Fizz

by Tristan Donovan

  Vending machines were also an ideal way to get customers to try new drinks for the first time, says McGarrah: “We called vending ‘paid cold sampling’. When Pepsi bought Mug root beer it put it in every vending machine. People would try it out of the vending machine outside the supermarket and then buy a six-pack inside. You’d sell them a cold one there and then they would buy warm ones to take home.”

  Vending machines not only attracted sales, they also attracted trouble. For the delivery drivers who would stock the machines and collect the cash, it was a job fraught with danger. “My wife’s brother worked on one of those trucks, and, one time, a guy jumped on his truck and stuck a gun in his face, robbed him of the money,” recalls McGarrah. “Another guy I knew carried a gun. This guy jumped on the passenger side of his truck, stuck the gun in and he says: ‘OK, OK, I’ll get out, I’m going to come round the front of the truck and give you the money box’. He had the box but he also had his gun. So when he got out of sight of the guy he held the box up and pulled out his gun. Got to the front of the truck. Bang! Bang! Shot the guy dead. One year later a guy jumps on his truck—bang!—he shoots him off the truck. It was like the Wild West, fricking crazy.”

  It wasn’t just random criminals who saw opportunity in the hundreds, sometimes thousands, of dollars the vending machines swallowed. Coin-operated soda machines were also a handy racket for the Mafia. Mobsters found the cash-based business of vending machines a handy tool for money laundering. Some would set up vending machine businesses and then shovel the money they made from drugs and other criminal activities into the machines so they could declare it legitimately without any expectation that they could prove where the cash originated. Others would fill their Pepsi and Coca-Cola branded machines with cheap knock-offs for extra profit or simply skim money off the top of what they made while telling the IRS they sold far less soda than they really did. “The vending business historically has been a very lucrative way to make money disappear and a great way to wash money on the other side,” says McGarrah. “If you’ve got drug money coming in and own a vending machine business, it’s the most successful vending business you ever saw. For a machine that a normal person would make $400 a week from, you make $4,000 and you’ve put drug money into a legitimate business.”

  While Pepsi and Coke tried to catch some of the criminal elements who operated on the fringes of soda vending, it didn’t always go according to plan. “The people stealing from the vending machines were organized. They had keys and everything,” recalls McGarrah. “We set up one guy in Orlando who we knew was breaking into the machines at this hotel. We set up the camera in a room to watch the vending machine right outside the hotel room. We thought we were so good. So we do this and then all go to off to dinner together. The guy breaks into the room and steals all the video equipment!”

  Failed stings aside, by the middle of the 1980s the trench warfare in the supermarkets and streets, the promotional blitz, the barrage of new flavors, ever-growing container sizes, and rush of mergers were going Pepsi’s way. Even the fast-food companies were warming to Pepsi, with the company scoring a major victory when it persuaded Burger King to drop Coke and buy Pepsi. As 1984 began Coca-Cola was worried. In the 1950s it had outsold Pepsi two to one, but now its lead was just 4.9 percent, and Pepsi was ahead in retail by a whisker. The Pepsi Challenge had persuaded plenty of people to reassess their cola loyalties too. In 1972 18 percent of soda drinkers only drank Coke; now only 4 percent would drink nothing but Coca-Cola. Coke wondered what was going wrong. It had the ads, twice as many vending machines, the fast-food advantage, a competitive price, and the world’s biggest brand. Everything seemed to be in order. As it searched for an explanation it couldn’t help but keep coming back to the message of the Pepsi Challenge that maybe people just preferred Pepsi. Maybe tastes had changed and people now wanted a sweeter soda. Could it be, the company’s executives wondered, that the secret formula wasn’t that good after all?

  With its market research studies confirming people’s preference for Pepsi, Goizueta decided it was time to slay the ultimate sacred cow and initiated a project to develop and test an alternative Coca-Cola formula. For months the company created and tested new recipes, trying out alternative formulas on thousands of people in blind taste tests that they explained away as an experiment with a new production process. But even as they homed in on a Pepsi-beating formula, whenever the company’s market researchers asked people about changing the Coca-Cola formula, the answer was a resounding no. Budweiser sure, Pepsi fine, Coke never. Yet the warning signs went ignored. By September 1984 the company had hit on a new, sweeter formula that significantly outperformed Pepsi in test after test. With a better cola in the bag the company now had to decide what to do with it.

  One suggestion was to launch it as a separate cola, but that risked suggesting something was wrong with regular Coca-Cola. That tactic could also split their market and hand the number-one-soda crown to Pepsi. By the end of 1984 Coca-Cola’s senior executives had reached their conclusion: they would replace the old formula with the new flavor. They decided to launch the new Coke in 1985 so that it didn’t interfere with the celebrations it had planned for its one hundredth anniversary in 1986. In April 1985 Goizueta began hinting that something big was on the way. In an interview with Financial News magazine Goizueta gave a tantalizing response when asked about the news that Coke had lost another percent of market share while Pepsi had gained another 1.5 percent: “We will soon be unfolding what is probably the strongest marketing program in the history of the company behind our brand Coca-Cola.”

  On Friday April 19, 1985, Pepsi-Cola boss Roger Enrico got a call from a man he nicknamed “Deep Palate,” a Coke insider who regularly tipped him off about what his archrival was up to. Deep Palate told him that Coca-Cola had summoned its bottlers to Atlanta for an unknown reason. A few moments later, Enrico got word that Coke was holding a big press conference in New York the following Tuesday. After a bit more digging he discovered the big secret: Coke had a new amazing formula. Pepsi was shocked. This it didn’t expect, and if the new formula Coke had was so good that they were willing to tear up the secret formula, it had to be a serious threat. Pepsi’s bosses spent the day in the doldrums worrying about how to respond. Then, while driving home on Manhattan’s Franklin D. Roosevelt East River Drive, Pepsi vice president Joe McCann had a revelation that almost caused him to crash his car. This wasn’t an offensive move by Coke but an admission of defeat. He called Enrico. We’ve been looking at this the wrong way, he told him. They are admitting Pepsi is better by doing this; they’ve lost and we’ve won the Cola War.

  Instantly a strategy to undermine Coke’s relaunch came together.

  To announce its victory, Pepsi bought full-page ads in the country’s leading newspapers, to run on the day of Coca-Cola’s announcement. It then prepared a $6 million promotional assault that included dishing out coupons for free Pepsi so that Coke drinkers could get a taste of the winner of the Cola War, and also started booking airtime for a TV commercial it had in the bag called “Archaeology.” Set in a Pepsi-drinking future, the ad showed an archeologist leading a group of students around a twentieth-century ruin. One student picks up an object covered in mud. “Professor, what is it?” she asks. The professor cleans off the mud to reveal a dusty Coke bottle. He looks at it with a quizzical expression and replies: “I have no idea.”

  As Pepsi’s ads hit the newsstands on April 23, Coca-Cola prepared to reveal its new formula to more than two hundred reporters, TV crews, and photographers at the Vivian Beaumont Theatre in New York City. The new formula, Goizueta told them, was the result of nearly two hundred thousand consumer taste tests. The best, he declared, just got better. But thanks to Pepsi’s publicity team, the reporters were already primed with critical questions. As the question-and-answer session dragged on, it was becoming clear that Coca-Cola’s relaunch was going badly wrong. One reporter asked Goizueta to describe the new taste. He stumbled around muttering about “a
more harmonious flavor” as reporters smirked. “Assuming it’s a success, are you planning on reformulating Diet Coke?” asked another. Goizueta irritably replied: “No. And I don’t assume that it is a success. It is a success.”

  If the sixty-minute barrage of questions left the Coca-Cola boss feeling bruised, it was nothing compared to what the team answering the calls to its consumer hotline were feeling. Within hours of the announcement more than a thousand people had called to express their shock and dismay. The next day even more people called in to express their disgust. The next day, even more. Once people started to try the new Coca-Cola, even more again. One caller declared: “There are two things I don’t ever want to change. My Coke and my man, in that order.” Another said: “The sorrow is knowing not only won’t I ever enjoy the real Coke again, but my children and grandchildren won’t either.”

  Across the country loyal Coca-Cola drinkers rushed to stores to stockpile the last cans and bottles of their treasured soda before it vanished for good. One eleven-year-old wrote a letter to tell Coca-Cola she was angry because her little sister hadn’t stopped crying since they announced the change and she was sick of her whimpering. Another Coke fan wrote to Robert Woodruff, who had died in March, to express her anguish, telling the deceased Coca-Cola boss that “you boys made a BIG mistake.”

  Customers talked of betrayal, of the news of the reformulation being like hearing that a loved one had died, of the destruction of an American icon. Coca-Cola staff found anger wherever they went. In Marietta, Georgia, a Coca-Cola deliveryman dropping off the drink at a supermarket was attacked by a woman brandishing an umbrella who screamed: “You bastard! You ruined it! It tastes like shit!” A Pepsi delivery driver who witnessed the scene burst out laughing, only for the furious Coke drinker to turn on him: “You stay out of it. This is family business. Yours is worse than shit.” Coke’s West German operation, which was next in line after the United States to introduce the new formula, claimed it was too busy launching Cherry Coke to handle another launch, in order to receive a stay of execution. Sales of Coca-Cola plunged, falling 10 percent in some states. Nielsen market researchers reported that Coca-Cola had lost a 2.5 percent chunk of market share as a result of the new Coke, a slice worth $625 million.

  With no letup in the backlash in sight, Coca-Cola decided to eat humble pie. On July 10 the company announced it had listened to its customers and was bringing the original formula back as Coca-Cola Classic, which would be sold alongside the new Coke. The reversal not only quelled the storm but made customers fall in love with the company all over again. The deluge of angry calls was replaced by an outpouring of love. “You have given us back our dream,” one grateful Coke fan wrote. Another told the company, “I feel like a lost friend is returning home.”

  New Coke remained on sale, but it would die a long, slow death. As soon as Coca-Cola Classic returned, McDonald’s dumped new Coke and within a year the revived original was outselling its sweeter offspring ten to one. By 2000 new Coke had been, in the company’s own words, “phased out and totally eliminated.” New Coke proved to be one of the biggest blunders in marketing history.

  Yet what seemed like a disaster for Coca-Cola turned out not to be the moment that Pepsi won the Cola War but the moment that Coca-Cola reconnected with its consumers. The outburst of passion among loyal Coca-Cola fans caused many Americans to remember why they liked the drink. Somehow it took the threat of losing the soda that had become part of the furniture to reignite the love for brand. Soon Coca-Cola sales were heading toward new heights. So strong was the rebirth after the new Coke fiasco that some accused the company of engineering the whole shambles in some kind of soda conspiracy. But that wasn’t the case. As Coca-Cola president Don Keough put it, “We are not that dumb and we are not that smart.”

  By the end of the 1980s Pepsi’s advances in the Cola War had ground to a halt. The battle continued, of course, as the soda giants flung Molotov cocktails of celebrity endorsements, vending machine innovations, retailer contracts, and new flavors at each other. But for all the heat generated, there would—in America, at least—be no big breakthroughs beyond the steady growth of Pepsi’s dark horse Mountain Dew, which had risen to become the country’s fourth most popular soda by the year 2000.

  It was a high-profile, sales-driving stalemate, though, and in 1998 soda sales in America hit an all-time high. The average American now drank the equivalent of 576 twelve-ounce cans of soda every year. The Cola War with its big promotions and clashes over retail appeal had lifted American soda consumption to incredible heights. It had, almost unseen, changed the very environments we shopped in, smashed advertising records, delivered one of the biggest marketing misjudgments of all time, armed Apple with the marketing tools it would use to grow into the biggest company by stock market value in American history, and helped fast-food chains rake in the profits. But as carbonated soft drinks entered their fourth century, the tide of almost uninterrupted upward growth was about to come to a screeching halt.

  10

  Beverage Backlash

  The perennial topic of conversation at the Rapp family home was soda. It was, after all, the family business, and their bottling plants pumped out most of the 7Up, Canada Dry, and Dr Pepper in upstate New York. “Beverages for me are a way of life,” says C. J. Rapp, whose father Joseph built their bottling empire. “I worked in my father’s factory in the summers from the age of twelve onwards.” So when the Rapps got together over meals at their home in Rochester, New York, their discussions usually came around to the state of the soft drink industry. In 1983, these conversations had taken a downbeat tone.

  It wasn’t because soda wasn’t selling; in fact, it had never been bigger. What upset the Rapps was that soda seemed to be losing its magic, and the new diet and caffeine-free sodas landing on the nation’s shelves were to blame. “Americans at that time were going through their first-ever wave of health-conscious products and starting to understand, arguably for the first time, the concept of moderation,” Rapp recalls. “We felt that the soft drink giants were abandoning their roots. When you look back at history, soft drinks were intended to be an indulgence, consumed for no other reason than pleasure. They were never intended to be health foods, and the large companies had begun running campaigns that were, for want of a better term, apologetic.”

  It was a conversation topic that refused to go away. Time and time again they talked about how Big Soda was abandoning everything that made fizz special as they tried to capture the health-aware drinker. The Rapps were still talking about it two years later when they hit on the idea of launching a new soda, a soda that would take the industry back to its roots and be proud, rather than ashamed, of being full of fun, sugary sweetness and the tingling buzz of caffeine. “We saw an opportunity to pull in the complete opposite direction,” says Rapp. “So instead of less sugar or no sugar and less or no caffeine, we did the opposite and came up with Jolt Cola.”

  Launched in March 1985, Jolt swam against the health tide. It offered its drinkers more sugar—and real cane sugar at that too, not the high fructose corn syrup stuff to which the big soda makers had switched to extract a few more cents out of every drink they sold. It also came with as much added caffeine as the law would allow. “The caffeine level of Jolt was literally twice that of Coke and Pepsi, which brought us to the Food and Drug Administration maximum,” says Rapp. “At the time Coke and Pepsi were thirty-six to thirty-eight milligrams per twelve ounces. Jolt was seventy-two milligrams.”

  This amount was still significantly less than the one hundred milligrams or more of caffeine that could be found in a twelve-ounce cup of coffee, but compared to the average cola, Jolt certainly lived up to its name. “There wasn’t anything, at least in the United States, along the lines of cold coffee then,” recalls Rapp. “If you wanted caffeine most Americans found it in a hot cup of coffee. Jolt became the espresso cola, something that refreshed and stimulated.”

  Making a caffeine-packed cola was straightforwa
rd enough, but getting into shops was a trickier task. Almost every soft drink bottling plant in America already had a contract to produce a brand name cola that also banned them from producing any other cola. Jolt found itself all dressed up and with nowhere to go. So the twenty-three-year-old Rapp looked beyond the soda industry and found a back door into the shops: beer.

  The beer industry had distribution networks just as far reaching as those of the soda business; the only difference was, they carried alcoholic drinks. Everything else was much the same. Rapp decided to see if he could get one of Rochester’s beer distributors to put Jolt into the stores. “We convinced one to adopt it and it worked out well. That gave us a business model we could emulate swiftly and easily. So, as we entered each new market, we approached two or three beer distributors and would usually persuade one to take Jolt. In six or seven months we achieved national distribution through 700 beer wholesalers and, in doing so, created an alternative national route to market.”

  Jolt became a sensation. Its extra caffeine and sugar stance won over people who were keen for a cola with a kick, and it horrified those who wanted America to eat and drink more healthily. “The reaction was strong on both sides,” says Rapp. “There were people who were outraged and people who were excited. It was a very polarizing product. It had a shock value in being so brazen as to put ‘twice the caffeine’ on the label. Some thought we were irresponsible, others liked the irreverence and the return to soft drinks’ origins.”