Constance Hays
The Real Thing: Truth and Power at the Coca-Cola Company
—from the publisher's website
A definitive history of Coca-Cola, the world’s best-known brand, by a New York Times reporter who has followed the company and who brings fresh insights to the world of Coke, telling a larger story about American business and culture.
The Real Thing is a portrait of America’s most famous product and the men who transformed it from mere soft drink to symbol of freedom. The story, starting with Coke’s creation after the Civil War and continuing with its domination of the domestic and worldwide soft-drink business, is a uniquely American tale of opportunity, hope, teamwork, and love, as well as salesmanship, hubris, ambition, and greed. By 1920, the Coca-Cola Company’s success depended on a unique partnership with a group of independent bottlers. Together, they had made Coke not just a soft drink but an element of our culture. But the company, intent on controlling everything about Coke, did all it could to dismantle that partnership. In its reach for power, it was more than willing to gamble the past.
Constance L. Hays examines a century of Coca-Cola history through the charismatic, driven men who used luck, spin, and the open door of enterprise to turn a beverage with no nutritional value into a remedy, a refreshment, and the world’s best-known brand. The story of Coke is also a catalog of carbonation, soda fountains, dynastic bottling businesses, global expansion, and outsize promotional campaigns, including New Coke, one of the greatest marketing debacles of all time. By examining relationships at all levels of the company, The Real Thing reveals the psyche of a great American corporation and how it shadows all business, for better or worse.
This is as much a story about America as it is the tale of a great American product, one recognized all over the world. Under the leadership of Roberto Goizueta and Doug Ivester, Coca-Cola reinvented itself for investors, spearheading trends such as lavish executive salaries and the wooing of Wall Street, but when Coke’s great global ambitions ran into trouble, it had difficulty getting back on track.
The Real Thing is a journey through the soft-drink industry, from the corner office to the vending machine. It is also a social history in which sugared water becomes an international object of consumer desire—and the messages poured upon an eager public gradually obscure the truth.
TRANSCRIPT
The Real Thing: Truth and Power at the Coca-Cola Company
Program Air Date:
March 21, 2004
BRIAN LAMB, HOST: Constance Hays, author of "The Real Thing: Truth
and Power at the Coca-Cola Company," where did you get the "Truth and Power
at the Coca-Cola Company"?
CONSTANCE HAYS, AUTHOR, "THE REAL THING: TRUTH AND POWER AT THE COCA-
COLA COMPANY": Well, it came out of the researching of the book, and the
theme I kept returning to was, What`s really real here? What are people
being told here? This is the premiere marketing company of all time,
probably, and I kept asking myself, you know, What is the truth here? And
it was sometimes hard to find.
LAMB: Why a book?
HAYS: Book? Well, I covered them for a long time for "The Times,"
and then I became increasingly interested in the history of the company and
the personalities, and you can`t always explore that in a newspaper. So I
put in a book proposal, and here we are.
LAMB: Deep in the book, you write about the 26th of January, 2000.
And you say, "It would be the day their great faith in an American icon
crumbled, the day the world they knew and counted on collapsed, the day
their trust went up in smoke." What was that all about?
HAYS: There was a huge layoff at Coca-Cola, unprecedented in the
company`s history. And there was an effort to turn around what had been
sort of a stumbling business for almost a year by then. And they tried to
accomplish it by laying off about 5,200 people. They originally announced
6,000 layoffs and shrank the number, in the end. But it was devastating to
people, not just people who worked for Coke but people from Atlanta and
people who`d grown up with Coke and always knew it as this great sort of
company that cared for you and company that you worked for until you really
had to -- had to go, either through retirement or death. It was just a sea
change in the culture of that company.
LAMB: How many total employees did they have?
HAYS: They had about 29,000 worldwide, at that point, and about 6,000
of them were in Atlanta, at the headquarters. And they got rid of about
half the people at the headquarters, and the rest came from other parts of
the world.
LAMB: What had happened?
HAYS: Well, the company had been in kind of a slide for a number of
reasons. It been harder to grow the business for various reasons, some of
which were economic, you know, issues, with the Asian economies, for
example, and other places where Coke had gotten a lot of its growth. And
then there had been some sort of public problems, like a racial
discrimination lawsuit and a product recall in Belgium. None of the
problems were immense on their own, but together, they added up to what
some board members evidently thought was a problem in leadership. So they
got rid of the leader, and then they did these cuts to try to fix
everything.
LAMB: The day we`re taping this in the middle of February, the stock
is at about $51. What`s the highest it`s ever been? And I know there`ve
been a lot of splits in this whole business. And what`s the lowest it`s
ever been?
HAYS: Well, the highest, you know, accounting for the splits and
everything, was about $88 and change in July of 1998. And the lowest it`s
been in all of this I think was in the $30s, the low $30s. And it`s never
actually regained the level that it had the day that those layoffs were
announced. Actually, the day that Doug Ivester left, it was about $67 a
share. It`s not gotten back up to that point.
LAMB: When did you start covering Coke?
HAYS: I started covering them, actually, the day Roberto Goizueta
died. I had to help out on his obituary, and that was in mid-October,
1997. And the company was going great guns. I mean, they had incredible
growth year after year. They`d been posting these magnificent numbers for
16 years under Goizueta. And it continued for about maybe nine months
after he died, and then it started to turn.
LAMB: The name Goizueta -- and you even help us to say it in the book
-- is what? Where`s it come from?
HAYS: The name? Oh, he`s Cuban. He`s from Cuba. He was a part of
the sort of elite class in Cuba that had to leave under Castro. And he
relocated to the States. He had worked for Coke in Cuba, as well. And
then he relocated here and made a name for himself within the company and
rose up to the very top.
LAMB: We -- You don`t have pictures in your book, but we got some
pictures because these characters you write about -- actually, I wanted to
see what they looked like. What was his impact?
HAYS: Goizueta`s impact? Well, he transformed the company from a
company that simply made a product to a company that was also great
financial performer on Wall Street. He was able to function as almost kind
of a sage or a sphinx sometimes with Wall Street and to tell people, We are
going to make this number and this target. And he always made it or
exceeded it. So investors loved him. Wall Street analysts loved him. He
was revered, really. And toward the end of his life, he had become kind of
a chairman -- he was an activist chairman, but he became somebody who also
was, you know, sounding forth on management issues for companies besides
just his own.
LAMB: You say that Coca-Cola headquarters didn`t allow smoking, but
he smoked all the time.
HAYS: Right. Oh, he was a huge chain-smoker. In fact, there are
many scenes in the book where he`s thinking behind a cigarette and smoking
cigarettes. And unfortunately, it led to lung cancer in his case, and that
was what he died from at a relatively young age. He was not quite 66.
LAMB: Why would he smoke in the headquarters and he wouldn`t let
anybody else do it?
HAYS: I think he probably would have let other people do it, but it
was a law, so I think they were trying to abide by the law, except where he
was concerned.
LAMB: Let`s go back to the -- to the some overall statistics. How
many Cokes are consumed every day in the world?
HAYS: Oh, in the world, I think it`s a billion a day now, maybe a
little bit more, and...
LAMB: Three-hundred and sixty-five billion a year.
HAYS: Right. That`s a lot.
LAMB: Is it the biggest drink in the world?
HAYS: It is the biggest drink. I mean, that number is not just Coca-
Cola. It`s all the other products they make, as well, things like Minute
Maid and bottled water. But Coke is still the lead product and the leader,
in terms of the profitability for the company.
LAMB: When was the first Coke made?
HAYS: It was made in 1886. And it was made in Atlanta, behind a drug
store counter, by a man named John Pemberton, who was fooling around with
another remedy he had made, trying to take the alcohol out of it. And then
he put the soda water into it and took a sip and thought it was great and
began to sell it from that one little counter. And he didn`t do all that
much with Coke in the beginning. He had it for about two years.
And then a very forward-thinking man named Asa Candler, who was a competitor of his down the road, bought the formula from him and just loved it. It helped to cure his headaches. You know, it did have cocaine in it, at that point, cocaine extract. And Asa Candler was a believer and he persuaded people all over the South first and then all over the country to sell Coca-Cola by name. So he was sort of the master marketer behind the whole thing. And by 1895, he would claim that it was sold in every single state, and I think that was true.
And then a very forward-thinking man named Asa Candler, who was a competitor of his down the road, bought the formula from him and just loved it. It helped to cure his headaches. You know, it did have cocaine in it, at that point, cocaine extract. And Asa Candler was a believer and he persuaded people all over the South first and then all over the country to sell Coca-Cola by name. So he was sort of the master marketer behind the whole thing. And by 1895, he would claim that it was sold in every single state, and I think that was true.
LAMB: So the cocaine -- everybody always asks about the cocaine.
HAYS: ….yes….want to know about that, yes.
LAMB: How long was there cocaine in it, and how much was it? And how
-- what -- how did it affect people?
HAYS: I don`t know the exact proportion of the cocaine, but it was
very little. It was a cocaine extract. And in those days, in 1886,
cocaine was regard as a harmless analgesic. It wasn`t until 1899 that
people got very upset about drugs and things and the backlash began. And
he took -- Candler took the cocaine out. He took the potent part of the
cocaine out and left sort of an extract in there that was not as strong,
so...
LAMB: What are the other ingredients in Coca-Cola?
HAYS: There`s oil of Coriander, oil of narole (ph), which is kind of
like an orange blossom, oil of some other citrus fruits, oil of cinnamon.
And then, of course, there`s cola, which comes from the cola nut. And then
there`s a ton of sugar. You know -- actually, they don`t use sugar. The
original formula had cane sugar, and in a few places around the world you
can still get the Coke made with cane sugar. But by and large, it`s now
made with higher fructose corn syrup.
LAMB: What`s the difference between high fructose corn syrup and
sugar?
HAYS: One`s a lot cheaper than the other. High fructose corn syrup
is very cheap. It`s a commodity. And one of the changes actually Goizueta
made was to introduce that as a substitute for sugar, which kind of got
around some of the contracts that they had with the bottlers at that time.
LAMB: What year did they start Diet Coke?
HAYS: Diet Coke was 1982. And it was an innovation that was also --
it also enabled the company to get around these contacts with the bottlers.
I mean, I spend some time in the book talking about a group of bottlers who
sued the company, saying, you know, You can`t -- you can`t introduce Diet
Coke like this. You know, you can`t introduce this different kind of Coke
formula. We`re bound by an agreement that dates back to 1920 that says the
syrup is supposed to have a certain amount of cane sugar in it. I think
it`s five pounds and change per gallon. And you`re not abiding by the
contract. So there was a very protracted legal battle over that, that the
bottlers more or less lost.
LAMB: What`s your suspicion about the taste of Coke today versus
1886?
(LAUGHTER)
HAYS: I think it probably tastes different. I mean, people -- there
are people who remember the cane sugar Coke and say it doesn`t taste the
same. And I pretty much grew up on the kind that has the corn syrup, so I
can`t tell the difference.
LAMB: What`s the amount of Diet Coke sold, compared to the Classic
Coke? Do you know?
HAYS: Well, there`s more Classic Coke sold, you know, overall around
the world than Diet Coke. But Diet Coke is very popular, too.
LAMB: Now, I want to personalize it just for a moment because as I
was reading your book, this image kept popping up in my mind. I grew up in
a small town in Indiana, Lafayette, Indiana. And there was a man named Dan
Casey (ph), who`s still very much alive today, who was the Coca-Cola
bottler. His father had been the Coca-Cola bottler in it that town where I
lived. But I remember Dan Casey. I knew him well as a kid because he was
always doing things for people.
HAYS: Right.
LAMB: Contributing -- I had a radio show he advertised on. He would
contribute to the high school. He was a high school basketball star and
all that stuff.
HAYS: Right.
LAMB: How -- how -- how much is that like other towns in America,
where the Coca-Cola bottler was that -- he was -- everybody in town knew
him.
HAYS: That is an experience repeated a thousand times around the
country. I mean, the Coca-Cola bottler became a fixture in these towns.
Somebody once compared them to the fire department and the Post Office as
an institution a town really couldn`t get along without. And that was the
magic of it all. I mean, these were independent guys. They started
bottling -- bottling began independently of the Coca-Cola company. And
these independent franchisees had exclusive rights to sell Coke within a
certain area, maybe 50 square miles or however much it was.
And they became not just sellers of Coke but really active people in their communities, so much so that people wanted to drink Coke because they liked them. You know, or the flip side is maybe they were afraid not to because they knew them. But they contributed money, they contributed their time. They served on all the boards of the important institutions. They had kids in school. They invited other kids in to see the plant.
They hired people in these neighborhoods and these towns, you know? And lots of places where there was no other industry, there was a Coke bottling plant you know, clinking along with this wonderful brown stuff going in, and people felt that it was part of them because they saw it being made right in their town. And in fact, a lot of the bottling plants were designed with a great, big glass window in front, so even if you weren`t going in, you could walk by and watch it.
And they became not just sellers of Coke but really active people in their communities, so much so that people wanted to drink Coke because they liked them. You know, or the flip side is maybe they were afraid not to because they knew them. But they contributed money, they contributed their time. They served on all the boards of the important institutions. They had kids in school. They invited other kids in to see the plant.
They hired people in these neighborhoods and these towns, you know? And lots of places where there was no other industry, there was a Coke bottling plant you know, clinking along with this wonderful brown stuff going in, and people felt that it was part of them because they saw it being made right in their town. And in fact, a lot of the bottling plants were designed with a great, big glass window in front, so even if you weren`t going in, you could walk by and watch it.
LAMB: Dan Casey`s bottling company had a window. You could stand and
watch the bottles go by.
HAYS: Yes.
LAMB: I remember going -- as a kid, going down there to see -- it was
a trip we took down there to see it.
HAYS: Yes. It`s an amazing thing. Did they give you something at
the end, like a ruler or pencil?
LAMB: Oh, sure.
HAYS: Yes. So...
LAMB: That was normal?
HAYS: That was normal. And I`m sure it made a big impression. You
were probably in 4th grade, is that right?
LAMB: Well, they always -- everybody...
(LAUGHTER)
LAMB: ... was always 4th grade when they start that. What about the
free ticket thing that they used to do?
HAYS: Oh, that was in the very beginning. That was Asa Candler. He
was the guy who bought the formula from Pemberton. And he offered free
tickets as a way of getting people to try it for the first time. And they
must have issued millions of these free tickets. And people cashed them.
It was a great way to get people to try a new drink.
LAMB: When was Pepsi started?
HAYS: Pepsi began in 1898, so Pepsi is always sort of the kid brother
to Coke. And it started sort of the same way, in a pharmacist`s -- you
know, in a pharmacy. And it was a man named Caleb Braddom (ph) who started
it down in Newbury (ph), North Carolina. And the parallel sort of growths
of Pepsi and Coke are very different. I mean, they both became very big,
but Pepsi had numerous flirtations with bankruptcy. I think Coke, at one
point, almost bought it. And the great key for Pepsi was to switch to
these other bottles during the Depression. They went to much larger 12-
ounce bottles and had that jingle about "twice as much, for a nickel, too."
And they really made inroads on Coke at that point. So then you had the
beginnings of the cola wars, which we all, you know, have known for years.
LAMB: You say that Coke has 44 percent of the market in this country
-- maybe it`s the world -- and Pepsi has 31 percent.
HAYS: That`s in this country, yes. Sorry.
LAMB: And how long has that been that way, and is anybody gaining on
the other?
HAYS: No. You know, in fact, cola sales have been flat for a long
time. I mean, they -- flat to declining since about 1984. And the "Pepsi
challenge," which led to this thing that we know as New Coke was something
that allowed Pepsi to gain some market share at the expense of Coke. But
the whole market hasn`t really grown very much.
LAMB: What`s the "Pepsi challenge"?
HAYS: The "Pepsi challenge" was in the 70s and `80s. There was a
blindfolded taste test that Pepsi would televise. And they`d have a
confirmed Coke drinker come and try two different cups of soda. One was
Pepsi, one was Coke. And he`d be asked to say which one he liked the best.
And he invariably said on the air that he liked Pepsi best, without
knowing, you know, which one it was. So that went on and on and on, and I
think it drove the Pepsi -- the Coke executives crazy. And they decided to
develop this new formula, which became known as new Coke. And it was
essentially Pepsi, but it wasn`t real Pepsi. It was sort of pretend Pepsi.
And the Pepsi people all made fun of it and they said Coke is throwing in
the towel and they made a huge mockery of them.
But the real reaction came from Coke drinkers because in introducing new Coke, Coke took regular Coke off the market. So all of a sudden, it wasn`t -- there was no choice. You either had to have new Coke or nothing. And the bottlers actually, you know, intervened after about two months and said, You`ve got to stop this because, you know, our guys can`t go out into the streets any more. We`ve got people who are afraid to go play golf at their golf club because they`re being yelled at you for new Coke. I mean, there was this huge outcry from Coke drinkers.
But the real reaction came from Coke drinkers because in introducing new Coke, Coke took regular Coke off the market. So all of a sudden, it wasn`t -- there was no choice. You either had to have new Coke or nothing. And the bottlers actually, you know, intervened after about two months and said, You`ve got to stop this because, you know, our guys can`t go out into the streets any more. We`ve got people who are afraid to go play golf at their golf club because they`re being yelled at you for new Coke. I mean, there was this huge outcry from Coke drinkers.
LAMB: Go back again to the start date on the new Coke. Who was CEO
at the time?
HAYS: It was Goizueta. Goizueta, Keough and Ivester were all on the
job then. And they -- Goizueta and Keough and a couple other executives
announced it with great pride at various, you know, sites around the
country. And they said it a different taste and it was this wonderful
improvement on Coke. And that was in 1985, April of 1985.
LAMB: Before we go any farther, I got to show a picture of Don
Keough, and you got to tell us who he is.
HAYS: OK. OK.
LAMB: What role did he play in the Coca-Cola company?
HAYS: Well, in the book I refer to him as "the heart of the Coca-Cola
company." He was sort of the ultimate salesman, the guy who patted
everybody on the back, who knew everybody. And he`s still alive, of
course. He`s -- he`s still around and, you know, has an advisory role at
Coke now. But he`s -- as you can see in the picture, he`s, you know, very
jovial. People like to be around him. And he was president of Coke for
about 12 years while Goizueta was the chairman and CEO.
LAMB: You said that when he left the company, there were 3,000 people
at a 6,000-person headquarters that went out and shook his hand outside the
building?
HAYS: Right, out in the hot sun, you know, wearing buttons that said,
"We salute a real classic." And there was a great love for him. There was
a great affinity for him that went beyond sort of his job. I mean, I think
he really made these connections with people that they appreciated and
remembered.
LAMB: But he leads, in your story, to some drama later on.
HAYS: Right.
LAMB: He went on to work for...
HAYS: For Allen and Company.
LAMB: ... Allen and Company. Explain what Allen and Company is.
HAYS: They`re an investment bank and sort of a, you know, merger
advisory firm in Manhattan, headed by Herbert Allen, who`s also on the Coke
board. And Don Keough landed there after retiring from Coke at age 66 or
so and, you know, did -- got business for them in various ways. And in the
book, I talk about how Keough watched with sort of increasing alarm while,
during his absence, things changed at Coke. And I think he was very, very
passionate about the brand and about the business and the company and all
the people there and began to voice his displeasure, you know, with various
people, probably including Herbert Allen. And that ultimately led to Don -
- to Doug Ivester losing his job.
LAMB: Let me show a picture of Doug Ivester. What year -- how many
years was he CEO at Coke?
HAYS: He was there for just about two years, two years and a couple
of months.
LAMB: When did he come in?
HAYS: He came in when Goizueta died, and he was the hand-picked
successor to Goizueta. And that`s not a very nice picture of him, but he -
- he does smile sometimes. And he was a guy who was well versed in the
financial -- had created a lot of the financial underpinnings of the Coca-
Cola company during the Goizueta era. And Goizueta, I think, admired him
very much and wanted him to succeed him.
I talked to somebody who knew all about this conversation between Goizueta and Ivester, basically on Goizueta`s deathbed, in which Ivester said, Look, if you want know go when you go, I`m happy to do that. You can have anybody you want. And Goizueta said, No, no, no. You`re the one that I want. And I do believe that conversation, so -- after -- after the trouble started, there were a lot stories about how Goizueta really hadn`t wanted him and that kind of thing, but I found no evidence of that in my research.
I talked to somebody who knew all about this conversation between Goizueta and Ivester, basically on Goizueta`s deathbed, in which Ivester said, Look, if you want know go when you go, I`m happy to do that. You can have anybody you want. And Goizueta said, No, no, no. You`re the one that I want. And I do believe that conversation, so -- after -- after the trouble started, there were a lot stories about how Goizueta really hadn`t wanted him and that kind of thing, but I found no evidence of that in my research.
LAMB: You say in the acknowledgements in the back that some people,
when they talked to you, didn`t want to be identified. You say, "Many
people, even if they had left company, were reluctant to speak on the
record, citing fear of retribution through social channels."
HAYS: Right.
LAMB: Explain that.
HAYS: Well, if you live in Atlanta, for example, or anyplace where
Coke is very big and important, there were ways that I think they feared
they might be hurt. You know, their wives might be working for something
and be shut out of some event, or they themselves might feel uncomfortable
on the golf course or -- you know, there were -- I mean, Atlanta is still,
in many ways, a very small town, and it`s in many ways still dominated by
Coca-Cola.
LAMB: So...
HAYS: I felt sorry for them. I felt it was terrible to be that
afraid, even if you weren`t working there anymore. But that`s what they
said, and I chose to go with it.
LAMB: Who talked to you on the record that we have of importance in
the book? Did Doug Ivester?
HAYS: He didn`t want to talk to me, but I talked to Herbert Allen on
the record, Donald McHenry -- let`s see. Who else? Couldn`t talk to
Goizueta. He was gone by then.
LAMB: What about Don Keough?
HAYS: A couple of things he -- I did get him to say on the record,
so...
LAMB: I want to show the board of directors because you mentioned
Donald McHenry. Some people may remember him in his past life as what?
HAYS: Well, he`s still a professor at Georgetown, at the School of
Foreign Relations, and a very thoughtful man. He was a diplomat in the
Carter administration.
LAMB: A U.N. ambassador...
HAYS: Right.
LAMB: ... from the United States. We`ll put the list there on the
screen. You see Douglas Daft, who`s currently the chairman, Herb Allen,
Ron Allen, Kathleen Black at Hearst magazine company -- used to be the
publisher of "USA Today"...
HAYS: Right.
LAMB: ... Warren Buffet. And he plays what kind of role? Big name
in this book.
HAYS: Right. He -- well, he`s the principal investor, at one point,
in Coke. I mean, he still is. He`s got about 200 million shares, which is
a lot of money, through Berkshire Hathaway. And he becomes disgruntled
with Ivester, too, in this book. And he and Allen fly to Chicago to
basically fire Ivester in an airplane hanger on December 1, 1999.
LAMB: That`s not very long ago. Let`s put the list back up just for
a second. Former senator Sam Nunn is on the list. He`s from Georgia.
Jimmy Robinson, who used to run the American Express...
HAYS: Right.
LAMB: ... company, Peter Ueberroth, used to be baseball
commissioner...
HAYS: Right.
LAMB: ... former candidate for governor out in California. And who
is James Williams?
HAYS: He`s an Atlantan. He`s a former chairman of Suntrust Bank and
a long-time Coca-Cola board member.
LAMB: There are three women on that list, Cathleen Black, Susan
King...
HAYS: Right.
LAMB: ... Maria Elena Lagomasino.
HAYS: Right.
LAMB: How long have there been women on the board?
HAYS: There have always been women, in one form or another, like, a
bottler`s wife or something. But Cathleen Black was the first in sort of
the modern era. and she came along in 1991. She and Susan King came along
about the same time and were put on the board by Goizueta. But there
hadn`t been any women for a while before that. When Goizueta took over,
the board apparently was filled with cronies of Robert Woodruff, who was
sort of the patriarch of Coke for about 60 years. He built it up from a,
you know, sort of stumbling, doddering kind of kind of company in the
1920s. And he took it abroad, did this deal with Eisenhower to provide
Coke to the GIs during World War II, created a huge generation of Coke
loyalists that way, and really is responsible for great success within the
company.
LAMB: Did you say 10 billion Cokes were given to GIs during the war?
HAYS: Yes.
LAMB: From `41 to `45, 10 billion Cokes?
HAYS: Yes.
LAMB: Did they give it to them or did they sell it to them?
HAYS: They sold to them. They had to pay for it. It was a nickel.
But they promise that they had would have it. They -- like, in every
theater of war, they said, We will make sure that you can get your Coke.
And I heard a great story from a friend of mine named Tom Evans (ph)
recently, who went fishing in the Havana harbor in the New Hebrides, which
is in the South Pacific. And during the war, a lot of American soldiers
were stationed there, and they were given five Cokes a day. And they
apparently threw their bottles into the water. So if you go down there
now, the sand has this greenish tinge from all the Coke bottle glass that`s
-- it`s come to be part of the environment.
LAMB: Where did the name Coca-Cola come from?
HAYS: Well, the Coca is obviously cocaine and the Cola from the cola
nut. And it was a name that Pemberton thought of, I think, on the spot,
and his assistant wrote it out in his flowing cursive, and it looks pretty
much the same, apparently, as what he wrote on that first day.
LAMB: Is that the same Pemberton from the Civil War?
HAYS: It`s not, but it`s so interesting because the first -- the
Pemberton from the Civil War is the Confederate general who basically lost
the siege at Vicksburg to the Yankees. And the -- and Vicksburg becomes
the site of the very first Coke bottling operation, a kind of unofficial
bottling by a guy who had a candy company, a guy named Bedenhard (ph). And
he just thought it would be a good idea to put Coke in bottles. He sent a
bunch to Asa Candler. Candler said fine. But it wasn`t -- that was in
about 1892. And it wasn`t until several years later that the real bottling
of Coca-Cola began. That was in 1899.
LAMB: What`s the total revenues for Coca-Cola company today?
HAYS: Oh, gosh. It`s about -- I never get this right. It`s about
$16 billion, $17 billion a year.
LAMB: And how many places did you personally go in trying to research
this story?
HAYS: Well, I always wished I`d gone to more. I mean, as a reporter
and a writer, you always think you can do a little more if you just add one
more trip. But I went to Rome, Georgia, which has the highest per capita
consumption of Coke anywhere in the world, something like 900 Cokes a year
for every man, woman and child, which works out to be about three a day.
LAMB: Don`t go any farther. I got to ask -- why?
HAYS: They love it. And there`s a great -- there was a bottler there
for years, a family bottler for three generations. And the current -- the
guy who sold it recently is named James -- or Frank Baron (ph). And Frank
Baron is referred to as Marcus Aurelius when he walks around Rome, Georgia.
I mean, he`s that important of a guy. And he, like your friend, is a huge
contributor to everything that`s important in that town, from the private
schools to the public baseball field. He`s done it all. And they`re
wonderfully respected and admired people in that town.
But he actually sold his company in 1986 to what became Coca-Cola Enterprises. And he decided to get out of the business for various reasons that had to do with not being able to grow the way he wanted to and some changes that were taking place in the -- sort of the economic landscape at large, like the growth of Wal-Mart, like the growth of sort of large supermarket chains that were no longer regional or local but national in scope. Because what happened was all of little bottlers had different arrangements for either delivery or pricing or whatever, and these big sellers of Coke, like Wal-Mart, wanted to make a single deal and have it all acted upon the same way. And you couldn`t always get -- if you were the Coca-Cola company, you couldn`t always get the bottlers to go along with that every single time. So hence the formation of this mega-bottler.
But he actually sold his company in 1986 to what became Coca-Cola Enterprises. And he decided to get out of the business for various reasons that had to do with not being able to grow the way he wanted to and some changes that were taking place in the -- sort of the economic landscape at large, like the growth of Wal-Mart, like the growth of sort of large supermarket chains that were no longer regional or local but national in scope. Because what happened was all of little bottlers had different arrangements for either delivery or pricing or whatever, and these big sellers of Coke, like Wal-Mart, wanted to make a single deal and have it all acted upon the same way. And you couldn`t always get -- if you were the Coca-Cola company, you couldn`t always get the bottlers to go along with that every single time. So hence the formation of this mega-bottler.
LAMB: Here`s the cover of your book. And you can see the lady there
holding up a Coke bottle. And of course, "The Real Thing," one of the
slogans, and the red. Where did the red come from, do you know?
HAYS: I`m not sure. But it was a popular color.
LAMB: Where did the shape of the bottle come from?
HAYS: Oh, that`s easy. That was commissioned by Asa Candler in about
1915. He want a uniform bottle because they`d had been using all kinds of
bottles up until that point. And depending where you were, as a bottler,
you used what was at hand. So there might be straight-sided bottles, blue
bottles, white bottles, amber bottles. There was nothing sort of uniform
about it, and he wanted to have a single representative bottle for Coca-
Cola.
So he commissioned this bottle design from the Root Glass Company in Indiana. And the designer went to the library and looked up cola nut, and it wasn`t in the encyclopedia. So the librarian apparently pointed him toward the cocoa bean. So those ribs that you see on the bottle are actually evoking a cocoa bean. And that silhouette is meant to evoke either a hoop skirt or a hobble skirt, which was sort of the popular style, you know, in the period when Coca-Cola came to be.
So he commissioned this bottle design from the Root Glass Company in Indiana. And the designer went to the library and looked up cola nut, and it wasn`t in the encyclopedia. So the librarian apparently pointed him toward the cocoa bean. So those ribs that you see on the bottle are actually evoking a cocoa bean. And that silhouette is meant to evoke either a hoop skirt or a hobble skirt, which was sort of the popular style, you know, in the period when Coca-Cola came to be.
LAMB: Who was responsible for the plastic bottle and the 20-ounce,
which changed a lot of things?
HAYS: That was Doug Ivester. That was an innovation he came up with
that sold a lot more Coke for the company and also was seen as a way for
the bottlers to make more money, too, by selling a larger package.
LAMB: OK, we`re in the middle several stories that we haven`t
completed. I want to go back. We`ve meet Goizueta and Doug Ivester and
Don Keough. Go back to Goizueta and new Coke again. What year was new
Coke introduced?
HAYS: In 1985.
LAMB: How much planning was there for that?
HAYS: A lot of planning. I think it began -- I think they began
planning for it shortly after Goizueta became chairman. And there may have
even been some rumblings about it before. But again, it`s coming out of
this worry about the "Pepsi challenge." They feel like they need to change
the formula and make it more competitive with Pepsi, so they make this
thing that is flatter than Coke, in terms of the bubbles. It`s sweeter
thank Coke, in terms of the flavor.
And it`s a lot like Pepsi, except when the Pepsi people opened it up and tried it for the first time, they all burst out laughing because it`s not as good as Pepsi, in their opinion, and so they feel that they`ve won the cola wars. And you know, they`re -- they`re merciless in their needling of Coke. They take out these big ads, and they go around and talk on TV about how Coke has finally given up. And it was humiliating for Coke.
And later, I think somebody at Coke tried to say that, you know, Well, it was all a plan and we just wanted to revive interest in Coke and, you know, we succeeded in that. But there`s a famous quote from Don Keough, where he says, you know, We`re not that smart, we`re not that dumb. I think it was one of those things that was a plan hatched in sort of a corporate ivory tower. It didn`t work. They brought back the regular Coke. They kept both on the market for a long time, and new Coke just very slowly died on the vine.
And it`s a lot like Pepsi, except when the Pepsi people opened it up and tried it for the first time, they all burst out laughing because it`s not as good as Pepsi, in their opinion, and so they feel that they`ve won the cola wars. And you know, they`re -- they`re merciless in their needling of Coke. They take out these big ads, and they go around and talk on TV about how Coke has finally given up. And it was humiliating for Coke.
And later, I think somebody at Coke tried to say that, you know, Well, it was all a plan and we just wanted to revive interest in Coke and, you know, we succeeded in that. But there`s a famous quote from Don Keough, where he says, you know, We`re not that smart, we`re not that dumb. I think it was one of those things that was a plan hatched in sort of a corporate ivory tower. It didn`t work. They brought back the regular Coke. They kept both on the market for a long time, and new Coke just very slowly died on the vine.
LAMB: So was there a day, all of a sudden, new Coke was available
everywhere?
HAYS: Yes. It was in April, like, mid-April of 1985. And it was
supposed to go overseas, as well, but they never got that far because the
hue and cry in this country was so enormous. And it was the bottlers, who
were these independent guys, you know, kind of selling the Coke to you and
me, who reported back to Coke that, you know, This really isn`t working,
and it`s just a terrible thing for our business and for our lives. And you
know, You`ve got to do something. So after 77 days, old Coke comes back.
Goizueta more or less admits he made a mistake. And he says, you know, You
people who drink new Coke, you`re drinking the best Coke we`ve ever made.
But for all of you other people, we just want to say we`ve heard you, and
now you`re going have, you know, a choice.
LAMB: You mean, for 77 days, the old Coke was not available.
HAYS: Right. And that whole issue of not having a choice to me is so
revealing of the way that they were thinking, that they could arbitrarily
change the flavor of Coke and nobody would worry about it, that people
would just kind of go along and buy it. I mean, there was so much emotion
and nostalgia and love really invested in Coke as it was, that I think to
take it away, it`s like taking away a baby`s bottle. I mean, people just
burst into tears and wrote angry letters. And there`s some great letters
that I quote from that story, where people write, you know, "Dear Chief
Dodo," you know? "Whose idea was this?" And they were pretty hard on the
company.
LAMB: What happened inside the company right after announcement was
made and they started to feel that people didn`t like this idea?
HAYS: Oh, I think they first tried to kind of bat it away and say,
Oh, we`ve only had 40,000 calls. You know, It`s not that bad. But after,
like, the 400,000th call, they realized that it was bad. And then these
bottlers who -- we can`t underestimate the role of the bottlers in this.
They go march down to Atlanta and they say, You`re killing us. You know,
You are killing the brand. You`ve got to listen to us. And the Coca-Cola
company did listen to them, and it was the right move because, you know,
they brought back regular Coke and everybody was happy again.
LAMB: Was Doug Ivester there then?
HAYS: He was there then, yes. I`m not sure how much role he had in
developing and marketing new Coke.
LAMB: What about Don Keough?
HAYS: He was still CFO. Don`t Keough was there.
LAMB: Was he behind all this? Did he like this idea?
HAYS: I think he did. I mean, I they were all on board when they
announced it.
LAMB: Did they need more money at this time?
HAYS: They never really need more money, but they`d like more money.
LAMB: Why?
HAYS: It`s just business. I mean, they -- the money`s there. They
want to go after it. And that`s what`s at the root of their issues with
the bottlers, you know, because the bottlers start off independently.
Everyone at Coke in 1898 thinks that bottling`s going to be a total
disaster, and it turns out to be a great success. I mean, the bottling --
putting Coke in bottles changed the whole definition of Coke because --
what I didn`t know, actually, when I first started researching the book was
that until 1899, really, you couldn`t get a Coke except at a soda fountain.
You had to go in there, and it was a big public place and people got
dressed up. And then you had to live in a place that had a soda fountain,
which wasn`t everywhere.
And the idea of putting it into bottles meant that a farmer could come and get it and go back to work, or you could have it in a baseball stadium or you could have it, you know, in the car with you. You could take it home. You could you have it when you wanted to have it, not just during the hours that a soda fountain was open.
And to me the bottlers democratized Coke in a way that made the company unbelievably strong. But this jealousy began, this like what I call a little fire that began to burn in Atlanta and would never go out. It was this anger over the money that the bottlers were making. It just somehow invaded Coke and stayed there for, you know, more than 80 years, until they were able to try to rejigger their relationship with this big bottler called Coca-Cola Enterprises.
And the idea of putting it into bottles meant that a farmer could come and get it and go back to work, or you could have it in a baseball stadium or you could have it, you know, in the car with you. You could take it home. You could you have it when you wanted to have it, not just during the hours that a soda fountain was open.
And to me the bottlers democratized Coke in a way that made the company unbelievably strong. But this jealousy began, this like what I call a little fire that began to burn in Atlanta and would never go out. It was this anger over the money that the bottlers were making. It just somehow invaded Coke and stayed there for, you know, more than 80 years, until they were able to try to rejigger their relationship with this big bottler called Coca-Cola Enterprises.
LAMB: Coca-Cola Enterprises was started in what year by.
HAYS: It was started in 1986, so 100 years after the first Coke was
served. They came up with this solution to the bottling issues, as they
thought of it, and it was actually Doug Ivester`s idea to take all these
bottlers who were interested in selling -- it wasn`t just Frank Baron (ph),
who was a small bottler, but big bottlers, like the L. A. bottler was on
the block and a couple of other ones, like the one headed by Jack Lufton
(ph), who was one of the very first bottlers out of Chattanooga. He had
about 10 (ph) of the Coke empire was his.
And they put these things on the block and said we`re selling, we want $1 billion, you know, take it off our hands. And Coke was enormously fearful of what would happen if some other owner came in and had that much of the business and maybe started telling them what to do. So Ivester had this idea to take -- to buy these bottlers up and create a new entity which would own the bottlers, taking the debt, for example, off Coca-Cola`s books.
And hey created this new bottler that was, you know, more responsive to Coke. Coke kept a 49 percent equity stake at first and so they had a lot of say in the bottler`s operations, put people on the board. And on paper it was a great idea, you know, because instead of having 50 or so people that you had to deal with on a big contract, you instead had one. I mean, whoever was CEO of Coca-Cola Enterprises was your man versus 50 people with competing interests or different agendas.
And they put these things on the block and said we`re selling, we want $1 billion, you know, take it off our hands. And Coke was enormously fearful of what would happen if some other owner came in and had that much of the business and maybe started telling them what to do. So Ivester had this idea to take -- to buy these bottlers up and create a new entity which would own the bottlers, taking the debt, for example, off Coca-Cola`s books.
And hey created this new bottler that was, you know, more responsive to Coke. Coke kept a 49 percent equity stake at first and so they had a lot of say in the bottler`s operations, put people on the board. And on paper it was a great idea, you know, because instead of having 50 or so people that you had to deal with on a big contract, you instead had one. I mean, whoever was CEO of Coca-Cola Enterprises was your man versus 50 people with competing interests or different agendas.
LAMB: So `86 for Coca-Cola Enterprises. Today how much of the
bottling business do they own in the United States?
HAYS: They own 80 percent today, and in the beginning they owned
about 30 percent.
LAMB: And do they own 100 percent of these bottlers now? Or do they
still do the 49 percent?
HAYS: Oh, Coke has reduced its stake a little bit. I think they`re
down to about 40 percent now in Coca-Cola Enterprises. But it`s still a
very big stake.
LAMB: And you said in your book that Howard Buffett is the chairman
of the board of Coca-Cola Enterprises.
HAYS: He`s not the chairman. He`s one of the board members.
LAMB: One of the board members?
HAYS: Yes, of Coca-Cola Enterprises, but it`s filled with people from
Sun Trust and, you know, with different connections to Coke.
LAMB: And Sun Trust is the big banker in Atlanta?
HAYS: Jimmy Williams` bank, right. He`s retired now, though. I
should point that out. He`s retired from that job.
LAMB: From they board or from the.
HAYS: From Sun Trust. But he`s still in the company.
LAMB: So here we are today. You`ve got two companies, Coke and Coca-
Cola Enterprises. How much debt does Coke have?
HAYS: Coke has very little debt, almost no debt. Coca-Cola
Enterprises has a ton of debt. They have so much debt, they can`t make
enough money most years just to service the debt.
LAMB: Because part of your story unfolds due to the fact there are
these two companies and one has a lot of debt and one doesn`t and share
price.
HAYS: Right.
LAMB: When did share price become so important in this country?
HAYS: Roberto Goizueta made share price the sort of gold doubloon he
put on the mast of Coca-Cola and said this is what we`re all after, this is
what`s going make us strong. And to his credit, he inspired people to work
hard for share price. I mean, he had monitors with the share price in all
the Coca-Cola lobbies. He consistently referred to share price as the
measure of sort of how well people were doing. Employees invested heavily
in 401k`s that were all Coca-Cola stock because of the share price going
up.
And it went up and up and up for years and split a number of times under him, either three for one or two for one. And people who had held Coke stocks for years kind of woke up and thought wow, this is a great company.
Coke has ways been held by many, many individual investors. There hasn`t been a ton of institutional investing in Coke. So lots of old ladies in Decatur got rich from their Coke stock all of a sudden. And lots of people who had had family Coke stock they basically ignored for a long time suddenly had tons of wealth as well. And it was this kind of miracle in Atlanta.
And, you know, I think for a long time it was really working and it was real. There were a lot of emerging markets to tap into. There were ways to make the bottling and other aspects of Coca-Cola more efficient to save money on that end.
And it began to taper, I believe, in about 1992 or `93 because things changed. You got to a certain peak of the experience. Then it got harder and harder to do. But they managed to keep pulling it off and pulling it off. And, you know, some of the things they do, I wrote about in the book, and I think that they caught up with them after a while.
And it went up and up and up for years and split a number of times under him, either three for one or two for one. And people who had held Coke stocks for years kind of woke up and thought wow, this is a great company.
Coke has ways been held by many, many individual investors. There hasn`t been a ton of institutional investing in Coke. So lots of old ladies in Decatur got rich from their Coke stock all of a sudden. And lots of people who had had family Coke stock they basically ignored for a long time suddenly had tons of wealth as well. And it was this kind of miracle in Atlanta.
And, you know, I think for a long time it was really working and it was real. There were a lot of emerging markets to tap into. There were ways to make the bottling and other aspects of Coca-Cola more efficient to save money on that end.
And it began to taper, I believe, in about 1992 or `93 because things changed. You got to a certain peak of the experience. Then it got harder and harder to do. But they managed to keep pulling it off and pulling it off. And, you know, some of the things they do, I wrote about in the book, and I think that they caught up with them after a while.
LAMB: You talk about a fellow deep in the book, by the name of, it`s
either Albert Meyer or Meyer.
HAYS: Meyer.
LAMB: From Elkhart, Indiana.
HAYS: Right. From South Africa, but he worked in Elkhart.
He was a guy who had been -- he`s a sort of ferocious accountant. He
believes in accounting more than I ever thought anyone could believe in
accounting. He believes accountants are the gatekeepers of society.
And he felt that Coke`s accounting was not completely fair and forthright. And he examined the books of Coca-Cola Enterprises versus the books of Coca-Cola. He came up with these sort of comparisons of how much debt Coke had versus the bottler, felt that the bottler was really subject to Coke in a way that meant their book should be consolidated.
And that, you know, upset the Coke people immensely. Because to them the whole issue of creating a separate company was in order not to have to consolidate the books and have all of that debt, and, you know, risks, too. I mean, bottling is a very capital-intensive business, and if you build too many bottling plants, you`ll be in trouble, even if you don`t have the volume. Which Coke actually ran into in other parts of the world.
And he felt that Coke`s accounting was not completely fair and forthright. And he examined the books of Coca-Cola Enterprises versus the books of Coca-Cola. He came up with these sort of comparisons of how much debt Coke had versus the bottler, felt that the bottler was really subject to Coke in a way that meant their book should be consolidated.
And that, you know, upset the Coke people immensely. Because to them the whole issue of creating a separate company was in order not to have to consolidate the books and have all of that debt, and, you know, risks, too. I mean, bottling is a very capital-intensive business, and if you build too many bottling plants, you`ll be in trouble, even if you don`t have the volume. Which Coke actually ran into in other parts of the world.
LAMB: So what did Albert Meyer do with his study?
HAYS: He came to the people at the "New York Times" and other people
and published it. And, you know, it created quite a wave, briefly, you
know, when it came out. And then things kind of came back together.
But he ended up being quite right, that there was too much leverage at Coca-Cola Enterprises. They couldn`t really afford the kinds of purchases they were making. And moreover, the demand for Coke was not there as anticipated. They had anticipated these huge numbers coming in, just growing demand, growing demand, growing demand. And that really wasn`t happening, with Coca-Cola, anyway. I mean, the business had been falling off for a long time and there are lots of competitors. And Coca-Cola Enterprises isn`t just an American bottler now. It`s also got large parts of Western Europe, and that cut into their business as well.
But he ended up being quite right, that there was too much leverage at Coca-Cola Enterprises. They couldn`t really afford the kinds of purchases they were making. And moreover, the demand for Coke was not there as anticipated. They had anticipated these huge numbers coming in, just growing demand, growing demand, growing demand. And that really wasn`t happening, with Coca-Cola, anyway. I mean, the business had been falling off for a long time and there are lots of competitors. And Coca-Cola Enterprises isn`t just an American bottler now. It`s also got large parts of Western Europe, and that cut into their business as well.
LAMB: You say Albert Meyer went to Texas and got involved in the Tyco
story?
HAYS: Right, he left this small company he worked for in Elkhart,
Indiana, went to work for David Tice & Associates and began to analyze Tyco
as well.
And so several years before anybody else he said, you know, there were serious problems with the accounting at Tyco. He was again shouted down and, you know, the Tyco people got very mad at him. As you see, he was kind of right.
And so several years before anybody else he said, you know, there were serious problems with the accounting at Tyco. He was again shouted down and, you know, the Tyco people got very mad at him. As you see, he was kind of right.
LAMB: What`s the Belgium story?
HAYS: The Belgium story is the recall of Coca-Cola products, the
biggest recall they`ve ever had in Belgium.
And it`s still somewhat mysterious as to what actually happened there. Were people really sickened by Coke or did they really just think they were sickened?
But to me it`s a fascinating story because it`s marketing flipped on its head. I mean, in marketing a product like Coke, you tell people that they want it and why they have to want it and why it`s important to them. And this is the sort of marketing turned inside out where people are saying, I don`t want Coke. It`s making me sick. I think I`m sick, therefore I am sick. I mean, it was -- it just was -- sort of play in reverse, you know.
And it`s still somewhat mysterious as to what actually happened there. Were people really sickened by Coke or did they really just think they were sickened?
But to me it`s a fascinating story because it`s marketing flipped on its head. I mean, in marketing a product like Coke, you tell people that they want it and why they have to want it and why it`s important to them. And this is the sort of marketing turned inside out where people are saying, I don`t want Coke. It`s making me sick. I think I`m sick, therefore I am sick. I mean, it was -- it just was -- sort of play in reverse, you know.
LAMB: What year?
HAYS: That was in 1999. 1999 was a pretty rough year for the Coca-
Cola company.
LAMB: How much did it spread around the world?
HAYS: The panic spread everywhere. The panic got to Singapore and
Poland and all of these places far beyond where the actual crisis was. And
the crisis was really confined to Belgium, to a couple hundred school
children who report feeling ill after Coca-Cola and Fanta.
And they eventually found that there was some sort of yucky stuff on some of the cans in one vending machine and that some of the Coke in bottles had been prepared with some sort of bad-smelling sulfur dioxide that they use to make the bubbles. And you know, it was unfortunate. It got sort of blown up by the global media reaction. And I think it probably got bigger than it actually deserved to be in some ways.
And Coke commissioned reports saying, you know, scientific -- there`s no scientific evidence this actually made anybody sick. But it almost didn`t matter. The facts almost didn`t matter, which is why I`m talking out the sort of dark side of marketing. I mean, it becomes what people think about it rather than support is actually there to support it.
And they eventually found that there was some sort of yucky stuff on some of the cans in one vending machine and that some of the Coke in bottles had been prepared with some sort of bad-smelling sulfur dioxide that they use to make the bubbles. And you know, it was unfortunate. It got sort of blown up by the global media reaction. And I think it probably got bigger than it actually deserved to be in some ways.
And Coke commissioned reports saying, you know, scientific -- there`s no scientific evidence this actually made anybody sick. But it almost didn`t matter. The facts almost didn`t matter, which is why I`m talking out the sort of dark side of marketing. I mean, it becomes what people think about it rather than support is actually there to support it.
LAMB: Who was in charge? Who was the CEO then?
HAYS: Doug Ivester was the CEO.
LAMB: And who put the fire out?
HAYS: He actually -- you know, it`s interesting. The bottler really
had a role to play here because it was the bottled drinks that really
should have gotten the most attention. I mean, Coke, as you know, makes
the syrup that becomes the bottle or can of soft drink. So by the time
somebody is drinking out of it, you know, their job is almost done.
But the whole brand was imperil. And so Ivester flew to Belgium. He tried to do what he could do. He was somewhat hamstrung by the political situation in Belgium which coincided with the Dioxin crisis and whole government had been thrown out and the new government was sort of yelling at Coke behind the scenes, saying you won`t do anything until we give you permission.
So it was a very difficult situation for any CEO.
But the whole brand was imperil. And so Ivester flew to Belgium. He tried to do what he could do. He was somewhat hamstrung by the political situation in Belgium which coincided with the Dioxin crisis and whole government had been thrown out and the new government was sort of yelling at Coke behind the scenes, saying you won`t do anything until we give you permission.
So it was a very difficult situation for any CEO.
LAMB: You said the Belgians hated the Americans in this.
HAYS: Well, certain Belgian officials had great animus toward America
because of things like trade embargoes and just the general sort of
suspicion of American culture creeping in. That`s something we`re always
dealing with as a country.
LAMB: How much money did all of this cost Coke?
HAYS: It cost Coca-Cola Enterprise a lot more money than Coke. But
it ended up being -- I think I cite it in the book. It`s several million
dollars, not just to undo the damage but then to replace all the soda that
had to be destroyed. So it really cut into the bottlers numbers for that
year.
LAMB: By the way, where did the name or the phrase soda pop come
from?
HAYS: Oh, it came from the very first bottles used to bottle a soft
drink. It was a bottle called the Hutchinson bottle, that had a rubber
stopper in it and a wire kind of contraption that you pulled up to put the
soda in the bottle and then pushed in when you wanted to drink the soda.
And because of the gas involved in soda, the pushing in of the stopper released this bang. And so that was known as the pop. So the soda became known as soda pop.
And because of the gas involved in soda, the pushing in of the stopper released this bang. And so that was known as the pop. So the soda became known as soda pop.
LAMB: You say that Rome, Georgia is the biggest drinking Coca-Cola
city in the United States. But then you say that Cleveland is the only
city in the United States where Pepsi beats Coke.
HAYS: Yes, it`s one of the only ones. Cleveland and Buffalo.
LAMB: What`s the reason?
HAYS: Just inroads made early on. And, you know, preferences are
very strong. People get generational sometimes about whether they drink
Coke or Pepsi.
LAMB: Another thing you discuss is how -- well, first, let me ask you
about an important law that was passed. The territorial law.
HAYS: OK.
LAMB: What year was it? What were the politics of it? And what
benefit was there to Coca-Cola and other soft drinks?
HAYS: Well, it was -- the law had been challenged by the FDC and
challenged again and again in court. And it became introduced as a piece
of legislation by a group of people, you know, with Coke and Pepsi`s
approval, because what it did -- the proposal was to undo these exclusive
franchise that we`ve been talking about, that allowed the bottlers to have,
you know, their own sort of special territory, nobody could sell, you know,
across lines. And there were people at the FDC who felt that that was
unfair restriction of trade, a monopoly and so forth.
LAMB: So only one bottler in a community or in an area.
HAYS: Right. Officially it`s called the Interbrand Competition Act.
And basically it was saying is there real competition if you have these
exclusive territories?
Ultimately, the finding was that do you have competition as long as you have other brands. So you could have a very, very powerful Coke bottler. And as long as you had some sort of Pepsi bottler, Canada Dry bottler, Dr. Pepper, you would have competition, therefore it would be all right.
But the bottlers and Coke, I think, became very fearful that the law actually might get changed. If it had, then all the value of these franchises would have gone out the window.
And so Coke lobbied hard, as did Pepsi and some other companies, to preserve the law and introduced a piece of legislation that had wonderful, strong grassroots support, because at the time you had all of these little bottlers who wrote to their legislators in congress and said you`ve got to help us. This is our livelihood.
And it was passed sort of the over the objections of Jimmy Carter, who was then the president. And he somewhat reluctantly sign it into law after a few changes to the wording.
But what it did was preserve that system. Then once it was preserved, then some of the bottlers began to sell out because the value was set for their franchises.
Ultimately, the finding was that do you have competition as long as you have other brands. So you could have a very, very powerful Coke bottler. And as long as you had some sort of Pepsi bottler, Canada Dry bottler, Dr. Pepper, you would have competition, therefore it would be all right.
But the bottlers and Coke, I think, became very fearful that the law actually might get changed. If it had, then all the value of these franchises would have gone out the window.
And so Coke lobbied hard, as did Pepsi and some other companies, to preserve the law and introduced a piece of legislation that had wonderful, strong grassroots support, because at the time you had all of these little bottlers who wrote to their legislators in congress and said you`ve got to help us. This is our livelihood.
And it was passed sort of the over the objections of Jimmy Carter, who was then the president. And he somewhat reluctantly sign it into law after a few changes to the wording.
But what it did was preserve that system. Then once it was preserved, then some of the bottlers began to sell out because the value was set for their franchises.
LAMB: Is there a political image coming out of Coca-Cola party-wise?
One party or the other?
HAYS: They`ve always kind of been both. I mean, they gave Jack
Kennedy a bottle Coke to drink and took his picture. I think right now
they`re probably Republican because that`s who`s in power. But I don`t
think they`re especially one way or the other.
LAMB: Have they ever showed much power in politics? Have they given
a lot of money over the years?
HAYS: They have PACs and things here in Washington. They have, you
know, supported things like -- they worked against things like the groups
that try to promote healthier lunch menus, for example, or ban sodas in
cafeterias. I think Patrick Leahy has run afoul of them a couple of times.
LAMB: So today, do they have exclusive franchises?
HAYS: They do, yes. You still can`t -- if you are a Coke bottler,
you can -- you don`t have to worry about competition from another Coke
bottler coming in and selling in your area.
LAMB: So they can control the price?
HAYS: They can.
LAMB: But you also talk a lot about -- one of the figures that was
interesting to me was the 120,000 convenience stores in the United States.
And then you talk about the grocery stores and the control of the shelves.
And that a lot of people`s eyes are opened when they read about this. They
don`t realize when they walk in a grocery store.
HAYS: You don`t, no. You don`t have any idea.
LAMB: Explain all of that.
HAYS: Well, it has to do with display. And Coke and Pepsi and all
the companies are always battling for display. And it`s not just about
soda. It`s about every package food sold in the store.
But in Coke`s case, it got very aggressive and Pepsi quickly followed suit, in convenience stores. They wanted to have the best aisles and the best displays and, you know, the center doors on the cooler section, and that was all because they wanted to promote Coke at the expense of other beverages. Which is fine. It`s legal.
But some of the competitors began to complain and there was a big suit filed by a group of Royal Crown distributors. And Royal Crown is always kind of the third runner-up to Coke and Pepsi in the cola wars. But there`s a market for it.
I visit with some bottlers or, you know, distributors in Texas and Louisiana and Arkansas who ran into this. And they suddenly weren`t able to sell. They were no only not able to display, but they weren`t able to even put up signs or have a refrigerator case or anything, because Coke signed these very aggressive, they`re called calendar marketing agreements. But they are the terms under which their product will be sold in a particular store or chain of stores.
And as far as I know, it`s still going on. There was an appeal of the case in Texas. The appeal upheld the original verdict which was that Coke shouldn`t do this. It was Coke and Coca-Cola Enterprises. And I don`t think it anything has really changed.
But in Coke`s case, it got very aggressive and Pepsi quickly followed suit, in convenience stores. They wanted to have the best aisles and the best displays and, you know, the center doors on the cooler section, and that was all because they wanted to promote Coke at the expense of other beverages. Which is fine. It`s legal.
But some of the competitors began to complain and there was a big suit filed by a group of Royal Crown distributors. And Royal Crown is always kind of the third runner-up to Coke and Pepsi in the cola wars. But there`s a market for it.
I visit with some bottlers or, you know, distributors in Texas and Louisiana and Arkansas who ran into this. And they suddenly weren`t able to sell. They were no only not able to display, but they weren`t able to even put up signs or have a refrigerator case or anything, because Coke signed these very aggressive, they`re called calendar marketing agreements. But they are the terms under which their product will be sold in a particular store or chain of stores.
And as far as I know, it`s still going on. There was an appeal of the case in Texas. The appeal upheld the original verdict which was that Coke shouldn`t do this. It was Coke and Coca-Cola Enterprises. And I don`t think it anything has really changed.
LAMB: Coke owns what besides Coke?
HAYS: They own stakes in many large bottlers all over the world.
Because Coke Enterprise was the prototype for what they call an anchor
bottler. And then it was duplicated in Australia and Western Europe. Sort
of Western and Middle Europe. There`s an anchor bottler in Japan. It`s
quite small but they have hopes for it. There are 11 of them altogether,
all over the world.
LAMB: You say also they own Minute Maid.
HAYS: Oh, right. They own the Minute Maid brand orange juice. They
own Dasani water. They own.
LAMB: Barq`s Root Beer.
HAYS: Barq`s Root Beer, right.
LAMB: Fruitopia? Is that theirs?
HAYS: It`s kind of died on the vine, actually. It`s going away.
They bought Odwalla and Fresh Samantha, they own that juice company now.
LAMB: Do they own anything else? I mean, like Pepsi owns, you say,
Quaker Oats?
HAYS: Yes, no, they had -- they both competed for Quaker Oats
because it had -- Quaker had Gatorade, which is the top selling sports
drink. And Pepsi prevailed in that one. And, no, Coke doesn`t own any
food companies or anything like that. Although they talk about owning
coffee, you know, distribution companies and things like that. But so far
they don`t do that.
LAMB: And what else does Pepsi own?
HAYS: Pepsi owns Quaker. Pepsi owns Frito-Lay. That`s the whole
snack food division, which accounts for most of their earnings, actually,
at this point. Then they own their Pepsi products.
LAMB: When you aren`t writing books about Coca-Cola, what do you do?
HAYS: I work for the "New York Times" and I cover business stories.
My beat is retail. But over the last few weeks I`ve been covering the
Martha Stewart trial because that falls under retail because of K-Mart.
LAMB: Where did you start all of this? Where are you from
originally?
HAYS: I was born in New York City. I lived overseas for a while and
went to college in Boston.
LAMB: Where overseas?
HAYS: In Hong Kong.
LAMB: Why?
HAYS: My dad`s job. He worked for Exxon. And we came back to the
states. I went to Harvard and worked for "The Crimson" in a sort of
occasional way. But I always knew I wanted to be a journalist, so when I
got out I applied to a whole lot of newspapers all around the country and I
got my first job at the "News & Observer" in Raleigh, North Carolina, which
is, of course, Pepsi country.
But that was a great first job. I worked for people who believed that anybody could do these stories. We`d write two and three stories a day sometimes. It was a great, exciting time.
But that was a great first job. I worked for people who believed that anybody could do these stories. We`d write two and three stories a day sometimes. It was a great, exciting time.
LAMB: And how long have you been at the "Times"?
HAYS: For 17 years.
LAMB: You dedicate the book for John and for the brave. What`s that?
HAYS: John`s my husband, who was completely integral to starting the
book and finishing the book.
LAMB: What`s he do, by the way?
HAYS: He works for Christy`s. He`s a deputy chairman at Christy`s
and he specializes in American furniture. So he shared my love of American
history and we used to talk a lot about this book late at night and he was
extremely helpful.
LAMB: How long did it take to you do it?
HAYS: The book? About three years.
The then the other part of the dedication is for the brave. I was
thinking about the last lines of the National Anthem. You know, the land
of the free. We`re all free, but we have to make a choice to be brave.
And I think the book talks a lot about people who have to do the right thing and come forward and challenge something, even something as big as Coke, that most them are afraid of, but they took it on.
And I think the book talks a lot about people who have to do the right thing and come forward and challenge something, even something as big as Coke, that most them are afraid of, but they took it on.
LAMB: And when you`re talking about challenging, who would you give
credit to challenging?
HAYS: Well, these bottlers who had Royal Crown in Texas who felt they
were being shutout of the market unfairly. They sued and won. That was a
victory for them.
And Albert Meyer who questioned the accounting of Coke and was sort of yelled at for that.
You know, there have been people throughout Coke`s history who`ve questioned the direction of the company and wanted to know is this the best strategy for us. And the one thing I keep returning to in looking at the personalities of Coke is that everybody is very passionate about it. It invites this emotion that I think most consumer package goods don`t. And I have yet to uncover the mystery and the answer to why that is.
And Albert Meyer who questioned the accounting of Coke and was sort of yelled at for that.
You know, there have been people throughout Coke`s history who`ve questioned the direction of the company and wanted to know is this the best strategy for us. And the one thing I keep returning to in looking at the personalities of Coke is that everybody is very passionate about it. It invites this emotion that I think most consumer package goods don`t. And I have yet to uncover the mystery and the answer to why that is.
LAMB: An abrupt question. Did Jesse Jackson get bought-off by Coke?
HAYS: I don`t think so. I think his agenda morphed over time as well
and he wanted to do different things with them that required different
things of them.
LAMB: But he did make money off of Coke, didn`t he, over the years?
HAYS: He received many contributions, oh, yes.
LAMB: How and under what circumstance?
HAYS: I don`t think he was necessarily in their pocket.
He received money. He led a boycott of Coke in 1981 that was embarrassing for the company and forced them to make some changes in terms of who was distributing Coke or bottling Coke.
And he later on got involved with something called the Wall Street Project, Coke was a big backer of that.
He received money. He led a boycott of Coke in 1981 that was embarrassing for the company and forced them to make some changes in terms of who was distributing Coke or bottling Coke.
And he later on got involved with something called the Wall Street Project, Coke was a big backer of that.
LAMB: What was the Wall Street Project?
HAYS: It was an effort to get more minority involvement in things
like underwriting and the sort of banking functions.
LAMB: What`s the status of race at Coke today?
HAYS: It`s hard to tell. I mean, I think there`s still some
bitterness about the lawsuit. I think there are.
LAMB: What lawsuit?
HAYS: There`s a racial discrimination lawsuit filed also in 1999
against Coke. It`s brought by four African-American current and former
employees. And they wanted to draw attention to the fact that many blacks
at Coke did not advance beyond a certain point and that they were
frequently, in their opinion, paid less than white counterparts.
And they brought forth enormous documents citing all of this that came from Coke`s own human resources database. And the evidence was pretty convincing.
And they brought forth enormous documents citing all of this that came from Coke`s own human resources database. And the evidence was pretty convincing.
LAMB: What happened in the suit?
HAYS: They settled. Coke settled for more than $170 million. And
agreed to make changes at the board level, too. Like to bring in more
minorities. And they, I think they were very embarrassed by the whole
thing, because there`s nothing worse than being called racist or, you know,
insensitive, even, for a company operating in the 21st century.
LAMB: Go back to a story you started to tell earlier, in the hangar
in Chicago. Herb Allen, who`s on the Coke board, and Warren Buffett, who
was on the Coke board, you say at one point had lost $4 billion in the
value of the stock. And Doug Ivester, who was the CEO. And they all
arrive there in their private planes. They show up in the hangar. What`s
the reason for the hanger meeting? And what year is this?
HAYS: Well, this is 1999. It`s December `99, after probably the
worst year in Coke`s history in terms of just the public issues. They had
the lawsuit. They had the Belgium recall. They had another incident in
which Ivester talked honestly. But there was a huge outcry as a result.
He talked honestly about this vending machine that they were testing that could adjust prices depending on the weather. So people went nuts. They said how dare they, you know, take advantage of our thirst.
He talked honestly about this vending machine that they were testing that could adjust prices depending on the weather. So people went nuts. They said how dare they, you know, take advantage of our thirst.
LAMB: So, like, if the temperature was 110 degrees, they would charge
a quarter more?
HAYS: Right, something like that. So there was.
LAMB: And they could do it electrically.
HAYS: Great fodder for the late night talk show hosts and things.
But I don`t think he thought of it in terms of that. I think he thought of it in terms of being more responsive to customers and things. But that`s the way it came out.
And then also, in the midst of this lawsuit, Coke`s highest ranking black executives, a man named Carl Ware, decided to step down. And that was after a reshuffle that left him reporting not to Ivester but to somebody else, who actually was Doug Daft, who eventually became the chairman.
But I don`t think he thought of it in terms of that. I think he thought of it in terms of being more responsive to customers and things. But that`s the way it came out.
And then also, in the midst of this lawsuit, Coke`s highest ranking black executives, a man named Carl Ware, decided to step down. And that was after a reshuffle that left him reporting not to Ivester but to somebody else, who actually was Doug Daft, who eventually became the chairman.
LAMB: And still is chairman
HAYS: Still the chairman, yes. And Ware came back to work after
that.
But, you know, there was a lot of stuff that looked bad. None of it was immense, but if you wanted to make a case, you could have made a case that there was maybe not a need for fresh leadership, but a need for some kind of change in attitude.
But by the time they all got to the hangar in Chicago their minds had all been made up. Ivester didn`t really know what was happening but had some suspicions, from what I could tell. And they meet, they meet for about 10 or 15 minutes and Allen and Buffett tell Ivester they`ve lost confidence in him.
And Ivester, not wanting to sort of rip the company apart, doesn`t try to keep the job. He says, OK, you know, where do we go from here, and they make plans to have an emergency board meeting that weekend and he`ll resign and he`ll take this package that Allen has apparently already worked out for him. And then he goes. I mean, he stays for a couple months after that for the transition, but then he`s gone.
But, you know, there was a lot of stuff that looked bad. None of it was immense, but if you wanted to make a case, you could have made a case that there was maybe not a need for fresh leadership, but a need for some kind of change in attitude.
But by the time they all got to the hangar in Chicago their minds had all been made up. Ivester didn`t really know what was happening but had some suspicions, from what I could tell. And they meet, they meet for about 10 or 15 minutes and Allen and Buffett tell Ivester they`ve lost confidence in him.
And Ivester, not wanting to sort of rip the company apart, doesn`t try to keep the job. He says, OK, you know, where do we go from here, and they make plans to have an emergency board meeting that weekend and he`ll resign and he`ll take this package that Allen has apparently already worked out for him. And then he goes. I mean, he stays for a couple months after that for the transition, but then he`s gone.
LAMB: And the package is how much?
HAYS: About $190 million in terms of restricted stock that he would
have had to wait to have access to until he formally retired. He was only
52 years old and the restricted stock was restructured so that he`d collect
it at age 65, but since they were getting rid of him 13 years early, they
had to pay him for that.
And he got a generous pension. His wife is taken care of for all time. He got to keep his car, things like that.
But that to me is like the earliest tragedy, because I think he was dumped in a way that was both unceremonious and possibly premature, because I don`t think things have gotten a whole lot better since he left.
And he got a generous pension. His wife is taken care of for all time. He got to keep his car, things like that.
But that to me is like the earliest tragedy, because I think he was dumped in a way that was both unceremonious and possibly premature, because I don`t think things have gotten a whole lot better since he left.
LAMB: Where is he today?
HAYS: He`s retired. He`s got an investment firm called Deer Run that
he manages himself and he bought a plantation down in southwest Georgia,
where he`s apparently very happy.
LAMB: Am I to read correctly in your book that in your opinion Don
Keogh leaked a lot of negative information about Doug Ivester to "Fortune"
magazine?
HAYS: I do think he did, yes.
LAMB: Did you ask him about it?
HAYS: I did, yes.
LAMB: What did he say?
HAYS: He didn`t deny it.
LAMB: And what did that lead to? Was there a big story at the end?
HAYS: Well, "Fortune" is very powerful. "Fortune helped create the
myth that is Goizueta. I mean, he was on the cover all the time. He and
Bill Gates and Warren Buffett and Jack Welch were sort of the, you know,
the pantheon of American business for years. And, you know, "Fortune" is
very influential, and so when "Fortune" writes a bad article about Coke, it
gets picked up and listened to.
And it`s not as if there weren`t facts around this. I mean, certainly the Belgium recall was messy and embarrassing and not good for the company. But whether or not Ivester deserved to lose his job, I mean, I don`t think I agree with that.
And it`s not as if there weren`t facts around this. I mean, certainly the Belgium recall was messy and embarrassing and not good for the company. But whether or not Ivester deserved to lose his job, I mean, I don`t think I agree with that.
LAMB: He shouldn`t have lost his job?
HAYS: No. I mean, I think if they had stuck with him, he alone kind
of understood the workings of the company as Goizueta had designed it. Now
maybe wanted to get away from that whole design. Maybe the never really
liked that, meaning Allen and Buffett. But I don`t think that`s really
true.
LAMB: In the end, is Coke the same company with local people, like I
mentioned, Dan Casey (ph), in my hometown, who are still doing things
locally for the city? And is it still the same company that it was?
HAYS: No. I mean, that connection, that wonderful sort of local guy
who everybody knows and loves, is more or less gone. I mean, they might
live in the town still, but they`re not running the plant.
I mean, in 80 percent of the country, Coca-Cola Enterprises is running things and they`re running them from Atlanta. So as hard as you might try to be a local bottler after that, it`s just not the same.
I mean, in 80 percent of the country, Coca-Cola Enterprises is running things and they`re running them from Atlanta. So as hard as you might try to be a local bottler after that, it`s just not the same.
LAMB: So what`s the big message in this book?
HAYS: Well, personally, I think that they overlooked what they were
losing in this great sort of streamlining and restructuring of the
bottling.
But I also think this is a totally American story about whether it`s better to be on your own, to have all this power and glory for yourself, or to work as part of a team.
And I do think that the company and the bottlers had this magnificent, although fractious, relationship that was a system, almost, of checks and balances, that made Coke a better brand and the whole company stronger than it is right now.
But I also think this is a totally American story about whether it`s better to be on your own, to have all this power and glory for yourself, or to work as part of a team.
And I do think that the company and the bottlers had this magnificent, although fractious, relationship that was a system, almost, of checks and balances, that made Coke a better brand and the whole company stronger than it is right now.
LAMB: Our guest has been Constance Hays of the "New York Times."
This is her book, "The Real Thing, Truth and Power at the Coca-Cola
Company."
I thank you.
I thank you.
HAYS: Thank you.
Copyright National Cable Satellite Corporation 2003. Personal, noncommercial use of this transcript is permitted. No commercial, political or other use may be made of this transcript without the express permission of National Cable Satellite Corporation.
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