The Coke Machine - Michael Blanding [44]
One thing, however, is for sure—for Coke, the obesity crisis could not have come at a worse time. Faced with an increasingly saturated market, the company failed for the first time in years to meet earnings expectations in 1998. Ivester, meanwhile, went through a series of missteps—first a contamination scare in Belgium, in which the company seemed to drag its feet and not respond fast enough when some two hundred people, many of them children, got sick. Then came news that Ivester was considering a new type of vending machine overseas that would change its prices depending on the temperature outside—a cynical form of price-gouging even for Coke.
The coup de grâce, however, came when a certified public accountant in Indiana named Albert Meyer took a closer look at Coke’s books one day, setting in motion a chain of events that would bring down all of Goizueta and Ivester’s financial machinations. Meyer determined that through Coke’s majority ownership in its bottlers it was able to exercise near complete control over their financials, ensuring the parent company would always make a profit. If Coke reported its bottlers’ profit alongside its own, Meyer concluded, it would show nearly none at all. “One cannot transact with oneself,” he told the Philadelphia Daily News. “If you are labeled America’s most admired company, you should have accounting policies that live up to the name.” Another analyst later called Coke’s shenanigans simply “smoke and mirrors.”
As Coke’s sales stagnated, the bottlers began to balk. Ivester raised syrup prices, and they further dug in their heels, enlisting two of Coke’s largest shareholders in their cause. In a private meeting in December 1999, they told Ivester he was through. If they hoped to rescue the stock price with the ouster, however, they failed. Coke’s share price continued to fall, leading the company to lay off a third of its ten thousand U.S. workers, along with a similar amount overseas. Most of the lost jobs were outsourced to contract workers or private companies, even as longtime workers lamented the end of Coke’s image as a benevolent employer. Meanwhile, new CEO Douglas Daft, who replaced Ivester, downgraded volume targets to 5 to 6 percent for the year 2000—and still missed them. When Daft tried to orchestrate a purchase of Quaker, maker of Gatorade, he was voted down by the board.
All of this bad news, however, was just a prelude to Coke’s biggest crisis, when the anti-obesity activists opened up a new front in the fight against soda—one that took aim directly at the core of Coke’s strategy to increase sales among its most valuable set of consumers—schoolchildren.
FOUR
The Battle for Schools
The first time Jackie Domac heardof her school’s soda contract, it was an early fall day at the beginning of the school year in 1999. The high school health teacher was having lunch with students in her classroom in Venice, California, when one of them pulled out a can of 100 percent juice she’d brought from home. “Do you think we could have this in the vending machines?” she asked. Domac hadn’t been aware that the school didn’t have juice for sale, but she figured it would be an easy fix. After lunch, she dropped a quick note in the financial manager’s mailbox. The reply she received in her own box was short: “No. Selling juice would conflict with our exclusive soda contract.” Domac was taken aback. “I said soda contract, what’s a soda contract?” she recalls now from her home in Southern California, where she has been studying to be a lawyer.
She asked the school office for a copy of the contract, and after some initial denials was given one. Sure enough, the deal the school had signed with the Coca-Cola Company prohibited it from selling juice. In fact, the school wasn’t allowed to sell anything that hadn’t been approved by Coke, which had inked a deal to sell its drinks, and only its drinks, in the vending machines. For the privilege, Coke gave the school $3,000 a year—about $1 per student.
“I was pretty much horrified,” says Domac. “As a health teacher,