The Coke Machine (13 page)

Representatives of the National Soft Drink Association—of which Coke was a member—met promptly with the FDA and expressed concern over the “potential for adverse publicity associated with this problem,” according to a memo from the meeting. The government agency agreed to let the companies quietly reformulate their drinks to prevent a scare. (Earlier that year, Perrier water was found contaminated with benzene at levels up to 22 ppb, and the company forced to recall more than 160 million bottles worldwide at a cost of $263 million.) It hardly policed their efforts, however; the FDA’s own tests from 1995 to 2001 show that 79 percent of diet soda samples tested were contaminated with benzene at an average of 19 ppb.

The public wasn’t alerted until 2005, when one of the original chemists who discovered the benzene fifteen years earlier found it still present in some drinks. Under pressure, the FDA released its own tests, finding among other beverages that Coke’s Fanta Orange Pineapple soda contained benzene at nearly 24 ppb. Coke’s public relations team flew into action, stating “unequivocally that our products are safe,” even while not denying the presence of benzene. Not trusting the companies this time, some consumers brought a class-action lawsuit against Coke, Pepsi, Cadbury, and other companies. Coke settled in May 2007, agreeing to reformulate the drinks and pay $500 each to four plaintiffs.

 

 

 

These kinds of strategies
set the tone for the Coca-Cola Company’s early responses to the obesity epidemic, in which it made common cause with its competitors to try to fly under the radar—worried above all about the possible damage done to the Coca-Cola brand. Almost from the beginning, however, the obesity fight would be different—dragging Coke kicking and screaming into the public arena to defend itself against attack.

The opening salvo was fired by a nonprofit group called the Center for Science in the Public Interest (CSPI), which released a report about soda in 1998 called
Liquid Candy
that teased out the connections between soda and health issues. “I had been watching soda sales rise for decades, ever since World War II,” says CSPI president Michael Jacobson. “We always knew that soda was the quintessential junk food, but the concern was tooth decay. No one talked about obesity.” The report would change that—drawing the connection for the first time between the corresponding rise in soda sales and obesity rates over the previous twenty years, and sparking a debate that eventually spilled out into a national backlash against sugary soda.

CSPI was founded in 1971, one of the first of the many “public interest” groups that proliferated in a period that business historian David Vogel calls the last of the “three major political waves of challenge to business that has taken place in the United States in [the twentieth] century” (the first two being the Progressive Era and the strong push by organized labor in the post-Depression 1930s). Groups such as the Sierra Club, Common Cause, and Ralph Nader’s Public Citizen used any means possible to curb the power of big business at a time when public support for corporations was at a low ebb.

In CSPI’s case, the group has held vocal press conferences, slapped complaints against companies with government agencies, and even threatened lawsuits in its usually successful attempts to remove what it sees as deceptive advertising and nutrition labeling for food. For its actions, CSPI has been labeled the “food police” and derided as a reactionary group for taking on everything from cheese to hamburgers. (Most recently, it has gained notoriety for its push to ban trans fats in New York City restaurants and its fight for calorie counts in chain restaurants.)

But Jacobson makes no apologies for sounding the alarm over soda. As he watched the parallel rise of obesity statistics and soda consumption, he says, he couldn’t help putting the two together. All of that emphasis on growth pushed by Goizueta and Ivester, he argued in
Liquid Candy
, had created collateral damage—especially with some of the most vulnerable of the nation’s citizens—children. According to the report, even young children drank more than a can of sugary soda a day. A typical teenage boy who drank soda consumed nearly two and a half cans—with some drinking up to five. Not that girls fared much better, averaging nearly two cans a day. To put that into perspective: One 12-ounce can of soda contains about 10 teaspoons of sugar; a Double Gulp has more than 50—just over one cup. Other statistics in the report spelled out the aggressive marketing tactics that the company was using to push even greater sales of soft drinks. (Indeed, when CSPI did an update of
Liquid Candy
in 2005, the percentage of calories from soft drinks in the average person’s diet had gone up 25 percent.)

The report was catnip to the media, which ran story after story about the findings—singling out Coke more often than Pepsi as a harmful substance fed to youth. The Coca-Cola Company sat back silently, even as its surrogate, the National Soft Drink Association, aggressively contradicted CSPI’s claims. “Soft drinks make no nutritious [
sic
] claims,” said a spokesperson for the trade group. “We are simply one of the nice little refreshments people can enjoy as part of a balanced diet.” Furthermore, the group said, there was no conclusive evidence that soda caused obesity any more than any other added calories to the diet. The NSDA went on to dismiss CSPI’s attack as a histrionic overreaction to a food that the vast number of people enjoy—akin to its previous attacks against theater popcorn and fast-food hamburgers.

If there was a corporate playbook to respond to public-interest group attacks, the soda companies had taken a page directly from it. The classic response had been established several decades before by the makers of an even more obviously harmful product—cigarettes. When studies first started casting aspersions on smoking in the 1950s, the tobacco companies hired the industry consulting group Hill & Knowlton, which in turn established the Tobacco Industry Research Committee (later the Center for Tobacco Research) in order to respond to the claims.

Rather than face them head-on, however, the group pulled a rope-a-dope, calling scientific studies into question all the while it stalled by holding out for more evidence, which eventually took decades to emerge. “Industry has learned that debating the science is much easier and more effective than debating the policy,” writes David Michaels in his recent book
Doubt Is Their Product
, a title taken directly from a statement in an actual memo from a tobacco company exec. Knowing that it is nearly impossible to establish proof beyond a reasonable doubt in science, industry execs—whether from tobacco companies speaking on secondhand smoke or from oil companies addressing global warming—have very effectively changed the terms of the debate by encouraging further research as a way of holding off any government action—or as another tobacco executive wrote in a memo, “creating doubt about the health charge without actually denying it . . . encouraging objective scientific research as the only way to resolve the question of health hazard.”

Cardello admits that Coke and its competitors followed a similar tactic of stalling on scientific evidence in dealing with early health concerns. “Clearly that is the playbook, and I think most companies whether it’s sugar or salt or whatever the demon du jour is, follow that playbook,” he says. “I’m not even making a moral judgment on it.” But he also insists there are limits to the kind of stall tactics that a company will employ. “If someone finds salmonella in a product, I get that off in five seconds,” he says. But Coke and other soft drink companies were taken aback by the way they were singled out for obesity—after all, many marketing executives in the industry had made a conscious decision not to apply for positions in liquor or tobacco companies because they didn’t want to push harmful products on the populace. Now suddenly, they were the problem. “Without a crisis you don’t change your core business model,” says Cardello. “It took the crisis of obesity to make a change.”

That assessment gives Coke too much credit, perhaps, ignoring the fact that even as it was adjusting its business model in the face of the obesity epidemic, it was continuing to use advertising and public relations efforts to deflect attention from its role in that crisis. When that didn’t work, it followed a dual strategy of simultaneously denying its role and positioning itself as a partner in developing solutions to the problem. At no point did Coke seriously disavow its strategy of pushing more and bigger sizes of sugary soft drinks—in fact, after drawing back temporarily in the face of public opposition, it has redoubled its efforts in that core market.

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.

T
he 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, it was pretty disturbing to discover that a private industry had more influence over students’ health than their own teachers did. Even if a student wanted to drink something else, it didn’t matter because we had sold all of our rights to this one company.” She promptly sent the contract to the
Los Angeles Times
, and was rewarded with a sharp rebuke by the school, which censured her for violating the contract’s confidentiality agreement.

But Domac wasn’t just the school’s health teacher. She was also the leader for a school “peace and justice” club. After she told the students what she had learned, some formed a new group, called the Public Health Advocacy Club, to investigate. What they found went far beyond their high school. As they picked apart the contract, they found that high schools across the country had adopted similar contracts with similarly restrictive beverage choices. Eventually that simple question asked by that one high school student would grow into a national movement combating soda for its role in the epidemic of childhood obesity. After all, the increase in consumption of sugar-filled soft drinks over the last three decades of the twentieth century wasn’t a happy accident for Coke; it was a deliberate strategy. And schools were right at the center of it.

 

 

 

By the late 1990s
, Coke had hit a wall. Despite executives’ push for ubiquity, the company was running into the inevitable fact that the market for soft drinks in America was beginning to be saturated. Beverage analysts began to wonder aloud whether Coca-Cola would be able to continue to expand in its home country. Now with the unraveling of the bottling scheme and sales starting to lag, the company redoubled its efforts to find whatever new markets it could—and found a captive one in schools that could not only ensure a steady source of new sales but also inspire the early brand loyalty that was so important.