Coca-Cola

Last edited by Phil Mattera on January 24, 2011 - 2:12pm

Profile editor:

Phil Mattera

Company Snapshot:

Coca-Cola is one of the best known product names in the world, and the Coca-Cola Company has long been the leader of the international soft drink industry. Once preoccupied with its perennial market-share battle with PepsiCo, the company has had to cope with declining consumption of carbonated beverages, prompting it to branch out into juices, sports drinks and bottled water. While it has long cultivated a benign image, Coca-Cola has also been confronted with international pressure campaigns on issues ranging from labor practices in Colombia to water use in India.

Ownership status:

Publicly traded

Number of employees worldwide:

92,000

Chief executive officer:

Muhtar Kent

Website:

http://www.cocacola.com

Global Fortune 500 rank:

259

Tel:

404-676-2121

Net Income:

$5.8 billion

Total revenue:

$31.9 billion

Corporate accountability

Accountability overview:

Beginning around 1999, Coca-Cola became the focus of a series of controversies about its practices both at home and abroad. In the United States, the company faced charges of racial discrimination, accusations that its marketing efforts contributed to the national obesity problem and criticism over the environmental impact of its move into the bottled water business. Overseas, it has been linked to the brutal repression of trade unionists in Colombia and the depletion of drinking water in parts of India.

Labor:

As an aggressive multinational, Coca-Cola has faced labor disputes in many countries. One of the most turbulent took place in Central America in the 1970s when workers at the Coca-Cola bottling operation in Guatemala organized a union. This fledgling organization experienced attacks, resulting in the deaths of more than a dozen people, from right-wing death squads. The International Union of Food & Allied Workers Associations mobilized an international campaign that prompted the Coca-Cola Company to put pressure on its Guatemala franchisee to see to it that the union's rights were recognized. Despite the signs of improvement in the situation, the company decided to close the plant in early 1984. After the destitute workers occupied the facility for more than a year, Coca-Cola arranged to keep the operation going under the control of a new set of investors.

After announcing in 1986 that it was leaving South Africa, the company arranged to sell its bottling plant to black entrepreneurs and move its syrup plant to neighboring Swaziland. But the move angered the divestment movement, which felt that the company would continue to profit from sales of its beverages in the apartheid society. There was also unrest among Coca-Cola's South African workers, who went on strike in 1988—while the change of ownership was still in progress—to protest subcontracting of union work.

For many years Coca-Cola faced criticism in connection with the low wages and poor conditions for migrant workers employed at its Minute Maid subsidiary. Conditions improved somewhat after Minute Maid signed a contract with the United Farm Workers in 1972. Coca-Cola sold off its Florida citrus groves in 1994, ending its contractual relationship with the UFW.

Many, but not all, of the hourly workers at Coca-Cola’s U.S. bottlers are unionized. In the 1990s its largest bottler, 35-percent owned Coca-Cola Enterprises (CCE), was embroiled in a controversy over allegations that two of its managers bribed a worker to spy on colleagues to help kill a union organizing among CCE drivers and plant workers in Atlanta (Wall Street Journal, 10/6/1995). The managers were hit with federal bribery charges, but they were acquitted in 1997.

During the 2000s, relations between CCE and its main union, the Teamsters, grew more contentious. Teamster members staged walkouts at CCE facilities in New Jersey in 2003 and in California and Connecticut in 2005. In 2007 the union carried out a national pressure campaign to protest what called “anti-worker tactics” used in the course of restructuring CCE.

In 1999 a group of African-American employees at Coca-Cola filed a class-action race discrimination lawsuit against the company. The suit charged that black employees, including supervisory and managerial personnel, were often paid less than whites in comparable positions and that blacks had fewer opportunities for advancement.

Coca-Cola initially disputed the charges but later entered into settlement talks. In April 2000 the plaintiffs stepped up the pressure on the company by calling for a boycott of its products. In November 2000 Coca-Cola settled the litigation by agreeing to spend a total of $192 million in payments to plaintiffs, adjustments to the pay of black employees and diversity initiatives.

In 2002 Coca-Cola agreed to pay out some $8.1 million to current and former female employees in North America to settle charges of sexual discrimination brought by the U.S. Labor Department’s Office of Federal Contract Compliance Programs.

See also the discussion of Colombia in the section on Human Rights

Environment and product safety:

Coca-Cola's biggest environmental issue has been its use of water, both in the bottling of its traditional beverages and in the sale of bottled water itself, mainly its Dasani brand.

When Coca-Cola introduced Dasani in 1999 environmental groups such as the Natural Resources Defense Council were already raising questions about the growing bottled water industry. As the industry grew, so did the controversy. The criticism focused on the environmental impact of producing and disposing of the plastic bottles. Groups such as Corporate Accountability International, which in 2006 launched its Think Outside the Bottle Campaign, also accused companies such as Coca-Cola of promoting the privatization of municipal water systems and of threatening public water access in places such as India.

The controversy in India had begun several years earlier, when local activists accused Coca-Cola (which returned to the country in the late 1990s after a two-decade absence stemming from a dispute with the government over domestic ownership) of depleting water supplies. In 2003 a New Delhi environmental group issued a report alleging that Coca-Cola and PepsiCo products being sold in India contained high levels of pesticide residue. This prompted widespread protests in the country. Later that year an Indian court ordered Coca-Cola to stop using local groundwater for its Plachimada bottling plant.

Meanwhile, Coca-Cola suffered a significant setback during its European introduction of Dasani in 2004. The company was forced to recall some 500,000 bottles from the British market after authorities there found excessive levels of bromate, a by-product of the process used to purify the tap water it was using. The uproar prompted the company to postpone Dasani’s launch in the rest of Europe.

Back in India, opponents of the company continued their effort to keep the Plachimada plant closed while also challenging Coca-Cola’s other operations in the country. Their struggle was attracting growing support from activists around the world—a campaign that a 2005 front-page article in the Wall Street Journal (June 7, 2005) said was costing the company “millions of dollars in lost sales and legal fees in India, and growing damage to its reputation elsewhere.”

Colca-Cola took some solace in the results of a company-commissioned study by an Indian research group called TERI that found no basis for the allegations about pesticide contamination, yet the report also raised questions about the siting of bottling plants in “water stressed” locations. The campaign against Coca-Cola continues to be waged by groups such as the India Resource Center, which calls the struggle an issue of climate justice.

At the same time, Corporate Accountability International is keeping up the pressure on Coca-Cola in other countries by demanding that the company label Dasani as deriving from tap water.

Human rights:

Coca-Cola has been targeted in legal actions and pressure campaigns stemming from allegations that two of its bottlers in Colombia conspired with paramilitary groups to intimidate and assassinate trade unionists. In 2001 the International Labor Rights Fund and the United Steelworkers of America filed suit in federal court in Miami on behalf of Sinaltrainal, the union representing workers at the bottling companies, as well as several workers who said they had been tortured and the estate of a union leader slain in 1996. In addition, due to their overall control of the Colombian bottling operations, the suit named the Coca-Cola Company and its subsidiary, Coca-Cola Colombia, as defendants under the Alien Tort Claims Act.

The district court dismissed the case against Coca-Cola and its subsidiary in 2003, but supporters of the plaintiffs launched a campaign that continued to pressure the parent company to address the conditions of the workers in Colombia. The Stop Killer Coke Campaign, led by veteran labor campaigner Ray Rogers, has targeted Coca-Cola’s relationship with SunTrust Bank and promoted a boycott of the soft drink company, focusing on its campus contracts. The campaign claims credit for getting numerous colleges and universities to suspend their business with Coca-Cola.

Anti-competitive and consumer protection:

In 2003 a Coca-Cola employee named Matthew Whitley went public with an accusation that the company engaged in fraudulent marketing and accounting practices, including the charge that it rigged the results of a marketing test for Frozen Coke sold at Burger King outlets. In August 2003 Coca-Cola agreed to pay up to $21 million in compensation to Burger King operators, and in October 2003 Coca-Cola reached a $540,000 settlement of a lawsuit filed by Whitley.

Other Marketing Controversies

Coca-Cola has long been criticized for its marketing efforts aimed at children, including efforts in schools, where it negotiated contracts to place soda machines in hallways and cafeterias.

Responding to that criticism, the company announced in 2001 that it would scale back (but not eliminate) its educational marketing in the United States. That did not end the controversy. Facing a growing threat of lawsuits and legislation, Coca-Cola, PepsiCo and Cadbury Schweppes agreed in 2006 to start removing sweetened drinks from school cafeterias and vending machines.

The debate extends beyond the schools. Nutrition watchdog groups such as the Center for Science in the Public Interest (CSPI) have long criticized Coca-Cola and other soft drinks for contributing to the general rise in obesity in the United States and causing other health problems. In 2005 CSPI published a report that denounced these drinks as “liquid candy” and called for taxing them, with the revenues earmarked for health and fitness programs.

The tax idea caught on, and by 2009 it was being promoted at a national level by some members of Congress and the Obama Administration as a way of helping to pay for healthcare reform. This prompted the soft drink industry to mount a counterattack under the banner of Americans Against Food Taxes.

History

The origins of the U.S. soft drink business can be found in the tonics and elixirs that drug stores used to prepare for customers as cures for a variety of ailments. In the 1880s John Styth Pemberton, an Atlanta druggist, invented one of the more popular solutions by mixing together coca leaves and the kola nut. Asa Griggs Candler bought the right to market Pemberton's invention in syrup form and sold it to soda fountains around the country and abroad.

Not particularly interested in direct sales to customers, Candler sold the right to do this to a group of Tennessee businessmen in 1899 for only $1. In 1919, ownership of the Coca-Cola Company was acquired by Ernest Woodruff, a Georgia financier. Four years later, Woodruff's son Robert took over the company. He remained chief executive until 1955. Even after his retirement, he continued to exert his influence over the company until his death in 1985.

Coca-Cola was one of the earliest companies to grasp the importance of image advertising. The company went to great lengths to project its product as a leading symbol of American life. Not surprisingly, the company rejected the nickname Coke for many years because of the association with cocaine. There had been a small trace of the drug in the original Coca-Cola formula but this was eliminated in 1903.

After the bombing of Pearl Harbor in 1942, Woodruff announced his intention to make Coca-Cola available to everyone in the military. General Eisenhower, who was keen on Coca-Cola himself, made it possible for the company to open dozens of bottling plants around the world, often right behind the frontline troops.

The refreshing beverage in the small green bottle dominated the soft drink market through the 1940s. Yet its determined competitor, Pepsi-Cola, was slowly gaining ground. In the 1950s, Pepsi got a boost from an advertising campaign that presented it as the preferred drink of the young “sociables.” Later in that decade, Pepsi scored a coup when Russian Premier Nikita Khrushchev was photographed drinking Pepsi at an exposition of American products in Moscow. Pepsi later was the first western soft drink company to enter the Soviet market. (In the late 1970s Coke used its contacts with the Carter Administration to break into the Chinese market.)

Until the 1960s, Coke and Pepsi had only one soft drink brand apiece. A much smaller competitor, Royal Crown, then paved the way to a giant new market by bringing out the first major sugar-free soft drink. In 1963, Coca-Cola brought out Tab. Pepsi-Cola soon followed with its own low-calorie brands. The Big Two also launched assaults on the market of their much smaller competitor, the Seven-Up Co., by pushing their own lemon-lime drinks: Coke's Sprite and Pepsi's Mountain Dew.

Efforts to market additional products escalated in the early 1980s. At that time, Seven-Up challenged its competitors by raising the issue of caffeine. Coca-Cola and Pepsi took little notice of the caffeine controversy when it started. However, Pepsi soon got scared and decided to introduce Pepsi Free. Coca-Cola, which had just introduced the sugar-free Diet Coke, decided to bring out caffeine-free versions of Tab, Coke and Diet Coke. These six cola varieties were joined by Cherry Coke in 1985.

Addressing the caffeine challenge did not give Coke much relief. Around this time, Pepsi launched the most serious challenge ever in the intense competition for supermarket shelf space. Much of this battle centered around the issue of taste rather than on the traditional price basis, with Pepsi introducing a series of taste-test ads which proved to be a success. By the 1980s this “Pepsi Challenge” was paying off as Coke's market share slipped. The corporate share for the Coca-Cola Company was bolstered by the tremendous success of Diet Coke, but when regular Coke's share plunged several percentage points from 1983 to 1984, the company began to run scared.

In response to all this, Coca-Cola management took the most radical step in the history of the company. In April 1985 chief executive Roberto Goizueta announced that Coca-Cola was in the process of making the first major change in the formula of Coke in the 99-year life of the product. The new product was to have a smoother, sweeter taste; some people claimed that the taste of the new Coke was quite similar to that of Pepsi.

The company worked hard in an attempt to make the new Coke a success. Though it spent nearly four years evaluating the change in its formula, once the new Coke was introduced it soon became clear that consumer loyalty to the old taste was much stronger than the company had realized. The majority of consumers not only expressed their dislike of the new Coke, they began organizing to get the company to return to the traditional taste. Organizations such as Old Coke Drinkers of America were formed and began talking of filing lawsuits against the switch.

It took very little time, only three months to be exact, before Goizueta in effect admitted defeat. He announced that the company would return to selling the old Coke, which would be called Coca-Cola Classic, alongside the new Coke. The company now had eight permutations of its syrup. The new Coke was to remain the company's flagship brand, yet results began to come in showing that the Classic version was selling better in many parts of the country.

If the Big Two had been allowed to move ahead with acquisitions announced in 1986, the market strength of Coca-Cola and Pepsi would have gotten much greater. PepsiCo was planning to purchase Seven-Up for $380 million, and Coca-Cola was ready to pay $470 million for Dr Pepper. However, the federal government stopped these mergers for antitrust reasons. Instead, the domestic business of Seven-Up was purchased in a leveraged buyout by Hicks & Haas of Dallas, which had already been purchased Dr Pepper in the same manner. Coca-Cola succeeded in closing the deal in which it acquired two of its largest independent bottlers for a combined price of more than $2 billion. In addition, it turned around and sold 51 percent of the bottling operation to the public through a stock offering.

Competition in the cola sector continued to intensify. Coca-Cola and PepsiCo engaged in frequent price cutting and ran hard-hitting ad campaigns in the quest for market share. The results were mixed: Coca-Cola's share of the overall soft-drink market expanded, yet PepsiCo's share of retail store sales continued to climb. In 1990 PepsiCo suffered a blow when Burger King announced it was switching to Coke products. At the same time, Coca-Cola was seeking to salvage the new Coke it introduced in 1985 by relaunching it as Coke II.

Coca-Cola also sought to strengthen its competitive position by diversifying. This strategy began in 1960 with the purchase of Minute Maid, the pioneer in the frozen orange juice field. The company bought Taylor Wines in 1977 and developed a sizable presence in the wine business. But the operation did not meet the company's profitability standards, and the business was sold to Seagram in 1983.

In 1982 the company went Hollywood by purchasing Columbia Pictures for $750 million. Goizueta believed that Coca-Cola's marketing skills would apply to films, and he followed the Columbia purchase by entering into a joint venture to form Tri-Star Pictures, the first new major studio in decades. Yet the vagaries of the movie business didn't suit the cola-makers of Atlanta, so in 1989 Coca-Cola sold Columbia and Tri-Star (which had merged) to Sony Corp. for $3.4 billion.

In a departure from its usual solo efforts abroad, Coca-Cola in 1991 formed a joint venture with Nestlé to market ready-to-drink coffee, tea, and chocolate beverages on a worldwide basis (except for Japan). In 1992 Coca-Cola acknowledged the growing popularity of non-cola drinks by introducing a fruit-flavored sparkling water called Nordic Mist and a sports drink called PowerAde meant to compete with the popular Gatorade. In 1994 it brought out a line of fruit-flavored drinks under the name Fruitopia.

In 1997 Coca-Cola agreed to purchase the French soft drink Orangina, but the deal was blocked by French authorities. Coca-Cola then sought to purchase the non-U.S. soft drink operations of Cadbury Schweppes, but that too ran into resistance from antitrust regulators, forcing Coca-Cola to sharply reduce the scope of the deal.

While diversifying its product line at home, Coca-Cola was aggressively promoting its flagship brand in new foreign markets, especially the former Soviet bloc and Asian countries such as China, Indonesia and India. It had abandoned the latter country in 1977 after the government ordered it to reduce its stake in its local subsidiary and to turn over its secret formula.

By the late 1990s, consumers were abandoning cola drinks in larger and larger numbers. Along with fruit drinks, juices and bottled tea, there was growing demand for bottled water. After PepsiCo had success with its Aquafina brand, Coca-Cola followed suit in 1999 with the introduction of Dasani purified tap water.

In 2000 Coca-Cola’s top executives took steps to acquire Quaker Oats Co. (including Gatorade) but they failed to get approval from their own board of directors. This incident was only one of many management missteps that characterized the period following the death of Goizueta in 1997. A series of CEO successors had difficulty overcoming friction with the company’s bottlers, lackluster marketing, poor innovation, allegations of financial irregularities and other woes.

During the 2000s the company experienced more slippage in market share for its core products while continuing its diversification moves through purchases such as juice, tea and water companies Mad River, Odwalla, Glaceau Vitaminwater and Apollinaris. However, Coca-Cola was rebuffed by the Chinese government in 2009 when it sought to acquire China Huiyuan Juice Group.

Financial information

Stock ticker symbol:

KO (New York Stock Exchange)

Fiscal year:

2008

Fiscal year:

2008

Major lines of business/segments:

The Coca-Cola Company is one of the world’s leading producers of nonalcoholic beverages. Its products are sold in more than 200 countries. Its original business was making and distributing concentrates and syrups used in carbonated beverages such as Coca-Cola, Diet Coke (known in some countries as Coca-Cola Light), Cherry Coke, Coca-Cola Zero, Fanta, Sprite, Mello Yello, Tab, Fresca and Barq’s. It then moved into the business of juices and juice drinks sold under the Minute Maid name and later brands such as Odwalla; sports drinks such as Powerade; bottled water under the Dasani name; and “enhanced” water brands such as Glaceau Vitaminwater. In some countries the company also sells coffee, tea and milk drinks.

In the carbonated beverage business, the company sells concentrates and syrups to authorized bottling and canning companies, known collectively as the “Coca-Cola system.” The largest of the bottling companies is Coca-Cola Enterprises (35 percent owned by the Coca-Cola Company).

In 2008 the Coca-Cola Company derived 26 percent of its revenues from North America, 11 percent from Latin America, 15 percent from Europe, 7 percent from Eurasia and Africa, and 14 percent from the Pacific region. The remaining 27 percent came from its investments in bottling operations.

Coca-Cola

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