Fiddling with the Real Thing

It was a bit like putting a miniskirt on the refurbished Statue of Liberty. Or painting the White House red. Or scribbling graffiti on a Norman Rockwell. If there has been any unchanging reality in the America of the past century--or indeed in a good part of the known world--it has been the presence and the unique taste of Coca-Cola. But last week executives of the Atlanta-based company announced that, as they see it, change goes better with Coke. Starting in May, they will introduce a new, slightly sweeter and smoother Coke that will totally supplant the old Coke and enter the lists against archrival Pepsi-Cola in the raging battle for dominance of the $23 billion U.S. soft- drink market. Roberto Goizueta, 53, chairman of Coca-Cola (1984 sales: $7.4 billion), said that the old Coke formula, with its secret flavoring ingredient, called Merchandise 7X, will stay locked in a Trust Co. of Georgia bank vault in Atlanta, never to be used again. Next to it, though, will be the new formula, with a new supersecret ingredient, called Merchandise 7X-100. This is the first flavor change in 99 years for the world's biggest-selling soda, and Coke called it "the most significant soft-drink development in the company's history."

Thirsty Americans will get their first taste of the new Coke, packed in white- and-red cans bearing the word NEW on a silver strip, this month. Within five weeks the drink should be available almost everywhere in the U.S. and Canada. The debut will be accompanied by a huge advertising campaign reviving the I'd Like to Buy the World a Coke theme song that was wildly popular in the early 1970s. In one of the first commercials, Comedian Bill Cosby, dressed as an archaeologist and surrounded by relics, quips, "If you're a Pepsi drinker, well, maybe that'll be history too."

Already, though, some diehard Coke drinkers are fretful. "I wonder if they're not going to ruin a good thing," said Joan Kelly, 37, a real estate agent who keeps a regular supply of 24 cases of Coke stashed in the basement of her home in Oak Park, near Chicago. "I love Coke. We all do. My husband. My kids." Said Christine Dale, a student at the University of Chicago graduate school of business: "I think this is definitely a step in the wrong direction." But other early tasters liked the new Coke (see box). Said Emanuel Goldman, beverage analyst for San Francisco's Montgomery Securities: "It's more guzzleable. My guess is that Coke will end up selling more."

The taste change adds an entirely new dimension to Coke's 87-year-old cola war with Pepsi. Until now, the Coke-Pepsi battle has been one largely of words in some of Madison Avenue's best and most memorable advertising. Currently the tag line "Coke is It!" is arrayed against "Pepsi. Choice of a New Generation." About five years ago, when the price of cane sugar went up sharply, Coke began shifting its basic sweetening ingredient to high-fructose corn syrup. Pepsi switched completely to the corn syrup sweetener this year. But the parts of each drink's formula that give the colas their distinctive tastes have remained essentially unaltered.

The new Coke will hit supermarket shelves almost exactly 99 years after Atlanta Pharmacist John Styth Pemberton concocted the mixture for the first Coke in a 30-gal. brass kettle in his backyard and developed the formula that Coke guards tenaciously. The company in 1977, for example, pulled out of India rather than give in to government demands that would have put the secret formula in the hands of outsiders. Among the known ingredients: water, caffeine, phosphoric acid, vanilla, various oils and essences and extracts of the coca leaf and the kola nut. The coca leaf got the early Coca-Cola into trouble with Government authorities, who claimed that the product contained a minute amount of cocaine. Company officials blamed that on poor processing, and the 1-part-in-400 amount was removed in 1903, leaving only non- cocaine extracts from the leaf.

In 1898, Caleb Bradham, 31, another druggist, produced a mixture of kola-nut extract and "rare oils" in his New Bern, N.C., pharmacy. His Pepsi-Cola was born, and the foundations for the cola wars were laid. Pepsi remained a distant second to Coke for nearly half a century. Not until the 1950s, when Pepsi switched its ad campaign from stressing price ("twice as much for a nickel") to emphasizing lifestyle ("The Sociables"), did it become a real contender. In the 1960s the firm broke new advertising ground with its Pepsi Generation and Think Young campaigns, aimed chiefly at the first baby boomers. In 1972 it started the Pepsi Challenge, which pitted the two colas against each other in blind testing. Pepsi invariably won--at least on camera.

Pepsi executives gloated over their V-C day, for Victory over Coke. From the Purchase, N.Y., headquarters of PepsiCo (1984 sales: $7.7 billion) came the gleeful statement: "Very simply, Pepsi, not Coke, has become the industry's gold standard." Said Roger Enrico, president of Pepsi-Cola U.S.A.: "You don't fix something that's not broken. There is no question that Pepsi's success is causing the change. The Real Thing is in real trouble." Tauntingly, Pepsi handed out free Pepsi samples in New York City only a few blocks from where Coke was holding its press conference to announce the change. As part of its celebration, Pepsi gave all employees the day off last Friday.

Beverage-industry analysts were inclined to agree, at least in part, with Pepsi. Coke still outsells Pepsi around the world by 2 to 1, but there have been some important signs of weakness in recent months. Coke's share of the U.S. market last year slipped from 22.5% to 21.7%, while Pepsi's went to 18.8%, by one expert's account as much as an .8% gain over 1983. Each point represents about $200 million in sales. Coke sells much better in vending machines, but has been losing ground to Pepsi in American supermarkets, where 45% of all soda is sold. Pepsi actually had a .3% lead over Coke in grocery- store sales for the last five months of 1984, helped in part by two commercials with Michael Jackson, for which the rock star was paid $5 million.

Some industry watchers say that Coca-Cola has been neglecting basic Coke in recent years in favor of low-calorie diet sodas, such as its Tab and Fresca, where most of the market's growth has been. The time had come, they say, for some vigorous new thinking and marketing for Coca-Cola's flagship drink, which still accounts for 65% of company sales.

Coke's new taste was born of its efforts to produce diet Coke, a smashing success that since its introduction in 1982 has bubbled up to third place among U.S. soft drinks, with a 5.4% market share. In the course of developing diet Coke, says Goizueta, "our expert taste testers came upon a taste better than the old Coca-Cola. We had two options: We could do nothing, put it on the shelf and forget we ever developed it. Or we could change the taste and give the world a new Coca-Cola."

From 1981 to 1984 in 25 cities in the U.S. and Canada, Coke tested the taste on more than 190,000 consumers. The new Coke flavor beat the old one by 55% to 45%. When those same people were told what they were tasting, their preference for the new flavor was even more pronounced, 61% to 39%. The new flavor also won handily by as much as 56% to 44% against Pepsi, says one trade source.

Following the tests, Coke began making serious, but secret, preparations to introduce its new taste. The company even created some misinformation. Three months ago, Coke told bottlers that it would soon put a 100th anniversary label on its packages and that they should begin clearing out stocks of preanniversary bottles. This aroused the suspicion of Jesse Meyers, a Greenwich, Conn., industry follower who puts out a newsletter called Beverage Digest. Meyers felt that it was simply not like the forward-looking Goizueta to dwell on an anniversary. He did some checking and on April 19, four days before Coke's announcement, broke the story.

Coke's new taste fits into the management style set by Goizueta, a Cuban- born, Yale-educated chemical engineer who began working for the company in Havana in 1954. Since he took over as chairman in 1980, he has shaken up a firm that had become known for a stodgy, conservative style. In the 95 years before Goizueta took over, the basic Coke product had remained unchanged. In 1982 he ended a corporate debate that had been going on for years by introducing diet Coke. Old-timers had said that the company would be devaluing the name of its main product and cannibalizing its own sales by bringing out another Coke product, but he argued that the company could trade off the famous name. He was right. The following year, Coke launched a caffeine-free regular and diet Coke. In March came Cherry Coke. To counter slipping sales of Tab, its older diet soda, Coke changed the sweetener last year to a combination of NutraSweet and saccharin, giving it a crisper taste. The company received thousands of letters from irate Tab drinkers, but Tab's sales have since stabilized.

Although the company was confidently saying that the new Coke taste has been tested and proved, it still represents a risky move. The public is particular about taste, and it can quickly turn away from something that is no longer its old reliable. Many industry watchers last week were mystified, for example, as to why Coke would boost the calories of its old Coke by five, to 77 per 6-oz. serving (though it still has two fewer than Pepsi), at just the time when consumers seem to favor lighter tastes. Indeed, all forecasts point to a severe decrease in sales of sugar-based soft drinks because an aging, weight- conscious population is expected to prefer diet sodas.

Coca-Cola could take heed from the story of Schlitz. The beer that made Milwaukee famous was the second-best-selling brew in the U.S. in the early 1970s but then changed its taste in 1974. Sales soon began slipping, and the company never successfully shed its reputation for what many considered an inferior brew, even after it switched back to its original formula. Schlitz was sold to Stroh Brewery in 1982, and now has only 1% of the U.S. beer market. Coke, though, believes its careful and exhaustive testing and a huge advertising campaign will make its new taste successful--at least for the next 99 years. Chairman Goizueta calls the change to the new taste "the surest move ever made."

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