The Coke Machine: The Dirty Truth Behind the World's Favorite Soft Drink

by Michael Blanding

  No matter how they spun it, however, soda wasn’t cigarettes, and caffeine and sugar weren’t nicotine and cocaine. In painting them that way, they risked a backlash of their own, similar to a case a few years earlier when Banzhaf had sued McDonald’s on behalf of a man who accused the company of making him fat. Coca-Cola’s surrogates sought to paint this lawsuit in the same light. “There are trial lawyers who see dollar signs where the rest of us see dinner,” said the Center for Consumer Freedom’s Mindus. “It’s the height of silliness.”

  Despite their ridicule, behind the scenes the soda companies weren’t finding the threat silly at all. The public anger over soda—especially sold to the captive audience of kids in schools—was too palpable to risk in a jury trial. Sometime in the fall of 2005, Pepsi general counsel Robert Biggart quietly approached Gardner about putting this mess behind them. The first face-to-face came in December 2005 in Washington, including Jane Thorpe, a lawyer with Alston & Bird who represented Coke, as well as Patricia Vaughan, general counsel for the American Beverage Association, on one side, and lawyers from CSPI and PHAI on the other.

  From the beginning, the soda reps made it clear they were willing to agree to some kind of settlement to get soda out of schools—but only if the lawyers held off in bringing a lawsuit. The other side reluctantly agreed—since, unbeknownst to the soda companies, they were having trouble finding plaintiffs anyway. They’d made their decision to file in Massachusetts, a state with strong consumer protection laws, but where most schools had already canceled soda contracts. The lack of a stick to hold over Coke’s head, however, put the anti-obesity lawyers at a disadvantage.

  In meetings throughout the winter, the two sides hashed out an agreement, with sugary soda being the first to go, followed by sports drinks—noncarbonated beverages like Coke’s Powerade that have almost as much sugar as an equivalent amount of soda. Diet soda, after some debate, stayed. But the real sticking point was advertising—with the companies balking at removing all of those brightly lit logos on the sides of their vending machines that preserved that all-important early brand recognition, and arguing for half-measures like stickers with nutritional information placed on the machines. Finally, the anti-soda advocates thought they were able to prevail on the issue. On March 30, 2006, their lawyers drew up a confidential document summarizing their understanding of the proposed settlement. It included a promise from Coke to “refrain from all product marketing and advertising in school buildings, or on the school campus,” as well as an outline to get rid of all beverages with more than 10 calories per bottle (with the exception of milk and fruit juices) by the beginning of the 2009-2010 school year.

  “Somewhere in there, the stalling began in earnest,” says soda activist Simon, who watched negotiations unfold. “We didn’t hear from them to schedule a meeting, and I got nervous and said something was going on.” As it turned out, she was right. Coke was barraged by negative publicity that spring, and even Governor Rell bowed to public opinion, supporting a new bill in Connecticut to ban sugary soft drinks, and diet drinks and Powerade. Coke threatened to pull school scholarships if the ban passed, prompting state attorney general Richard Blumenthal to decry Coke’s “unconscionable practices” and announce an investigation of the Coca-Cola Foundation for violation of its nonprofit status. Despite Coke’s threats, the state legislature passed the bill in April 2006.

  Coke had had enough, calling a press conference a week later along with other soft drink companies to announce its surrender. Reporters from The New York Times, The Washington Post, and other newspapers assembled to hear the details, when Bill Clinton, former president of the United States, strode to the podium. By his side was Arkansas governor Mike Huckabee, the American Beverage Association’s Neely, and Coca-Cola North America president Don Knauss. “I don’t think there are any villains here,” said Clinton with his patented earnest delivery, going on to call the soda companies “courageous” for dealing with the obesity issue head-on. Then with great fanfare, he announced new guidelines that the industry had agreed to limiting soda in schools, which had been negotiated by the Alliance for a Healthier Generation, a partnership between the Clinton Foundation and the American Heart Association.

  The agreement—which had been in the works since fall 2005—was significantly weaker than what the companies had already agreed to with Daynard, Gardner, and the other anti-obesity activists over the same period, allowing diet drinks, sports drinks, and juice drinks of up to 12 ounces to be sold in high schools. Moreover, unlike the enforceable guidelines under discussion with the lawyers, the deal would be completely voluntary and implemented over the course of three years. Advertising wasn’t even addressed.

  Daynard found out about the agreement the way most people did—reading the newspaper. “I think there was considerable bad faith on their part,” he says. “They did not tell us they were simultaneously negotiating with another group.” Daynard now thinks their talks were nothing but a sham to stall litigation. Even so, he puts the best face on the agreement—arguing that if not for the threat of a lawsuit, the companies would never have taken even the more modest measure of getting rid of sugary soda within three years. “When we began, we thought that was impossible,” he says.

  Even as they were staging a tactical retreat, Coke and Pepsi were able to save face, stressing at the news conference that soda could be part of a well-rounded diet. In the fall, the ABA rolled out a $10 million ad campaign to “educate” parents about the new policy. They failed to mention that some schools with long-term contracts would not be able to participate, at least not without buying out the companies to amend the contracts. One school in Wisconsin learned it would have to pay $200,000 to remove high-calorie beverages from vending machines. The Portland, Oregon, school district was told it would have to pay back $600,000 to remove diet soda after the district’s wellness policy banned them. Local activists with Oregon’s Community Health Partnership cried foul—pointing out that a contract is something that can be renegotiated at any time if both sides are willing. It took six months, however, for Coke to agree to new terms, under which the school forfeited all commissions from drink sales, though it was allowed to keep the up-front fee for signing the contract.

  The very public deal has led to perceptions that the school issue had been dealt with, saving Coke’s image and taking the wind out of a push for stronger legislation. Oregon is one of the few states to move ahead with a binding state law against soda in schools after the Clinton soda agreement—pushing through a law similar to California’s tough standards in 2007. Even so, says the health partnership’s Mary Lou Hennrich, an initial proposal to ban sports drinks and marketing fizzled when legislators, supported by the school administrators, pointed to the Clinton guidelines as the new standard. “Their attitude was that now you’ve crammed this down our throats and we can’t have sugar-sweetened beverages for sale, haven’t you done enough?” A similar phenomenon happened in Utah, when the new state law to ban soda was specifically written with the Clinton guidelines in mind. In Oregon, Massachusetts, and Rhode Island, the local affiliates of the American Heart Association told Simon that their national headquarters had requested they stand down in supporting tougher laws. (A past president of the AHA denies this, saying that affiliates weren’t counseled either way.)

  By 2008, thirty-four states had some combination of regulation or legislation curtailing soda in schools. Just eleven banned all sugar-sweetened soda; the rest allowed some portion of soda sales for some portion of the day. Only a few go beyond the voluntary guidelines adopted by the Clinton agreement: six ban sports drinks, five set calorie limits, and only one provides any kind of penalties for noncompliance. On a federal level, an effort led by Senator Tom Harkin and Representative Lynn Woolsey to pass a bill to ban soda and sports drinks as foods of “minimal nutritional value” failed in 2007.

  In the three years since the first announcement by the Alliance for a Healthier Generation, there’s mixed evidence that the voluntar
y guidelines pushed by industry have been successful. According to a study by a consultant funded by the American Beverage Association, 98.8 percent of schools under contract with soda companies were in compliance with the guidelines by the 2009-2010 school year. Even more important, shipments of carbonated soft drinks to schools dropped by 95 percent compared to another ABA-funded survey in 2004. In high schools, sugar soft drinks fell from 47 to 7 percent of offerings, and water grew from 12 to 39 percent. While sports drinks did increase, from 13 to 18 percent of the total, total calories for all beverages were still down 88 percent. “It’s a brand new day in America’s schools when it comes to beverages,” said the ABA’s Neely in 2008. “Our beverage companies have slashed calories.”

  Some anti-soda activists, such as CSPI’s Margo Wootan, grudgingly accept the ABA report, though they point out that much of that decrease in soda in schools has been due to binding state legislation. Others, however, look at the industry-funded study with a jaundiced eye, knowing how favorable those studies have been to the soda company biases in the past. At least one independent study leaves serious reason to doubt the trade association’s figures. An annual survey by the University of Illinois at Chicago and the University of Michigan found that in the 2008-2009 school year, only 30 percent of school administrators said they were implementing the guidelines, up from 25 percent the previous year. By contrast, 14 percent said they were not implementing them, and 55 percent—more than half—said they had never even heard of them.

  Generally, the fight over schools has been a qualified victory for the anti-soda activists; if nothing else, it was a win in the area of perception; no longer would it be possible for people to drink soda without thinking about the potentially negative health consequences waiting for them inside the can. The fight affected Coke’s bottom line as well—stopping the runaway increases in soda sales for most of the previous century. In early 2006, soda sales fell in the United States for the first time in twenty years, by nearly 1 percent over the previous year. That was followed by several more consecutive years of sales drops—by 2.3 percent in 2007, 3 percent in 2008, and 2.1 percent in 2009.

  Where the campaign was successful in changing the public’s consumption of soda, it succeeded through a combination of public support and the vigorous support of the media, which thrives on stories of conflicts with clear battle lines and combatants on both sides—company executives, school administrators, dogged activists, and parents. However unfair it may have seemed to the soda companies to single out soft drinks as the primary cause of obesity and diabetes, the issue resonated with the public, who after all must have secretly suspected that pouring all of that sugar down their throats just couldn’t be good for them in the long term.

  The tactical decision to focus the fight on schools also helped to frame the issue in a way that was impossible for the public not to understand. As the campaign against tobacco did with Joe Camel and other instances of child marketing, it garnered the sympathy of the populace, which instinctively understands that even if adults are free to choose what they put inside their bodies, children need protection. Finally, the campaign made effective use of the power of the purse, speaking the language that school administrators and soda companies understood, whether it was Jackie Domac’s grant to implement healthy food choices or Dick Daynard’s threat to sue Coke for damages.

  Where the anti-soda forces failed, it was in removing the pressure it had so expertly marshaled just as it was beginning to bear fruit, taking away the cudgel of the lawsuit, their biggest weapon, as they began negotiating with Coke and the other companies, who then had every incentive to stall until they could find a more favorable deal elsewhere. And by focusing so completely on the school issue, the campaign against soda lost a chance to talk about the messier but arguably more significant influence that runaway soft drink consumption has had on both adults and children outside the school walls.

  In the end, it’s debatable exactly how effective the fight against soda in schools has actually been in schools themselves. A 2008 study in Maine published by the Society for Nutrition Education compared intake of soda by kids at high schools where soda was banned with intake in schools where it wasn’t, finding no difference in overall consumption. Another study, of 11,000 fifth-graders in forty states, found soft drink consumption by kids decreased just 4 percent after soda was banned at their elementary schools. After expending all of their political capital on the fight to get soda out of schools, however, activist groups have found it hard to make headway outside that realm. Putting warning labels on bottles or restricting serving sizes are almost a nonstarter, while recent attempts to push a state or national “soda tax”—Asa Candler’s old nemesis—have been slow to catch on.

  Whether or not the Clinton deal was a victory for activists, it certainly was one for Coke, which was spared a public thrashing in the courts while tying their ship to one of the country’s more popular public figures. Most important, the brand was kept intact, with Diet Coke and Coke Zero in the vending machines, and the Spencerian-script logo flashing brightly in the hallways. And there was evidence Isdell’s pledge to turn around the company was being kept. Throughout his tenure, overall company growth continued to surpass analysts’ expectations—with increases of 6 percent in 2007 and 5 percent in 2008. Much of that growth was thanks to the overseas market, which represents 80 percent of Coke’s total sales. But the Clinton deal staved off the worst of the slide in the United States. While sugar soft drinks continued to decline by a percentage point or two a year in the past few years, today’s youth has hardly been the “lost generation” for soda, as one analyst had predicted in 2006.

  And to make up the difference domestically, Isdell started a new round of product launches and acquisitions that took the battle to Pepsi on several new fronts, including a big new push on bottled water. Coke might never achieve its once-upon-a-time dream of seeing the C on the tap stand for “Coke.” But if it couldn’t beat water, it could do the next best thing: brand it.

  FIVE

  The Bottled Water Lie

  The noise is deafening on the bottling floor of the Needham Heights Sales Facility, the largest Coca-Cola bottling plant in Massachusetts and the sixteenth largest in the country. Cans of Diet Coke swirl around in a giant silver whirligig, blinking lights indicating each is being filled with the proper amount of carbonated water and syrup. The din dies in the warehouse next door, where hundreds of thousands of cans and bottles of Coke, Sprite, Nestlé iced tea, Minute Maid juice, and other products under the Coca-Cola umbrella are stacked in rows as far as the eye can see, calling to mind the last scene of Raiders of the Lost Ark.

  But tucked amid these boxes is another whirring collection of machinery. Test tube-sized nipples of polyethylene terephthalate (PET) plastic are dumped into a giant centrifuge, where they are blown by compressed air into 20-ounce bottles. On an adjoining piece of equipment, the full bottles reappear, filled to the brim with water. They trundle naked down the assembly line to get sealed and slapped with their label: Dasani.

  It’s here that Coke’s vaunted brand of bottled water is made, and where, by extension, the fortunes of the Coca-Cola Company were rescued. The actual process by which ordinary water is turned into Dasani is hidden inside a separate “water room,” which the plant manager describes as a bunch of twenty-foot stainless-steel tubes through which the water is shot at high pressure to be filtered. No amount of pleading will persuade the Coca-Cola Enterprises press agent giving the tour today to allow a peek inside. Like the secret formula for Coca-Cola hidden deep inside an Atlanta safe-deposit box, the process behind creating Dasani is equally shrouded in mystique. And no wonder, since Dasani’s brand image is even more important than Coca-Cola’s to sell the product.

  In coming to dominate the bottled water market, Coke has had to pull a feat of behind-the-curtain wizardry every bit as impressive as turning Coca-Cola into a symbol of American pride and international goodwill a century earlier. Despite promising beginnings,
however, Dasani has faced an even more damaging backlash, based not on individual health but on the health of the environment itself.

  Even as awareness of the obesity crisis was beginning to hit, threatening sales of Coke’s trademark carbonated sodas, the company was readying its Plan B. In the summer of 1998, CEO Doug Ivester began toying with selling the most basic of beverages—water. The company had watched from the wings as other companies had made a fortune on the beverage, which the French company Perrier had introduced in the United States in the late 1970s. The fad had taken off quickly, after Perrier’s marketers appealed to a new demographic of yuppies as conscious about their health as they were about the conspicuous consumption of paying top dollar for something others were getting for free. Perrier’s profits from water rose from $20 million in its first year to $60 million by its second.

  Starting in 1984, another French company, Evian, pioneered the use of lightweight bottles made of a clear plastic called polyethylene terephthalate (PET) just as the fitness craze was taking off, making the pink-and-red logo ubiquitous at the gym. Perrier stumbled briefly in 1990 when the supposedly pristine water was found contaminated with trace amounts of benzene, leading to a $160 million recall and cutting sales in half overnight. But the industry quickly recovered, led by the Swiss company Nestlé, which swooped in to acquire Perrier, as well as dozens of other brands—Deer Park, Arrowhead, Calistoga, Poland Spring—that were left from America’s first flirtation with bottled water at the turn of the last century. Between 1990 and 1999, bottled water sales shot up from $115 million a year to more than $5 billion.

  With profit margins on water as high as 50 cents on a $1.50 bottle, Coke and Pepsi couldn’t resist entering a market that had been dominated by foreign companies. Instead of selling natural spring water, however, the cola giants didn’t see why they couldn’t just take the same water flowing through their bottling plants and package that. Pepsi was first, shooting its purified water into a blue bottle with a squiggle evocative of snow-covered mountains.Voilà, Aquafina.