Yesterday, it was announced that Warren Buffet has resigned from Coke-Cola’s board after 17 years of service. The reason given was time demands of new acquisitions by Buffet’s Berkshire Hathaway. But is there another reason? Could it be that Buffet with 8.3% of the beverage giant’s stock doesn’t believe Coke will solve its deeper problems anytime soon?
Coke is a brand in trouble. Nearly everyone who studies publicly traded companies knows it. In the four years leading up to 2005, the brand’s value fell an average of 9% a year. Figures are not yet in for 2005.
Some of my friends are former Coke employees who think they know why Coke is a troubled company. First is arrogance born of being at the top for so long as the world’s most valuable brand. Company executives project a know-it-all aura that closes their minds to a) seeing what Coke’s problems really are, and b) what will turn things around.
Secondly, Coke is a numbers-driven company that sees employees as replaceable pawns, its bottlers as something akin to indentured servants and consumers as prey. In short, Coke is about as far away from being a firm of endearment as one could imagine for the world’s once most valuable brand.
Another announcement made yesterday indicates that. Fifty 50 bottlers are suing Coke for a far-reaching breach of contract. The company made a deal with Wal-Mart to sell its Powerade sports drink directly to the retail behemoth. Reported AdAge.com, “Coke bottlers fear the move would violate their territory exclusivity and make it easier for the company to move to warehouse distribution with other products. They also contend they’ve had a contract with Coke since 1994 that prohibits warehouse delivery of Powerade to retailers.”
By cutting out the bottlers, Wal-Mart’s gross margin grows from 20% to 30%. This is a classic violation (pun intended) of the FoE principle of aligning stakeholders interests such that one stakeholder group doe not benefit at the material expense of another stakeholder group. Independent bottles made Coke the world’s most valuable brand.
While we may think of the Coca-Cola Company as a benign descendent of the modest business Coke inventor pharmacist John Pemberton founded in 1886, it is not the company implied by its anthem, “I'd Like to Buy The World a Coke.” It is a hierarchical, command-and-control company operating behind a Potemkin Village façade. Margaret Mark and Carol Pearson writing in The Hero and the Outlaw, a first-rate book on brand archetypes, describe Coke as the Innocent. Yes, in marketing that is so. That’s why every time Coke tries to go to the edge, where Pepsi dwells, consumers bombard it with complaints. But inside, Coke is not the Innocent. And it’s more surreal than Real in the minds of at least some of the people I know who used to work in its Atlanta headquarters.
From the November 19, 2004 post: Coke’s chairman/CEO Neville Isdell proclaim(ed) “Coke’s Manifesto for Change” … (and his) objective to “double the value of the Coca Cola trademark within a decade by reviving the icon with advertising with a youthful point of view.”
Isdell is still living in the 20th century when advertising and PR cured all problems in the marketplace. Today’s consumers’ want real Real. Employees want to know they are appreciated. Suppliers want to be able to trust companies they serve. It’s all about the stakeholder business model followed by firms of endearment. On its present course, Coke’s brand value will continue to melt away. Do you think Warren Buffet knows that?
Posted by DBW
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