Coke - Ethical Issues

Details

Themes: Ethics in Business
Period : 1999-2001
Organization : Coke, Belgian Health Ministry
Pub Date : 2002
Teaching Note : Available
Countries : Belgium
Industry : Food & Beverages

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Case Code : BECG014
Case Length : 12 Pages
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Background Note Contd...

By 1895, Coke was sold in all parts of the US, primarily through distributors and fountain owners. When it was first launched, Coke had been advertised as a drink, which relieved mental and physical exhaustion, and cured headache. Later, Candler and Robinson repositioned Coke as a refreshment drink. In the beginning of the 20th century, corporations in the US drew flak for promoting adulterated products and resorting to misleading advertising. Coke was an ideal target for such attacks.

The US government passed the Pure Food and Drugs Act in June 1906. A case was registered against Coke and the trial, which opened in March 1911, attracted widespread attention. Coke, eventually, won the case. The decision, however, was reversed in the Supreme Court. Finally, the case was settled out of court in 1917 with Coke agreeing to reduce the caffeine content by 50%.

In 1919, Coke was sold to an investment group headed by Ernest Woodruff for $25 million - $10 million in cash and $15 million in preferred stock. Woodruff's major decision after taking over was the establishment of a Foreign Department to make Coke popular overseas. While expanding in foreign markets, Coke faced several problems.

Initially, it had to rely on local bottlers who did not promote the product aggressively, or on wealthy entrepreneurs who were unfamiliar with the beverages business. The company also faced problems regarding government regulations, trademarks registration, languages, and culture.

By 1927, Coke's sales climbed to nearly 23 million gallons. Even though Pepsi Cola emerged as a major competitor to Coke in the 1930s, Coke continued to do well and flourished during the war. By the time the US entered the Second World War, Coke was over fifty years old and well established. In 1962, Paul Austin (Austin) became Coke's tenth president and four years later, became the chairman and CEO of the company. One of Austin's first initiatives was the launch of a diet drink.

By 1965, soft drink sales in the US had risen to the level of 200 drinks per capita and Coke's market share had risen to 41% against Pepsi's 24%. In 1964, Coke also acquired a coffee business. The company developed drinks with new flavors and also targeted food chains, which were fast gaining popularity.

In the 1970s, Coke faced stiff competition from Pepsi. Pepsi's advertising budget exceeded that of Coke. In 1978, figures also revealed that Pepsi had beaten Coke in terms of supermarket sales with its dominance of the vending machine and fountain outlets. Coke also faced problems in the 1970s when the Food and Drug Administration (FDA) ruled that saccharin, an important ingredient in Coke, was harmful and a potential source of cancer.

Coke's performance continued to decline in the late 1970s as Austin led the company into new businesses such as shrimp farming, water projects and viniculture. The political and social unrest in countries like Iran, Nicaragua and Guatemala also affected Coke's market share. The company's poor performance and the increasing discontent among its employees, led to Austin's exit and the nomination of Roberto Goizueta, a 48-year-old chemical engineer, as the new CEO in 1980.

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