The Opening of Happiness: A Brief History and Analysis of Coca-Cola

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Introduction

What do you think of when you see, read, or hear “Coca-Cola”? Do you picture the red and white logo? The Santa commercials? The sporting events? The catchy logos and inspiring advertising campaigns? The vending machine on virtually every corner? The fizz and the taste? For anyone that has not spent the last century inside Plato’s cave, all of these descriptions come to mind, and more. There is no question that Coca-Cola has taken a permeated, permanent position in our global consciousness. It is, simply put, everywhere. In fact, if there were any sort of global culture, it is quiet conceivable that its touchstone – what everyone, from the stockbroker on Wall Street to the street vendor in Calcutta, would have in common – is Coca-Cola. The soft drink has travelled the globe and found a place in the hearts and minds (and wallets) of the global consumer. The question that comes to mind for anyone with a mind that is even remotely interested in business or economics is how? How did a medicinal drink created almost 130 years ago come to dominate the world stage in terms of both culture and capital? What is it about the business that drives the product into the far reaches of the globe? What is it about the product that induces consumers to purchase it? These are the questions that this paper seeks to address throughout its discussion of Coca-Cola.

While the question may appear to be too large and too broad to be answered in the space allowed in this assignment, the paper attempts to do so on two fronts. First, paper addresses the basic (or ‘essential’) history of Coca-Cola as both a leader in the alternative beverage industry and as a global business conglomerate. This includes everything from the original curiosity syrup made by the creator to the current day business practices of the company. Second, the paper utilizes three ‘case studies’ of sorts to exhibit Coca-Cola’s expansion and success around the globe. These three cases are Coca-Cola in China, Coca-Cola in Africa, and Coca-Cola in American sports. Each of these cases is widely disparate from the other – both geographically and culturally. However, throughout all three of them, the paper will show similar business practices and products that made Coca-Cola so successful around the world, in terms of both expansion and proliferation. Ultimately, the paper shows that Coca-Cola is successful around the world because it is both committed to its product and flexible in its business practices. The unique combination of stability and adaptability has meant that Coca-Cola has been able to focus on both expansion and proliferation, which has led to the product’s continued success throughout the past century. This is the crux of this analytical paper, as will be shown in the conclusion section. First however, we must turn our attention the history of Coca-Cola.

A Brief History

Coca-Cola has its origins in 1886, when a pharmacist from Atlanta, Dr. John Pemberton, discovered (or created) a distinctive tasting syrup developed for soda fountains. According to official Coca-Cola history, Pemberton took the syrup down to his local pharmacy, “where it was mixed with carbonated water and deemed ‘excellent’ by those who sampled it.” Not long after that, Coca-Cola’s distinctive, trademarked script logo was created – as the reader knows well, the same logo is still used today. Only five years later, businessman Asa Griggs Candler bought complete control of the brand and product of Coca-Cola for only $2,300. The following year, Candler and company created the Coca-Cola Company. The company enjoyed success early on – by 1895, Coca-Cola was being sold in every single state and territory in the United States. Between then and now, Coca-Cola has used many slogans and advertising campaigns to grow its image and presence in the world market – some examples of these are “around the corner from anywhere” and “good to the last drop.” Today, it is clear that Coca-Cola has achieved its goal of global penetration. As of 2012, Coca-Cola is available in every single country in the world – except for Cuba and North Korea, and even there the soft drink is available as a grey import. Of course, there is a much richer history to the indefatigable product of Coca-Cola, but these brief facts should suffice as a basis for the paper’s discussion of the three ‘case studies’ of Coca-Cola’s success in the modern day.

In addition to the brief introduction of Coca-Cola’s history, it is worth mentioning the company’s essential business model that has guided its success in the last century. Unknown to many consumers, the Coca-Cola Company does not produce the final product that is widely distributed around the world. Instead, the company itself only produces a concentrated form of the Coca-Cola syrup, which is subsequently bought by licenses Coca-Cola bottlers. These bottlers are the ones who finished the product by mixing the concentrate with carbonated water and sweeteners, and putting the mixture into cans and bottles. It is the bottlers, then, that distribute and merchandise Coca-Cola products to retail stores, restaurants, and individual vending machines. This is important for two reasons. First, it is an integral part of Coca-Cola’s history. Second, the paper will argue that this business model, which has been in effect for decades upon decades, has much to do with the company’s success in the three ‘case studies’ discussed below.

Case 1: China

Coca-Cola’s continued presence in China is just one example of its ubiquitous proliferation in the face of political, economic and even military realities on the ground. Coca-Cola’s development in China goes back nearly a century as well, beginning in the early 1920s when the company first entered the country. According to Daxue Consulting’s market research on the product, Coca-Cola has gone through three major stages during its tenure in China: the primary stage, the rapid expansion stage, and the full range of expansion stage. In the primary stage, Coca-Cola had to court China, given the country’s strict policies regarding restrictions on foreign imports and foreign companies. After only two years of trying different approaches, Coca-Cola opted to go ‘all in’, so to speak, by fully entering China’s drink market by opening several factories. It was by using this tactic that “the company gained a competitive advantage over many domestic producers due to its scale and financing abilities.” In this case, it was Coca-Cola’s status as an established business practitioner with a well-known product that helped their case with China, rather than hindered it. This seemed to be especially in the beginnings of the Communist state, when Coca-Cola had already established a presence following the First World War. The ground that had been gained would not be lost in the long run.

Following this primary stage of expansion, Coca-Cola entered a “rapid expansion” stage in the early and mid-1990s. Regassa and Corradino examine this stage in more depth in the case analysis of Coca-Cola’s value in China. The rapid expansion stage, according to Regassa and Corradino, was in direct response to China completely dropping the import quotas that had been inhibiting Coca-Cola. The import quotas of soft drinks were dropped in 1992, and its license requirements for vendors were dropped four years later, in 1996. The company certainly did not waste any time after these developments – Coca-Cola opened ten factories in China within the first few yeas following the Chinese policy changes. At this point in time, as Regassa and Corradino state, “There was no doubt that it was becoming one of the biggest foreign drink brands in China.” As mentioned above, Coca-Cola is now in the “full-range expansion” stage, especially in the time since 1999. There is no question that Coca-Colas has enjoyed success in China throughout its decades-long history in such a powerful nation-state. Today, the Coca-Cola company owns or holds a stake in twenty-four bottling plants in China. This is just one example of Coca-Cola’s cultural, as well as financial, presence in the country.

Mike Blake gives a clearer picture of Coca-Cola’s current presence in China. According to his report in Reuters, Coca-Cola plans to invest over $4 billion in China by building new plants between 2015 and 2017. According to the company’s release, this is to “counter competition which is chipping away at its share of the country’s 421 billion yuan ($60.12 billion) soft drinks market.” In addition to investing in more bottling plants of Coca-Cola product, the company also has plans to make deals with local vendors and firms, which could “help it play the trend in China toward more local-style herbal teas and healthier drinks.” In the next five years, Coca-Cola will have some making up to do, as the competitive market in the soft drink industry seems to be wide open. Their competitive status will be achieved through acquisitions, organic growth, and local partnerships. Despite this open market, Coca-Cola remains the “leading drinks maker” in China, holding 16 percent market share as of two years ago. The $4 billion that Coca-Cola plans to invest will help to maintain and improve this market share. This, perhaps more than anything, shows Coca-Cola’s willingness to be adaptable around the world. This adaptability is what has allowed it to remain competitive for so many years.

Case 2: Africa

Africa is another example of Coca-Cola’s continued success, due to its business model and adaptability. Coca-Cola has had a presence in Africa since 1929, which is almost as long as it has been doing business in China. As of today, it is in every single country on the “dark continent”, and “is the continent’s largest employer, with 65,000 employees and 160 plants.” Again, the question that arises is how? How did Coca-Cola manage to achieve such widespread success and such a market share on a continent that is, even by today’s standards, difficult to access? Again, both Coca-Cola’s original business model and its adaptability have come into play. In the case of Africa particularly, it is Coca-Cola’s commitment to its franchising model that has largely lead to its success on the continent. According to Bill Egbe, the president of Coca-Cola’s South African division, “you have a much more viable business system when you have partners along the value chain who have a vested interest in the long-term survival of your business because they derive a living from your business system.” Because many places in Africa have poor infrastructure and a largely rural population, franchisers of Coca-Cola had to think outside of the box for distribution. But, as it has already been shown, the worldwide company gets its product out by nearly any means necessary. The vendors and bottlers mentioned above are at a much more local level in Africa than in many other countries. To this day, many franchisers use ‘manual distribution centers’ to distribute Coca-Cola products – essentially a small business system that allows locals to distribute Coca-Cola by hand-cart, wagon, and bicycle, to a set area for a nominal fee. While this concept was originally suggested 15 years ago, in 1999, the practice is still used today as one of the most effective distribution methods that Coca-Cola has seen. As Egbe says, “That is the ultimate formula for sustainability on the continent.” This is just one example of Coca-Cola’s many unique (but workable) business practices.

Of course, urbanization in recent years has made Coca-Cola’s management of distribution much easier. It is not hard to imagine that consumer goods companies benefit from having many of their consumers in a more concentrated space. This, in addition to Africa’s growing middle class, has contributed to Coca-Cola’s growth on the African continent in the past decade especially. In fact, the company will rely mostly on its developing markets for its percent earnings growth in coming years. As Stanford concludes, “with Coke sales stagnant or plodding in most of its developed markets—North Americans bought $2.6 billion worth of Coke in 1989 and just $2.9 billion 20 years later—Coca-Cola will rely on some of the poorest nations to generate the 7 to 9 percent earnings growth it has promised investors.” This promise is reflected in the numbers – Coca-Cola’s market share in Africa and the Middle East combined was 29 percent as of 2010, almost double that of the company’s share in China’s soft drink market. The growth that Coca-Cola expects in Africa will find its footing in both internal and external factors. First, it is apparent that the company’s aggressive, street-by-street expansion in African countries will continue to be effective in the foreseeable future. Second, the continued rise of urbanization in African cities will make Coca-Cola’s consumer base more accessible. In the case of African countries, as with others, it is the business of Coke, rather than its product, that has given rise to its popularity and widespread success.

Case 3: American Sports

One final example of Coca-Cola’s success is found in American sports. It is no business secret that Coca-Cola has been involved in sports marketing relationships for years. These partnerships have included the National Football League, the National Basketball Association, the National Hockey League, and Major League Baseball, in addition to many individual professional teams. Additionally, Coca-Cola has partnerships and sponsorships with many colleges and universities throughout the United States. Usually this consists of the company funding the school’s sports equipment or athletic facilities, in exchange for product placement and sponsorship advertisements. In a simple phrase Coca-Cola as a product and American sports as an institution have shared a tradition of close association for almost a century. Through these examples, it is clear that Coca-Cola has a dominant position in the world of American sports and athletics.

This partnership arguably stems from the natural fit between Coca-Cola’s product and the nature of sports. As Pendergrast states, “Coca-Cola strives to be everywhere people gather for fun, recreation and enjoyment – everything which makes sport a popular pastime for so many people around the world.” The normative ‘natural-fit’ conception of Coca-Cola’s role in American sports, while largely rhetorical, is nevertheless insightful toward a discussion of the symbiotic relationship between sports and Coke. Mark Pendergrast discusses the marketing involved in this relationship, saying that, much like other aspects of Coca-Cola’s business, the company’s relationship with sports “has shown that success results in part from selling a good, easy-to-produce, widely available, affordable product, believing in that product and developing a mystique.” This is reflected in the symbiotic relationship between Coca-Cola and American sports. In this symbiotic relationship, sports professionals benefit with a value-added income, while Coca-Cola benefits through image enhancement, promotions and marketing tie-ins, consumer appeal, trademark visibility, promotional activity, and the sale of Coca-Cola products to the millions of consumers at sporting events. In this way, Coca-Cola has established a veritable monopoly in a corner of the market that will remain stable far into the foreseeable future. Where Coca-Cola’s business model means growth and expansion in both China and Africa, it has meant stability in the American market.

Conclusion

Given these three “case studies” in Coca-Cola, what does the future of the product and the company behind it look like? To begin with, the company has a specific growth plan well-under way. In 2012, the company announced its “2020 Vision”, which was designed to double Coca-Cola’s revenue by the year 2020. The strategy involves $30 billion of investments around the world, designated to broaden its international appeal. This will involve new bottling plants, partnerships, branches offices, and advertising campaigns. But even without these specific of numbers, it is clear that Coca-Cola is simply not going anywhere. The three case studies above showed that Coca-Cola’s business practices and products made the company successful around the world, both in terms of expansion and proliferation. This is, as argued from the beginning of this paper, because the company is both committed to its product and flexible in its business practices.

The genius of the soft drink giant has been shown through the three ‘case studies’ discussed above. All three of these cases point to the role of Coca-Cola as a business, rather than as a product. The three case studies show that the product, in fact, matters very little. It is carbonated water with sugar (or, high-fructose corn syrup) mixed in for taste. This is not meant to sound overly pessimistic, but is an important distinction to make because it both clarifies Coca-Cola’s long-term role and contextualizes its success around the world. Mark Pendergrast, who wrote For God, Country and Coca-Cola in 2000, quoted Coca-Cola advertising executive Paul Foley as saying “Without our economies of scale and our incredible marketing system, whoever tried to duplicate our product would get nowhere. We are selling smoke. They are drinking the image, no the product.” Ultimately, Pendergrast’s book – and this paper – show that “Coca-Cola succeeded not because of what it was – the secret recipe – but because people who were living in a huge, multicultural, violent, ever-changing society needed something to represent them collectively, something reliable, universal, stable.” This is why Coca-Cola has been successful for the last hundred years and will continue to be successful for the next hundred years. To the public, Coca-Cola offers stability – both economic and cultural in nature. To private sector business, Coca-Cola offers opportunity for growth, expansion, proliferation, and huge market shares. The history of Coca-Cola cannot be easily earmarked into a single research paper; however, no matter which aspect of Coca-Cola’s history one looks into, it is certain that the story will involve the business genius of this historic company. As history shows, only time will tell where the future will take the timeless product of The Coca-Cola Company.

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