The Cola Wars

Podcast Transcript

In the 1980s, two superpowers battled each other for global supremacy. Across the world, the two goliaths collided on almost every front.

In the end, it left a landscape littered with millions dead…..tired of listening to their commercials.

Learn more about the Cola Wars and how they changed economics, culture, and soft drinks, on this episode of Everything Everywhere Daily.

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Technically speaking, the cola wars actually started in the 19th century.

The original recipe for Coca-Cola was created by John Stith Pemberton who was a confederate veteran of the Civil War. He suffered an injury during the war which lead to his morphine addiction. He created Coca-Cola in an attempt to create a painkiller using cocaine.

Yes, that is actually all true, but the story of a morphine-addicted confederate soldier creating one of the world’s most popular products will be left for another episode.

The Coca-Cola Corporation was founded in 1896, and two years later in 1898, Caleb Bradham of North Carolina renamed the beverage he created known as “Brad’s Drink” and called it Pepsi-Cola. I’m pretty sure you’ll agree that Pepsi is a far better brand name than “Brad’s Drink”.

The Pepsi-Cola Corporation was created in 1902.

The two companies competed against each other from the beginning. The truth is that the two products were and are not that radically different from each other. Even if you have a preference for one over the other, the preference usually isn’t so great that you wouldn’t take the other if it was the only thing available.

Moreover, the recipes for Coke and Pepsi were for the most part set in stone. It was a very strange economic model where there wasn’t room for innovation. Coke was what Coke was, and Pepsi was what Pepsi was.

They could do their best to convince people to buy their product, but they weren’t coming out with new models of their product every year.

So, because they really couldn’t compete on the product they resorted to competing with advertising.

Coca-Cola famously created the modern version of Santa Claus and much of their advertising in the early 20th century was selling a very wholesome folksy image of their product.

Both Coke and Pepsi also heavily emphasized point of sale advertising with signs at restaurants and stores encouraging them to consume their product.

During the Great Depression Pepsi switched from a 6.5-ounce bottle, which both companies used and sold for five cents, to a 12-ounce bottle for 5 cents. Packaging and pricing were one area where the companies could innovate.

During the Second World War, both Coke and Pepsi competed with each other throughout the war. Coke worked closely with the government and was exempt from sugar rationing. Pepsi had to import sugar from Mexico because they didn’t get an exemption.

Coke was given special status with US armed forces and actually built 64 bottling plants overseas to meet the demand of the military. During the war, soldiers consumed 5 billion bottles of Coca-Cola.

Pepsi complained to the federal government, but nothing ever happened.

Basically, Pepsi constantly found itself at number two behind Coke.

And for those of you would are thinking, what about Royal Crown or RC Cola?

Forgetting about RC is like forgetting that Bulgaria was one of the axis powers during World War II, or forgetting that Aquaman was a member of a Justice League.

So a number two Pepsi was pretty much the state of things throughout the entire 20th century.

In 1972, 18% of cola consumers said that drank Coke exclusively, whereas only 4% claimed to consume Pepsi exclusively.

Then in 1975, Pepsi did something which seemed pretty innocuous but was the first salvo in what would become known as the cola wars.

They began a marketing campaign known as the Pepsi Challenge.

The Pepsi Challenge was a very simple gimmick. Pepsi set up booths in malls, shopping centers, and other public places and asked people to take a blind taste test with Coke and Pepsi.

And of course, they filmed many of these taste tests where people choose Pepsi and used them in television commercials.

The Pepsi Challenge wasn’t just a marketing gimmick. Consistently, and even when tested in a controlled environment, Pepsi would be preferred about 57% of the time. Moreover, Coca-Cola’s own internal testing showed the exact same thing.

This simple taste test turned out to be a huge milestone in the war between Coke and Pepsi.

By the early 1980s, the percentage of consumers drinking Coke exclusively dropped to 12%, and the percent drinking Pepsi exclusively climbed to 11%.

This was despite the fact that Coke was outspending Pepsi by $100 million dollars in advertising every year.

For the first time in almost a century, Pepsi had almost caught up with Coke.

Coke had made some significant changes in the early 80s. First, in 1980 they switched from sugar as their primary sweetener to high fructose corn syrup. That subject, I can assure you, absolutely will be a future episode someday.

The other thing they did was for the first time the put the Coke brand on another product, their new artificial sweetener product called Diet Coke in 1982.

However, Coke itself was still losing market share, both to Pepsi and to artificially sweetened products. By 1983, the 60% market share it held during World War II had dropped down to 24%.

It was in this environment that an idea was floated by Coca-Cola’s head of consumer marketing Roy Stout. He said, “You’ve got to start asking why, if we have twice the shelf space, twice the vending machines and are competitively priced are we still losing market share?… You look at the results of the Pepsi challenge and you have to begin asking about taste”.

The general comment about Pepsi was that it was sweeter and had a smoother taste. Coke was considered as having more of a bit or tasting more acidic.

Coke’s vice president of marketing and its USA president headed a secret project to change the formula of Coke so it was more competitive with Pepsi in tastes tests.

They went into the lab and kept tinkering with the taste. They got it to where they won 50% of the tests and then were eventually beating Pepsi regularly by 6 to 8 percent.

Basically, everything Coke did was in response to Pepsi. Pepsi set the terms of the debate and Coke was acting in an entirely reactionary faction.

On April 23, 1985, Coke proudly announced to the world that they were changing the formula to the signature soft drink after 99 years. In fact, the Coke CEO said it was, “the surest move the company has ever made”.

Everyone began calling it “New Coke”. The old formula was to be retired and there were no plans to sell it as a separate product.

Coca-Cola stock went up after the announcement, and it made the news all over the world. Initial sales of Coke after the announcement actually went up by 8% as people were curious about the new product.

However, you probably know what happened next, because it has become a cultural touchstone.

The public reaction to New Coke was swift, severe, and extremely negative.

Coke received over 40,000 letters complaining about the new formula. The Coke hotline had the number of calls quadruple, almost all negative.

New Coke was the butt of jokes on late-night televisions. People began to boo at baseball games when Coke advertisements played in the stadium.

Fidel Castro even chimed in saying it was evidence of American capitalist decadence. Coca-Cola’s CEO was Roberto Goizueta, who was from a family that fled Cuba. He said Castro’s opinion of New Coke was the only time in his life that his father agreed with him.

Consumers held protests in cities where they poured New Coke into the streets and some people began trying to buy old Coke from overseas. Groups like the Old Cola Drinkers of America” were formed.

Pepsi, for their part, took out a full-page ad in the New York Times declaring victory in the Cola Wars. The day after Coke’s announcement, Pepsi gave their employees the day off saying “By today’s action, Coke has admitted that it’s not the real thing.” (One of Coke’s slogans at the time was Coke: it’s the real thing).

The reaction became so negative that on July 11, only 79 days after the announcement, the Coca-Cola Corporation announced that they would be bringing back the old formula under the name Coca-Cola Classic.

Behind the scenes, Coke executives assumed that Coke Classic would be temporary. It would silence the critics and then eventually it would just wither away. The new formula would continue to be sold as Coca-Cola.

However, that never happened. In 1992, just seven years later, Coca-Cola reverted to their original formula, the New Coke formula was now called Coke II. Coke continued to use the word “classic” on its labels until 2009.

Coke II was only in a few markets by 1998, and in 2002 it was officially retired.

Despite the entire New Coke debacle, Coke sales actually went up after it was announced.

In 1985, Coke also released Cherry Coke which was a big hit. All of the attention and publicity surrounding the New Coke rollout, and the subsequent reversal, brought the company an enormous amount of free publicity.

In fact, there are conspiracy theories that believe the Coca-Cola Corporation knew the backlash would happen all along and they did it just to get people to show commitment to the product.

Several decades of interviews with the executives involved indicate that that was absolutely not the case.

So what went wrong?

Basically, tastes tests where you take a small sip of something don’t really give you an indication of how something really tastes. Studies have found that if you just take a small sip of something, you tend to prefer sweeter tastes, just like Pepsi had.

Consumers had almost 100 years to compare Coke and Pepsi, and they always came down on the side of Coke. Pepsi got Coke to second guess their own successful product, which lead to them creating New Coke.

The coal wars have never really ended. In all my travels around the world. I’ve seen local beers and wines in every country, but soft drinks are truly global. How it is bottled, packaged, and advertised might be different, but the product is pretty much the same everywhere.

Pepsi, despite its gains in the 80s, never has surpassed Coke in terms of market share. Pepsi had its own share of interesting product launches, aka Crystal Pepsi, which was a version of Pepsi with no coloring.

In a strange epilogue to the story of New Coke, the Coca-Cola Corporation announced in 2019 they were bringing New Coke back for a limited-time promotion in conjunction with the Netflix series “Stranger Things”. They created 500,000 cans and it was sold only online.

This time, there was so much demand for New Coke that it crashed their servers.