Coca-Cola

Introduction

0:00David, I cannot believe we're about to do a four-hour podcast on syrup, sugar, and water. I mean, that's the entire business is just syrup, sugar, and water combined. And it's a $300 billion company. Well, Ben, you know what I'm going to say to you in response to that. Do you want to sell sugar water for the rest of your life? Or do you want to come with me and change the world? Ooh, save it, David. Save it. Who got the truth?

0:27Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth?

Welcome to Acquired

0:41Welcome to the fall 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Charlie Munger has a famous thought experiment. It's the 1880s. You want to build a company from scratch that eventually becomes worth $2 trillion, starting with just $2 million. So you're looking for a $1 million X return, or as Charlie puts it, a Lollapalooza outcome. Of course he does. Very Charlie.

1:11Very Charlie. The constraint is it must be a non-alcoholic beverage business. Okay. And another constraint, it must throw off many billions of dollars in dividends along the way to your shareholders. Okay. This sounds almost impossible, but what ideas could you possibly dream up to give it your best shot? Well, I think the first question I would have is whether I could include any now illegal drugs in my product. That certainly helps.

Building a Beverage Company

1:44So to build this giant valuable company, the first thing you need to know is you're not going to get there with something generic. So you have to build a brand that grows into a strong, protected trademark. And to reach that scale, it must be global. So it has to have a taste that's universal in all countries. Now, conveniently for you, all humans do require large amounts of water every day to live. So it is a giant market. But you're not going to fully replace water. It's just going to be kind of a small fraction of the time. So onto the beverage itself, you're going to want to optimize it to maximize the rewards

2:19of ingesting it as refreshing as possible in any climate.

Optimizing the Beverage

2:24Now, you're going to want to do a bunch of other stuff too. You want to fill it with calories to give energy. You want the flavor, texture, and aroma that makes it pleasurable to consume. And you should throw in some brain stimulants like caffeine and sugar. That's sort of the ideal product mix. Among other things, yeah. Now, you don't want competitors to swoop in for a free ride on the market you just created. So you should make sure your product, the real thing, is available everywhere. Anytime someone asks for it. I see what you did there.

2:55At a very low price. So there's really not an opportunity for competitors to ever fill the vacuum. There's never a reason for anyone to reach for anything other than your product. Always. Always, David. And since everyone is not thinking about beverages all the time, like you probably are as the proprietor of this business, you're going to want to associate your beverage with all the things that they are thinking about.

Associating with Happiness

3:17The good life. Family. Your sports heroes. Beautiful people. Christmas. I mean, happiness generally. You are going to want to have a Pavlovian association between your drink and happiness. And you're going to want to spend huge amounts of money blanketing the entire world with this messaging. Now, to build something this valuable, you also can't have a big expensive bottling and distribution operation. So you're going to need to figure out some clever way to get someone else's capital and employees for that while still maintaining the control that your brand requires.

Maintaining Control

3:52I mean, ideally, it would be great if you could serve the entire world with just a few of your own production facilities. That would be pretty great. Yes. And the last thing, you must never, under any circumstances, change the formula or flavor. Ooh.

4:10We were doing great there. We were doing great. But, you know, this might be why Coca-Cola is not a $2 trillion company today. Well, we'll debate that at the end of the episode. Listeners, of course, this playbook is almost exactly what the Coca-Cola company has done. And they've done it over the course of 140 years. It has its roots all the way back in the Civil War. It grew up through the rise of the automobile, through the Great Depression, through two world wars. It seamlessly and shamelessly integrated into the hippie culture of the 70s.

4:43And then, of course, it had the epic Cola Wars of the 80s and onward. And, David, I would say this episode, perhaps more than any other that we've covered, is about America. Well, it's about America and then America inserting itself everywhere else in the rest of the world. Can't wait to dive into it. Well, listeners, this episode was selected by you. Last month, we asked our email subscribers to vote on what company we should cover next, and Coca-Cola was the overwhelming favorite. So thank you to all of you who participated.

5:15You can join that email list at acquired.fm slash email to get in on the next round of voting. And that same email list is getting a lot better. We just did a big overhaul. So each monthly email will now have episode summaries, our big takeaways from the company after studying it, and exclusive photos from our research process. So never miss an episode drop by signing up at acquired.fm slash email or clicking the link in the show notes. Before we dive in, we want to briefly thank our presenting partner, JPMorgan Payments.

5:46Yes, just like how we say every company has a story, every company's story is powered by payments. And JPMorgan Payments is a part of so many of their journeys from seed to IPO and beyond. So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

The Birth of Coca-Cola

6:05David, where do we start our story? Well, Ben, as you so aptly set up there, the story of the birth of Coca-Cola starts arguably with the birth of America as we know it today in a newly reunified United States of America following the Civil War. Mark Pendergrast, in his great book, For God, Country, and Coca-Cola, that was a main source for this episode, has a great quote. He says, Coca-Cola remains emblematic of the best and worst of America.

6:39It is a microcosm of American history. Coca-Cola grew up with the country, shaping and shaped by the times. The drink helped to alter not only consumption patterns, but attitudes towards leisure, work, advertising, sex, family, life, and patriotism. So, you know, just a few small things. So, if you remember back to our Standard Oil series a couple years ago, one of the biggest industries in post-Civil War America was oil of a certain kind, but it wasn't the same

7:10kind of oil as Standard Oil. It was snake oil. Ah, good hook. Yeah, or as it came to be known after the war, patent medicines. Before this industry, there were no national brands in America or anywhere else. There were railroads and there were like big national industrial companies, but there weren't any national consumer product companies. Everything was local. There weren't any CPG companies. There weren't any supermarkets.

7:40There weren't any car companies. There weren't gas stations. And there weren't advertising agencies to go along with them.

Patent Medicines

7:48Patent medicines were sort of like this seed crystal that created the modern American consumer business. And what were patent medicines? So, going back again to our Standard Oil series, John D. Rockefeller's dad, if you remember, was a traveling snake oil salesman. Yeah. Yeah. In his days, back before the Civil War, these were medicines that promised like a cure to all sorts of ailments. Nausea, indigestion, headaches, cancer, tuberculosis, skull fractures, paralysis, and impotence.

8:26All based on zero research, zero studies. Zero science, nothing. The Civil War changed all that. Not necessarily for the better. So, after the war, there were so many wounded soldiers in America that were in such chronic pain that the market for medicines like this from these snake oil salesmen just exploded. A huge, huge percentage of veterans from the Civil War developed what is called army disease,

8:59quote unquote, i.e. they were addicted to morphine for the rest of their lives as a painkiller. Which actually did work. Yes, that actually did work. Very well. At killing pain. And it wasn't just physical injuries from the war and the soldiers who fought in it. The Civil War ripped America apart. I mean, these guys and their families had just gone through this devastating trauma. I mean, there were so many deaths, so many wounded. It was families fighting against one another. It was truly, arguably, the worst moment in our nation's history.

9:30So, naturally, whenever there's a big problem, American capitalism sees a big opportunity. So, some of these enterprising, traveling snake oil salesmen started scaling up the medicines that they were making to meet all this new demand. And as they scale up and they start to standardize the products that they are offering, this industry comes to be known as patent medicines. Now, most of these medicines were not actually patented, but as the producer of them,

10:02you wanted customers and would-be competitors to think that they were, that there was some sort of barrier to entry. Yes. So, pretty quickly, these newly scaling patent medicine guys discover that the best way to reinforce that message with consumers and to stimulate demand was advertising, especially in newspapers. And this is the birth of the advertising industry in America. It's these patent medicines that start spending the first real scale dollars in newspapers,

10:33which are also coming up and industrializing post-Civil War and building the business model of the media industry as we know it today. Because, just like you were talking about in your great Charlie thought experiment from the intro, what are these patent medicines? It's just commodities. It's like leaves and like nuts and water and stuff that go into these things. I mean, it's- Extracts, David. Extracts, right. Okay. It's super cheap commodities that are very easy to obtain in great quantities,

11:05very easy to then produce into your product and transform, and then pretty small relative to other products, easy to transport around the country. You do start to get some of these patent medicines that scale up and build early national brands in this day. So you might think that all this is like ancient history. A whole bunch of products that we still buy today started as patent medicines. Luden's Cough Drops, Vicks Vapor Rub, Vaseline, Listerine, the mouthwash, all patent medicines.

11:40Those are patent medicines that are still used for sort of a, you know, health purpose today. Plenty of products that we still use and consume today started as patent medicines, but are no longer marketed as medicines. Graham crackers started as a patent medicine. Grape nuts, the cereal. Neither grape nor nuts. Angostura bitters. You know the bitters that you get in like old fashions and stuff? That was a patent medicine. Okay, that makes sense. That's squarely what I believe a patent medicine is. Yep. And then a couple things you might be familiar with.

12:13Dr. Pepper. Really? I didn't know Dr. Pepper was that old. Yep. Dr. Pepper predates Coca-Cola. Huh. And of course, Coca-Cola started just the same way as a patent medicine. Which brings us to Dr. John Pemberton, a Confederate war veteran who had not only been stabbed, he had also been shot during the war, and got Army disease, just like all these other soldiers, and was addicted to morphine for the rest of his life.

12:46So after the war, he moves to Atlanta, and as part of his sort of entrepreneurial aspirations in this new patent medicine consumer economy, and also to probably solve his own problem, he starts casting about for other drugs that could cure him and others of Army disease. And that is how, in the mid-1880s, he learns about a new miracle drug sweeping America, promising to cure all ills, including Army disease.

13:17Cocaine. Cocaine was really, really in, in America in the 1880s. Perhaps foreshadowing a little bit the 1980s in America, as we will get to later in the episode. Except in the 1880s, it's really legal, and really broadly encouraged. Certainly there's no FDA or anything to make it illegal, but society's posture toward cocaine wasn't bad. It was like caffeine today. Right. They did not really discover the addictive nature of it, or demonize the addictive nature of it yet.

13:49Yeah. Or the side effects, etc., etc. So, pretty quickly, cocaine becomes the most popular patent medicine ingredient out there. It's probably the only ingredient that actually did anything. Yeah, yeah, yeah. And there is a product on the market, an imported product from France, you can't make this up, that quickly becomes the most popular delivery vehicle for cocaine. A cocaine-fortified wine from Bordeaux, in France, called Vin Mariani.

14:21It's like the most extreme Four Loko you could ever dream up. Exactly. Exactly. Yes. So, this sounds utterly ridiculous today, but let me read you the list of public endorsers of Vin Mariani. Maybe, like, testimonies in the Rolex parlance. Thomas Edison, Buffalo Bill Cody, United States President William McKinley, gets even better, Queen Victoria of England, and not one but three consecutive popes in the Vatican, all swore by Vin Mariani.

14:59Feels like a thing I would be swearing by and endorsing, too. I imagine once you start, it's the best thing ever. Sure. So, entrepreneurial Pemberton in Atlanta sees Vin Mariani's success and is like, hmm, well, I wonder if there's a way that I could copy and improve on that. And the way he comes up to improve upon it is to add caffeine to the mix. Why not? Yeah, why not? He decides that he's going to get the caffeine from African cola nuts, K-O-L-A, cola nuts.

15:30Which we should say is the first introduction of the word cola, period, in the American lexicon. Cola drinks were not a thing. Yep. And it's very bitter. But the reason he chooses it is it has an even greater caffeine concentration than coffee beans. He really wants this product to work. So, Pemberton starts selling Pemberton's French wine coca, which is still wine, but is now infused both with coca leaves for the cocaine and cola nuts for the caffeine.

16:04And it's a hit. This could not have tasted good. No. I can't imagine what it tasted like. So, President Ulysses S. Grant becomes a fan, and Pemberton starts selling, like, thousands and thousands of bottles in and around Atlanta. Which makes sense. People are drinking it for its drug-like medicinal qualities, not that it's in any way refreshing. Yep. Now, I say bottles. Keep that in mind here. However, bottling technology in the 1880s is not what it is today.

16:36Not very good at preserving liquids or foods. Certainly not good at preserving carbonation. However, because this is a wine at this point in time, wine has natural preservatives in it. So, it's self-stable, so you can sell bottles of wine. People have been selling bottles of wine for centuries at this point in time. So, then prohibition hits. Party's over. Yep. Fall of 1885. Atlanta, I think, might have been the first major city in America that institutes prohibition and becomes a dry town.

17:09No alcohol. So, Pemberton's now like, well, shoot, I've got this hit product. I need to scramble and come up with a soft version of a soft drink. Oh. And this is the origin of soft drinks. They're not hard, as in alcoholic drinks. They're soft. There you go. So, he starts madly experimenting with all sorts of flavors and ingredients. And after six months or so, in April of 1886, he nails a formula. Yes. And so, the question is, how does he arrive at this formula? The book I was reading, which is called Secret Formula, it's a great book on the history of Coca-Cola that had access to all the corporate archives, really describes Pemberton in this phase as finding his capitalist streak.

17:49As sort of realizing, okay, take a step back. Patent medicines are sold for 75 cents, a dollar. It serves a crowd of people when they're looking to recover from some ailment. Or really, at this point, probably serve an addiction. We're now 20 years from the Civil War, so a new generation is coming up. Yes. Yeah, that doesn't have army disease. Is there a product that I can make that people can afford anytime they want that's not a medicine, that's just a refreshment, and has all these other great properties using some of the ingredients that we've been using?

18:25So, he kind of comes up with this idea of a five-cent, again, because the ingredients cost so little, these extracts, it's a super high-margin product, a five-cent thing that anybody can have just to have a little pick-me-up, a little treat when they're at the soda fountain. Well, pick-me-up. When they're sitting down in the social gathering space, because drugstores at that time were sort of the Starbucks of this time. It really was this gathering place to go and spend time. And so, he says, I'm going to serve this other market of anytime refreshment.

18:57And so, he's playing around with these ingredients. And he's got the cola seed that's got this natural caffeine in it. Fun story, in the original Coca-Cola, for the first, I don't know, couple decades, it actually had four times the amount of caffeine that Coke does today. So, it's effectively an energy drink, even leaving the cocaine aside. However, the cola seed, it tastes really bitter. It's absolutely horrible. Which was not a big deal previously, because he was mixing it with wine, people were drinking it for medicinal purposes, just kind of slugging it down.

19:28But he's trying to create a refreshing beverage here. And so, I did not know that this was possible way back in 1886. But what he does is he uses synthetic caffeine. Merck, the pharmaceutical company, had already been extracting pure caffeine from cola seeds. So, Pemberton just got a hold of Merck and bought a bunch of the powder. And so, the first version of Coca-Cola is a little tiny bit of the cola seed, just kind of to say that it's in there.

19:58He's going to call this thing Coca-Cola. But the caffeine actually comes from a synthetic extract. Yeah, interesting. It's always been synthetic. Huh. That's right. I didn't know that. That's amazing. So, there's a great excerpt from the book Secret Formula. At last, he stood on the verge of inventing Coca-Cola. Down in the basement, Pemberton filled his 40-gallon kettle with plain water, which he then heated to a boil over an open fire. Using a wooden paddle to stir the solution, he melted in sugar and caffeine. Right, sugar because of the extreme bitterness of the cola nut.

20:30Yes. And, actually, the coca plant was also bitter, so sugar was to offset it. Yeah, yeah. Next, he added caramel for coloring, giving the syrup its dark, distinctive port wine color. To balance the sweetness of the sugar and give the syrup its tang, he added lime juice, citric acid, and phosphoric acid. Then, as the basic blend cooled, Pemberton turned to the question of flavor. Into the mix went vanilla extract, elixir of orange, and several pungent oils, refined from various fruits, herbs, and trees.

21:02Lemon, nutmeg, spice brush, coriander, and neroli. The last ingredient, in perfumes distilled from a flower of the orange tree. The most exotic was oil of cassia, also known as Chinese cinnamon, made from the bark of a tree found in the tropical regions of Asia. And, of course, Pemberton added this brew to the fluid extract of coca leaves. Exactly how much cocaine went into the inaugural batch of Doc Pemberton's new soft drink syrup is impossible to calculate more than a century later. But with even a touch of the drug, in combination with the sugar and caffeine,

21:35four times the amount in today's coke made Pemberton's concoction quite a stimulating beverage. Yes. Yes, indeed. As best as I was able to read from a few different sources, I think roughly once Coca-Cola starts being produced in that first decade, call it four or five glasses of Coca-Cola would be about the equivalent of a line of cocaine today. Okay, so it would take a lot of Coca-Cola. If you're drinking that much of that formula, you're having the equivalent of 16 Cokes worth of caffeine.

22:08It's an absolute crap ton of caffeine and sugar. By that description, the cocaine probably would affect you less than the sugar and caffeine in the mix. That's a good point. Regardless, you're going to get hype when you drink this. And this amount of cocaine really was only a part of the formula for those early first few years. Yes. But it lends the first half of the name, which Pemberton's business partner at the time, a guy named Frank Robinson comes up with a simple, descriptive, perfect name for this new brew, Coca-Cola.

22:44Which is funny because it neither contains much cola since the caffeine is actually an extract. And it's just a tiny little drop from the cola seed. And very soon, they would strip out almost all the cocaine. And so, you have a product that for the next 140 years would be called Coca-Cola that contains really not very much coca and really not very much cola. Yes, indeed. So, they go about getting the new product installed and distributed in drugstore soda fountains around Atlanta.

23:15But Ben, you were saying a minute ago about, oh, drugstores were this gathering place at the time. Remember I said about bottling technology, if you weren't selling alcohol, which had natural preservatives, the only way that you could buy and consume a drink that really wasn't like water or milk or something was fresh. And so, that's how soda fountains come to be installed in these drugstores. They're selling the patent medicines, many of which are liquids. And that's also how carbonated water comes to the drugstores because mineral water, carbonated water is thought to be a health tonic.

23:48And so, it all mixes together and then over the years, these morph into social places, thanks in large part to Coca-Cola. Makes total sense. And I'm pretty sure what actually happens is Pemberton lets his formula settle and it's kind of this thick syrupy thing, brings it down the street to the first drugstore, and that druggist, that proprietor is the one who actually combines that syrup with the carbonated water and makes the choice, which I think could have gone either way. Is it a still or a sparkling beverage to give it that champagne sparkle

24:20to create the Coca-Cola that would endure from there? Well, thank goodness they do use the carbonated water. Could you imagine Coke if it were still? That wouldn't be very good. No, well, it wouldn't be as successful. I mean, there was probably hundreds of things like Coke that were still that did not succeed. So, pretty quickly, Coca-Cola gets into market with these drugstores and soda fountains, and people love it. This is great. It's a dual-benefit product. It has all the medicinal benefits of cocaine and caffeine, the cola, that they've been marketing.

24:52And it's actually really enjoyable to drink, and it tastes great. So, the next year, in 1887, Frank Robinson, the business partner who also named the drink, he also introduces the script logo. Like, he writes out the Coca-Cola script logo that we still use to this day. This is unbelievable. I read that this guy was Pemberton's bookkeeper, and yet he's the one who came up with the name Coca-Cola and the Spencerian script, the logo Coca-Cola, which has been unchanged other than just tightening it up a little bit since he created it in 1887.

25:24Yes. It is true that he was his bookkeeper, but he was also his business partner. It was like... It's like, I'm your bookkeeper type thing. Yeah. Yeah, exactly. Exactly. So, the two of them come up with a pretty ingenious advertising and distribution method. Because in the early days, they don't yet have a ton of capital to start spending on advertisements, like all the other patent medicines out there. They decide that they are going to offer tickets to consumers, redeemable at their local Atlanta soda fountains,

25:57for free glasses of Coke. Coke. And they start mailing out these free Coke tickets or coupons, you might say, to every address in the Atlanta city directory. And then they also give them to traveling door-to-door salesmen to go hand out on their routes. Not Coca-Cola salesmen, but salesmen that are selling a variety of different products. And this is the very first manufacturer's coupon redeemable at a retailer. Yes. There's an image on Wikipedia of one of these tickets from 1888 that is the oldest known

26:36coupon used in America. And it is actually beautiful. It kind of looks like a dollar bill. We'll put a photo of it in the email. It's incredible. This becomes absolutely huge for Coca-Cola and integral to its success. Well, yeah, it's a high gross margin product where you can give out giant amounts, where if you mail someone a little ticket that says you can come and redeem a free drink that tastes good, that's full of sugar, caffeine, and cocaine, I'm pretty sure they're going to buy more from you. It's a high gross margin

27:11product, so you have lots of dollars to play with. And on top of all this, this is kind of a new product category, this notion of a soft drink that's not a patent medicine that's much cheaper than traditional patent medicines. And so you do actually need to do some category creation marketing where you make people aware that this cool new thing exists. Yep. All of that is true. And even more so, this couponing strategy aligns incentives for everybody

27:42in the value chain in a way that had never been done before. Consumers, they love it. They get free drinks of this great tasting beverage. Drug stores and soda fountains, they super love it because now they're getting more foot traffic. And then once consumers come back and start buying their second, third, fourth, you know, 400th drinks, this is a highly profitable drink for them to sell. They have gross retail margins on this. And then three, the traveling salesman who Pemberton and his associates

28:16are giving these tickets out to, well, they love it too. This is like, oh, wow, now a great new free benefit. I can offer my customers. Why wouldn't I want to do this? It's this incredible invention that completely incentivizes rapid, extreme growth in distribution of the product. So to further illustrate how awesome this is for the soda fountains, Coke, when they were selling gallons of syrup to the soda fountains, they sold them for about a dollar and 30 cents per gallon.

28:50The soda fountains then sold drinks to customers at five cents a drink. They're 128 drinks per gallon. They're making $6.40 of revenue for a product that costs them a buck 30 to buy. Yeah. I'm not a retailer, but I'm pretty sure those are good margins. Pretty sweet deal if you can get it then pretty sweet deal to be McDonald's today offering my large Coke with a meal. Yeah, man, pretty sweet

29:22deal indeed. Okay. So all of this happens within the first year, year and a half of Coca-Cola being on the market. Pretty quickly, Pemberton, who wasn't really doing much anyway after inventing the drink, Frank Robinson named it, made the logo, is doing a lot of the distribution work. Pemberton becomes convinced that he's dying. Which he generally was slowly over all these years. Yes. And he secretly

29:54decides that he is going to sell off the rights to the formula. Without telling Robinson. Without telling Robinson, without really telling anybody. This kicks off a whole mess of very questionably legitimate transactions. That results by mid-1888, early 1889 in Frank Robinson discovering what's going on and seeking out a wealthy Atlanta businessman named Asa Candler to come in and be his new

30:25partner to reunite all these various claims to ownership of the formula and the company that they can then grow and scale and manifest its destiny across America and the world. And Asa Candler is really the person who creates the modern Coca-Cola company with Frank Robinson's help in 1892, which he incorporates as the definitive Coca-Cola company. But before we tell the story of the

30:56Coca-Cola company, now is a great time to thank our presenting partner, JPMorgan Payments. Yes. Who wants to wish all of you a happy holidays? Happy holidays. And to share some stats on how their infrastructure kicks off its holiday season. So last year, they processed over $53 billion during Thanksgiving week. That is insane scale. At one point on Black Friday last year, they were processing over 6,000 transactions per second. And that is actually 17% higher than the previous year.

31:28Wow. Yes, that is insane scale. On our history of credit cards a few years ago, we told the story of how in the early 90s, customers behind you in line used to get mad if you pulled out a credit card because it was actually slower than cash. It's hard to fathom today that payment processing was measured in seconds and in minutes, not in milliseconds like today. Oh, yeah. I won't even do any holiday shopping in person anymore. Like, it's just not worth the hassle. I do everything online. Well, that's where I was going. Our friends at JPMorgan told us that 50% of the top 10 online

32:00transaction days now occurred during the Black Friday to Cyber Monday period. But that means that the payment landscape has gotten enormously more complicated with all the different ways to pay. This is awesome for consumers like you, David, but it creates a ton of data for merchants that causes complexity, especially with holiday shopping. Enter JPMorgan Payments Commerce Solutions. They manage the complexity for you, and they've built a customer insights platform to turn payment data into actionable insights. You can make custom reports of things like revenue in different

32:31geographies each day, demographic shifts in your customers, benchmark against peers, or even purchase patterns for repeat customers. And this is huge for businesses during the holiday season, because while I do my shopping online, JPMorgan actually found that the next generation of shoppers are going back to stores, which is wild. Over 55% of Gen Z's holiday spend is through omni-channel experiences, far surpassing other age groups. So listeners, if you're looking to do more with your payments data with invaluable customer insights and meet your customers where they are, visit JPMorgan.com slash acquired to learn how commerce

33:06solutions can grow your business. All right, so David, this is the first professionally run version of the Coca-Cola company. Yes. But to give you a sense of just how much of a hit this product becomes, how quickly, even in the couple years before the professionalization and the founding of the Coca-Cola company, in 1887, so the first year that Coke the product is on the market, Pemberton and Robinson sell 600 gallons of Coca-Cola syrup to soda fountains, which equates to about 75,000 glasses of Coke

33:41served. By 1889, two years later, that is quadrupled to over 2,000 gallons. And by 1890, it's almost 10,000 gallons. So what's that? Three years into the business with no professional management, they grow the business 10x without even really trying. It's amazing. And in that next year, 1891, when Asa Candler buys the last piece to fully own Coca-Cola, he got an incredible deal. Even with all that growth having already happened, he only paid $2,300 to buy it all. That is the base of the

34:16company that he builds. And that's just buying all the various rights and claims from the people that Pemberton sold it off to. No capital needs to be invested in this business ever. Unbelievable. It is a cash flow bonanza since like day one. It's crazy. So in 1892, the first official year of operation of the Coca-Cola company, we have the books. We know just how profitable they were. They spent just over $20,000 on ingredients and production costs.

34:47And I think that includes all like operations and stuff too. There's only like three people working in the business here. They spend just over $10,000 on advertising. Okay. And with those costs, they sell 35,360 gallons of syrup at an average price of a buck 30 a gallon. So that is $46,000 in revenue and $12,000 in profit. Now for reference, the average household income in 1892 was about $500. There are three people working in this business, including Candler,

35:23the owner. They made $12,000 in annual profit in the first year of the business. So they are crushing it. So that's each person at the company, if they were paid equally, is making 8x the average household income. They are in a promising business. And that's just for the Coca-Cola company. Remember, the soda fountains are selling to consumers at $6.40 a gallon. So the actual gross revenue,

35:53of Coca-Cola in the marketplace in that first year is close to a quarter million dollars. That's a quarter million dollars on, what'd you say, a little over $20,000 of ingredients and manufacturing? Yes. And then another $10,000 in advertising. So that's crazy. It's only a tenth of the ultimate sale price of the beverages is there in the costs of the ingredients, the manufacturing, and the advertising when you fully load it. Yes. So there's a lot of margin to go around. So speaking of advertising costs, in the next few years,

36:28they invest heavily into advertising. And of course, the Coca-Cola company does still right up through to this day. The advertising they were doing, on the one hand, is very different than Coca-Cola advertising today. And specifically, it's different in that it's all purely intrinsic advertising. It's about the nature of the product itself. Remember, they're still sort of positioning Coca-Cola as this dual-use, refreshing beverage, non-alcoholic social drink, but also patent

36:59medicine. So here's some of the early ad copy during this period. Coca-Cola is the ideal brain tonic and sovereign remedy for headache and nervousness. It makes the sad, glad, and the weak strong. Yeah, it feels patent medicine-y. It feels patent medicine, not a pause that is refreshing just yet. But what Robinson and Candler do do that is very much still on brand for Coke today is they are all about outdoor and point-of-sale signage and presence. So they put the script Coca-Cola

37:34logo everywhere across Atlanta. They make oilcloth signs. They paint murals on walls of buildings. They do billboards. They put it in streetcars. They print posters for all the soda fountains to display. Then they're like, why stop at posters? Let's make calendars. Let's make cabinets. Let's make serving trays. Let's make glasses. Let's make clocks. All with the big Coca-Cola logo. They would go on to paint 20,000 murals on the signs of barns and walls across the country side starting in 1894. Unbelievable. Incredible. What you're talking about, David, is this great

38:11use of all these extra margin dollars. They would do all this for free for drugstores. And they would say, hey, don't you wish you had like a big, bright, beautiful sign to bring customers into their store? And Coca-Cola would design, pay for, fabricate, and deliver signs for drugstores that had the store name in big letters and Coca-Cola's name just as big. And they did this for thousands of drugstores across the South. And so you see all these great old pictures of these stores that effectively look like Coca-Cola stores. Oh, they're beautiful. Yeah. It almost looks like they're

38:45franchising Coca-Cola rather than Coca-Cola just being a thing that's sold at the drugstores. It's so beautiful because, like you said, it seems like they're franchising Coca-Cola with no capital investment. And the drugstores freaking love it because they're making 80% retail margins on this Coca-Cola. Of course they want it to be their number one product. They want a big advertisement says we have Coke. Yes. So by 1898, Coca-Cola is distributing over 1 million branded promotional items

39:17per year. This is before the year 1900. Yeah. Nuts. They also start expanding geographically because we talked about syrup earlier. All the Coca-Cola company is doing here is selling this concentrated syrup. It's the drugstore soda fountains that are then mixing it with carbonated water and making it a drink. The syrup is small, compact, it's shelf-stable, it's easy to transport. Combined with the couponing strategy, they've got this killer national growth strategy. So by 1895,

39:55Coca-Cola is being sold in at least one soda fountain in every single state and territory in the United States at this time. Wild. Wow. Yeah. And if you look at old pictures of this time, they had landed on what you were talking about the intrinsic advertising, a slogan that most people will know, delicious and refreshing that you see on all the old Coca-Cola memorabilia. That's coming into view. They're not yet talking about the lifestyle you could have if you associate with Coke. They're talking about quality and they're

40:26also talking about price. They're advertising as many places as they can. Hey, this is five cents. They also start for the first time working with celebrities and athletes in some of these advertisements that they're doing. And of course, as you would expect, in 1895, they trademark the Coca-Cola script for the first time. They are granted that unbelievably valuable trademark. Yes. The delicious and refreshing slogan, that actually evolves during these years. And it's Frank Robinson who starts to lean more towards delicious and refreshing and the social benefits

41:00and away from the patent medicine brain tonic slogans. There's actually a great quote on this from him in For God, Country and Coca-Cola. He said, we found that we were advertising to the few, i.e. people who needed a brain tonic, when we ought to advertise to the masses. And so he starts dropping all this, oh, sovereign remedy for headaches and nervousness stuff, and then starts really emphasizing the drink Coca-Cola, delicious, refreshing. This is really important because he's hitting on like, hey, Coca-Cola is for everyone. It's not only for people who have something wrong with them that

41:37they need a medicine to fix. It's not a niche. It's not a demographic. It's for everybody. Yep. And two, just instinctually, he understood, hey, we don't want to associate our product with negative things, with problems. Headaches, nervousness, those are problems. We want to associate our product only with positive things, delicious, refreshing, friendship, et cetera, et cetera. Yep. Which is so funny. At this point, all the cocaine is not gone yet. It's being marketed as this unabated good, while at the same time, the company's like, we should probably do our best to

42:11start moving away from cocaine because it doesn't actually seem to be the value proposition that people are here for. Yes. And the anti-cocaine sentiment is coming. Yep. Before they fix the cocaine issue, though, Candler in 1899 makes what is maybe simultaneously the best and the worst business deal in history. He gives away the right to bottle and sell Coca-Cola for free. Yes. Definitely one of the dumbest deals ever, if you just look at it as it was in that moment,

42:47but would be sort of Coca-Cola's second great business model innovation after couponing. So in 1889, two guys from Chattanooga, Tennessee named Benjamin Thomas and Joseph Whitehead come to Candler with a proposal. They want to bottle Coca-Cola. They're convinced that bottling technology has matured enough at this point that they can now bottle fully mixed Coca-Cola beverages. And not only will

43:19they not go bad, it'll keep the carbonated fizz, it will still be delicious when opened and consumed at a later date. And Candler's like very anti-bottling, right? Yes. He is extremely skeptical. He's like, yo, we've tried this before. I really don't think the technology's there. I'm not sure about this. Thomas and Whitehead, though, they're very persistent. They say, well, totally get that. Understand that. What if we do it at no risk to you? You let us buy

43:50Coca-Cola syrup from you, same as all the soda fountains are doing. We will bottle it and sell it at our own expense. And if the product isn't up to your standards, you can just pull our license and we'll stop selling it. Candler thinks it over and he's like, that's a pretty good deal. I've got nothing to lose here. Why not? I'll let you two young bucks have a go at this. So in July of 1899, the three of them sign a contract that includes the following terms. For a token contract price of

44:22$1, which Candler never collects, the Coca-Cola company will sell syrup to Thomas and Whitehead at a volume discount price of $1 per gallon. So even less than they are selling to the individual soda fountains out there because I think it's going to be a higher volume business. Thomas and Whitehead will have the exclusive assignable right to market and sell bottled Coca-Cola for $0.05 per bottle, same prices at the soda fountains, across practically the entire

44:57United States. But this $0.05 per bottle, operating a bottler is a tougher business than operating the soda fountain in this respect because there is one meaningful additional cost, the bottle itself. Yeah, the bottle. You can see why Candler was reluctant to get into this business. Thomas and Whitehead must use only Coca-Cola syrup. They can never use any substitutes or competitors as the syrup for the products that they are selling. They cannot sell to soda fountains. That channel will remain directly sold by the Coca-Cola company. And if they fail to supply enough product,

45:32to meet the demand for bottled Coke in the territories that they have rights over, the contract will be forfeit. The Coca-Cola company will provide all advertising needs for the product and maintain all control over advertising. And that's it. There is no term length on the contract. And gosh, there's got to be something in there about how that $1 per gallon could change over time, right?

46:03Nope. No, there is not. So the Coca-Cola company, as long as this bottler continues to satisfy the demand and doesn't violate any of the other terms, is obligated to keep selling syrup at $1 per gallon to the bottler. Yes. And the bottlers are obligated to keep selling bottles to the public at $0.05 retail cost. Fascinating. So let it be written. Obviously, there are so many things wrong with this, but also so many things right with this.

46:40This lets the Coca-Cola company enter and scale the bottle business completely capital and investment free. They don't have to do anything besides advertising, which they are already doing for their growing national business. In fact, they're not doing any different advertising. They're just amortizing the cost of the same advertising against one more touchpoint that they could have with the customer. They're still painting the same barns. They're still putting up the same signs. Yep. So Thomas and Whitehead go back up to Chattanooga. They set up the Coca-Cola bottling

47:15company, and they start selling bottled Coke for the first time to groceries, stands, and saloons, as they put it. Obviously, all three of those are pretty big markets for Coca-Cola today. Especially the, you know, like groceries and stands, a.k.a. gas stations, convenience stores, et cetera, et cetera. And at this point in history, in 1900, the Coca-Cola company is still just 20 employees. So they're about to get ridiculous leverage on just a handful of people that work at the

47:49parent company, and that includes making the syrup. It's a small head office. High margin product, baby. Yep. So pretty quickly, two things happen with young Thomas and Whitehead here. One, they didn't actually know each other very well before going into business together. They end up getting into a fight and splitting into two separate companies. Remember, the contract is assignable. They can do whatever they want with it. So they split up the territory across America, and they say, great, we're going to assign the rights we have in this contract with the Coca-Cola company to our two separate companies. And then they both independently decide, you know, man, actually

48:25owning and operating these bottling operations and dealing with the capital investment of both setting up the production lines and then buying the bottles and recycling them and returning them and cleaning them, et cetera. It's a kind of low margin, very upfront capital intensive thing to bottle Coca-Cola. And operationally very intensive, too, of course. We've realized we can just assign the rights that we have here. Well, why don't we keep assigning the rights? They start subcontracting out little subterritories to other entrepreneurs and small

48:59bottling operations across the country. And so basically overnight, first dozens and then hundreds of local Coca-Cola bottling operations pop up in these entrepreneurial endeavors in basically every town and countryside across America. That have no contractual relationship with the Coca-Cola company. They have a relationship with this, quote unquote, parent bottler. Either Thomas or Whitehead. Yes. So Thomas and Whitehead's companies come to be known as the parent bottlers,

49:32and then all the guys doing the actual work come to be known as the actual bottlers or the first line bottlers. This is the ultimate rent seeker. I mean, Thomas and Whitehead just have like a little toll booth set up in between the Coca-Cola company that owns the intellectual property and makes the syrup and markets it and the bottlers who are actually doing the work. And they're just clipping little coupons as the money flies by on the way over to the bottlers and the Coca-Cola company. But hey, Candler and Robinson weren't going to do this. So like more power to them.

50:06Right. That is the argument here is that there is economic value from Thomas and Whitehead and actually spurring bottling to happen at all. Yes. And they need to go find the local bottlers and set up these entrepreneurs and teach them how to do it. Eventually they're doing nothing. But in the early days, they're not doing nothing. That's true. Within 10 years, they managed to find 400 proprietors of bottling operations, get them to stand it up. And by 1925, there was 1,200. So it is a busy, busy 25 years finding all

50:37these child bottlers. So basically, this creates a second wave of blitzscaling, if you will, for the Coca-Cola company across America, because they'd already nationally expanded to soda fountains. But soda fountains are only in towns large enough to have a soda fountain. What about all the rural areas of the countryside? Not to mention just the simple market expansion of letting people drink at home or wherever, at restaurants, anywhere else. It's a huge deal. The net of this is that within a few years, basically every single man, woman, and child

51:13in the United States becomes intimately aware of and familiar with Coca-Cola. And the company doesn't have to lift a single finger to do it. Yep. This reminds me a lot of our Visa episode, where we were talking about the difference between if you're Visa and you're scaling as a network of networks versus if you're Amex as a closed loop system. And we were talking about how Visa achieved tremendous scale relative to their head office size, their employee head count. And they did it in a very short period of time. Coca-Cola is sort of

51:46in the same thing here, where they can scale so fast because of the bottlers, where they're not actually having to do all this work themselves. I don't think Coca-Cola is the ubiquitous international product that it is today, where they just created and then won the market without this bottler scale thing. No, absolutely not. If they had taken the Amex approach and Candler had decided, ah, you know, we're going to enter the bottling business ourselves and we're going to go market

52:18by market and invest the capital in the production lines and the bottles, absolutely no way would they have reached the critical scale that they did in the country. And then internationally too, they use the same model to go around the world. Yep. And Coca-Cola would start referring to this as the Coca-Cola system. I don't think we've ever studied a business before that has a system like this, where you can look at the Coca-Cola company, which is ostensibly what we're doing on this episode. But actually to understand the scale and impact and reach of the product, you sort of have to look at the system holistically, the sum of the

52:53Coca-Cola company and all the bottlers. The crazy thing is this is still the system today. Coca-Cola still doesn't bottle. I mean, we can talk about the exceptions to that, but in large part, and their desired end state is there's all these bottlers around the world that they just sell syrup to. Yeah. It's kind of like Microsoft and Intel in the PC era, except even more closely tied. It'd be like if Microsoft had contracts with Intel where they got to stipulate what the processors were going to

53:24look like and what the machines were going to look like. It's funny. The thing that it made me think of was, it's kind of like our Rolex episode where Rolex, you don't want to be in the authorized dealer business. It's operationally expensive, the training's hard, but you do want the control over the retail experience. And Rolex managed to have their cake and eat it too, like we talked about that on that episode, where they can kind of say, hey, it's a privilege to be able to sell our watches. And so you're going to make your store conform to our exact standard. Coca-Cola does the exact same thing with the bottlers. And they say, hey, you have a license to print money. It's not as much money as we're going to print,

53:57but you can print some money and you know it's going to be a good business. More than some money, the local Coca-Cola bottlers usually become the wealthiest family in any given town across America. Very true. But just to make sure we're super clear, Coca-Cola versus their bottlers, the Coca-Cola company has higher gross margins, much better returns on invested capital, requires less invested capital. They get to focus on just making syrup and marketing. They don't have to do any of the undifferentiated stuff. You'd much rather be Coca-Cola than the bottlers, but it's a good business to be the bottler too.

54:29Especially if you're a small town entrepreneur and, you know, turn of the century America, like hell yeah. And if the Coca-Cola company is going to dictate terms to me and tell me exactly how red my truck needs to be and that it must say Coca-Cola in this particular way and the bottles must come off exactly like this, that is fine. I will agree to all of this because I know... I'm going to make money. Yes.

54:52So once things turbocharge with the bottlers and scaling across America, a lot of imitators and copycats start popping up trying to make another cola drink, use the same model, go to other bottlers or maybe other aspiring entrepreneurs who didn't get the Coca-Cola franchise, might want to open a competitive franchise in their local town, et cetera, et cetera. By the mid-1900s, there are hundreds of Coca-Cola competitors out there. There's Afri-Cola,

55:24Char-Cola, Carbo-Cola, Coca-And-Cola, Fig-Cola, Ca-Cola, King-Cola, Standard-Cola, on and on and on and on and on. And by the way, a cola, like what I'm holding up right now, David, this brown-flavored fizzy drink wasn't a thing before Coca-Cola. Coca-Cola was insistent that we aren't the Coca variant of cola. Coca-Cola is one thing that means our formula, our secret formula with this mystery merchandise 7X, which is the real crux of the formula. And there's no other things that

55:56can be colas because we created the concept of Coca-Cola and we are N of one. So in 1905, Congress passes the Federal Trademark Act in the United States and they federalize trademark protection in the country. Previously, it was just done state by state, which I think is probably how Coca-Cola trademarked the script logo earlier than that. It might have just been in Georgia. Yep. Of course, the Coca-Cola company is one of the first registrants for their trademark and

56:28they start using this new law to sue the crap out of all the competitors out there. And really winning on these grounds that like cola isn't a category. You can't be a something cola. It's not a general term. We own Coca-Cola as a lockup. Yes. And they succeed. So over the next like 15, 20 years, by the mid-20s, it's estimated that Coca-Cola sues and shuts down over 7,000 copycat cola brands in a very, very busy legal

56:59department. And this becomes the next critically important pillar of building Coke. Only Coke is the real thing. Coke is real. Everything else is an imitator. It is a copycat. It should not exist. Yep. And there is a famous 1920 case that went all the way to the Supreme Court. There was a company called the Coke Company, K-O-K-E, that was insisting. Actually, it's worth an aside here to say at this point in time, Coca-Cola did not embrace the nickname Coke. One, because

57:33of the affiliation with the drug. And we should say by 1905, cocaine is pretty much entirely gone. There's no more Coke in Coca-Cola. Yeah. It's actually an amazing story. In 1903, they contract with a company called the Schaefer Alkaloid Works of Maywood, New Jersey, that has developed a process to decocanize coca leaves. And this company, which still exists to today and is still the sole supplier of decocanized coca leaves to Coca-Cola today, is granted a federal exemption by the U.S. government from

58:08the DEA. They're the only commercial entity in the United States that is allowed to import coca leaves. Because they import it with cocaine in it still, right? Yes. And then they have a process to take the cocaine out of the coca leaves. They sell the decocanized coca leaves to Coca-Cola. And I'm pretty sure the way that this ended up happening was the Hoover administration said if federal agents are present on site and can supervise the destruction of the cocaine byproduct, then you can do this on American soil. You can import the coca leaves, do this,

58:38create a giant pile of cocaine, and then we will watch you destroy it. And that's still how they produce Coca-Cola. Yeah. Which is also another piece of protecting Coca-Cola. Nobody else has access to coca leaves. You want that taste? You ain't going to get it. Because the coca leaves, as much as the cocaine is gone, the coca leaf is still an important part of the formula. So anyway, there's this 1920 case where Coke, K-O-K-E, is sort of tongue in cheek saying, what do you mean? You guys aren't saying you're Coke. So certainly we can be Coke. And the other point they were making is Coca-Cola, you guys can't actually even use

59:14your trademark. It's unprotectable since there's not really much coca in it and all the cocaine's been removed. So it's actually misleading. False advertising. You're misleading the public by saying that you are Coca or Cola. You're not. And the Supreme Court says, uh-uh. We are ruling in favor of Coca-Cola. It is a phrase that has transcended being a descriptive name, and it is now just a brand. And the official ruling, which is the stuff of legend, contains this phrase. Coca-Cola means a single thing coming from a single

59:47source and well-known to the community. And that is the new description of what the Coca-Cola brand is and why it is a trademarkable thing that has nothing to do with Coca or Cola. So this is the first biggest front of the war that Coca-Cola wages on the imitators through the courts. It goes to the Supreme Court. To the Supreme Court. Amazing. The second most important front of the battle against the imitators is the bottle. So Coca-Cola

1:00:21realizes, hey, we're not actually in the bottling business ourselves, but we have full control over it. If we really want to drive home to consumers that Coca-Cola is the real thing and have it be immediately identifiable what the real thing is, we actually can force our bottlers to develop and invest in a proprietary bottle that'll become instantly visually known to all

1:00:55consumers in America and then around the world. And this results in 1916 in the famous proprietary bottle that you all know today, the Ben you are drinking out of right now. The Contour bottle, as it is officially called, or as it is then known in the vernacular, the Mae West bottle. Yes. Because its proportions look like the famous actress Mae West. Yes. And the story of how the Contour bottle came to be is awesome. But first, we want to tell

1:01:26you about a friend of the show that we are very excited about, Work OS. And if we've learned anything from Coca-Cola, it is that if you have a great marketing message, you should just keep reinforcing it. So I called the founder of Work OS and said, what are we going with? We're happy to brainstorm. Let's figure out the right message. And his comment back to me was, we've got the right message. Yes. We've gotten some insane feedback on Work OS from our last episode. Somebody even called the read that we did that you really masterminded, Ben, the best podcast ad they've ever heard. So we're

1:02:01rolling with it again. If you're building software that's used in enterprises, you've probably felt the pain of integrating things like SSO, SCIM, permissions, audit logs, and other features required by big customers. Work OS turns those potential deal blockers into simple drop-in APIs, letting you scale revenue earlier in the life of your company or simplify your internal code base if you're already a larger company. Yep. The founder, Michael Greenwich, pointed out to us that it's not just about scaling revenue. It's about landing a customer so your competitors don't. It's like Coca-Cola here.

1:02:33Enterprise readiness has become table stakes for companies no matter what their stage. And Work OS is the go-to choice for the best software companies to shortcut this process and get back to focusing on what makes their beer taste better, building the product itself. So interestingly, this has accelerated in the AI era. There are hundreds of AI companies that rely on Work OS as their auth solution, including OpenAI, Anthropic, Cursor, Perplexity, Sierra, Replit, Vercel, the list goes on. So why have all of them jumped on the Work OS train?

1:03:05What we learned from Michael is it's basically two things. One, AI companies are just scaling so much faster that they need things like authorization, authentication, and SSO to quickly become enterprise ready early on. And two, unlike the old world of bring your own SaaS product for your little team, these AI products reach really deep into your customers' systems and data to be the most effective. So IT departments are scrutinizing more than ever to make sure new products are compliant before they can adopt them. So if you're ready to get started with just a few lines of code

1:03:35for SAML, SKIM, RBAC, SSO, authorization, authentication, and everything else to please IT admins and their checklists, check out Work OS. That's workos.com or click the link in the show notes and just tell them that Ben and David sent you. Okay, David, so the bottle. The Mae West bottle. So in 1912, the Coca-Cola Bottling Company sent a note to all of its members that Coca-Cola Company has this great distinctive logo. It's highly protected in the courts. We've got the

1:04:10trademark on it, but we don't have a way to protect our business as the bottlers. So the proposal is that the members all join together to create a distinctive package for the products. And so in April of 1915, trustees of Coca-Cola Bottling Association vote to develop such a distinctive bottle. Yes, and this is great. At the convention of the bottlers, where I think they approved this, the Coca-Cola Company's head of legal, a guy named Howard Hirsch, who is doing all these lawsuits

1:04:42of the imitators across the country, he comes with the mission of trying to convince these bottlers that spending this great capital expenditure is going to be in their interest. And this is what he says to them. We are not building Coca-Cola alone for today. We are building Coca-Cola forever. And it is our hope that Coca-Cola will remain the national drink to the end of time. The heads of your companies are doing everything in their power at considerable expense to bring about a bottle that

1:05:13we can adopt and call our own child. And when that bottle is adopted, I ask each and every member of this convention to not consider the immediate expense that would be involved with changing your bottle, but to remember this, that in bringing about that bottle, the parent companies are bringing about an establishment of your own rights. It's exactly what you're saying, Ben. Wow. Isn't that amazing? What an orator. Help us help you. Wow.

1:05:43So they create this design brief and they send it around to 10 different glass companies around the country that says, we want to develop a bottle so distinct that you would recognize it by feel in the dark or lying broken on the ground. So simple. It's like, what do you really want the product to be? And so the root glass company of Terry Hote, Indiana designs the bottle that goes on to win the contest. You all know what it looks like, the contour bottle. Interestingly, so it's got

1:06:15this sort of wide top and then sort of a, as one of the books put it, a snatched waist, which is why they call it the Mae West bottle. It's this Georgia green color. That's right. But hilariously, the first version of it was actually much more round. Yeah, it was almost like a cartoon version of the bottle we know today. And you might wonder why this sort of like striated, striped, super round pod, something got lost in translation. And the bottle was designed to look like the cocoa plant.

1:06:50The cocoa pod that you smash open to get out cocoa beans. This is a whole different thing called the coca plant, not the cocoa plant. C-O-C-A versus C-O-C-O-A. Yeah, I read about this too. But ultimately, it satisfied the design brief. You definitely recognize it. It's super distinct. It's kind of beautiful with the sort of rounded, we'll put it in the email, all based on a misinterpretation of what the plant actually is, but very distinctive. Ultimately, in 1915,

1:07:21the patent for the contour bottle gets granted, actually not referencing Coca-Cola at all because they wanted the whole thing to be a surprise when it hits the market. They would then, this is some classic Coca-Cola lawyering, get additional patents for iterations on the design that effectively renewed the patent all the way from 1915 until the final one expired in 1951. The company then went to the patent office and made the case that the bottle shape was so distinctive and so well-known

1:07:51in 1951 that it should be granted trademark status, which they got. It is highly unusual for packaging to be granted a trademark. And their rationale was, look, in 1949, we conducted a study that showed that less than 1% of Americans could not identify the bottle of Coke by shape alone. It's an integral part of the product in the brand. Yes. There you go. Talk about a successful accomplishment of that creative brief that all those years later, 99% of America could look at it and say, that's a Coke bottle.

1:08:25Amazing. So, by the next year, one year after, everybody in the extended Coca-Cola family system is prospering. And nobody more so than the Coca-Cola company at the top. Yes. And they had gotten a variety of monkeys off their back at this point. The cocaine is gone. They've really started defending the trademark. They've got this bottle thing. They had another issue where there was a federal regulator who thought caffeine was evil, so they appeased him

1:08:57by cutting the caffeine content down by two-thirds. Yep. And by this point in time, the Coca-Cola brand and what it stands for and the beverage, delicious, refreshing. It's such an integral part of America that taking out the cocaine, cutting the caffeine by two-thirds or by three-quarters doesn't really impact things. The country is still hooked on Coca-Cola. In fact, it probably helps. It probably helps. Yes. Makes it more of a wholesome beverage. It makes it so you can consume a lot more Coca-Cola.

1:09:28Okay. So, 1916, everybody's doing great. Nobody's doing better than the Coca-Cola company. Asa Candler is a big man about town in Atlanta. Probably the most important person in town. So much so that a group of other Atlanta citizens convince him to run for mayor. Which he does. And he wins and becomes the mayor of Atlanta in 1916. And so he retires from Coca-Cola and gives his Coke shares to all of his children. And then a couple years later, in 1919,

1:10:03a local banker named Ernest Woodruff puts together an investor syndicate and basically stages a takeover of the company and buys out the family members for $25 million. This also effectively serves as the IPO of the company because it's a syndicate of investors and shares start trading hands and the company becomes publicly traded. And certainly they didn't need to raise capital by going public.

1:10:34Right. And it was a complicated little period because some of the kids did want to have this happen. Other ones didn't want to have it happen. There's sort of family infighting. But ultimately, after a few years, Ernest Woodruff and his syndicate of investors do own and control the company. In fact, there was some clever financial engineering that had to happen to buy this company. Like $25 million in 1919 is a huge amount of money. And so as a result, this is actually the first time

1:11:04the secret formula for Coca-Cola gets written down. It had been sort of this cool secret before, but as collateral for the loan that Woodruff took out to complete this transaction, they wrote down the formula and placed it in a vault at the Guarantee Bank of New York. Mmm. Because that's where they got the capital from. And so they get to hold the formula as collateral. Prior to this, it had always been verbal. The system Asa Candler set up was insane.

1:11:36So this is from the book Secret Formula about Asa and his son Howard Candler. Asa made his son memorize the contents of the various containers that were stored carefully in a locked room with their labels peeled or scratched off. For days, with his father standing watch over his shoulder, Howard practiced making the ultra-secret flavoring compound, merchandise number 7X, learning to recognize the pungent fruit and vegetable oils by sight, smell, and remembering each was put on the shelf when it came in from the supplier,

1:12:08until he knew by heart the proper amounts and the exact order in which to mix them. This is crazy. The way in which this giant mass-produced thing is created, it's like only stored, I believe, in two people's head at any given time. And they deliberately kept this a trade secret and didn't patent it. Because if you patent something, eventually it does become the property of the public and anyone can use it to further renovate. But Coca-Cola has kept this secret

1:12:40all these years. Yeah. And it's still part of the lore at the company to this day that, oh, there's two people that know the formula and they can't travel together. Well, the formula is out there. Like, you can find it on the internet. Really? The Coca-Cola company would maintain that is absolutely not true. Well, the original formula is out. I mean, it's in the appendix of For God, Country, and Coca-Cola. Which I think they also maintain is not the right formula. I mean, I would swear up and down too. But yes, this is like the best example ever, though, of someone electing to use a trade secret instead of a patent and then creating all this lore and secrecy and

1:13:15myth around it. But for six years, as collateral, the first written version of the formula was in the Guarantee Bank of New York vault. So Ernest, when he takes over, he's a banker. He's an investor. This was like a crown jewel investment that he could get his hands on in Atlanta. He doesn't really have any interest in running it. So the company plods along for a couple of years with the existing management team. Ernest really doesn't like this perpetual contract thing with

1:13:47the parent bottlers. He's like, what are you two guys doing? As far as I can tell, you're not doing anything. He tries to get rid of that. This leads to all sorts of lawsuits. The parent bottlers win. Ernest is frustrated. Finally, in 1923, he's had enough. He decides that he's going to recruit a new company president to come in. This is just four years after he buys it. And almost against his will, he has to consider his son, Robert, as a candidate. And Ernest barely approves of this wayward

1:14:21son, Robert. Who is this Robert Woodruff character? He's the protagonist of this story. I mean, for all the John Pemberton lore and all the Asa Candler lore, Coca-Cola, as we know it today, is Robert Woodruff's Coca-Cola. The boss, as he would come to be known. Yes. So Robert is 33 at this point in time. He has left Atlanta to seek his fortune away from his father's influence. And he has become the vice president of the White Motor Company in Ohio, in Cleveland, Ohio. Yep. Which I think was one of,

1:14:58if not the largest truck manufacturer in the U.S. at the time. Yep. And Robert is a star there. He's widely regarded as one of the most talented young executives in new burgeoning corporate America here in the 20s. He's best friends with the Major League Baseball star Ty Cobb. They go hunting together. He's like a man about town. And Standard Oil of New Jersey is trying to hire him as an heir parent to come in and potentially be the next CEO of Standard Oil of New Jersey.

1:15:32And David, do you know what Standard Oil of New Jersey is today? Uh, S.O., right? Exxon. It's ExxonMobil. Oh, Exxon. That's right. That's right. Yep. I can never keep track of which breakup company became which. So yeah, there's an alternative future where instead of CEO of Coke, Robert Woodruff became CEO of Exxon. Exxon, yeah. And Robert, through his own devices, again, almost against his father's will, had been an original investor in the syndicate that bought out Coke from the Candlers. So the board of Coke

1:16:06makes Ernest consider his son. Ernest finally says, all right, fine. His first offer to Robert to come be the new president of Coca-Cola is a salary less than half of what he's making at White Motor Company. Robert rejects that. They negotiate back and forth. And finally, they reach a deal with Robert saying, one condition that I absolutely must have is you, dad, you are out. You are going to fully exit the business. Everything gets handed over to me and I am going to have full control

1:16:40and run this company. Ernest is frustrated enough. He says, okay. So in 1923, Robert takes over as president of the Coca-Cola company, becoming the youngest president of any major corporation in America at that time. He would run the company for the next 32 years as president and then control the company as chairman of the board for another 30 years after that until his death in 1985. Wild. So one of the first moves that Robert makes when he comes in is to become close with the head

1:17:15ad man at Coke's ad agency at the time, a firm in St. Louis called the Darcy Ad Agency. And Coca-Cola's main creative account man there is a guy named Archie Lee. Lee had already created a hit slogan for Coca-Cola in Christmas of 1922 with his thirst knows no season campaign, which is a great phrase with a great ring to it, but was particularly good because Coke had a legacy of primarily being enjoyed in the summer. Yeah. You drink it in the hot Southern summers of Georgia. Yeah. So they're like

1:17:51wintertime is a big opportunity for us. And this was part of moving in on Christmas. More to come on Christmas in a sec. And together, Archie Lee and Robert Woodruff make a pretty massive leap forward for Coca-Cola advertising. And it's really the last critical piece of the brand. They embrace, maybe I might even say create lifestyle advertising. This is everything that we talked about in the

1:18:21Rolex episode, but that was much later when Rolex did that in the fifties and sixties. This is in the 1920s. Coca-Cola is inventing this idea that through advertising, we can associate our products with feelings. Oh, yes. This is the sort of opposite of the intrinsic advertising that we were talking about earlier. This is extrinsic advertising, advertising that really has nothing to do with the features of the product. It's about the life you will live if you associate with our brand.

1:18:54Yes. Coca-Cola isn't a carbonated, sweetened, soft drink with unique flavor manufactured by the Coca-Cola company. Coca-Cola is happiness. Coca-Cola is friendship. It's romance. It brings you closer with the people you love. Coca-Cola is summertime. Coca-Cola is holidays. Coca-Cola is Christmas. And whether you are in America or not in America, Coca-Cola is America. Yes. And boy, do the two of them just turn out some bangers. So Archie eliminates basically all

1:19:31verbiage from Coca-Cola advertising except for one simple slogan. So this is radical. Think back to those original ad copies that we were reading a minute ago. So many words. In this day and age in the 20s, there's so many words. Everything is so descriptive. In 1923, when Robert takes the helm of the company, they come out with Coca-Cola, always delightful, period. Four words. That's the campaign. The next year in 1924, they do better. Refresh yourself.

1:20:03That's it. You don't need to say anything more. And that was simplified from Archie Lee's original idea for the theme that year, pause and refresh yourself. He would come back to that a couple years later in 1929 with the Grand Slam, mother of them all, the pause that refreshes Coca-Cola. Which is so funny because I know this is the winner. The pause that refreshes is the most successful campaign of this era. I actually didn't hear about that at all until doing this

1:20:37research. I associate all these other campaigns delicious, refreshing, or always delightful. But God, did that take off. I mean, this idea that in your life, you just need a pause. And everybody experiences that problem of needing a pause. And we are the thing that you do during that pause. Yeah. Genius. But by today's standards of language, it's a little bit kludgy, I think.