Note: Everything went extremely well earlier this week with regards to some very minor health issues of mine. I greatly appreciate the well wishes in the meantime. All is well that ends well.
Buffett’s investment in The Coca Cola Company is the stuff of legend. The Oracle’s usual explanation for Coke’s success (as an investment and otherwise) as usual is full of obfuscation and generalisations.
If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.
The accumulated goodwill of over a century in business (and now over a century as a publicly traded company), the lack of a taste memory of the product, and World War II’s global dispersal of Americana are given as explanations of Coke’s pervasiveness. As usual, Buffett has generally omitted the key ideas that made Coke investable at the time he bought his original 23 million shares in 1988.
I, for one, am very interested in what made the company attractive at this time. This particular case study varies from some of the previous quality transition stories I have covered in the past (Moody’s in particular), in that Coke’s transition is more about quality-to-ultra-quality, and that their was no real external catalyst - change came from within via the good offices of Roberto Goizueta.
Setting the Scene
The Coke of the 1970s was troubled. The general economic malaise of the era was felt widely at the Atlanta institution. Firstly, the on-again, off-again disputes with the Coke bottlers were reaching a nadir. The history of bottling is serendipitous - for the bottlers anyway. During the late 1890’s Asa Candler was approached by the entrepreneurs Benjamin F. Thomas and Joseph B. Whitehead about the prospect of outsourcing the bottling of the Coca Cola product. The accepted historical narrative is that Thomas and Whitehead were so convincing that Candler sold them the bottling rights for a single US Dollar. The contract agreed to was extremely friendly the bottlers in other ways too. Primarily this was in fixing the price of bottle sales at 5c, effectively capping the price at which the syrup could be sold to the bottlers. This was compounded by the fact that the bottling contract had no fixed duration. This wrinkle in history resulted in the price of Coke remaining unchanged until 1959.
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