Counter-Cola

A Multinational History of the Global Corporation

Amanda Ciafone

• Publisher: University of California Press
• Year: 2019
• ISBN:
  9780520970946
• Edition: 1
• Topic: Histoire
• Subtopic: Histoire du 20ème siècle

Counter-Cola charts the history of one of the world's most influential and widely known corporations, The Coca-Cola Company. Over the past 130 years, the corporation has sought to make its products, brands, and business central to daily life in over 200 countries. Amanda Ciafone uses this example of global capitalism to reveal the pursuit of corporate power within the key economic transformations—liberal, developmentalist, neoliberal—of the twentieth and twenty-first centuries. Coca-Cola's success has not gone uncontested. People throughout the world have redeployed the corporation, its commodities, and brand images to challenge the injustices of daily life under capitalism. As Ciafone shows, assertions of national economic interests, critiques of cultural homogenization, fights for workers' rights, movements for environmental justice, and debates over public health have obliged the corporation to justify itself in terms of the common good, demonstrating capitalism's imperative to either assimilate critiques or reveal its limits.

ONE

The Coca-Cola Bottling System and the Logics of the Franchise

COCA-COLA’S EARLIEST WORLD SYSTEM, which took shape in the final two decades of the nineteenth century, considered territories outside the United States almost exclusively as sites of extraction of raw materials. From transnational markets the Company had to acquire key ingredients like sugar from the Caribbean, caffeine from tea leaves from Asia, extract of coca leaf from Latin America, and kola nut powder from Africa.¹ At the same time, international peoples and their locales were central to the cultural imaginary that Coca-Cola produced for US consumers from the beginning, even if non-US subjects were not yet themselves consumers of its products. Coca-Cola’s inventor, John Pemberton, originally marketed it in 1886 as a temperance drink, a “Brain Tonic and a cure for all nervous affections—Sick Head-Ache, Neuralgia, Hysteria, Melancholy, Etc.”² According to its advertisements, Coca-Cola derived its potency from exotic Latin American coca leaves and African kola nuts. Like rival patent medicines promising remedies from hitherto untapped natural sources, the discoveries of marvelous healers, or the secret knowledge of remote communities,³ Coca-Cola was alleged to relieve the ailments of a population facing urbanization, technological change, social fragmentation, and the division of labors between overtaxed assembly-line and desk workers. And no doubt they did feel restored by the bubbly drink, compounded of caffeine (from the kola nut and tea leaves; the original formula had about four times as much as today’s Cokes), coca extract (until 1903 when the Company began using “decocainized coca leaves” for flavor and to protect its copyrighted name), and lots and lots of sugar.⁴

But in the first decades of the twentieth century, Coca-Cola began to see the rest of the world not only as a source of raw materials, but as a consumer market, and to develop strategies to deliver and promote its product to it. The Company looked first to potential consumers in the United States’ imperial possessions, neocolonies, and trading partners. Coca-Cola established its first international bottling ventures in Cuba and Panama in 1906, followed quickly by others in Puerto Rico, Hawaii, the Philippines, and Guam. By 1928, the list included Antigua, Bermuda, Colombia, the Dominican Republic, Guatemala, Haiti, Honduras, Mexico, and Venezuela in the Caribbean and Latin America, as well as France, Belgium, Italy, Holland, and Spain in Europe, and Burma and China in Asia.⁵ According to the Company’s advertising and promotional materials, the central, heroic actor in its US and international expansion was the “local, independent” franchise bottler: the enterprising small businessman who brought the modern drink, Coca-Cola, and its business model to his hometown.

FRANCHISE CAPITALISM

By organizing its production through bottling franchises, the Company expanded quickly and affordably, getting access to new markets while externalizing production costs and acquiring capital to invest in promotion for further growth. Franchise contracts granted bottlers monopoly rights to buy soft-drink syrups and concentrates, manufacture the drinks, promote them using registered trademarks, and sell them to retailers in a designated territory. In exchange, The Coca-Cola Company in Atlanta profited from sales of drink bases, franchise rights, technical and promotional services, and advertising materials to bottlers, while retaining the right to control essential production and marketing details, violations of which could jeopardize a bottler’s contract. Franchising bottling thus gave the Company control without ownership.

In its own corporate histories, The Coca-Cola Company humbly narrates the birth of its bottling business as a haphazard accident.⁶ In fact, it was the first step in developing one of the most powerful business models of the twentieth century: the franchise. As Company lore has it, in 1899, two Tennessee attorneys walked into the office of Coke’s principal owner, Asa Griggs Candler, with what in hindsight seems an obvious proposition: to bottle and sell Coca-Cola. Candler had already made the product a household name, if not yet a drink consumed at home, through soda fountain sales. Reluctant to go into the capital- and labor-intensive bottling business himself, Candler granted the men the right in perpetuity to buy the syrup at $1 a gallon, manufacture the soft drink, and sell it in nearly the entire US market using the familiar Spencerian-script trademark. Concerned about maintaining the soft drink’s reputation, however, Candler retained extensive rights to dictate the terms of its production and marketing. The Company would regret the terms of this original deal, spending millions of dollars and engaging in strong-arm maneuvers in the coming decades to amend its bottling contracts with respect to price, duration, and territory size. By the time it established its network of international bottlers, Coca-Cola lawyers had succeeded in rewriting its franchise contracts with more favorable terms. So started one of the earliest and most successful franchise systems in global history. As Coca-Cola expanded internationally, and faced the challenges of doing business in different economic, political, social, and cultural contexts, the franchise system enabled it to externalize the risks and costs of its globalization.

Beginning in the 1920s, The Coca-Cola Company began concertedly reproducing this franchise business model around the world. From the perspective of Atlanta executives, franchising trimmed expenses. Producing drinks closer to their point of sale dramatically reduced transport and quality-loss costs. At the turn of the century, before the Company established bottlers in distant markets, it shipped syrup or full bottles of the drink to international soda fountains and retailers. But there were few soda fountains outside the United States, and shipping bulky crates of fragile glass bottles by steamship or rail was expensive and inefficient, and breakage and spoilage might harm the Company’s product and reputation. The Company could have established its own bottling factories abroad, as did other early internationalizing food manufacturers like Swift and Heinz, directly investing in foreign processing plants to be closer to potential markets and avoid such transportation and spoilage costs, as well as tariffs on imported ingredients.⁷ But building bottling plants all over the world would mean slow, costly investment in physical infrastructure, expenditures on inputs like clean water and price-volatile sugar, and management of a local workforce, all with their resulting responsibilities and liabilities.

The Coca-Cola Company instead grew quickly and cheaply by adopting a version of globalization that reduced the costs and risks of internationalizing by externalizing production itself. Although it was not the first corporation to embark on franchising, its early franchising of production was exceptional. Producers of goods that required special handling (like fresh fruit or beer) or expert service (such as technologies like sewing machines or harvesters) had previously contracted with agents to serve as independent dealers in their products. But these were franchises of retailers; the underlying corporations manufactured products and shipped them to these outlets to be promoted, sold, and serviced. The Coca-Cola Company’s realization was that it not only saved transport and quality-loss costs by having its soft drinks produced closer to consumer markets, but that it didn’t actually have to produce them itself at all. The startup, labor, and production costs of international bottling plants, as well as the complexities of navigating foreign markets and associated liabilities, could all be outsourced to franchisees. Even ingredient-sourcing costs could be externalized, especially for ingredients that were hard to come by in developing markets, like the largest input, safe drinking water, or those with fluctuating prices, like sugar. Early failed forays into international bottling during the market disruptions of World War I convinced Coca-Cola executives that it was far cheaper and less risky to produce concentrate without sugar and have bottlers source and pay for it themselves, and, overall, to license bottling plants overseas rather than invest in direct ownership.⁸

The history of the English term “franchise” reveals much about corporate history. As the business historian Thomas S. Dicke explains, as early as the Middle Ages, the word, meaning roughly “endowing with a freedom,” was applied in economic contexts as when governments granted special privileges “in exchange for some service, like tax collection or road construction, that the state subcontracted to private individuals.” In the nineteenth and twentieth centuries, the term was associated with state grants of incorporation according special privileges such as limited liability or monopoly rights to a group of incorporating individuals in exchange for “the private performance of public services.” The corporation existed only by the will of the state, enabling individuals to pool large amounts of capital through incorporation to undertake a costly enterprise in the public interest, which constituted much of the legal justification for the entity’s existence.⁹

The contemporary use of “franchise” did not enter the business lexicon until the 1950s, a development that suggests how corporate rights were being redefined in US culture and law. By the mid-twentieth century, a corporation’s franchise rights and freedoms were defined not by contractual service to the state and public, but instead by subcontractual rights and freedoms granted by one corporate entity to another. Franchising became a method of organizing a large-scale enterprise by distributing products and production through relationships between two legally (if not practically) independent corporations. In fact, in many cases, franchises were far from independent firms because their economic ties to the underlying corporations (through dependency in the purchasing of goods, requirements of exclusive dealing, dictation of business policies, representation on corporate boards, ownership of shares or debt, etc.) were tighter than the contractual ones and hardly free market.¹⁰

THE SOCIAL AND CULTURAL LOGICS OF THE FRANCHISE

The franchise did not just have economic motivations and repercussions; it also had social and cultural logics that distinguished it from other types of international business organization. The franchise was a different model of capitalist internationalization than international trade or even the establishment of foreign subsidiaries, for example, and this was reflected in the social relations and cultural forms it produced. Socially, the franchise simultaneously structured independence and interdependence between the bottler and the Company, resulting in the negotiation of power and cooperation between them. It manifested in cultural representation and modes of communication that represented Coca-Cola’s operations and products as simultaneously local and global and thus was central to the discursive strategies for negotiating social and cultural difference across Coca-Cola’s world system. The multinational cast its bottlers as localizing agents by having them advertise Coca-Cola in local media, connect it to potential local vendors and consumers, and embed its business in the local context. In its first wave of international expansion, from the 1920s to the 1940s, advertising made a point of informing consumers of local bottling franchises producing its drinks, framing them as local, independent businesses that tied Coca-Cola to a place but also linked it to a distant modernity represented by the transnational brand.

A franchise model of globalization could, of course, mean a loss of control. Indeed, Company executives worried that independent, often “foreign,” bottlers could not be entrusted with expanding the business, maintaining production standards, and marketing products profitably on their own. The Company’s bottling contracts and monopoly power were legal and economic structures for asserting control in the franchise system. The bottling contract granted franchisees the rights to purchase concentrates, produce soft drinks, market them with trademarks, and sell them in a designated geographical area, but also granted the Company the right to strictly dictate production, advertising, and sales practices. In a 1927 international bottling contract, for example, the agreement was heavily weighted in favor of the US multinational: the contract required that bottlers invest in production and distribution at levels “satisfactory to the Company . . . [and] conform at all times to the high standards set by the Company”; “encourage and push the sale of the beverage within the territory at all times in a proper and vigorous manner”; submit any bottler-created advertising for Company approval; purchase goods and supplies only from Company-authorized manufacturers; and not deal in any beverage perceived as a “substitute for or an imitation of” Company brands. The bottler would be in breach of contract if it did not “meet and satisfy every demand for the beverage within the territory,” as determined by the Company.¹¹ Coca-Cola was not the first bottled beverage, either in the United States or elsewhere.¹² When it first appeared, it was one of thousands of locally produced and distributed beverages—bottled beers, alcoholic drinks, patent medicines, fruit juices, sodas, and other soft drinks. Over the course of the twentieth century, The Coca-Cola Company (and later Pepsi-Cola Co.) consolidated power in the market through acquisition and expansion, advertising, trademark litigation, protection of trade secrets, and such restrictive franchise bottler contracts. Because franchisees were contractually lim...