a street singer who croons, “Give a little love and it all comes back to you.” In the rest of the spot, the hero performs various other Coke good deeds.
It was an effective spot, but the “Happiness Factory” ad would become a classic, eventually providing a whole new Coca-Cola theme. A young man puts his coin into the slot of a vending machine, and the animation shows a Rube Goldberg world inside the machine, where the rolling coin sets off a chain reaction in which little creatures fly with an empty Coke bottle to get it filled, capped, and cooled. A cheering mob escorts the bottle, sending it down a ramp to where the unsuspecting customer grabs it from the machine.*
These two “Coke Side of Life” ads were whimsical and upbeat, but they failed to stop the steady erosion of market share for sugary colas, which were widely perceived as a major cause of the obesity epidemic. As part of the effort to “get the target off our backs,” as Isdell put it, Coke executives stopped talking about carbonated soft drinks, referring to them instead as “sparkling beverages.” Isdell insisted that Coke Zero, Diet Coke, and other low-calorie drinks should be considered health and wellness beverages. Video games, he said, were as much a problem as soft drinks—oops, sparkling beverages. Kids these days needed to get off their butts and get some exercise!
For God, Country, and Coca-Cola Page 74