When the Cola Froze for 70 Years
The internet was abuzz with stories about Cristiano Ronaldo's preference for water over Coca-Cola and how that might have adversely affected Coke's share prices. Some claimed it caused a loss of $4billion to The Coca-Cola Company. You can watch this allegedly expensive move by Ronaldo here:
This was just a fleeting and unpleasant moment in the illustrious history of a global giant that sells happiness in a bottle. Coke is one of the most recognizable brands in the world, and the stories of its business are legendary. The following is one such story that I wanted to share with you.
Did you know that from 1886 to 1959, the price of a bottle of Coca-Cola remained fixed at 5 cents? For 70 long years, Coke didn’t change the price of a 190 ml glass or a 6.5 oz bottle. Economics be damned!
But why and how, though?
A bad contract, a great sales strategy, volume push, and vending machines have the answer!
The Bad Contract
Dr. John Stith Pemberton, a pharmacist, invented Coca-Cola in his lab and began selling the drink at 5 cents a glass on Peachtree road, Atlanta in 1886. Soon after, Dr. Pemberton fell ill and nearly went bankrupt. So, he decided to sell his formula and the business.
Asa Griggs Candler bought the Coca-Cola business for only $239 and founded The Coca-Cola Company in 1888. In those days, the drink used to be sold via soda fountains only.
Two lawyers from Chatanooga wanted to sell Coca-Cola in bottles. They approached Mr. Candler to buy bottling rights. Perhaps annoyed by the lawyers' idea and perhaps to get rid of them quickly, Mr. Chandler signed the contract thinking the idea will never take off.
The contract stipulated that Coke bottled and sold by the lawyers cannot be inferior - in which case the franchise will be pulled back - and that the company will supply syrup to bottlers for 99 cents a gallon. To everyone's surprise, the contract did not have an expiration date, which meant, the company had to sell syrup to the bottlers at the same price forever!
The Great Counter Strategy
To Mr. Candler's dislike, bottled Coke took off really well, and the popularity of the drink grew by the day. But the company was stuck with the fixed price contract. Growing sales did not help maximize profits because the company was forced to sell syrup at 99 cents a gallon.
What followed next was a genius business strategy.
Coke went big on marketing and plastered the shops, pharmacies, nooks, and corners with the advertisements selling a bottle of Coke for 5 cents only.
It forced the bottlers to retain the price. How could they raise the price if the mother Company was selling the drink for 5 cents a glass?
The Volume Push
The massive marketing campaign and volume push proved to be a masterstroke to counter the bottlers and redeem the losses of a bad contract. But inflation is a beast that cannot be tamed by sales only. So the company decides to renegotiate the contract. Bottlers agree too, as they realize that there was nothing to be gained holding onto the old contract.
A new contract was signed in 1921. But by then, the 6.5 oz bottles and 5 cents (a nickel) had become synonymous. Coke in a bottle was known as 'Nickle Coke'. It would have been hard for the company to break the psychological association in consumers' minds. Also, giving up the marketing and advertisement properties would have resulted in a huge sunk cost.
The company retained the price, at 5 cents, for another 30 years.
The Vending Machines (and almost the worst sales strategy)
Another important aspect that a key role in price-fixing was the number of vending machines the company owned. The company owned approximately 450,000 vending machines spread across America. Those machines would accept only a nickel at a time. Adjusting prices would have meant installing new machines and book losses on account of old ones. Also, the coin of the next higher denomination at the time was a dime or 10 cents. Going for a dime would have meant doubling the price all of a sudden. The idea was rejected. But a rather strange idea was floated in lieu.
It was suggested that every 9th bottle in the machines would be an empty bottle. The empty bottle was called an "official blank". After 8 bottles were dispensed by the machine, one unlucky customer would get a blank, and she would have to enter another nickel to get her favorite drink. This way, the average price per bottle would have been 5.625 cents.
Although a mathematically brilliant idea, it could have been a disaster if implemented. Common sense prevailed, and the idea was canned eventually.
Dr. Pemberton was a confederate soldier and had received Sabre wounds in the month-long Battle of Columbus in April 1865.
He was a trained pharmacist and experimented with painkillers to relieve pain. Coca-Cola was a result of one of those experiments. His other experiment led him to an expensive morphine addiction, which forced him to sell his first glass of Coke (for 5 cents) and eventually his formula and the business for just $239.
It is said that Dr. Pemberton thought his drink will one day become popular and outlive him. Boy, he was right.
——————————————————————————————————————
[1] https://hal.archives-ouvertes.fr/hal-02386914/file/jmcb-forthcoming - 2004.pdf
[2] https://www.npr.org/2019/05/01/719213730/episode-416-why-the-price-of-coke-didnt-change-for-70-years
[3] https://en.wikipedia.org/wiki/Fixed_price_of_Coca-Cola_from_1886_to_1959
[4] https://www.loc.gov/pictures/resource/pga.04657/
[5] https://vintagemenuart.com/blogs/news/6931494-why-a-bottle-of-coke-cost-5-cents-for-70-years