Tag Archive: Soft Drinks

Why Coke Hates Pepsi – Part II

Despite the new curvy Coke bottles and Coke attorney Harold Hirsch’s constant lawsuits, one Coke-wannabe prevailed and thrived.  Here’s how Pepsi came alive.

Pepsi-Cola, like Coke, came from the South.  It was formulated by a former Confederate Army officer, pharmacist Caleb B. Bradham.  His New Bern, North Carolina, pharmacy thrived because it provided a soda fountain alternative to saloons of the town.  Like other druggists at that time, Bradham began tinkering with new elixirs and patent medicines, using the knowledge he picked up in medical school.

He modeled one concoction after the wildly popular Coca-Cola.  Intended to relieve stomach disorders and ulcers, “Brad’s Drink,” as it was called, was a pleasant mixture of vanilla, exotic oils and spices, sugar and the African kola nut.  It became popular with the locals.  He renamed it Pepsi-Cola in 1898, and in 1902 started peddling it to other soda fountains.  Two years later, he sold shares in the business and copied coke’s franchise system to begin marketing Pepsi in bottles.  By 1909, Bradham had 250 bottlers in 24 states.  He was getting rich.

World War I, though, changed all that.  Rapidly fluctuating sugar prices and labor costs rippled the company.  By 1922, the Pepsi Company was bankrupt, and Bradham went back to filling prescriptions at his New Bern drug store.

A Wall Street money man named Roy C. Megargel bough up the company’s assets and started a new Pepsi-Cola company in Richmond, Virginia.  When he failed to come up with enough investment capital to keep it going, though, the company went down in flames again in 1932.

Next in line came Charles Guth, president of Loft, Inc., a candy company in Long Island, New York.  Guth had a grudge against the Coca-Cola company for not giving him a volume discount on the Coke syrup he sold each year at his 115 soda fountains.  He decided to make his own beverage, so he took money out of Loft’s till to buy up the Pepsi rights, including Megargel as a silent partner, and started still another Pepsi Cola Company.  He tinkered with the recipe to his own taste preferences and began serving it in his stores.

Coca-Cola, ever-vigilant in protecting its own market, sent its undercover agents into Loft stores, then filed a lawsuit, claiming they had fraudulently been served Pepsi-Cola when they had ordered Coca-Cola.  Guth countersued, claiming that Coke was illegally harassing and maligning his stores and employees.  The bitter court case would be played out in slow motion over the following decade.

Meanwhile, however, the Pepsi-Cola Company had other troubles.  With Loft stores its only outlet, the company was losing money fast, and Guth decided he wanted out.  he even offered to sell Pepsi to Coca-Cola, for a modest price.  In the blunder of its life, Coke turned him down.  His partner Megargel, meanwhile, sued for funds Guth owed him, so Guth bough him out for $35,000, of which all but $500 came out of Loft’s company funds.

Pepsi, now 91% owned by Guth, was about to go under for a third time, when a used bottle dealer suggested that Guth start bottling his drink in used beer bottles.  Even though the bottles held nearly twice as much as coke’s 6.5-ounce bottles, he decided to charge only a nickel since the depression was on.  Because Pepsi offered twice as much drink for the same price as a Coke, Pepsi’s sales went through the roof.  Guth’s candy stores, however, were falling apart.  Stockholders revolted, and he resigned his presidency.

The Loft Company board of directors sued Guth in 1939, after discovering he had taken most of the money for his Pepsi venture form their till.  After a bruising battle, the court ruled that Loft, Inc., was the legitimate owner of Pepsi-Cola.

Regardless of the legal issues, Coke noted with alarm that Pepsi continued to do booming business.  The battle soon escalated beyond sending undercover agents into Loft stores:  Coke sued Pepsi over trademark violations, claiming proprietary rights to the name “Cola.”  On the first day of the trial, Coke lawyers made a big show of hauling out huge stacks of legal documents detailing its victories over trademark infringers.

From weighty precedence, it looked like an open and shut case.  The widow of the victim of an earlier Coke lawsuit called on Walter Mack, the new president of Pepsi, to offer condolences.  Her husband had been president of something called Cleo Cola.  She casually mentioned that Coca-Cola had given her husband a $35,000 check to put him out of business.

a payoff?  Mack couldn’t believe his ears.  Maybe Coke wasn’t so sure of victory after all.  The next day in court, Pepsi’s lawyers asked about the check, and Coke’s lawyers asked for a two-day recess to respond.  That afternoon, Coke president, Robert Woodruff called Mack and invited him to meet the next morning.  According to Mack the conversation went like this:

“Mr. Mack, I’ve been thinking about this lawsuit, and I think we ought to settle it.  Is that agreeable to you?”

“It is, under one condition.”

Mack took a piece of paper and wrote, “I, Robert Woodruff, president and chief executive officer of the Coca-Cola Company, hereby agree that the corporation will recognize the Pepsi-Cola trademark and never attack it in the United States.”  He handed it to woodruff, who drafted a similar agreement stating that Pepsi would recognize Coke.  Both signed and then shook hands on the deal.

The truce didn’t last long.  Coke, saying the agreement applied only to the U.S., dispatched  attorneys to file trademark violation suits in countries all over the world.  A lower judge in Canada ruled for Coke, but Canada’s Supreme Court reversed that ruling.  Because Canada was a member of the British Commonwealth, Coke appealed to the highest Commonwealth court, the Privy council in England.

“It was a hell of a dirty trick,” Mack observed later, “because it was during the war and they had lawyers over there.  The Privy Council had set a date, and Coke figured we wouldn’t be able to get anybody over there.”  Pepsi hired Wendell Willkie, who had just finished an unsuccessful presidential bid.  Willkie was able to get the government to fly him over to England in an Air Force bomber, ostensibly to make speeches for the war effort.  He got there in time to represent Pepsi in the courts.  The Privy Council ruled in favor of Pepsi’s claim that “cola” was a generic term and requested that both companies coexist in peace.

That, though, wasn’t going to happen.  Although the suits and countersuits stopped, the two companies continued to slash at each other in the marketplace.  Coke managed to finagle a position as a quasi-government agency in World War II as a boost to the morale and energy levels of the fighting boys.  Shipped with food and ammo as a “war priority item,” the deal spread coke’s market worldwide at government expense.  Also at U.S. expense after the war, fifty-nine new Coke plants were installed to help rebuild Europe.  What isn’t widely known, though is that, despite Coke’s wartime posture as an All-American icon, Coca-Cola continued bottling in Nazi Germany throughout the war, using syrup smuggled in through circuitous contacts in the international business community.

During the war, one of Coke’s officers served as a consultant to the Beverage and tobacco Board, which (according to Pepsi president Mack) he used to help Coke and hinder Pepsi.  For example, one of his first directives limited sugar users to 80% of their 1941 consumption.  That was acceptable for coke’s long-established bottling operation, but many of Pepsi’s bottlers were not even established in 1941.  After the war, Pepsi accused coke of working to extend sugar rationing beyond necessity.

But Pepsi played dirty, too.  While coke extended its influence deeper into the Democratic executive branch, Pepsi courted Republicans, most notably Senator Joe McCarthy, who, in exchange for a $20,000 “loan,” became know in the Senate as the Pepsi-Cola Kid.  Two decades later, Pepsi would hire defeated presidential candidate Richard Nixon as their chief counsel.  Pepsi later helped bankroll Nixon’s successful presidential bid.

More legitimately, Pepsi and Coke also fought it out in the advertising world, trading slogans and marketing punches left and right.  Both used elaborate advertising campaigns and giveaways.  (Pepsi, for example, bought the exclusive rights to sky-writing when it was new and wrote “Pepsi Cola” over nearly every city in America.)

Coke’s ads usually focused on cementing its image as an all-American institution; Pepsi’s on being the upstart challenger favored by youth and other non-stodgy types.

The Cola Wars continue. . . .

Why Coke Hates Pepsi – Part I

In the Spring of 1886, Atlanta was still smarting and depressed by its defeat in the Civil War.  The South turned en masse for solace to religion and patent medicines.  the cure-all “snake oils” of the North tended to be heavy on alcohol – an unacceptable ingredient for most Bible-thumpin’, anti-demon rum Southerners.  Under pressure from temperance groups, patent medicine makers in the South began replacing alcohol with another active ingredient that was believed to be safe, healthy and morally pure. . .Cocaine.

Atlanta druggist John Styth Pemberton had been reformulating his “French Wine Coca – Ideal Brain Tonic” to remove the alcohol, yet replace it with something that would give a nice kick.  He had found it in the African kola nut – a stimulant with the reputation of being a wonder hangover cure.  He blended it with coca extract, bringing together the two strongest stimulants know at the time.  The concoction was indeed a potent “brain tonic.”  Unfortunately, it tasted terrible.  So the grey-bearded druggist spent six months hunched over a 30-gallon brass kettle in his backyard mixing up dozens of concoctions, before finally settling on what he decided was the ideal mixture to mask the flavor of the potently psychoactive mix.

The result was Coca-Cola, a thick, sweet, brown syrup, packaged in reused beer bottles.  Pemberton sold it to other Atlanta drugstores for 25 cents a bottle.  The druggists would sell the entire bottle, or administer individual doses of the “Intellectual Beverage and temperance Drink,” often mixed into a glass of tap water to make it a little easier to get down.  It became moderately successful as a pick-me-up and hangover remedy.

That summer an earthshaking event occurred in one of Coke’s outlets in Atlanta, Jacob’s Drug Store.  A customer came in complaining of a severe hangover.  Handed a bottle of Coca-Cola syrup, he asked Willis E. Venable, the soda fountain man, to open it and mix it with water right there so he could get immediate relief.  Rather than walk to the tap in the back, Venable asked if the man minded soda water.  The distressed customer wasn’t particular.  He gulped the fizzing mixture and said, “Say, this is really fine.  Much better than using plain water like the label says.”  Word got around, and people started requesting the bubbly version all over town.

Pemberton had been marketing Coca-Cola as a medicine “for all nervous afflictions – Sick Headache, Neuralgia, Hysteria, Melancholia, Etc.,”  He hadn’t even considered that it might be drunk for refreshment recreation.  But he saw the opportunity and jumped.  His ads changed to “Coca-Cola makes a delicious, exhilarating, refreshing, and invigorating beverage” in addition to touting its medicinal qualities.

That same summer, Atlanta passed its first “dry laws,” making alcohol illegal.  Coke syrup sales jumped from 25 gallons that year to 1,049 gallons the next, largely through the marketing efforts of Pemberton’s associate and financial backer Frank M. Robinson, who coined the name and drew the script “Coca-Cola” logo that is still used today.  Robinson was Coke’s real “secret ingredient” in its early years.  He was a shrewd salesman and promoter.

Meanwhile, despite consuming large quantities of his “health tonic,” Pemberton’s health began to fail in 1887.  Coke sales were still not brisk enough to make him financially solvent, so for a very modest amount of money, he sold two-thirds of his interest in the business to Willis Venable, the man who first brought the fizz to Coke.  Pemberton’s inventory, which he drew up at the time of the transfer, gives a clue to Coca-Cola’s closely guarded “secret ingredients”:  oil of spice, oil of lemon, oil of lime, oil of nutmeg, fluid extract of nutmeg, fluid extract of coca leaves, vanilla, citric acid, orange elixir, oil of neroli, and caffeine.

Pemberton died destitute on August 16, 1888, and was buried in an unmarked pauper’s grave.  Before he died, he sold the last of his stock to Asa Candler, a more prosperous fellow druggist.  With the help of two partners, Candler quietly bought up all the rest of the stock in Coca-Cola from Venable and other investors.  Full ownership of the company – lock, stock and secret formula – cost Candler a grand total of $2,300.

Candler was a devout Christian and teetotaler, and he wholeheartedly believed that Coke was the ideal Temperance drink and all-purpose medicine.  He and Frank Robinson immediately set to work reformulating Pemberton’s original recipe to improve the taste and shelf life while keeping the same heart-pounding jolt of coca leaves, kola nuts and caffeine.

Candler reformulated Coke again a few years later when anti-cocaine hysteria hit a peak.  Newspapers carried shameless stories about crazed blacks rampaging with insatiable lust, superhuman strength, and even enhanced marksmanship as a result of cocaine.  Slang terms for an order of Coca-Cola quickly expanded from “a Coke” to “a cold dope” and “a shot in the arm”; soda fountains became “hop joints” and “dope stores.”  In 1903, Coca-Cola quietly switched to a new recipe that used coca leaves that had already been stripped of cocaine.  (Coca-Cola continues to use spent coca leaves.  It obtains them from the Stepan Chemical Company in New Jersey, the only legal processor of medical cocaine in the United States.)

Right about this time, a soldier named Benjamin Franklin Thomas, stationed in Cuba during the Spanish-American War, saw the Cubans drinking something called Pina Fria from bottles.  Suffering from Coke withdrawal, he wondered:  Why not bottle it premixed in fizzy water and make it available everywhere?  When Thomas got back to the U.S., he and a partner named Joseph Whitehead called on Candler who, seeing little profit in the venture, signed over bottling rights to them.  Thomas and Whitehead immediately began selling regional bottling franchises.

Candler, in a mixture of Southern Methodist piety and good business sense, began lobbying aggressively for anti-alcohol laws all over the South.  By 1907, 825 of the 994 counties in the former Confederacy had gone “dry.”  Sales of Coca-Cola soared.

It’s success spawned dozens of imitators.  In 1916 alone, busy Coke attorneys went after 153 wannabes with names like cafe Cola, Afri-Cola, Charcola, Co-Co-Colian, Dope, Kola Kola, Fig Cola, Sola Cola, Candy cola, Toca-Cola, Cold Cola, Kos Kola, Cay-Ola, Coke Ola, Koca-Nola, Kel Kola, Kaw-Kola, Co Kola, Kola Nola, Caro-Cola and Coca-Kola.  By 1926, Coke attorney Harold Hirsch had run more than 7,000 competitors out of business.

The Company began searching for a unique bottle design – one, as Thomas put it, “a person will recognize as a Coca-Cola bottle even when he feels it in the dark.  The bottle should be so shaped that, even when broken, a person could tell at a glance what it was.”

After a succession of rejected designs, the bottlers adopted the now-classic bottle designed by the C.J. Root Company of Terre Haute, Indiana.  The alternately taped and bulging shape was brilliant artistry, but astoundingly lousy botany:  the bottle designers, thinking they were copying the shape of the coca bean, mistakenly copied the cacao bean, from which chocolate is made.

The bottle was a huge success.  the bottlers liked it because its extra-thick glass gave a heft that disguised how little Coca-Cola was actually in it (6.5 ounces).  The company liked it because it gave them a potent weapon that would kill all infringers.  Or so they thought.

(continued in Part II)