The Story of Coca-Cola

The Story of Coca-Cola

God didn’t look down one day and say, “Let there be Coca-Cola.” The Creator had nothing to do with this, unless you figure He had Coke in mind when he created Dr. John Stith Pemberton. Pemberton went to Atlanta from Columbus, Georgia, in 1869 and went into the patent medicine business as soon as he was old enough to wow an audience.

The Founder

This was before we had truth in advertising and a Food and Drug Administration to watch over products that people ate or drank. So there was nothing to stop Pemberton from mixing a bunch of ingredients (the main one being alcohol) in the family bathtub, scooping the potion into bottles, and selling it as a miracle cure, which is what patent medicine was all about.

Pemberton’s product line included Indian Queen Hair Dye, Gingerine, Triplex Liver Pills, and an exotic concoction made of sugar, water, extract of coca leaf, kola nut, and caffeine. The label said it was a “brain tonic and a cure for all nervous afflictions,” and in his sales pitches, Pemberton claimed it could cure headaches, hysteria, and melancholy, and put the customer in a very fine mood. This was the original Coca-Cola.

The Establishment of Coca-Cola Company

Pemberton spent $73.96 on advertising in the first year, but he sold only fifty dollars’ worth of Coke syrup, so consumers weren’t exactly buying his story. Five years later, they still weren’t buying it, and Pemberton was tired of trying to convince them. So he sold the recipe, the equipment, the coca leaves, and the kola nuts to an Atlanta druggist, Asa Candler. Candler paid twenty-three hundred dollars for the whole shebang.

Candler was a religious man who preferred telling the truth to stretching it the way Pemberton had. He took the coca leaves out of the recipe, so by 1905, Coca-Cola was entirely cocaine-free. It’s a good thing he did, because otherwise people could have gone to jail for sipping Coke after cocaine became illegal in 1914. The revamped Coke recipe is the best-kept secret of the century, still guarded in the vaults of the Trust Company of Georgia.

He also changed the label, leaving out the part about Coke being a “brain tonic,” a “cure for nervous afflictions,” and other dubious claims. In 1916, he invented the curvy bottle that most of the world’s population can identify right away as a Coke.

In Candler’s factory, the kola nuts, sugar, water, caffeine—plus a few secret ingredients of his own—were boiled in giant kettles and stirred with giant wooden paddles until they thickened into a syrup. The syrup was sent out to drugstores, where druggists added soda water for the fizz and served Cokes to people sitting at the counters. Drinking Coke got so popular that druggists had to hire helpers, called “soda jerks,” to pour the syrup and apply the fizz. That’s how thousands of teenagers across the country got their spending money—working after school pouring Cokes.

The Success Story of Coca-Cola Company

In 1916, Congress slapped a new tax on businesses, and Candler was furious. To avoid paying higher taxes on his Coke profits, he sold the company for $25 million to an Atlanta banker, Ernest Woodruff. His son, Robert Woodruff, became Coca-Cola’s president.

Soon after they bought the company, the Woodruffs went public with it. In 1919, they sold 1 million shares for forty dollars apiece. This was a stock a lot of people wished they didn’t own, especially after the cost of syrup went through the roof. Angry bottlers protested the price hikes and threatened to cancel their contracts with the company. Lawsuits were filed. Coke’s sales went down, and the company wobbled on the edge of bankruptcy.

Thanks to Robert Woodruff’s serious cost-cutting, Coke managed to survive long enough to reach the Great Depression. This was a terrible time for most companies, but a good time for Coke. Even though people had very little money to spend, and went without new shoes, new clothes, and so on, they kept buying Cokes.
Here’s a useful piece of advice for investors: Act like a bloodhound and ignore everything except the evidence that shows up in front of your nose. The economy in the 1930s couldn’t have been worse, but since Coke was very profitable, the stock price rose from $20 in 1932 to $160 in 1937. Imagine making eight times your money when everyone around you was predicting the end of the world.

Robert Woodruff ran Coke for thirty years, dodging reporters, trying to keep his name out of the papers. He had several houses and at least one big ranch, but other than that, he spent modestly for a multimillionaire. Apparently, he never read books and rarely listened to music or looked at a painting, unless it had a duck or a deer in it. He gave parties, but only because he had to.

Just as Coke had benefited from one calamity, the Great Depression, it benefited from another calamity, World War II. People around the world saw the GIs drinking Coke, and they decided to imitate their heroes by doing the same. The GIs were the most effective unpaid sponsors in the history of commercial advertising.

It was after the war that Coke became the first truly multinational company. Coke’s snazzy red billboards were seen on walls and buildings on six continents—sometimes, they were used to cover holes in the buildings. Coke became a symbol of the American way of life, which is why the communists in Russia hated it. (In the 1970s, the Russian leaders signed a contract with Pepsi!) Our missiles were aimed at the Russians, and their missiles were aimed at us, and they worried about the fallout from a soft drink. Even in France, the Communist party tried to ban Coke.

To get the full benefit from owning Coke stock, you had to be patient for two decades, until 1958, when the price took another flying leap. Five thousand dollars’ worth of Coke shares in 1958 was worth nearly $100,000 by 1972. There aren’t many chances in life to turn $5,000 into $100,000 in fourteen years, unless you win the lottery or do something illegal.

In the crash of 1972, Coke suffered along with all the other stocks, dropping a quick 63 percent and not gaining it back for three years, until 1985. But once again, patience was rewarded when the stock price took another flying leap and Coke turned $5,000 into $50,000 from 1984 to 1994.

In a fight between communism and Coca-Cola, Coke won hands down, because while the communists have gone out of business, Coke is still going strong. As it turns out, its biggest threat didn’t come from the Russians. It came from Pepsi.

To think that Coke could have bought Pepsi for next to nothing in the 1930s, when Pepsi wobbled on the edge of bankruptcy. But it didn’t happen, and Pepsi came back to haunt Coke fifty years later. In 1984, Pepsi was outselling Coke in the U.S. market, and the brains at Coke headquarters were forced to launch a counterattack. In the heat of battle, they invented diet Coke, which changed the soft-drink industry and took millions of excess pounds off the waistlines of the human race. Without the pressure of Pepsi’s competition, Coke might never have thought of diet Coke.

The Woodruff era ended in the mid-1950s, when Robert Woodruff went into retirement, when he passed the time giving away his money. He donated hundreds of millions to medicine, the arts, and Emory University, and he gave the land on which the Center for Disease Control and Prevention was built in Atlanta. He opened his wallet to the Atlanta Art Center Alliance, even though he never liked going to museums and symphonies. Many of his gifts were anonymous, but people figured out Woodruff was responsible—who else in Atlanta was that rich and that bighearted? They started calling him “Mr. Anonymous.”

Roberto Goizueta took over the reins at Coke in 1981, and serves as chairman to this day. He and Don Keough, Coke’s former president, made a fabulous team. They have pushed international sales to the point that people in 195 countries are drinking Cokes the way they once drank water. Given the sorry condition of the world’s water supply, they may be better off drinking Cokes than drinking water.

Goizueta is a story in himself. He comes from a wealthy farming family in Cuba that lost its property in the Castro revolution. He worked for Coke in Cuba, then transferred to a Coke office in the Bahamas after Castro took power. From there, he moved to Coke headquarters in Atlanta, where he worked his way up the corporate ladder.

There’s no end in sight for Coke’s popularity worldwide, but it’s taken Wall Street a long time to catch on to this. Some “experts” haven’t caught on yet.

Source: Learn to Earn by Peter Lynch & John Rothchild

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