The Coke Machine - Michael Blanding [36]
Douglas Ivester was, if anything, more relentless about Coke’s need to grow. Joining Coke as an accountant in 1979, he constantly had an eye on the bottom line. “From his earliest moments at the company, he saw Coke’s business as a numbers game—one he could win,” writes New York Times business reporter Constance Hays in her book The Real Thing: Truth and Power at the Coca-Cola Company. As Hays describes, it was Ivester who pushed through the greatest revolution in Coke’s structure, ensuring unlimited growth in its stock, at the same time finally getting the bottlers under control.
Starting in the early 1980s, the company began buying up any bottlers that were for sale, spinning them off into a new company called Coca-Cola Enterprises. The Coca-Cola Company made sure to own 49 percent of outstanding shares of the new company, giving it control without any of the risk or liability. No longer bound by Thomas and Whitehead’s original contract, Ivester and company forced the new bottling company to accept a new contract that allowed the price of syrup to fluctuate at whim.
Over the next decade, the Coca-Cola Company replicated the Coca-Cola Enterprises model with bottlers in other countries as well—creating less than a dozen “anchor bottlers” all over the world, including the San Miguel Group in the Philippines, T.C.C. Beverages Ltd. in Canada, Panamerican Beverages (later Coca-Cola FEMSA) in Latin America, and Coca-Cola Amatil in Australia. Meanwhile, the tremendous debt accumulated from buying these bottlers was rolled right off Coke’s books, onto the balance sheets of the bottlers.
The new arrangement, called by Ivester “the 49 percent solution,” was enthusiastically embraced by Goizueta, who called it “a new era in American capitalism.” When the dust had cleared, however, it looked more like a scheme from the parent company to cook its books. By owning a controlling interest in its bottlers, Coke could ensure that it hit its earning targets throughout the ’80s and early ’90s. Whenever the company didn’t grow in sales, it could still force bottlers to buy syrup, ensuring profits for the parent company; how they sold that syrup was the bottlers’ problem.
Not that parent Coke was about to let its bottlers go under, of course. If it appeared that a bottler wasn’t going to make ends meet, the company would give rebates at the end of the year in the form of “marketing support” so they made just enough profit. Even as the anchor bottlers were under constant pressure to sell as many soft drinks as they could to eke out a minimum profit, they were also free to take on enormous amounts of debt—at one point, Coca-Cola Enterprises’ debt was half its annual revenues—since lenders rightly assumed that the parent company would never let its franchises fail.
The system worked beautifully through the late ’80s and early ’90s to drive stock price and soft drinks sales. When Goizueta suddenly died, it was only natural that Ivester should take control. Where Goizueta was charming inside and outside the company, however, Ivester had a reputation for being a cold numbers-cruncher—an “iceman” in the eyes of fellow employees. Employees were all but forbidden to talk about their work outside of Coke headquarters, and some even suspected their phones were tapped.
But Ivester was ambitious. Where Woodruff saw putting Coke “within an arm’s reach of desire,” Ivester waxed on about a “360-degree landscape of Coke,” the red-and-white swoosh in every direction a customer looked. “What I always wonder is, Why not?” he said in a speech to the National Soft Drink Association. “Why can’t we keep this up? Just look around! The world has more people, in more countries, with more access to communication and more desire for a higher standard of living and quality products than ever before.” In his mind, Ivester lumped a higher “standard of living” with consuming more sweet sugary Coke, the ultimate international status symbol—shades of Candler putting Coke bottles into the hands of the fashionable set in turn-of-the-century ads.