Coca-Cola’s Big Fizzle

Wednesday, July 10, was C day in America. C for Coca-Cola. C for consumers. C for choice. It was the day that a powerful company in Atlanta felt compelled to return to Americans their national drink. When Coca-Cola announced last April that it was changing the taste of the world’s most popular soda, it failed to foresee the sheer frustration and fury that the news would create. From Bangor to Burbank, from Detroit to Dallas, tens of thousands of Coke lovers rose up as one to revile the suddenly sweeter taste of their favorite beverage and demand old Coke back.

Stung and swallowing hard, Coca-Cola reclaimed its birthright last week. In the most spectacular about-face since Ford walked away from its ill-fated Edsel in 1959, the company bowed to public pressure. It declared that old Coke would be restored to groceries, fountains and vending machines within a few weeks. At the same time, the firm said it intended to have its soda and drink it too. Old Coke will return as Coca-Cola Classic. The new Coke that ignited the outrage will remain the flagship brand.

Coke’s decision brought forth a joyous response from soft-drink fans across the U.S. Said Karen Wilson, 28, who last June led a rally to protest the new Coke in San Francisco’s Union Square: “At first I was numb. Then I was shocked. Then I started to yell and scream and run up and down.” Archrival Pepsi professed to be just as delighted. Crowed Roger Enrico, president of Pepsi-Cola USA, about new Coke: “Clearly this is the Edsel of the ’80s. This was a terrible mistake. Coke’s got a lemon on its hands, and now they’re trying to make lemonade.” On Wall Street, though, Coke jumped $2.37 a share on the announcement, while PepsiCo stock sagged 75¢. In Washington, Democratic Senator David Pryor of Arkansas, an admitted Cokeaholic, expressed his jubilation on the Senate floor. In a speech between a debate over disinvestment in South Africa and action on the Safe Drinking Water Act, Pryor called Coke’s capitulation “a very meaningful moment in the history of America. It shows that some national institutions cannot be changed.”

Indeed they cannot. As Coke discovered to its sorrow, fiddling with the formula for the 99-year-old beverage was an affront to patriotic pride and perhaps more. “Some people felt that a sacred symbol had been tampered with,” said Robert Antonio, a University of Kansas sociologist. Glenwood Davis, marketing manager for Coca-Cola Bottling in Roanoke, Va., said that he received a letter from a woman who said, “There are only two things in my life: God and Coca-Cola. Now you have taken one of those things away from me.”

Even after the decision to bring back Classic Coke, company officials were still not quite sure what had hit them. “We did not understand the deep emotions of so many of our customers for Coca-Cola,” said President Donald R. Keough. “It is not only a function of culture or upbringing or inherited brand loyalty. It is a wonderful American mystery. A lovely American enigma. And you cannot measure it any more than you can measure love, pride or patriotism.”

Everything looked different on April 23, when Coca-Cola Chairman Roberto Goizueta introduced the new Coke, which the firm called “the most significant soft-drink development in the company’s history.” Gushed Goizueta at the time: “The best has been made even better.”

Coke’s change was immediately greeted by angry protest. For three straight months, Coca-Cola headquarters received some 1,500 phone calls daily, as well as a barrage of angry letters. Wrote one correspondent: “Changing Coke is like God making the grass purple or putting toes on our ears or teeth on our knees.” Among the most common complaints: new Coke was dull and watery and tasted distressingly like Pepsi.

As a chastened Keough admitted last week, “The passion for original Coke was something that just flat caught us by surprise. The simple fact is that all of the time and money and skill poured into consumer research on the new Coca-Cola could not measure or reveal the depth and emotional attachment to the original Coca-Cola felt by so many people.”

Keough denied a widely held belief that the company had brought out new Coke as part of a deliberate, Machiavellian plot to create support for the older product. Said he: “Some critics will say Coca-Cola has made a marketing mistake. Some cynics say that we planned the whole thing. The truth is, we’re not that dumb, and we’re not that smart.”

Why, at a time when the world is trying to cope with international terrorism, superpower tensions and starvation in Africa, has so much furor erupted over what is, after all, merely a change in a soft-drink formula?

In many ways, the Great Coke Debate revealed something about the current state of the American psyche. In a world of ceaseless change, people cling desperately to the known and the given. The old Latin Mass is gone, the phone company has been broken up, Walter Cronkite is no longer on the evening news. Throughout those changes, Coke was always there, a misty memory from childhood, a rock of ages. “Certain things in our psychological environment have to stay constant because we’re in such a changing world,” says Dr. Bert Pepper (no relation to the soft drink), a New York City psychiatrist. “Each of us has our favorite object of constancy. Many Americans have picked Coke.” Adds Pepper: “People felt outraged and ripped off because there was an implicit and explicit contract between the Coke drinker and the company. There was unilateral abrogation of that contract when the company changed the formula.”

It is, of course, possible that Coke can turn its near disaster into a marketing coup. The company now has two Cokes to compete with Pepsi-Cola, as an industry watcher pointed out–one that tastes like Coke and one that tastes like Pepsi. And since the soft-drink maker will still be selling new Coke, none of the millions of dollars spent to launch that product has been wasted. If anything, the furor created by the flavor change has made Coke more of a household word than ever.

Television viewers were served news of Coke’s announcement morning, noon and night. ABC interrupted its soap opera General Hospital on Wednesday afternoon to break the news. In the kind of saturation coverage normally reserved for disasters or diplomatic crises, the decision to bring back old Coke was prominently reported on every evening network news broadcast. ABC featured the switch on its Night Line and 20/20 shows.

The brand brouhaha began back in 1980, when Goizueta and Keough were picked for Coca-Cola’s top jobs. They were determined to reverse a disturbing trend. Over the previous decade, Pepsi had been steadily gaining on Coke. Using a brash advertising campaign built around the “Pepsi Challenge” slogan, the rival cola was becoming increasingly popular with younger drinkers, who seemed to prefer its sweetness to the crisper taste of Coke. The inroads were largest in supermarkets, where Pepsi in 1977 actually overtook Coke in sales. Because of its dominance in the fountain and vending-machine trade, however, Coke still holds an overall 22% to 19% edge. Each point represents about $200 million in sales.

The taste question became crucial to Coke. While developing diet Coke, which appeared in 1982, the company came up with a new and sweeter formula. To test just how well a cola containing it would go over, Coke embarked on the most exhaustive and far-reaching research program in its history. In all, nearly 200,000 consumers were asked to participate over a three-year period.

The results were close, but they persuaded Coke executives that they were on the right track. When asked to compare unmarked beverages, 55% of the drinkers favored new Coke over old Coke. When both drinks were identified, the margin rose 6 points.

For a while the company considered putting out the new Coke under a different name. Goizueta vetoed that approach on the ground that it would lead to market confusion. The company was already selling regular, diet and caffeine-free versions, and a cherry Coke was on the way.

As Coke now concedes, its test marketing was flawed. Among other things, Coca-Cola neglected to inform consumers that choosing new Coke meant saying farewell to old Coke. “We failed to tell the tasters graphically enough that their preference for the new would mean that they would never be able to taste the original Coke again,” explained Ira Herbert, vice president for worldwide marketing.

Even Goizueta’s father spoke out against the switch when it was announced in April. Telephoning from his Mexico City home, the elder man told his son that the move was a bad one, and jokingly threatened to disown him. Last week, the Coca-Cola chairman said, his father called “to take me back in.”

No one watched the gathering rebellion more closely than Brian Dyson, the president of Coca-Cola USA. A lanky native of Argentina, Dyson had the duty of monitoring overnight reports on consumer reaction. By late May, the findings were looking bad. Dyson concluded that “people had fallen in love with the memory of old Coke” and wanted little to do with the new one.

With a crisis approaching, Dyson ordered that results of the June 20 survey be sent to him while he attended a reunion at his family’s Argentine ranch. Aides telephoned the report to Buenos Aires, where it was tape-recorded and driven six hours to the Dyson spread. It arrived as the executive was dining on a freshly slain and roasted heifer. Reading the document, Dyson realized that consumer anger was reaching critical levels. Says he: “You can get a wonderful perspective on some problems when you are half a world away.”

Dyson returned to Atlanta on June 28 and summoned his officers for a Friday executive meeting. “We asked ourselves, ‘Will it go away? Is it logical? How do we address it?’ ” Conferring with Keough, Dyson found that his superior shared his worries. The two agreed that some kind of strategic decision should be reached on July 8. They were anxious to see what sales would be like over the long Fourth of July weekend. The results were flat.

Matters reached a head last Monday after Dyson heard the complaints of bottlers. He recalls, “If one could have taken a vote, the clear majority would have been for us to begin a two-cola policy.” Dyson conveyed that sentiment to Keough, who promptly huddled with Goizueta. Between them, the two top executives decided to bring back old Coke. After flirting with the name Original Coca-Cola, they settled on Coca-Cola Classic.

On Tuesday, an exhausted Keough returned home about 9 p.m., informed his wife Marilyn about the new name, and slumped off to bed. His wife stayed downstairs before joining her husband around 11. Nudging him awake, she told Keough that she liked the new name. He remained awake the rest of the night wondering what he had done.

Once they chose their course of action, Keough and Goizueta moved swiftly. On Tuesday and Wednesday, Keough went to an Atlanta television studio to tape a commercial that showed him announcing the return of old Coke. Beamed by satellite to a New Jersey production center, the spot was retaped and flown by helicopter to Manhattan for delivery to the major networks for broadcast Wednesday on the evening news.

Meanwhile, frantic efforts were being made to design a new can. Such a job normally takes at least 60 days, but time was now agonizingly short. Bill Schermerhorn, Coke’s brand manager, made an urgent telephone call last Monday to Alvin Schechter, creative director of the Schechter Group, a Manhattan design firm. By 10 p.m. Tuesday, Schechter had completed the assignment. The red can features the traditional Coca-Cola script with the word “Classic” in black roman type.

For weeks, the tightly knit world of market research has been abuzz with gossip about Coke’s mistake. “It appears to be a colossal marketing blunder,” says George Mihaly, head of the consulting division of Crossley Surveys. Mihaly discovered widespread adverse reaction to the new Coke while conducting an unrelated study of upper-level managers. When asked for their opinion of the change in Coke, all the executives gave it a negative review. Since he had done some work for Coke in the past, Mihaly told, his findings to high-level contacts at the company. The early warnings were apparently ignored.

Mihaly believes that the Coke experience shows up some of the weaknesses of taste tests. He is critical of them in general because consumers have difficulty distinguishing slight variations in taste.

Coke’s 500 U.S. bottlers felt the wrath of consumers most directly. The bottlers, who are mainly independent businessmen, take syrup sold by the company, mix it with carbonated water, and ship the finished product to stores and other vendors. They are thus the brand’s local distributors. Some recalled being stopped on the street in recent weeks by angry and argumentative Coke drinkers. “The consumer resented the fact that we put a flavor out there and said. ‘This is what you’re going to like,’ ” observed Frank Barren, corporate secretary of Rome Coca-Cola Bottling in Georgia.

The experience has taught many bottlers a lesson. “What Coca-Cola didn’t realize was that the old Coke was the property of the American public,” says Bobby Wilkinson, president of Huntsville Coca-Cola Bottling Co. in Alabama. “The bottlers thought they owned it. The company thought it owned it. But the consumers knew they owned it. And when someone tampered with it, they got upset.”

Company officials should have known that they were playing a very tricky game in changing Coke. When the firm first came out with 10-oz., king-size bottles in the mid-1950s, many drinkers were beside themselves. If God had wanted Coke in 10-oz. bottles, he would not have created the traditional, green-hued 6l/2-oz. bottle. “People raised hell with me and said it didn’t taste the same,” said Crawford Johnson, president of Birmingham’s Coca-Cola Bottling Co. United. “I told them, ‘We put the same ingredients in it that we put in the little bottle.’ But the difference between then and now is that we never took the 6½-oz. size off the market.”

Outrage against the new Coke quickly gathered momentum. In Seattle, Gay Mullins, 57, a retired real estate investor, became a national celebrity by issuing anti-new-Coke buttons and T shirts, setting up a hot line for disgruntled callers and threatening to bring a class-action suit to make the old recipe public. Mullins organized the Old Cola Drinkers of America, whose aim was to bring back the beloved soft drink. It did not matter that Mullins, in two blind tests, expressed a preference for new Coke over old Coke. He wanted his rum-and-Cokes to be just the way they always were.

Others managed to convert distaste for new Coke into a profitable sideline. Dennis Overstreet, owner of a Beverly Hills wine shop, bought 500 cases of old Coke after the new product was announced, and sold them all for $30 each, nearly triple the normal price. When they were gone, Overstreet began contacting foreign bottlers to import the drink, which has not yet been replaced by new Coke abroad. His search took him from England (“It didn’t taste right”) to Mexico, Puerto Rico and finally Brazil. On the day Coca-Cola disclosed that it was reviving the old beverage, a Rio bottler was about to ship Overstreet 300 cases of Brazilian Coke, the first of up to 10,000 cases. In a mild panic, the California merchant hastily canceled the deal.

Protesters became wild enthusiasts when Coke reversed itself. “I was ecstatic when I heard the news,” said Libby Lavine, a Michigan dissident who had launched a national letter-writing campaign. “Thank God they realized what a mistake they made.” In Mountain View, Calif., Coke Activist Wilson threw a party in the sawdust-covered back room of a hamburger restaurant. The drink of the night? Old Coke, from Wilson’s 20-case stash.

The jubilation affected people in virtually every age group and walk of life. The return of old Coke is “the best thing that ever happened since the wheel,” said Randy Deaton, 32, a Michigan hotel manager. “I switched to water when they stopped making the old Coke.” Exclaimed Gail Hilty, 16, a senior at Redwood High School in Larkspur, Calif.: “Thank God! I don’t like the new stuff at all. Nobody likes it–at least nobody that I know.” On Staten Island, N.Y., Tracy Collica, 11, and Michael, 8, feed their two-year-old brother Larry both kinds of Coke and are certain that he prefers the old. Said Michael: “He can tell the difference. He makes a face if we give him new Coke.”

The introduction of new Coke flowed directly from a strategy that Coca-Cola has pursued in recent years. Since Goizueta’s ascendancy to the top job, the company has been expanding in several directions. It acquired Columbia Pictures for more than $690 million in cash and stock in 1982, and has placed its once exclusive brand name on drinks ranging from cherry Coke to caffeine-free diet Coke. The addition of Coca-Cola Classic will bring the number of products bearing the Coke name to six, compared with the single Coke that Goizueta inherited. Pepsi, by contrast, has its name on five products.

The company this week is launching yet another new product. In partnership with Murjani International, a New York City clothing designer, Coke will be producing a line of men’s and women’s wear. The items will range from sweatshirts with the Coca-Cola logo emblazoned across the chest to stylish shirts, blouses and outerwear.

Coca-Cola may find that having two separate but equal Cokes can create severe headaches. The logistics alone will be a major problem. Even though they are overjoyed by the return of old Coke, many bottlers are already apprehensive. “This is not going to be easy,” says Sandy Williams, president of Corinth Coca-Cola Bottling Works in Mississippi. “We’re only set up to handle one finished syrup at a time.”

Similar dilemmas are likely to crop up at soda fountains and groceries. “It’s going to be a problem with so many brands,” concedes Ralph Lucas, owner of Lucas Fine Food in Cincinnati. “We have to have more shelf space. We’ll cram them in sideways, I guess.” The overflow, he added, will pile up in stock rooms.

The battle for shelf space is only the beginning. Once they are displayed, the two Cokes are likely to present consumers with a confusing choice. Which should they buy, and which is the real Coke anyway? Says Bruce Farquhar, an associate professor at Carnegie-Mellon University: “The two products are too similar. They’re going to cannibalize sales one way or the other.”

Advertising could be another nightmare. Coca-Cola will have to decide whether to tout each Coke separately, or to launch a single unified campaign. “It’s going to be very difficult and costly for the company to market two products with the same name,” cautions one Madison Avenue insider. Some industry observers think that Coca-Cola may settle on a two-pronged strategy. It could focus on new Coke in its advertising, and let the triumphantly returned Classic Coke sell itself.

Those troubles notwithstanding, some experts say that Coke could manage to keep both colas alive, despite the bleak verdict of historic precedent. But, observes Farquhar, “in general, when we have two very similar products produced by the same firm, one is likely to be withdrawn after a period of time.”

Coke may emerge stronger than ever from this adventure. It now flanks Pepsi on two sides, much as a military force might surround an enemy. Says Alexander Kroll, president of the Young & Rubicam advertising agency: “It’s the most unusual strategy for launching a flanker brand in history, and it may work.” Some are sure it will. “They’ve backed into one of the most powerful strategic positions in the consumer marketplace,” says Emanuel Goldman of Montgomery Securities in San Francisco. “After all, they can satisfy the die-hard Coke customers and the consumers who like the sweeter taste.”

That may be true even though Coke could conceivably surrender first place to Pepsi in the cola wars. With two Cokes on the shelf, the supermarket purchase share of each might be lower than what Pepsi can muster. Coke is unlikely to worry though, since the combined might of its dual entries will still be greater than Pepsi’s. In this case, notes Jesse Meyers, publisher of Beverage Digest, “the sum of the parts is greater than the whole.”

At the end of a battle well fought, Coke President Keough last week paid tribute to a former adversary. Said he: “There is one consumer we would like to single out, Mr. Gay Mullins of Seattle, Washington, the founder of Old Cola Drinkers of America. We want to say thank you for your efforts, efforts that symbolize the love our consumers have for Coca-Cola.” And Mullins’ reward? What else? For being the new Coke’s most persistent and outspoken critic, the company is giving him the first case of Coca-Cola Classic that comes off the bottling line nearest his residence. The Real Thing, again. –By John Greenwald. Reported by Joseph N. Boyce/New York, Joseph J. Kane and B. Russell Leavitt/Atlanta, with other bureaus