The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [407]
A giant cola bottler, CCE had been smashed together out of smaller bottlers that were Coca-Cola’s customers. They bought the syrup concentrate that Coke made, mixed it with fizzy water, and sold it, acting as middlemen, so their relationship with Coke was critical. Neither could live without the other.
Don Keough, Buffett’s old Omaha friend, was now president of Coca-Cola. His boss, the CEO of Coca-Cola, the aristocratic Cuban-born Roberto Goizueta, was revered in the business world for creating the world’s best-known brand through slogans like “Coke Is It” and “I’d like to buy the world a Coke.” Buffett felt that Coca-Cola had by now become a self-sustaining enterprise—and he admired Goizueta for having gotten it to this stage.
In 1997, Gates joined Buffett and Goizueta on a panel discussion at Sun Valley that was moderated by Keough.
“I used to talk to Bill all the time, and I’d always use this expression that a ham sandwich could run Coca-Cola. And Bill wasn’t quite housebroken then. So we were sitting on this panel, up in front of the audience, and Bill said something to the effect that it’s pretty easy to run Coke.”
“I was trying to make a point about how Coke is such a wonderful business,” says Gates, “and I said something about how I’m going to step down from Microsoft before I’m sixty because it’s a tough business and a young person may need to be in there to handle turns in the road. But it came across that I thought of Microsoft as exciting and I must have said something like, ‘Unlike Coca-Cola…’
“Goizueta thought I was an uppity, arrogant kid who was painting some kind of picture that I was engaged in some masterful act on a daily basis whereas anybody could leave at noon and go golfing if they ran Coca-Cola.”6
“And Roberto hated Bill from that point forward.”
Buffett avoided technology stocks partly because these fast-moving businesses could never be run by a ham sandwich. He thought it no shame to have a business that could be run by a ham sandwich; he wanted to get Berkshire Hathaway to the point that it could be run by a ham sandwich too—though not until after he was gone.
But by 1997, Coca-Cola had started to set goals for itself that were so ambitious that it took—not a ham sandwich, not even Goizueta—but a lot of financial engineering to achieve them.
Coke owned forty percent of CCE and tended to act as though it owned a hundred percent. The creation of CCE by rolling up a group of bottlers had been part of a larger strategy of buying and selling bottlers in order to time the profits and boost Coca-Cola’s earnings. This was neither illegal nor technically deceitful, but it was nonetheless an illusion, and Warren, who was on the board of Coke, was always aware of the potential for misrepresentation.
“Roberto did a lot of things operationally that were terrific, and I loved the guy. But Roberto got tangled up in promising numbers that eventually couldn’t be delivered. He talked about high-teens growth, eighteen percent. Big companies are not going to increase their earnings in the high teens over long periods of time. For a while you can do it, but it just isn’t in the cards to keep it up forever.
“I remember when he came in and talked to us about how he was going to add a third leg to earnings, which was profits made on buying and selling bottlers. He tried to sell the finance committee that this was the way of the future.
“The prices they paid for bottling companies were just nuts. I asked the chief financial officer all these questions. But Roberto started the board meetings at ten o’clock and finished at noon; the