STOCK MARKET WATCH -- Thursday, 15 November 2012

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9. Why Coke Cost A Nickel For 70 Years by David Kestenbaum

http://www.npr.org/blogs/money/2012/11/15/165143816/why-coke-cost-a-nickel-for-70-years?ft=1&f=1001



...In 1886, a bottle of Coke cost a nickel. It was also a nickel in 1900, 1915, and 1930. In fact, 70 years after the first Coke was sold, you could still buy a bottle for a nickel. Three wars, the Great Depression, hundreds of competitors — none of it made any difference for the price of Coke. Why not?

In 1899, two lawyers paid a visit to the president of Coca-Cola. At the time, Coke was sold at soda fountains. But the lawyers were interested in this new idea: selling drinks in bottles. The lawyers wanted to buy the bottling rights for Coca-Cola. The president of Coca-Cola didn't think much of the whole bottle thing. So he made a deal with the lawyers: He'd let them sell Coke in bottles, and he'd sell them the syrup to do it. According to the terms of the deal, the lawyers would be able to buy the syrup at a fixed price. Forever. Andrew Young, an economist at West Virginia University, says the president of Coke may have signed the contract just to get the guys out of his office. "Anytime you've got two lawyers in your office, you probably want them to leave," Young says. "And he's saying, 'I'll sign this piece of paper if you'll just please leave my office.'"

Bottled drinks, of course, took off. And Coca-Cola was in a bind. If the bottlers or a corner store decided to raise the price of a bottle of Coke, Coca-Cola wouldn't get any extra money. So if you're Coca-Cola, you want to somehow keep the price down at five cents, so you can sell as much syrup as possible to the bottlers. What do you do? "One thing you do is blanket the entire nation with Coca-Cola advertising that basically has 'five cents' prominently featured," Young says. The company couldn't actually put price tags on the bottles of Coke saying "five cents." But it could paint a giant ad on the side of a building right next to the store that says, "Drink Coca-Cola, 5 Cents." "Since everybody was brainwashed — people saw these ads all over — it was hard for anyone to increase the price," says Daniel Levy, a Professor of Economics at Bar-Ilan University in Israel and at Emory University in Atlanta.

That contract with the bottlers eventually got renegotiated. But the price of Coke stayed at a nickel. That was partly due to another obstacle: The vending machine. The Coca-Cola vending machines were built to take a single coin: a nickel. Levy says the folks at Coca-Cola thought about converting the vending machines to take a dime. But doubling the price was too much. They wanted something in between. So they asked the U.S. Treasury to issue a 7.5 cent coin. At one point, the head of Coca-Cola asked President Eisenhower for help. (They were hunting buddies.) No luck.

In the end, inflation killed the nickel Coke. The price of the ingredients rose. In the late 1940's some stores sold Cokes for six cents The last nickel Coke seems to have been in 1959. The nickel price had lasted over 70 years. And in retrospect, Andrew Young says, it wasn't a bad thing for the company. It's one reason Coke is everywhere today. The company couldn't raise the price. So it did the only thing it could. It sold as many Cokes as possible.