Find out about the history of Coca-Cola – including how the brand started, the decisions that contributed to its success, and what that means for the company today.
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History of Coca-Cola
The Coca-Cola Company (KO) is the world’s largest beverage distributer, and through brands like Coke, Diet Coke, Fanta and Sprite, it delivers over 3% of all drinks consumed globally every day. Starting with just one product in 1886, the Coca-Cola Company has grown to include more than 3800 brands across the world.
Coca-Cola’s history of stability, position as one of the world’s most recognisable brands and overwhelming consumer loyalty – not to mention consecutive dividend increases – have helped the company remain popular with investors for a long time. But how did it become the powerhouse it is today?
The launch of The Coca-Cola Company
Coca-Cola origin
Coca-Cola started in 1886, when pharmacist John Pemberton created a caramel-coloured liquid and combined it with carbonated water.
The rights to the formula were bought in 1888 by businessman Asa Griggs Candler for just $2,300, and the Coca-Cola Company (KO) was subsequently incorporated in 1892. Coca-Cola was first sold from fountains for 5 cents (3p) a glass, and by 1913, one out of every nine Americans had tried it.
As competition began entering the market, Candler sold the rights to bottle Coca-Cola – this launched ‘the Coca-Cola system’, a franchise partnership that now exists between the company and more than 250 bottlers worldwide.
In 1916, the signature Coca-Cola contour bottle was introduced to prevent the real drink being confused with copycats – 100 years later and it is instantly recognisable around the world.
The early years of Coca-Cola
Entry to the NYSE
In 1919, a group of businessmen led by Ernest Woodruff purchased The Coca-Cola Company from Candler for $25 million. Later that year, Coca-Cola made its initial public offering (IPO) on the New York Stock Exchange (NYSE), for $40 per share.
As of the 2016 annual report, Coca-Cola shares have risen so that the company’s market capitalization is roughly $180 billion, and has had 53 consecutive dividend increases. At the end of 2015, one share of KO stock purchased in 1919 (with dividends reinvested) would have been worth $12,748,802, an annual growth rate of 14.11%.
Coca-Cola and the Great Depression
Just one year after Coca-Cola’s IPO, the company had amassed $40 million in assets, and by 1929, the company had sold nearly 27 million gallons of syrup, up 150% from 1920.
But then on October 24 1929, the Wall Street Crash launched America into a decade-long economic downturn.
Despite declines in sales, Coca-Cola had dedicated themselves to long-term brand equity by continuing to increase advertising costs. This resulted in unparalleled consumer loyalty, despite depreciating stock value, and enabled Coca-Cola to emerge from the economic crisis relatively strong.
This performance helped Coca-Cola join the Dow Jones Industrial Average– which measures the performance of 30 significant US stocks – in 1932, though it was removed in 1935.
Coca-Cola during World War II
When the US entered World War II, Coca-Cola decided that their product should be available to all deployed soldiers, wherever they were. This created a global demand for the drink, causing the number of countries with bottling facilities to nearly double from the mid-1940s to the 1960s.
Coca-Cola also introduced its second drink, Fanta, to German markets during this time. Fanta is now consumed more than 130 million times every day.
Brand expansion: financial successes and failures
Minute Maid acquisition
The purchasing of the Minute Maid Corporation, through a stock swap in 1960, marked Coca-Cola’s first venture outside of soft drinks.
Following the success of this acquisition, Coca-Cola introduced Sprite in 1961, which is now worth an estimated $5 billion, and is the third-most popular soft drink worldwide.
Diet Coke
In July 1982, Coca-Cola introduced a low calorie option, Diet Coke – it was the first new brand to use the Coca-Cola trademark since 1886.
Within a year of its launch, Diet Coke had become America’s top sugar-free beverage, and had boosted Coca-Cola’s retail sales by 7%. Diet Coke has continued to be one of the most successful brands around the world, available in more than 185 markets.
New Coke disaster
When rival company Pepsi-Cola began to gain market share in the early 1980s, Coca-Cola announced that, for the first time in 99 years, it would be replacing its formula. On April 23, 1985, original Coke was discontinued, and Coca-Cola shares quickly dropped 3%.
Graph showing KO during new Coke incident, 23 Apr to 11 July 1985.
New Coke caused outrage among loyal consumers, who created protest groups and even boycotted the beverage company. It took just 77 days for the company to admit it had made a terrible mistake, and revert back to the classic formula.
Coca-Cola overtook competitors again, and returned to the Dow Jones in 1987 – where it has remained ever since.
Coca-Cola today
World’s most iconic brand
In 2017, Forbes ranked Coca-Cola as one of the top five most valuable brands worldwide. A large part of that success comes from its marketing campaigns, which have reached all corners of the globe.
For example, Coca-Cola saw a 2% rise in sales when they launched ‘Share a Coke’, the personalized bottle campaign in 2013.
Through advertising campaigns, and sponsorship of sporting events (like the FIFA World Cup and Olympic Games), Coca-Cola have made sure that whatever the consumer trend of the era, they have maintained a high public profile.
Challenges Coca-Cola faces
Coca-Cola’s battle with the USD
As an American-based company, Coca-Cola is influenced by the strength of the US dollar – a strong USD can cause unfavourable foreign sales conversions and erode earnings, while a weak USD can lead to better profit margins.
For example, in 2016, the US presidential election created dollar volatility that played out across the share prices of large US companies – including Coca-Cola.
Graph showing the KO share price change during presidential election and after Trump’s inauguration – January 2016 to November 2017.
In the lead up to the election, it was predicted that a victory for Donald Trump could impact multinational companies negatively, thanks to his positive effect on the dollar. Sure enough, Coca-Cola’s final quarterly earnings report of 2016 saw their profits fall from $1.2 billion to $547 million – approximately 7% of which was caused by profits lost through currency conversion.
A couple of weeks after Trump’s inauguration, the dollar slipped and Coca-Cola delivered revenue ahead of expectations for the second quarter of 2017. The dollar remained weak for most of 2017 as scepticism of the Trump administration rose, and only regained strength toward the end of the year.
Though Coca-Cola initially welcomed Trump’s promise of corporate tax cuts, the then Chief Executive Muhtar Kent openly criticised Trump’s travel ban and restrictive trade rhetoric as damaging to global trade and therefore damaging to Coca-Cola.
Keeping up with consumers
As demand for non-carbonated drinks has increased, the growth rate of Coca-Cola has slowed. Soft drinks had become the target of criticism from public-health experts, and healthier options began to gain in popularity.
But Coca-Cola didn’t take the news lying down, deciding to replace any lost revenue by changing from being a carbonated drinks company to a ‘total beverage company’. This included developing and buying new products such as:
Monster Beverages
In June 2015, Coca-Cola acquired a 16.7% share of the energy drinks company for a little over $3 billion. This move increased Coca-Cola’s exposure to energy drink revenues, as well as Monster’s own acquisitions in herbal teas and juice products
Coca-Cola Zero Sugar
In 2017, Coca-Cola introduced a new formula for Coke Zero, alongside new packaging and an active marketing campaign, to the UK.
This resulted in double digit growth and the introduction of the product to markets around the world
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