The French Way (30 page)

Retaking Europe included constructing new plants in France in order to supply the continent. Signes, in the south, was the site of a new factory producing concentrate. But the heaviest investment was the $52 million spent on opening the biggest canning plant for soft drinks in Europe near Dunkirk in 1989 that would supply containers for Coca-Cola's products—for example, Fanta—to all of northern Europe.
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No sooner did Dunkirk begin production when the Berlin Wall fell and it became the chief supplier not only for the north but also for the former communist states in Eastern Europe, helping Coke overtake Pepsi in countries like Hungary and Poland.

The Coca-Cola Company could be pleased with its early efforts. By 1990 Coke outsold every soft drink, like the rival brands of Cadbury Schweppes, in Europe as well as individual bottled waters like Perrier, Volvic, and Evian. In volume it held almost half the carbonated market.
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Per-capita consumption in France rose steadily in the early 1990s, even if the French continued to trail far behind other Europeans. Pepsi was closing in, however, and this was a concern. But Coca-Cola was confident of, if not arrogant about, its global appeal. The former head of its international division named Coca-Cola, along with blue jeans and American popular music, as one of the “threads running through the modern world's cultural matrix,” concluding that almost everyone seemed to want Coke and the American lifestyle.
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Hoffman's recall did not tame Coca-Cola's forceful tactics. It continued offering discounts and rebates to wholesalers in exchange for most of their cola sales and it installed vending machines without charge in cafeterias and in public institutions like hospitals in exchange for exclusive sales at these sites. Such sharp practices did not sit well with Coke's competitors. The rival soft drink Orangina, which by then was a unit of Pernod-Ricard, the slighted suitor who harbored a grudge against Coca-Cola, initiated legal action against Coca-Cola in 1991. Orangina was also the partner of PepsiCo France after 1992, taking over distribution for Pepsi. In 1997 after years of litigation, the Competition Council, the antitrust authority, fined Coca-Cola $1.8 million
for abusing its dominant position in the soft drink market.
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Coca-Cola trimmed the rebates, but persisted using other techniques like providing free vending machines. Michel Fontanes, the president of Orangina, applauded the decision, saying, “From now on Coca-Cola won't be able to do whatever it wants to in the French market.”
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But Fontanes wanted more: he pressed for an end to Coca-Cola's exclusive marketing agreements with businesses like Euro Disney.

Coca-Cola became the target not only for its competitors and government regulators but also for farmers. In this case it was less how the Atlanta firm behaved than what it represented. The GATT negotiations, especially the bargaining over farm subsidies between the United States and the EU in 1992, provoked demonstrations against Coca-Cola in several communities. Hundreds of farmers occupied a Coca-Cola factory outside Paris, while others in the Sarthe raided local supermarkets, emptied the shelves of Coke cans and bottles, and built a wall with their loot in front of the local prefecture and finished by hurling their fizzy contents at the building. Standing atop an overturned Coke vending machine, the head of the local farmers union complained about Coca-Cola as the symbol of “American hegemony.”
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Irate farmers simultaneously targeted McDonald's and Euro Disney. And just like the other American companies, Coca-Cola counterattacked by pointing out how French they were. A company spokesman stressed that Coca-Cola was one of the country's biggest purchaser of beet sugar from French farmers: “Coca-Cola today is a 100 percent French product.”
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Perhaps the most discussed aspect of Coca-Cola was the question of its impact on the wine industry. Wine drinking was declining, especially among the young, and the consumption of soft drinks, including Coke, was on the rise. But what was the relationship ? The average French person drank about half as much wine in 1995 as he or she did in 1965, and the number of daily drinkers plummeted from 47 percent to a mere 28 percent.
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Was the head of a French winery right when he charged, “Our real enemy is Coca-Cola”?
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Such an assertion
is too simplistic. The reasons for the diminished interest in wine were complex, and Coca-Cola was not a prominent one: they include the shrinking numbers of farmers and factory workers who relied on wine as a cheap energy source; the fast-moving urban work culture and the decline of the leisurely meal; a wider choice of beverages; the shift to more expensive, higher-quality wines; concerns about health and safe driving; and the image of wine as old-fashioned and elitist. Consumption of soft drinks at mealtime did double between 1980 and 1995, but this only represented 11 percent of all mealtime beverages. The culprit was not Coca-Cola. The issue is better framed if it is asked more narrowly of young people. Among those ages twenty to twenty-four, those who said they never drank wine increased from 30 percent to 53 percent between 1981 and 1995 and within this cohort less than 5 percent reported they drank wine every day. And it was those between the ages of fifteen and twenty-four who consumed the most soft drinks.
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According to one sociologist, the problem was image: for young people wine was associated with traditional bourgeois society rather than with dynamic modern life—so they turned to alternatives; or, as he concluded, “the young drink Coca-Cola.”
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To be more precise they drank mineral water, soda water, beer, and—to be sure—soft drinks, including Coke, with meals. Coca-Cola was related to the decline of wine consumption in the limited sense of offering itself as one among several alternatives to the youth of the fin de siecle who were abandoning old ways of drinking.

The cola wars came to France in the early and mid-1990s when Pepsi-Cola launched a major restructuring and marketing program. It stole a page from the Coca-Cola manual by reclaiming control over its brand: it bought out its contract with Perrier in 1993 and took charge of its own marketing, found a new bottler, and entered into a partnership with Orangina for distribution. In quick order the French encountered thousands of Pepsi vending machines, new Pepsi bottles, innovative drinks like caffeine-free Pepsi, and fresh ads including a slogan designed especially for them: “Pensez different, pensez Pepsi.”
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The
two cola companies went head-to-head in selling to hotels, restaurants, cinemas, cafes, service stations, and leisure parks. Pepsi claimed Parc Asterix, Futuroscope, and Relais H as its own while Coke made McDonald's, France Quick, and Euro Disney its private domain. According to one business review, it was “total war in the Hexagon.”
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From a tiny 6.3 percent of the cola market in 1992 Pepsi captured 14 percent by 1996 and then set its sight on doubling its share again within two or three years.

The Coca-Cola Company retaliated by accelerating the restructuring begun in the late 1980s. In 1996 Coca-Cola Enterprises, the world's largest bottler of Coke, purchased its French and Belgian subsidiaries with an eye to becoming the principal bottler in northwestern Europe. In the next two years Coca-Cola quadrupled its advertising budget. To promote itself as the official soft drink of the 1998 World Cup it set up regulation-size soccer goals in Parisian grocery stores to catch shoppers' attention and it distributed 30,000 cafe tables and chairs bearing soccer logos and Coca-Cola decorated umbrellas. Coca-Cola was everywhere—in movie theaters, cafes, service stations, and bakeries; in large retailers like Carrefour; and, certainly, in fast food outlets like McDonald's.
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The head of Coca-Cola Enterprises in Europe, noting that Coke was made with French water and packaged in French bottles, crowed, “[I]t's almost as French as a bottle of Bordeaux.”
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And Ivester continued his rough-and-tumble marketing. In 1997 EU regulators, spurred by complaints from Pepsi-Cola in Italy, began investigating Coca-Cola's merchandising in several European countries, including France: there were the familiar charges of special rebates, bonuses, and discounts to retailers. Coca-Cola, it was alleged, not only abused its dominant market position but was trying “to oust Pepsi” altogether from Italy.
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By this time Ivester had moved up in Atlanta and succeeded Goizueta as CEO; Ivester was the manager who had once upset a beverage industry conference by comparing Coke to a wolf hunting its prey and its rivals to sheep. Coke held its own in this war, raising its French per-capita consumption from seventy-one to eighty-seven
small bottles between 1995 and 1997. Still, France and Italy remained in the bottom tier of European countries by this standard: Germany, Norway, Belgium, Luxembourg, Spain and Austria led the way.

The cola wars of the mid-1990s became the “uncola war” at the end of the decade. The challenge from “uncola” beverages like lemon-lime drinks broadened the Pepsi-versus-Coke competition. By this time Orangina was the top selling orange soda in France, second only to Coca-Cola among all carbonated soft drinks. Pernod-Ricard had purchased Orangina from its original owners in 1984 and gradually extended its reach to Europe and beyond.
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But Pernod-Ricard, true to form, invested cautiously, so tentatively that it sometimes cost Orangina.
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Orangina was ripe for the picking. Pernod-Ricard looked to unload its soft drink holdings, but Pepsi turned down the opportunity in late 1997. Pernod-Ricard had been the Coca-Cola Company's French nemesis—recall that its favoritism toward Orangina had prompted Coca-Cola's buyout of its bottler in 1989 and Pernod-Ricard had later filed the law suit against Coke's marketing practices. But business was business, and Ivester wanted a new weapon, a “natural” orange drink to compete in the contest for the global “uncola” market. By acquiring Orangina, which had become the distributor for Pepsi's “off premises” or nonhome customers—such as cafes, hotels, and restaurants—Ivester would trump its rival. He tendered a bid for Orangina, knowing it was a gamble given Coca-Cola's dominant market position in France, the company's reputation for bending rules, and the determined opposition of Pepsi.

With almost half the market for carbonated drinks and three quarters of cola sales, Ivester's company was vulnerable to the charge of overplaying its hand. Pepsi asked the government to block Coke's $800 million bid for Orangina in the name of maintaining a competitive market. The case came before the Ministry of Finance's competition board in early 1998 and the key issue, in what turned out to be marathon deliberations, was whether or not the acquisition of Orangina's
sales network, which distributed Pepsi's products for nonhome sales, would give Coca-Cola a stranglehold over the entire soft drink industry. Lawyers quarreled over the definition of nonhome sales and unions expressed concern over the multinational's willingness to honor Orangina's labor contracts. The head of PepsiCo France argued the deal would result in the “immediate eviction of Pepsi-Cola” from the restaurant and hotel market.
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Pepsi's lawyers also contended Coke's market position would allow it to raise prices at will—as it had allegedly already done in Italy.
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The principle of free competition was at risk. Orangina lobbied in favor of the buyout, arguing Coca-Cola's dynamism would energize its global operations. “Is it better to be a village of Gauls and continue to struggle against the Romans,” its CEO asked, “or is it necessary to reach an agreement that will assure the development of our families within the Roman Empire ?”
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The decision was in the hands of the competition board. Revelations that the company might move some of its plants to Ireland fueled fears about Coke's monopoly.
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Minister of Finance Dominique Strauss-Kahn put his foot down in September 1998 and, in the name of a free market, suspended talks with Ivester's team.
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The minister's decision did not end litigation: it dragged on for another year.
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Finally, in November 1999 the board ruled in favor of Pepsi, concluding that “the takeover project does not present enough economic contributions to outweigh the risk of hurting competition.” Strauss-Kahn complied. And in one of the most startling statements about French economic practice by an American company, Pepsi praised the French government as “one of the world's foremost defenders of competition.”
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Before the bad news from France arrived, Ivester's reputation as CEO was damaged even further by events in northern Europe. In early June 1999 dozens of Belgian schoolchildren fell ill, and some were hospitalized, from drinking Coca-Cola and the incident quickly erupted into the biggest contamination problem the company had ever faced in Europe.
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Within a week of the initial incident forty more Belgian children felt sick from drinking Coke or Fanta and scores of people in France also
complained of nausea, fever, and headaches from drinking Coca-Cola. Ivester's team was slow to react, first handing off responsibility to local bottlers, then treating it as a psychosomatic—rather than a health—problem, arguing the nature of the contamination, according to company tests, could have made someone feel sick but it was “not harmful.” The corporate offices in Atlanta seemed unaware of the anxiety among the Belgians and the French over food safety: only a few weeks earlier there had been a scare over dioxin entering the food chain. Panic spread: Belgium, the Netherlands, France, and Luxembourg banned Coke products for days; Spanish and German stores pulled Coke from their shelves and French health authorities closed the canning plant at Dunkirk because it was implicated as a possible source ofcontamination. Belgian and French officials complained that Coca-Cola could not tell them what had gone wrong. Managers in the Atlanta offices dallied, convinced that their quality control could not have been breached and that its products might taste or smell strange, but that they were not unhealthy. It took ten days before Ivester flew to Brussels, issued an apology, reassured customers about quality control, and in front of TV cameras drank from one of the contaminated bottles. The culprits turned out to be defective carbon dioxide (which produces the bubbles in carbonated drinks) used by an Antwerp bottler and a fungicide found on cans at Dunkirk that gave off an offensive odor. At the end of June the Belgian government lifted its ban after the company agreed to tighter quality controls. But this was not before millions of bottles and cans had been removed from vending machines and store shelves and Coca-Cola's reputation for purity had been called into question. The recall, the largest in the company's history, cost over $100 million. One beverage analyst called the affair “a public relations nightmare.”
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The irony was that the Belgians had been among Europe's thirstiest consumers of Coke.