Coke’s 3 biggest mistakes
During World War 1, Pepsi was in deep trouble. Sugar rationing meant Pepsi didn’t have enough sugar to make their syrup. Pepsi was already selling in 24 states in America and doing brisk business. But lack of sugar meant deep losses. After the war, sugar prices went up even higher – from 3 cents to 28 cents. And unfortunately, when sugar prices were at the top, Pepsi placed a huge order for it – more than they required for their soft drink. The bet on sugar that went wrong bled them to death. And by 1923, Pepsi had to file for bankruptcy.
But before filing for bankruptcy, Caleb Bradham – the pharmacist who started Pepsi – asked if Coca Cola wanted to take Pepsi over. His offer was rejected. And Pepsi’s assets were finally sold to Craven Holding Corporation for $30,000, before Roy Megargel – a wall street broker – took it over from them for $35,000 (equivalent to about half a million dollars in 2022.)
Megargel never managed to turn Pepsi around. And when the Great Depression occured in 1929, his struggles deepened. Coca Cola was again asked if they would like to buy Pepsi. And again the offer was rejected. Pepsi went through its second bankruptcy.
During this time, Charles Guth, the president of Loft – a candy manufacturing company who ran a network of 115 stores – asked Coca Cola to give them a bulk discount to sell their soft drink. Loft was buying 31,000 gallons of syrup from Coca Cola every year and so, Guth thought that he should receive a bulk discount that wholesalers receive. Not getting any response from them, Guth went and bought Pepsi assets using his own private funds from the bankruptcy proceedings for $10,500.
When Loft replaced Coca Cola with Pepsi in their stores, Coca Cola came after them with inquiries as well as legal threats. And Guth asked them to buy Pepsi from him for $50,000. This was the third and the last time Coca Cola rejected the acquisition offer!
The Phoenix of Pepsi
Charles Guth started growing Pepsi again! He changed the taste a bit till it was sweeter. He got friendly loans from Loft. And he started investing in advertising.
Sales were growing year after year. But in 1935, Loft’s shareholders sued Guth. The shareholders claimed that Guth had failed to perform his fiduciary duties when he didn’t allow Loft to buy Pepsi. Guth used Loft resources to grow Pepsi without Loft getting any benefits.
In 1939, Guth did lose the case and Pepsi was finally merged with Loft – and the new company was rebranded as the Pepsi-Cola company. Walter Mack replaced Charles Guth as the President.
Guth hardly saw personal returns from Pepsi’s growth. But it was his foundational work that grew Pepsi and made Coca Cola rue their 3 rejections!
Pepsi – worth a dime, costs a nickel!
It was Guth’s nature of looking where he could cut costs that actually gave Pepsi the breakthrough it needed to start competing with Coke. When Guth replaced Coca Cola with Pepsi in Loft’s stores, sales tumbled. Because no one knew Pepsi. Instead of using 31,000 gallons of syrup, the stores only used 21,000 in the next year. So to increase sales, Guth decided to shift focus from soda fountains to bottles.
Till then, Coca Cola and other various cola companies were selling 6.5 ounce bottles for 5 cents. Guth came and started selling 12 ounce bottles for the same price! But how were Pepsi to make a profit by providing double the product at the same cost?
By recycling. Pepsi focused on creating a network of bottlers that recycled. Because of which, their cost of bottles was lower than others! Which made it possible for them to undercut others aggressively and yet make a profit!
A cheaper product with aggressive advertising grew Pepsi a 100 fold in 2 years! It allowed Pepsi to become the 2nd biggest soft drinks company in a couple of years!
- “Pepsi-Cola hits the spot,
- “Twelve full ounces, that’s a lot,
- “Twice as much for a nickel, too,
- “Pepsi-Cola is the drink for you.”
Henry Ford sells charcoal
Did you know that a lot of the car companies sold charcoal in the 1920s and 1930s? Why would car dealerships sell charcoal as well?
It goes back to Henry Ford and his frugalness. By 1919, Ford was selling a million cars a year. Each car required about a 100 board feet of wood – for dashboards and steering wheels and other things.
Because Ford didn’t want to rely on others for the raw material, he started vertical integration. For wood, he asked his cousin’s husband Edward Kingsford to help him find timberland. By the next year, Kingsford had helped Ford acquire 313,000 acres of wood. And a saw mill was set up in Iron Mountain, Michigan.
But Henry Ford hated the idea of so much waste that a sawmill generated. He wanted to find a way to optimize the sawmill so that it wouldn’t leave so many branches and a ton of sawdust on the ground.
The solution came from Orin Stafford – a researcher at the University of Oregon. He had managed to make lumps of fuel from mixing sawdust with tar, and binding them with cornstarch.
Ford quickly got his friend Thomas Edison to help design a “charcoal briquettes” factory next to his sawmills. But each ton of scrap wood helped create 610 pounds of charcoal briquettes! Supply exceeded demand by a lot! And thus, Ford asked all his car dealerships to sell them in “picnic kits!”
Even today, after a 100 years, the Kingsford charcoal company has a 80% market share in the barbeque market!
It was Henry Ford’s ability to reduce and reuse things that made Ford so profitable. Besides charcoal, Ford did the same thing to make Portland cement from blast furnace slag!
- Reduce, reuse, recycle won’t only help save our planet, it’ll also help you become more profitable.
- Audit the waste that you produce and see if any of it can be recycled and reused.
- Spend some time going through all your equipment and expenses and determining how using recycled equipment for any of it can help you reduce costs.