Coca-Cola

I can’t believe we’re doing a four‑hour episode on flavored syrup that became a three‑hundred‑billion‑dollar company.

It’s the old choice: keep selling soda, or come build something that changes culture.

Welcome to our Fall 2025 season of Acquired; I’m Ben with David, and today we’re telling how a simple mixer became America, summertime, Christmas, friendship, and happiness.

Think Charlie Munger’s game: build a global, non‑alcoholic drink that throws off huge dividends, tastes universal, stays cheap, is everywhere, rides other people’s capital for bottling, and never messes with the flavor.

It’s about America, and then America exporting itself to the world.

You picked Coca‑Cola for this one; quick housekeeping—join the email for summaries and photos—and as always, this is not investment advice.

We start after the Civil War, when patent medicines seeded national brands and modern advertising by turning snake oil into a mass business.

There was no science behind those cures.

War wounds, trauma, and morphine addiction drove demand, newspapers learned to sell ads, and a surprising number of today’s staples began as cure‑alls.

Dr Pepper even predates Coke; Coca‑Cola starts with Dr. John Pemberton, a wounded Confederate veteran hooked on morphine.

Cocaine sweeps the country, a Bordeaux wine spiked with it wins celebrity fans, and Pemberton copies the idea but adds serious caffeine from kola nuts.

That’s the first time ‘cola’ enters American vocabulary.

His cocaine‑and‑caffeine wine sells, but local prohibition forces a soft drink; soda fountains become the social hubs where it lives.

He leans on synthetic caffeine from Merck, balances bitter botanicals with sugar, acids, caramel, and citrus‑spice aromatics, and creates a syrup that’s genuinely stimulating.

Early cocaine content was small; the real punch was sugar and a heavy caffeine load.

Pemberton’s partner Frank Robinson names it, draws the script, and gets it flowing through fountains with bubbles instead of still water.

Thank goodness it sparkled; people loved the kick and the taste.

Robinson pioneers the free‑drink coupon, which aligns everyone—customers, fountains, and traveling salesmen—and ignites distribution.

The unit economics are outrageous: cheap syrup in, huge retail margins out.

While Pemberton quietly sells pieces, Robinson brings in Asa Candler to consolidate, and by 1892 the modern Coca‑Cola Company is born.

Volumes were booming even before the professionalization, and Candler eventually acquires full control for roughly two thousand three hundred dollars.

The first year’s books show massive profits with a tiny team; ingredients and ads were a fraction of what consumers paid at the counter.

Early copy pitched brain tonics, but they blanketed walls, barns, and storefronts with the script and turned point‑of‑sale into a branding machine.

Coke even built free signage and fixtures for drugstores, making them look like Coke shops, and shipped stable syrup nationwide so by 1895 they were in every state.

Messaging shifts to taste, refreshment, and a nickel price, aiming at everyone and away from ailments as anti‑cocaine sentiment gathers.

Then comes the 1899 bottling deal: nationwide bottled rights for a token dollar, syrup at one dollar a gallon, and a fixed five‑cent retail price.

Coke kept ad control while bottlers carried capital and operations, letting the brand scale almost asset‑light.

The Chattanooga founders split and sub‑franchised territories, and hundreds of local bottlers sprang up—Coke’s second blitz.

This ‘system’ saturated towns and countryside, then went global, with Coca‑Cola enjoying far better margins than its bottlers.

Copycats flooded in, and after the 1905 federal trademark law, Coke sued relentlessly to defend category leadership.

The Supreme Court affirmed the name as a unique source even with little coca or kola; meanwhile, one U.S. supplier legally imported leaves and removed cocaine, locking in flavor access.

That exclusivity kept the taste theirs long after the drug was gone.

They also created the proprietary contour bottle in 1916, designed to be recognized by feel or even in pieces.

Stacked patents later gave way to a trademark on the shape after research showed nearly universal recognition.

With cocaine out and caffeine cut, Coke felt wholesome; Asa became mayor, and in 1919 Ernest Woodruff’s syndicate bought the company and vaulted the written secret formula as loan collateral.

Ernest’s son Robert took over in 1923, ran it for decades, and with ad partner Archie Lee shifted from features to feelings.

They stripped copy to simple promises, made Coke a year‑round companion, and turned it into a lifestyle of refreshment, friendship, holidays, and America itself.

It cracks me up that the big winner was the pause idea; brilliant insight, even if the phrasing feels clunky now.

It hit in 1929 as the Depression began, pitching Coke as a five-cent escape from hard days, with slogans stripped to the essence and imagery by top illustrators like Norman Rockwell.

They pair that with wholesome celebrities and athletes to anchor the brand in Americana.

The visual brief was impact at a glance, backed by strict rules: keep the Coca-Cola mark intact, avoid casual pronouns, and never speak as the brand, only about it.

Billboards explode with car culture, and Woodruff’s team keeps saying they want Coca-Cola to feel like the most American thing in America.

Then comes the masterstroke: in 1931 Haddon Sundblom paints a big, warm, Coca-Cola-red Santa, and Coke floods America with that image until he becomes the modern Santa.

Pepsi dabbled in Santa too, but Coke owned the association, and Sundblom also shaped icons like the Quaker Oats man and Aunt Jemima.

Holiday sales soar, and Coke grabs early Olympic sponsorship in 1928, kicking off a century-long run by LA twenty-eight.

Woodruff locks in sameness everywhere—formula, packaging, marketing—and theatrically relocates the one-and-only recipe to an Atlanta bank, later to the World of Coca-Cola to revive the secret-mystique.

He also builds a stats unit, decides gas stations are the next frontier, installs tens of thousands of ice-cold coolers, and pioneers coin-op vending in the late thirties.

Station owners love it because drinks have real margin while gasoline doesn’t, and the signage pulls people in.

To enforce quality, he buys underperforming bottlers, fixes them, and resells, and he exports the franchise model across Europe and South America.

That old syrup deal—one dollar a gallon—forces them to chase massive scale as inflation mounts, which becomes their edge.

With a nickel at retail, Coke is cheaper and better known than rivals through the Depression, so trademarks, the contour bottle, and price discipline steamroll challengers.

Competitors matching a nickel get crushed on margin, while Coke sits on pricing power it doesn’t even need to use.

Except one: Pepsi, which after years of turbulence finds a crack in Coke’s six-and-a-half-ounce bottle by selling twelve ounces in reclaimed beer bottles for a nickel.

It trades prestige for quantity, which saves the brand but leaves a discount aura that lingers.

Coke can’t follow without gutting its bottle investment, so it sues over the word “Cola,” but Woodruff ultimately settles and Pepsi keeps the name, gaining real footing by the early forties.

Just as Pepsi finally matters, World War II turns Coke into something bigger than a domestic soda.

The government treats Coke as morale gear, routes sugar via military channels near bases, and grants staff technical observer status to build bottling lines alongside the Army.

Woodruff vows a nickel Coke wherever soldiers serve and broadcasts the effort in ads.

GIs write home calling Coke a godsend, billions of bottles flow, and Coke later calls it the greatest sampling program ever, opening foreign markets decades faster.

Back home, returning service members are lifelong loyalists, so Coke is apple pie in a bottle.

By 1950 a third of profits are overseas, Time puts Coke on its cover as the world’s friend, and Fanta’s roots trace to wartime Germany when bottlers improvised a substitute.

Postwar, Pepsi steals Alfred Steele from Coke—their “imitator”—and he blows up the playbook.

He targets Black consumers with dedicated teams, positions Pepsi as a lighter refreshment, embraces TV and youth—launching James Dean’s first ad—and tightens bottler discipline, pushing share into the mid-thirties by the mid-fifties.

Coke starts to feel like your parents’ drink, not the new thing.

Woodruff hires McCann Erickson, whose blind taste work quietly shows people prefer Pepsi, then pivots hard into TV with unified campaigns like things-go-better-with-Coke, adds Black stars, and tiptoes into diet with Tab instead of risking the Coca-Cola name.

The Tab ad is jaw-dropping by today’s standards, but the category sticks and Tab leads until Diet Coke arrives decades later.

Meanwhile, the McDonald’s alliance becomes singular.

A 1955 handshake births a partnership so tight that Coke tweaks delivery, chilling, mix, and even straw design to make McDonald’s fountain Coke taste crisper, while giving them best pricing and global on-the-ground help.

Cans arrive in 1960 and Coke buys Minute Maid; five years later Pepsi buys Frito-Lay, a deal Coke passed on that later becomes PepsiCo’s profit engine.

Coke’s real-thing platform peaks with the 1971 hilltop spot, which co-opts the counterculture and later anchors Mad Men’s finale.

The ad’s origin is a scribble about sharing Coke across borders, followed by rain-soaked failed shoots in England and Rome before a re-cast, a new hillside, and a tune that becomes a real radio hit.

Then the Pepsi Challenge lands in 1975, surfacing a truth McCann had found years earlier: in blind sips, many people pick Pepsi.

A young Wharton hire at Pepsi also helps flip the packaging game by launching the first large PET bottle with DuPont preforms, which bottlers inflate and fill cheaply, leaving Coke trailing by years.

That convenience spurs a plastics wave with a pollution hangover, which is why cans and glass feel smarter now.

Pepsi’s CEO elevates that exec to run marketing, and a Dallas bottler’s tests—done while helping 7-Eleven—spark local Pepsi Challenge demos at supermarkets that show shoppers choosing Pepsi at the table.

Pepsi turned the Dallas test into a nationwide, grassroots blitz by handing camcorders and card tables to local bottlers, filming real people at malls and supermarkets, and buying local TV slots, which Coke couldn’t match with its centralized, one‑voice playbook.

I always thought the Pepsi Challenge was a glossy national ad, not early reality TV cut in local markets, and it worked because people actually preferred Pepsi in sips.

The authenticity mattered; it felt local and believable, Pepsi outspent Coke in 1977, took the lead in bottles, while Coke still owned fountains via chains like McDonald’s.

Pepsi tried to force the fountain door by buying Taco Bell, Pizza Hut, and KFC, but it backfired when Coke told other restaurants they’d be funding a rival, which helped Coke win accounts and probably nudged Pepsi to spin those brands out.

The marketer behind the Challenge was John Sculley, who parlayed it into Apple’s CEO job after Steve Jobs asked if he wanted to keep selling sugar water or change the world; the relationship later went south, but Sculley still grew Apple’s revenue a lot.

Wild that he listens to the show, and shout‑out to the intro that connected us.

Coke’s slow response owed to Robert Woodruff’s tight grip and a CEO with Alzheimer’s, which froze decisions until Roberto Goizueta took over in 1980, brought in high‑fructose corn syrup, paired with Don Keough, and even bought Columbia Pictures, which unexpectedly paid off.

That studio deal seemed zany but led to Allen & Company ties, Sun Valley, and Keough rekindling with Warren Buffett, who Keough flipped from Pepsi by promising cherry cola—hence the five‑a‑day cherry Coke legend.

Buffett later joked Coke could be run by a ham sandwich, which offended Roberto, but the irony is coming; first, Roberto’s masterpiece: Diet Coke.

They risked the crown jewel and cannibalizing Tab because diet was clearly the future, they owned Thomas now so royalty issues were gone, and they launched with confidence, selling taste first and calories second.

Within a year Diet Coke topped the diet category, quickly became the number three soda overall, appealed to men too, and was cheaper to make than sugared Coke.

Even with that win, Pepsi kept gaining every year; Coke hired Bill Cosby to counter the Challenge, Pepsi signed Michael Jackson, and the taste narrative kept cutting Coke.

So in late 1984 they chose a full formula swap to a sweeter profile because they believed two Cokes would split the base and let Pepsi claim number one, and taste tests said the new formula beat both Pepsi and old Coke.

Woodruff reportedly blessed the change just before he died, but the rollout leaked, Pepsi crowed that the other guy blinked, the press conference was a fiasco, and Coke never tested how people would feel if the original vanished.

Backlash was instant and visceral—thousands of letters a day and even aisle confrontations—yet Coke held for seventy‑nine days before restoring the original as Coca‑Cola Classic while keeping New Coke to help with bottler contracts.

Everyone rushed back to Classic, New Coke collapsed to a rounding error, and the unintended result was the best publicity jolt imaginable; the love for original Coke snapped back and finally blunted the Pepsi Challenge.

New Coke limped on as Coke II until 2002, and then Buffett bought in after the debacle, building a roughly ten percent stake; the dollar gains are huge, the dividends are enormous, but the forty‑year IRR trails the S&P.

It feels amazing when you see a near billion a year in dividends on a one‑point‑three billion cost basis, but time drags returns, and he’d have done better in Berkshire or a broad index.

One more aftershock of Columbia: Michael Ovitz and CAA pitched a new ad model for a fragmented media world, won the business in 1992, and delivered Always Coca‑Cola with a flood of tailored spots, including the polar bears.

The market then drifted away from colas; Gatorade defined sports drinks, Coke’s Powerade never caught up, and a botched, board‑less bid for Quaker Oats let Pepsi buy Gatorade and run away with it.

Post‑Goizueta, CEO churn met a world turning against sugar as obesity rose, making Coke push a total beverage strategy while not admitting the flagship is unhealthy, which is a brutal strategic bind.

Pepsi diversified earlier with snacks, sports drinks, and water; Coke often arrived late, especially in energy, where it passed on Monster in 2012 as too pricey and later bought a stake and swapped brands in 2015, which has done well but missed the massive upside.

They bought Glaceau for vitamin and smart water, later paid up for BodyArmor while Gatorade still dominates, and the real bright spots inside the house remain Diet Coke and Coke Zero.

Coke Zero, launched in 2005 with that playful taste‑lawsuit theme, has grown fast for its size and, along with Diet Coke, carries much of the modern momentum.

Today most revenue is outside the U.S., the portfolio was slimmed from about five hundred to around two hundred brands, and they still sell approximately two‑point‑two billion servings daily across a vast bottler system that gives Coke the margins and leverage.

Sprite’s roots trace to German Fanta clear lemon, the name lifted from an old Coke mascot, and despite expansion into water, tea, juice, dairy, and alcohol adjacencies, roughly seven in ten dollars still come from soft drinks and nearly half of volume is core Coke family.

It’s a three to four percent growth business with software‑like gross margins for a physical good, a market cap around three hundred billion, and despite all the brilliance in brand‑building, you could argue Pepsi has been the more dynamic company since the Challenge era.

Soft drinks got far more crowded; Coke once held around sixty percent in the late nineteen forties and now sits near twenty one in the broader category, so let’s quickly break down why it still worked for so long.

It helps when your playground is tens of billions of daily drink moments and people want more than plain water.

Inside that, they became the original touchstone; I still reach for it in soda, there are just many more choices now.

That came from a century of relentless brand building and some of the best marketing ever done.

World War Two opened a smooth path to plant flags worldwide and they largely locked it in.

Keeping entrepreneurial, locally owned bottlers abroad was huge for reach and resilience.

Bottlers let them move first and fast, blanket markets, and make supplier choices stick. And the product fires reward circuits—bubbles, sugar, caffeine, ice cold—then lifestyle ads tied it to joy and rituals; even the new Coke fiasco weirdly renewed affection.

They were both naive and shrewd, and the Pepsi duel made each side sharper. It is also one of the rare physical goods with a low ticket price and fat margins, which makes global scale sustainable.

On powers, we use Hamilton Helmer’s framework for lasting advantage, and here the headline is scale.

It is not counter-positioning; Coke was the entrenched player.

Everything screams scale economies, from spreading ad dollars over decades to making and moving product cheaper than rivals, and that edge endures.

The ability to outspend on awareness is vital; when Pepsi began matching or beating Coke’s ad spend in the nineteen seventies, that was a real warning sign.

Brand power shows up differently here, since pricing is kept accessible; each can in the wild doubles as advertising, so ubiquity feeds the brand and the brand feeds ubiquity.

Which is why I keep saying the whole game is scale chasing scale.

Switching costs are minimal, there are no network effects, and any process advantage is hard to see from the outside.

Cornered resource then—do you really give it to the secret recipe?

The magic is the meaning we attach to that formula, so a perfect clone would still shift some value because of that aura.

I take the other side; today the recipe alone is worthless without distribution, brand, and budget, and a real theft attempt even got reported to the FBI rather than used.

If anything, the bottlers are the scarce asset, with deep local routes and little incentive to switch allegiances.

Before quintessence, I side with Buffett and Gates that this machine almost runs itself, and the new Coke saga oddly proved the core could survive a blunder.

I disagree; at moments like the long Pepsi share gains and the obesity reckoning, leadership had to change course, even if growth since has only been a few percent. Doing nothing would have meant stagnation or decline.

Fair, though the Coca-Cola trademark still drives the most revenue.

My takeaway: think of it as a system, not a single company, built on aligning partners to push your product, from bottlers and retailers to even billboard owners during the Depression who preferred a Coke ad over a blank wall.

Woodruff’s rule was that everyone touching Coke should make money, and my takeaway is that repetition wins; the promise of cold, tasty refreshment barely changes and keeps working.

At the end of the day, it is sugary water that is bad for us and the planet, yet it is undeniably delicious and refreshing.

Quick trivia: in nineteen eighty, soft drinks got a federal carveout that allowed exclusive bottler territories, which explains those local monopolies.

Coke once owned the land under Atlanta’s giant airport and also had ties to the zoo property.

Around nineteen thirty, they even leased a covert coca processing plant in Peru, sold forty two pounds of the byproduct to a Paris broker, then later got permission to process leaves in the United States.

That employee thought he was helping the bottom line, and another fun one is that Monsanto began as a saccharin maker with Coke as its first big customer.

Carveouts: I am loving a wall-mounted SkiErg for low-impact cross training, and my daughter and I have been battling in Smash where she loves to take on the bunny Pikachu.

Mine: Claude was handy for lease review as we signed a studio space, the Nike Vomero Plus are my current running shoes, and Hermannos Gutierrez has been my go-to chill soundtrack.

Huge thanks to Arvind Navaratnam for his writeup, to Bill Combs from the Coca-Cola collectors community, to Simeon Siegel, and to everyone at Coke who helped us pressure-test the story.

And thanks to John, steward of the Pepsi Challenge, for sharing classic stories.

If you enjoyed this, check out our episodes on Berkshire Hathaway, Standard Oil, Rolex, and Trader Joe’s, subscribe to ACQ2, hop on the email list and Slack, share it with anyone curious about the modern Santa origin, and we’ll see you next time.