Soda Wars: Coke v. Pepsi

Coke v. Pepsi

Prohibition makes all sales of alcohol illegal with the passing of the 18th Amendment.

It's positioned as a way to uplift the nation, curtail abuse, and discourage laziness.

Thousands of bars and saloons close, but Americans are hungry for places to gather and socialize.

One vice whack-a-moles into another: Sugar.

By 1922, there are 100,000 soda fountains in operation.

Soda at the time isn't available like it is today. It's mixed by someone called a soda jerk. They take a syrup concentrate, mix it with water, and carbonate it.

In Post WWI, Coca-Cola reigns supreme, selling 17 million dollars of its syrup each year.

Coke's Origin Story

Coke was created in 1886 by a pharmacist named John Stith Pemberton. But he doesn't get to see Coke become a money-making empire. Because Asa Candler, an American businessman (and eventual mayor of Atlanta) snatched up his stake in 1888.

A Young Buck with a Bold Vision

In 1923, Robert Woodruff becomes president of Coca-Cola. He's a 33-year-old college dropout with no experience running a corporation.

He's green and has massive shoes to fill. But one day, he'll turn his father's $25 million investment into a multi-billion dollar empire.

Don't Leave Soda to the Jerks

Woodruff notices a big problem. Coca-Cola's reputation depends on teenagers working at soda fountain shops making their final product. As a result, there is little quality control.

Woodruff recognizes the importance of consistency in building a beloved brand.

He has a lightbulb moment and realizes he can control the quality of his product by bottling Coca-Cola.

But his moment in the sun is cut short. Coca-Cola had already tried bottling in Europe. But the 1922 rollout was a disaster.

The company invested $3 million and advertised heavily. But, instead of triumph, cafes turned into Problem Child 2's infamous vomit scene.

Unfortunately, European bottlers hadn't sterilized corks, so the bottles were ripe with bacteria—borderline poisonous.

The European bottling fiasco cost Coca-Cola the modern equivalent of $46 million.

Unsanitary Bottlers Get Reigned In

In the 20s, bottling is handled by third-party contractors. They buy syrup from brands like Coca-Cola and take care of the packaging and shipping. The problem: their facilities are filthy.

Woodruff rolls out quality control guidelines and offers a 10% discount to bottlers who comply. Those that don't have their shipments delayed. Repeat offenders get dropped.

A Lofty Competitor with a Seedy Past

One of Coca-Cola's biggest customers is a soda fountain chain called Loft Inc. The company's president, Charles Guth, is a former candy manufacturer with a shady mythology.

He was accused of murdering his African American chauffeur. Guth claims self-defense, and as is often the case then (and today), walks away scot-free.

Loft Inc. has a chain of over 200 soda fountain shops. They generate $3 million in sales a year and use 31,000 gallons of Coca-Cola syrup.

Loft Inc. accounted for 1% of all Coca-Cola syrup sales.

A Hard Bargain Falls on Deaf Ears

Guth has been trying to get a better deal on Coca-Cola syrup for the last two years. He's annoyed he can't get a discount because he felt Loft Inc. was doing its share in sales.

Known for his fiery rage and unpredictable temper, Guth cancels his order. This sends him looking for an alternative syrup and gives birth to one of the biggest business rivalries in history.

The Automobile Births a Novel Idea

By 1929, 23+ million cars are on America's roads.

The automobile gives people an opportunity to travel in a way that's affordable and accessible. It also connects them to new markets and products.

Robert Woodruff recognizes the importance of the automobile and how every single motorist needs to fill up. He sees gas stations as the next big thing.

At the time, service stations didn't offer snacks, drinks, or cold remedies. They were just places you went to get gas. Not today's mini markets.

There are only 100,000 soda fountains, but 1.5 million gas stations.

Grab Me a Cold One

Refrigeration doesn't exist. The one way to keep things cold is the icebox, essentially a cooler that you put ice in every few days to keep things cold.

Woodruff tasks his team with finding a way to keep Coca-Cola bottles cold. In 1928, his team comes up with a cooler, modeled off the icebox concept. They paint it red and green and adorn it with the Coca-Cola logo.

It's ready for gas stations. Woodruff launches 30,000 of these branded coolers at gas stations, and Coca-Cola becomes the first cold drink available to motorists on the road.

The coolers are a smash and spread from gas stations to hotels and department stores. Pushing Woodruff's profits to $41 million in sales.

Thanks to his ingenious coolers, Coca-Cola bottle sales smash syrup sales, with no competitor in sight—for now.

The Search for an Alternative

Ever since ditching Coke, Guth is bleeding money. His customers are angry they can't get Coca-Cola at Loft soda fountains.

After months of fruitless searching, he sees a newspaper article about a company desperate for a buyout: Pepsi-Cola.

Pepsi was invented in 1893 by a pharmacist named Caleb Bradham. At the peak of Pepsi-Cola's success, Bradham and his company declared bankruptcy. The price of sugar went up from 3 cents a pound before the war to 28 cents a pound.

Guth uses Loft Inc.'s money to buy Pepsi-Cola. He uses company resources to create personal wealth. He hired a team of chemists to rework the Pepsi formula to be as close as possible to Coke.

His chemists' experiments fail. Finally, Guth directs them to sweeten Pepsi even more than Coke. In 1931, he launches the new Pepsi-Cola at all Loft soda fountains. Patrons aren't familiar with Pepsi, they want Coke.

Soda jerks start serving Pepsi to people who want Coke because the difference was subtle. Also, because jerks controlled the amount of syrup and water, people were used to inconsistencies in their products.

Coke Gets a Tip-Off

Woodruff hears about soda jerks serving Pepsi instead of Coke at Loft soda fountains. Coke hires young lawyers and detectives to pretend to be customers. They found that Pepsi had secretly been served at least 600 times at 44 Loft stores.

This Means Wars

Guth knows a big legal battle is coming. He writes a memo saying he condemns and prohibits the soda jerks' underhanded behavior. But it's too late.

Woodruff wanted to protect Coca-Cola's reputation and didn't hesitate to go to court. Guth uses what money he has left to defend Pepsi.

Coke has the revenue to keep battling it out. But in 1932, the court ruled in favor of Pepsi, citing the memo prohibiting substitution. It's a short-lived victory because Pepsi is drowning in legal fees.

In 1933, Guth can't find a buyer for Pepsi, so he calls Woodruff and offers to sell Pepsi-Cola to him for $50k.

Coke had a chance to ice their biggest competitor. But Woodruff turns Guth down. A decision that would haunt Coca-Cola for decades to come.

Prohibition Ends

In 1933, the 20th amendment repeals prohibitions. Bars reopen. Soda fountain shops decline in popularity.

At this time, soda is sold in 6.5 oz bottles for a nice. Beer was sold in 12 oz. bottles. Guth gets a brilliant idea. He gets old beer bottles, cleans, and repackages them as Pepsi. Offering Depression-era, price-conscious families a two-for-one value.

He offers twice as much Pepsi for the same prices as Coca-Cola. Pepsi sales start climbing and overtake Coca-Cola's in some markets.

Guth invests all his profits into Pepsi's expansion. He's distributing his product nationally and bringing in $2 million in sales a year (about $40 million in today's money).

The Death of A Soda Jerk

Woodruff refuses to offer Coca-Cola in 12-ounce bottles. Instead, he's set on removing soda jerks from Coke's equation. He wants to create an automated machine that controls the perfect ratio of syrup to water, every time.

At the 1933 World's Fair, he unveils the Dole Master, the first-ever automated soda dispenser. It reduced a 10-second process to 5 seconds and could hold 220 servings of syrup.

Guth Resigns from Loft

In 1935, Guth resigns from Loft Inc. He's spent all his time and energy running Pepsi-Cola. Loft is on the verge of bankruptcy. Loft shareholders realize that Guth used the company's resources to buy Pepsi, so Loft owns Pepsi.

They install Walter Mack, a military veteran and Ivy League grad with financial savvy and the likeability Guth never commanded, as interim President. Guth stays on as CEO, and the two are forced to work together.

Guth does everything in his power to make Mack's life miserable. He doesn't give Mack, the key to the bathroom. After a six-month battle between Loft and Guth, full control of the company goes to Loft and Walter Mack.

Guth is out.

Cola: Just a Name?

Woodruff hatches a brand-new plan. Cola nuts come from Africa, they are a stimulant, so Coca-Cola takes a bunch of small companies that call their products cola to court. Cola nuts were in the original Coke recipe.

Coca-Cola wins case after case and is gunning for Pepsi-Cola in 1941. Walter Mack, the new president of Pepsi launches a skilled defense. He's worried that his company will lose the case.

Then he gets a phone from a woman at Cleo Cola, who sympathizes with Mack and Pepsi's legal troubles. She tells him that Coke ended up writing her a $35,000 check to go away. In other words, Coke's legal team was basically buying wins.

Mack's legal team introduces evidence of the buy-offs. Coke's team takes a three-day recess and Woodruff calls for a face-to-face meeting to try to put an end to the legal battle.

Mack rejects his offers. And Coke formally recognizes Pepsi-Cola's trademark. Pepsi sales reach $14.9 billion.

Walter Mack was an advertising genius. He created the first-ever radio jingle.

Pepsi won't outstrip Coca-Cola sales until the 1980s.

Stay tuned for the next chapter of this bittersweet rivalry.

Source: The Food That Built America. Season 2, Episode 5, Cola Wars