COKE GETS OFF ITS CAN IN EUROPE The Atlanta powerhouse figures that's where the greatest promise is in the Nineties. So it has adopted a risky new strategy that should interest every Euromarketer.
By Patricia Sellers REPORTER ASSOCIATE Nicole Quow

(FORTUNE Magazine) – WHEN THE MAKER of the world's most popular product changes the way it does business, you at least have to take notice. And when it does this in the market it expects to be its most profitable in the Nineties, you probably ought to put down whatever you're doing and look more closely. You might learn something. The company is Coca-Cola, the market Europe, and the changes far-reaching. % Coke is breaking out of its narrow old role as image marketer and supplier of secret ingredients to local independent bottlers. Now Coca-Cola is buying into bottlers, replacing their managers with its own, and shaking up Europe's difficult, increasingly powerful retailers with scrappy, brash U.S. merchandising methods. Rather than let local bottlers simply serve their own regions as in the past, the company is setting strategy Continentwide. In the Coca-Colanization of East Germany, six-packs come from Dunkirk, France. Coke's new strategy is risky and controversial. Says James Schadt, CEO of Cadbury Schweppes Beverages: ''The way Coke is approaching the new Europe is extraordinary. Coke is more aggressive than any company I know.'' Why take such risks? After all, here's a company with the world's most famous brand name, a lock on European carbonated soft-drink sales (Coke outsells No. 2 Pepsi 6 to 1), and a ubiquitous product that's tailor-made for a unifying marketplace: Coke looks and tastes the same from Liverpool to Leipzig. Why not just run ads, then kick back, pop a can, and wait for the stuff to sell? Chairman Roberto Goizueta answers, ''That's a confining vision of our role.'' But wasn't it the way Coke always operated? Sure was, he says. ''If our business did poorly in Great Britain because of complacent local bottlers, that was something we felt we had to live with. We were either their cheerleader or their critic, and we simply said, 'You are lousy, you do that badly.' '' This arrangement did not yield effervescent results. In the early 1980s volume in the European Community was growing about 4% a year, and profits were flat. But Europe is full of promise for Coke: Soft drinks are only the fourth- favorite commercial beverage in Western Europe, after coffee, milk, and beer, while they're No. 1 at home. And per capita consumption is just 30% of the U.S. level. Taking charge at last of the vital link between parent company and retailer, Coke has put $385 million into bottling operations in Britain, France, Belgium, the Netherlands, and West Germany. As a result, volume lately has been increasing over 10% annually, more than twice the U.S. rate. Europe's operating profits last year were 29% of Coca-Cola's total. Says Coca-Cola President Donald Keough: ''We think the Nineties is the decade of Europe.'' He and Goizueta expect Europe to contribute more to sales and profits in the Nineties than any other market, including the U.S. and the fast-growing Pacific Rim. THE RATIONALE for the strategy is clear. Management believes that great ads can take Coca-Cola only so far: The consumer, says Keough, ''has got the message.'' The key to growth in Europe is better selling right there where the cola meets the customer. That means closer relationships with retailers, bolder merchandising, cheaper prices, and faster delivery. The pressure mounts as 1992 approaches. European grocery chains are merging, building stores outside their home countries, and shifting buying decisions from individual outlets to the home office. They're banding together in alliances to scan price lists in many countries and perhaps buy a single product at Europe's lowest cost. Other packaged-goods companies are moving into new markets and increasing advertising, all the while pulling and tugging for some of Coca-Cola's shelf space. No market better tests the company's new aggressiveness than France, which has the lowest per capita consumption of Coke in the European Community. Pernod-Ricard, the large spirits producer, controlled Coke's bottling there for 40 years. Coke management figured the poor performance stemmed largely from Pernod's relationship with retail customers: Coke worried that the French company sold to retailers at a high price and promoted its own Orangina at the expense of Coke and Coca-Cola's other products, including orange Fanta and lemon-lime Sprite. (Pernod disputes the allegations.) A two-year legal battle over the bottling contracts finally ended last year in Coke's favor, forcing Pernod to sell certain operations for $140 million. Even Thierry Jacquillat, Pernod's chief, thinks Coke was smart: ''Behind this is something quite understandable for a company controlling a brand.'' Now France is the only major market in the world where Coke owns the bottling business outright. To lead the blitz, Goizueta and Keough appointed William Hoffman, who had never before visited France, doesn't speak the language, and considers almost nothing sacred or impossible. As Coke's Atlanta bottler through the Eighties, he more than doubled per capita consumption, largely by persuading retailers to put more soft drinks in the aisles. In France he has been meeting quarterly with executives from the 11 top grocery chains, telling them that lowering their prices and promoting the product will spur sales and make them rich. French retailers, to his dismay, care more about margin than volume, and they resist flashy displays. Hoffman says he's out to change that. In less than a year he has hired 500 new employees (10,000 applied), including 350 ''merchandisers'' who visit 15,000 retail outlets every month and make sure the Coke is properly presented. A licensed helicopter pilot and a lieutenant colonel in the U.S. Army Reserves, Hoffman has equipped his troops for battle: They wear uniforms and carry kits that include a tape measure (to measure shelves and displays), a disposable camera (to photograph them), a feather duster, and Windex (to keep them clean). In the new Coca-Cola University training program, recruits take written exams on merchandising. They receive pay raises when they pass and rewards like trips to Miami when they build world-beating store displays. HOFFMAN does things in a big way, as he lets you know. ''I created a program called Let's Think Big, and I tell the merchandisers, 'Let's try to build the biggest displays in Europe,' '' Hoffman says. ''The displays have to be big because Coke is big.'' Early in July, Coke sponsored Georgia Week in Biarritz. The festival included American football, a screening of Gone With the Wind, imported peaches and grits, and of course plenty to drink. When you ask people about Hoffman, you get lots of opinions and one consistent response: ''He's so American.'' A supplier who deals with him in Paris calls him ''one of Coke's kick-ass cowboys in the stodgy European markets. He's going to change the face of French retailing, and that's just what's needed.'' At Auchan hypermarkets, Coke sales are up 40% over a year ago. Herve Motte, managing director for consumer products, says, ''Everybody knows Bill Hoffman, and everybody is afraid of the new, very aggressive policy of the Coca-Cola Co.'' ON A RECENT Thursday afternoon before a holiday weekend at a Cora hypermarket northwest of Paris, shoppers loaded up on Coke and Coke light (the French name for diet Coke) in quantities that would stun some Americans -- ten, 15, even 20 large plastic bottles. Women dressed in bright red-and- white outfits passed out coupons in the aisles, and near the store entrance a display of 31,941 Coke bottles -- a world record -- advertised low, low prices. Says Jean-Louis Remy, who oversees soft-drink buying at the Cora chain: ''Every one of our stores realizes it's much better now than with Pernod-Ricard. There's more contact with the bottler, more promotions, and more money to spend.'' Coke's unit volume in France rose 23% last year, the biggest increase on the Continent. The great incentive to make bottlers get off their cans is Coke's magnificent gross profits on concentrate, about 85% of sales. When a thriving bottler buys more concentrate, Coke takes almost all that money straight to the bank. But Goizueta says that outright ownership, as in France, is ''the last resort'' and that Coca-Cola prefers joint ownership of troubled bottlers, and of bottlers in new markets (see box). Coke's remarkable success in Britain proves the wisdom of linking with a strong local operator, then adding merchandising expertise from the U.S. Britain had been a flat, dull market when Beecham and Grand Metropolitan, two large companies not very committed to soft drinks, operated scattered Coke bottling businesses around their native country. Coordinating Coke promotions across Britain was impossible, and as a result, ''We had brands, put them on TV, and that was it,'' says Ralph Cooper, a slow-talking and gentlemanly Georgian who is about to take over Coke's European Community operations. Today Cadbury Schweppes, the king of mixers, owns 51% of the British bottling business, and Coke controls 49%. The partnership (Coca-Cola & Schweppes Beverages, or CC&SB) runs contests and sponsors sporting events from Scotland to Cornwall. Example: this year's big World Cup promotion. CC&SB sold leather soccer balls alongside Coke in 30,000 stores, then conducted local competitions where kids who kicked and maneuvered the balls best won prizes, including a trip to the World Cup final in Rome. At a Tesco supermarket in New Malden, a London suburb, manager Michael McDermott says his customers bought 30% more Coke during the promotion even though the soda was selling at its regular price. In three years Coke volume has doubled, and Britain has become one of the company's fastest-growing markets worldwide. By borrowing ideas from the U.S. -- 12-packs, giant three-liter bottles, 30- ounce cups -- the joint venture partners have been coaxing Brits to swill soda with American gusto. Though British consumers say they couldn't care less whether their ''fizzy drinks'' come warm or cold, CC&SB believes temperature matters a lot and this year is installing about 10,000 coolers in stores. Says Coca-Cola Great Britain President Gavin Darby, 34: ''The single biggest area of learning we have to do is merchandising, how to operate at the store level; and that's where the U.S. is furthest ahead of us. We're constantly sucking in ideas.'' Beyond improving merchandising, Coke management believes that its entire bottling network has to be lower-cost, faster, and more flexible in a more competitive Europe. In Britain, Coke prices, not adjusted for inflation, are still at 1981 levels. A new $87 million bottling plant at Wakefield in northern England will help keep them down in the Nineties. On the Continent, low-cost production and speed are even more vital. Says Goizueta: ''You have a chain store with operations in France, Germany, and Switzerland. They have one purchasing center in Switzerland that's going to be buying canned Coca-Cola from wherever it's cheapest come 1992.'' Coke recognized early the implications of a united Europe and this spring, after five years of planning and construction, opened its vast $55 million Dunkirk canning plant. Located just a few miles from the French entrance to the Chunnel, it could serve England in a pinch. Its soda is already flowing into Belgium, the Netherlands, and Germany. Though West Germany is Coca-Cola's largest and most profitable European market, contributing 12% of corporate earnings, it has an unwieldy, inefficient bottling network that inhibits growth. With plants like Dunkirk in their shadow, the German bottlers -- indeed, bottlers across Europe -- are under pressure to merge, purge, or lose business. Best of all, Dunkirk increased production in a flash after the Berlin Wall fell last November. ''If it hadn't been for this plant, we wouldn't have been able to move into East Germany so quickly,'' says Goizueta. Coca-Cola has left competitors in the dust in East Germany, and the chairman predicts that annual sales there should reach 100 million cases -- around $1 billion at retail -- in two years or so. COKE'S SUCCESS in East Germany shows the increasing importance of speed and seat-of-the-pants decision-making. Heinz Wiezorek, 51, president of the German division, was traveling in Rochester, New York, last November when he saw the Wall fall on TV. He called his West Berlin bottler and said, ''Get Coke out there!'' Border crossers in their sputtering Wartburg and Trabant automobiles received free cases of Coke, while East Germans on foot got six-packs and single cans. At one checkpoint, delivery trucks dispensed over 70,000 cans in a few hours. To Wiezorek, diving in fast was crucial. ''There won't be two colas in restaurants and small outlets,'' he says. ''They'll choose the one that's first in the market.'' One day in January while strolling East Berlin's Alexanderplatz, Wiezorek and Coca-Cola senior vice president Doug Ivester (since promoted to head Coca-Cola USA) made a quick, risky decision to accept East German currency, even though they then couldn't convert it into Western money. Coke and other companies selling in soft-currency markets instead have almost always countertraded, exchanging their goods for local ones, then selling the local products in the West for hard cash. Coca-Cola plans to invest $140 million in East German bottlers, which will package and sell Coke locally. The company must worry a bit about its aggressiveness. The success of its joint venture with Cadbury Schweppes has drawn complaints from small British beverage producers and was among the subjects of an industry review by the Monopolies and Mergers Commission of possible anticompetitiveness. (Coke says it has done nothing wrong.) Following a complaint by Italy's San Pellegrino, the mineral water company, the Commission of the European Communities recently stated that Coca-Cola abused its dominant position by giving discounts to Italian retailers that promised to stock only Coke. THESE ARE NOT Coke's biggest worries. As Keough says, ''1992 is tomorrow for us. When we look at that year, we don't know how our system is going to handle it.'' He ticks off a string of 1992 mega-events that offer pan-European marketing challenges: the Olympics in Barcelona and Albertville, France, the Seville World's Fair, the 500th anniversary of Columbus's voyage, and the opening of France's Euro Disneyworld, where Coke is the exclusive soft drink. Ivester runs down a list of spots where he says the company needs to build bottling plants: southern England, Madrid, Paris, East Berlin -- six in total, and every operation will pressure the next to reduce costs. In all, Goizueta believes that by 2000, consumers worldwide, led by the Europeans, will be drinking 15 billion cases of Coca-Cola products, 360 billion servings, twice today's amount. That would require Coke to add the volume of Brazil, its third-largest market, to sales every year until then. The bottom line: Coke believes its biggest challenge in the Nineties will be keeping up with demand. Problems come a lot worse.

CHART: NOT AVAILABLE CREDIT: SOURCE: THE COCA-COLA CO. CAPTION: THE WORLD'S THIRST FOR COKE Europe has a long way to grow in Coke consumption, or so the company hopes. That knockout number for Iceland is the work of an innovative bottler that, among other moves, turned coolers into warmers to keep the product from freezing.