Coca-Cola: the product was never the drink

On May 8th 1886 a pharmacist in Atlanta mixed a dark syrup and carried it down the street to Jacobs' Pharmacy, where it was cut with carbonated water and put on sale at five cents a glass. The pharmacist's name was John Stith Pemberton. He was a former lieutenant colonel in the Confederate army, wounded by a sabre blow to the chest at the battle of Columbus in April 1865 and dependent ever since on the morphine he needed to bear the pain. In its first year his drink sold an average of nine glasses a day. Two years later, on August 16th 1888, Pemberton died of stomach cancer, poor and still dependent, having sold off the rights to his own formula one piece at a time. What can an idea really be worth, if the man who had it died without seeing a cent of what it would become?

The pharmacist who died poor

Coca-Cola was born out of a ban. Before 1886 Pemberton sold French Wine Coca, a tonic made from wine and coca leaves. When Atlanta and Fulton County passed prohibition rules, his product became unsellable and he was forced to reformulate it without alcohol. The name and the logo were not even his: they came from his bookkeeper and partner, Frank Mason Robinson, who chose "Coca-Cola" for the alliteration and wrote it out in his own hand in the cursive script that is still, almost a hundred and forty years later, the most recognisable trademark in the world.

Pemberton, ill and broke, sold pieces of his creation to several people at once, creating a corporate tangle that would take years to unpick. The man who put the pieces back together was another Atlanta pharmacist, Asa Candler, who began acquiring the rights in 1888 and reached sole ownership in 1891: according to the company's own account, the total spent was $2,300. Charley, Pemberton's son, who had gone on selling his father's formula on his own account, died six years later, also consumed by an addiction.

The one-dollar contract that changed everything

In 1899 two Chattanooga lawyers, Benjamin F. Thomas and Joseph B. Whitehead, came to Candler with an idea he considered a waste of time: putting Coca-Cola in bottles. Candler was convinced the future lay at the pharmacy counter, not in glass. He granted them the exclusive bottling rights for almost the whole of the United States. The price, according to the Tennessee Encyclopedia: one dollar.

It is both the worst and the best deal in the company's history. The worst, because the contract fixed the price of the syrup sold to bottlers and had no expiry date: Candler had effectively committed to selling the concentrate at the same price forever. The best, because that signature accidentally drew the business model that still holds today: the company keeps the formula, the concentrate and the trademark, and leaves a network of local entrepreneurs the capital, the plants and the grind of distribution.

And there is an even stranger consequence. Because bottlers paid a fixed price for the concentrate, the company had no way of earning more from a higher retail price: so it spent decades hammering its advertising with the words "5 cents", until the nickel became part of the product's identity.

The advertisement in The Elks Magazine, November 1923: the price, five cents, is written as large as the trademark itself.

The contract was renegotiated in 1921, but by then the price was carved into American heads, and most sales went through vending machines that took a single coin. In 1953, in order to raise the price without doubling it to ten cents, the company asked the US Treasury to mint a seven-and-a-half-cent coin; by some accounts it even tried to go through President Eisenhower, a hunting friend of the company's chief. The Treasury said no. The reference price stayed at five cents for about seventy years: some shops were already asking six or seven cents in the 1940s, but the nickel held until the end of the 1950s.

Keep that in mind, because we are about to discuss exactly the opposite problem.

Three things almost everyone gets wrong

The cocaine really was there. Historical estimates put it at around nine milligrams a glass in the original version. Fresh coca leaves were removed from the formula in 1903; for years spent leaves with residual traces were used, and from the 1920s the extract used has been cocaine-free. The surprising part is that the link was never broken: the extract is still prepared by the Stepan Company of Maywood, New Jersey, the only plant authorised by the federal government to import and process coca leaves. This is not folklore: the DEA registrations published in the Federal Register list the Stepan Company in black and white as an importer of "coca leaves".

The bottle came out of a research mistake. In 1915 the company launched a competition among glassworks with a precise brief: a bottle so recognisable you could identify it by touch in the dark, or even from its broken pieces on the ground. The Root Glass Company of Terre Haute, Indiana, won. The working group, which included the designer Earl Dean, went to the library to read up on the ingredients and took inspiration from the elongated, fluted shape in an illustration of the cocoa pod, a plant that has absolutely nothing to do with coca. The patent came on November 16th 1915. In 1949 a study found that fewer than 1% of Americans failed to recognise that silhouette; in 1961 the bottle was registered as a trademark, something extremely rare for packaging.

Coca-Cola did not invent Santa Claus. It is the most widespread legend of all, and the company itself debunks it on its own website: "Coca-Cola did not create the legend of Santa Claus". Haddon Sundblom's illustrations from 1931 fixed the image of the plump, smiling old man we know, but a Santa dressed in red had been circulating for decades. Coca-Cola did not create him: it standardised him for the whole planet. Which, when you think about it, is a perfect description of what this company does best.

The war that made Coca-Cola global

This is the point where the story stops being folklore and becomes strategy.

When the United States entered the Second World War, Robert Woodruff, the man running the company, gave an order that from an accounting standpoint was madness: every man in uniform must be able to get a bottle of Coca-Cola for five cents, wherever he is and whatever it costs the company. In 1942 the company obtained an exemption from sugar rationing for military supplies.

Then came the part no business plan could have bought. In June 1943 General Dwight Eisenhower sent a telegram from North Africa asking for three million bottles of Coca-Cola and the complete equipment to bottle them: ten plants capable of twenty thousand bottles a day each, with monthly resupply. The army paid, the company supplied the men and the machines. Coca-Cola technicians were attached to the troops as civilian observers, with an insignia on their uniform, and the soldiers nicknamed them the "Coca-Cola Colonels".

The result: 64 bottling plants shipped overseas during the conflict and, on the company's own figures, more than five billion bottles consumed by service members. When the war ended those plants stayed where they were, in Europe, in Africa, in the Pacific, and according to historical accounts they had been paid for largely by the military. Coca-Cola came out of it with a head start in international distribution that no competitor has ever been able to replicate.

The day they changed the formula

On April 23rd 1985 Coca-Cola announced that it had changed the recipe. The decision rested on 190,000 blind taste tests in which the new formula beat both the old one and Pepsi. President Donald Keough said he had never been so sure of a decision.

The reaction is one of the most surreal episodes in the history of marketing. The company was taking eight thousand complaint calls a day. A spontaneous committee formed, the Old Cola Drinkers of America, staging demonstrations in which the new drink was poured down the drains. A consumer in Seattle sued to get the original formula back. One letter that reached Atlanta said, in so many words, that its author could not have been angrier if they had burned the flag in his front garden.

Seventy-nine days later, on July 11th 1985, the old Coca-Cola returned to the market as Coca-Cola Classic. Keough summed it up like this: all the time, money and skill poured into market research could not measure the deep emotional attachment to the original Coca-Cola.

It is the most important lesson in this whole story, and it is also why the numbers that follow make sense. In 1985 the company discovered that it did not own a recipe. It owned a habit.

Eleven years earlier it had learned another lesson of the same kind, from the opposite direction: in 1977 it chose to leave India rather than accept the Indian government's rules, which required diluting foreign ownership and sharing the secret of the formula. It returned to the country on October 24th 1993, after sixteen years away. That is worth remembering, because today India is one of the engines of the group's volume growth.

What you buy, when you buy Coca-Cola

Here we change register, because the company of 2026 has to be looked at with different eyes.

The Coca-Cola Company mainly sells concentrates and syrups to bottlers, which add water, package the product and distribute it. That is not all of it — the accounts distinguish between concentrate operations and finished-product operations, and the group directly owns part of the bottling network — but the heaviest slice of the industrial work stays outside the consolidated perimeter. It is the direct legacy of that one-dollar contract.

The rear of a bottling plant in Key West, Florida, in the 1960s: plants, trucks and warehouses are the work the 1899 contract left off Atlanta's books.

The numbers bear it out. In 2025 the group invested $2.1bn in capital expenditure on $47.9bn of revenues: a little over 4%, with a comparable operating margin of 31.2%. Beverages carrying brands it owns or licenses are sold in more than 200 countries and account, on the company's estimates, for 2.2 billion of the roughly 65 billion servings of drinks of every kind consumed around the world each day.

The years of price, and the return of volume

Remember the seventy years at five cents? From 2022 onwards the opposite happened.

In 2024 organic revenues — stripped of currency, acquisitions and disposals — grew 12%, but price/mix — the combined effect of prices and sales composition — accounted for 11 points against a meagre +1% from volumes. The company itself specified that around 5 of those 11 points came from markets with very high inflation: not brand power, but currencies losing value. In 2025 the push eased to +4% of price/mix, with volumes flat overall: 33.8 billion unit cases against 33.7 billion in 2024 (the unit case is the company's own measure and equals about 5.7 litres).

In 2026 the dynamic flipped. In the second quarter revenues rose 7% to $13.4bn, with volumes up 5% driven by India, China, the United States and Brazil and price/mix up just 2%. At the end of July the company raised its guidance: organic growth of around 5%, comparable earnings per share up 9-10%. On October 27th, with the third quarter (revenue of $13.4bn, up 7%, organic up 7%, volumes up 5%), it raised its guidance again: comparable earnings per share up at least 11%, organic revenue up at least 5%. For 2027 it flags about 8 points less revenue from acquisitions and divestitures.

The more prudent reading is that a significant part of what was told as pricing power was a pass-through of inflation. Real and profitable, but not repeatable forever. Today growth rests again on how many servings are actually sold.

The lawsuit that shows where the profit sits

For years the US tax authorities have challenged the way the group split profits between the parent company and the foreign affiliates that manufactured and sold under licence. For the years 2007-2009 the IRS reallocated more than $9bn of income from the foreign licensees to the US company. The Tax Court sided substantially with the IRS and in 2024 Coca-Cola paid roughly $6bn in tax and interest while continuing to appeal: the appeal was argued in June 2026 and there is still no decision.

The stake is higher, because the same method may apply to later years: as early as the end of 2020 the company estimated a possible additional aggregate liability of around $12bn, and with the interest accrued since, press reconstructions in 2026 put the order of magnitude close to $20bn. That is a potential estimate, not an established liability: the only certain outlay remains the $6bn already paid. Whatever the outcome, the substance of the dispute is revealing: the argument is over how much of the worldwide profit should be attributed to American intellectual property and how much to the work done on the ground.

In the market: Buffett's investment, and what it teaches

In 1988 Warren Buffett began buying Coca-Cola shares. In August 1994 Berkshire Hathaway completed the purchase of 400 million shares at a total cost of $1.3bn. In 1994 that position paid $75m of dividends a year; in 2022 it paid $704m. In February 2026, with the 64th consecutive annual dividend increase and a payout raised to $2.12 a share, the same position collects about $848m a year. On a $1.3bn investment made thirty years ago, without ever selling a share.

It is the best possible summary of what this company is: not a brilliant idea, but a machine that converts a daily habit into cash, year after year, for decades.

One clarification on a figure that circulates misread: in 2025 free cash flow comes to $5.3bn, a low number for a company of this size. The reason is not the business but the final $6.1bn payment tied to the fairlife acquisition. Excluding that item the 2025 figure is $11.4bn, and for 2026 the company estimates about $12.4bn.

What remains is the question no set of accounts can settle: the price. Coca-Cola consistently trades on the multiples of a high-quality defensive asset, and the point is not whether the competitive advantage exists — it does, and these hundred and forty years prove it — but how much of that advantage is already inside today's share price.

Closing thoughts

Pemberton died poor two years after inventing the best-selling drink in history. Candler gave away the right to bottle it for one dollar. In 1985 the company tried to improve it and had to reverse course in seventy-nine days. Every time someone believed the value lay in the liquid in the glass, they were wrong.

If in a hundred and forty years Coca-Cola's real product has never been the drink but the habit of drinking it, the question for an investor today is how much of that habit they are already paying for in the share price.