#416: Why The Price of Coke Didn't Change For 70 years
Hey, just a quick note before we start today's show, you may have noticed that the feed for planet money and lots of other NPR podcast went bananas in the past day. Or so lots of podcasts got downloaded into the wrong feeds this was unin. Tirelessly unintentional mistake it happened because of a change NPR made to its web servers that we did not expect to have any effect on podcasts. Clearly it had an effect. We are very very sorry. We believe we have fixed the problem, but it is taking a while for that fixed to make it to all podcast apps. If you're NPR podcast feeds are still acting funny. Please go to NPR dot org slash help. One. Final note today's episode. I ran in two thousand fifteen. You know, what the price of a Coca-Cola was an eighteen eighty six a nickel in one thousand nine hundred still a nickel ten years later. Nineteen ten and nickel. Nineteen twenty a nickel. Nineteen thirty a nickel nineteen forty a nickel. Nineteen fifty a nickel as late as nineteen Fifty-nine. You could buy a six and a half ounce bottle of Coca Cola for one nickel and for communists. This is a total freak of nature kind of thing. Prices. You can read in any textbook are supposed to go up and down the price of gasoline goes up and down depending on how much is available. How many people want it? How hard it is to get out of the ground. The price of a television depends on how expensive the components are to make and the price of labor. The price of butter goes up and down corn cars houses, everything prices change. They adjust. It's the basic mechanism for how markets work and yet. Four seventy years. You could buy a coke for five cents. Gocha Gola is the best drink in the land men women children the country over drink more Coca Cola than any other. Wondering is the five cent Drake of the nation proof that Coca-Cola quenches your thirst refreshes your spirits? Throws your taste is nothing else. Yes. Yes. Hello and welcome to planet money. I'm David Casten Val today. The strange story of nickel coke why it happened. What it says about the textbooks and? He. The. Support for this podcast and the following message. Come from each raid with all the jargon. Investing can feel like a foreign language. Each raid makes investing simple by providing personalized support and guidance in terms you can understand they let you get started in the market with as little as five hundred dollars. And then help you learn as you go you don't need to be approach to invest at each raid. For more information, visit eatright dot com slash NPR each rate. Securities LLC member, sipc. If you listen to planet money, you probably love learning new things NPR has another podcast series. You might like it's called life kit. It's a collection of guides on how to get your life together from getting better sleep to saving more money. Just search life get to subscribe. It's not a secret that coke cost a nickel for so long. You can go to any antique store and see the old signs. If you go to the Coca Cola museum in Atlanta, the tour guide will tell you. And normally people on the tour will just not yet things used to be cheap. But one day a guy named Daniel Levy took his kids to that museum. It's called the world of Coca Cola and so his family's on this tour and the tour guide just mentions this nickel coke thing. And Levy thinks wait what the night heard that. I said can you say that again, and repeat that and I kind of grabbed my in my head, right? I should how can that be? Daniel Levy, you see is an economist and for him, this is a mystery. So he basically hijacks the tour starts asking all these questions. How could coke stay nickel for so long and the tour guides like, I don't know. I don't know. So Daniel goes back to Emory University where he works, and he finds Andrew Young Daniel did kind of walk in and say that he found this craze. Thing one day. And you know, I need a research assistant you want to help me out with this project is yes, ounds, really interesting. Let's do it the more. They think about it. A single price for seventy years, the stranger it. Seems this puzzle becomes really really amazing venue actually consider but has happened during that period, the great depression, three wars spanish-american World War One World War Two competitors, including Pepsi, hundreds of competitors prohibition. Various lawsuits and nano distinct made any difference. We're talking about basically like eighteen as six into the nineteen fifties all of all of these dramatic changes to the economy going on and and one constant through. It all was that you could get six and a half hours of Coca Cola found nor in a bottle or five cents. If you think that's just because Coca-Cola came up with incredible innovations to cut costs to keep the price down. This is not that story. It's a much stranger story that tour guide when Danny. Had been grilling him said you should go to the Coca-Cola archives. So Daniel and Andrew do and it has all this stuff posters. Calendars, novelty items. This is Phil Mooney. The Coca Cola company archivist? He says the company has saved everything metal sons magazine advertising radio and television advertising departmental records. The answer was definitely in there somewhere product files executive correspondence is the secret formula for coke in there somewhere that is one thing that is not there. So our economists start going through the archives Mooney. The archivist says he can't explain how nickel coke began. It was an attempt to attract customers late eighteen hundreds were the days of soda fountains. And there were lots of soda fountain drinks, they were primarily food flavored drinks oranges and grapes. And what was the cost of the competitors? Seven eight maybe ten cents somewhere five cents. But coke went very specifically to market itself. Self as an affordable product the first sale. We know is in Atlanta at a store on Peachtree road on may eighth. Eighteen eighty six. I'm reading from the Coca-Cola official history here, Dr John Stith Pemberton a local pharmacist produced the syrup for Coca-Cola and carried a jug down the street to Jacob's pharmacy where it was sampled pronounced excellent and placed on sale for five cents glass as a soda fountain drink. Okay. That's the easy part. That's how it started. But why did coke stay nickel for seventy years? The two economists Andrew Daniel Start going deeper and deeper into the archives reading everything they can find books company histories. Andrew Young finds this story that seems to explain part of the mystery of why coq remained priced at nickel. It has to do with two lawyers from Chattanooga. Tennessee in eighteen ninety nine those lawyers pay a visit to the president of Coca-Cola his name is AC candler, and they tell him they're interested in this new thing bottles, selling drinks in bottles. They wanna buy the bottling rights and as candler the president of coq thinks bottles. This is a soda fountain business. You know, the way the story goes candler just said, your your mind is not gonna it's not gonna be effective. It's not gonna work. You're you're gonna lose all your money. And they said, well, please give us the rights anyway. So he just said, yeah, I'll sign this paper. So just be I'll sign this piece of paper. That says, yeah, I'll, you know, whenever you want, and I'll just sell you syrup the concentrate ninety cents a gallon in agreeing to do that candler did something companies never do he agreed to sell his product the syrup to bottlers for a fixed price for ever the contract had no end date. It was a perpetual infinite non ending contract. He could never charge more for his product. Why would he do that? My best take on. It is that, you know, really. This was just trying to get to guys out of your office. I mean, anytime you've got to lawyers in your office, you probably want him to leave. Right. And he's just saying also, and this piece paper if you will just please. Leave my office and never thought twice about it. This was a problem for the Coca Cola company, because of course, bottled drinks took off and Coca-Cola had signed this contract, basically saying it would never raise the price of the syrup to the bottlers. Now, this does not explain why coq stayed a nickel because the bottlers could sell a bottle for whatever they wanted. So good the corner store, six cents or seven cents or ten cents. It's what Coca-Cola did next that kept the price at nickel to understand it. You have to think about the situation from Coca-Cola's perspective because you've agreed to sell your syrup to the bottlers for a fixed price any increase in price at the corner store. It doesn't help you. You don't get any of the extra profit the profit goes to the bottlers and the retailers, and in fact, if they raise the price it hurts you if coke goes up to a dime. Fewer people are going to buy it, and you Coca-Cola and up selling less syrup. So if you're Coca Cola you want somehow to keep the price down. At five cents. What do you do L? One thing. You do is you blanket the entire nation with with Coca Cola advertising that basically has five cents prominently featured think about how brilliant this is Coca Cola is taking control of the pricing away from the bottlers and the corner stores the company can't actually put a sticker on the bottle of coke saying five cents, but it can put up a huge billboard or paint the side of a building right next to the store that says drink Coca Cola five cents again. Daniel Levy, I'm holding in my hand life magazine in life magazine in quite old. Actually, this particular one is life magazine from nine teen that's thirteen July turn and the back of this magazine. So is there is an ad of Coca Cola and it's string Coca Cola at five cents delicious. And refreshing point is that since everybody was brainwashed. People saw this all over and this adds included five cent. It was part of the commodity self for most. It was hard for anybody to increase the price. Anyone selling a bottle of coke for more than five cents was kinda look like a jerk? But what about the soda fans the people around the soda fountains at the corner store? Okay. The ads made it so they couldn't charge more than a nickel, but they could use smaller glasses or skimp on syrup. So what do you do if you're Coca Cola? Here's Phil Mooney. The company archivist you provided them with the glass. Now, what went that you did it and for many years there was actually a line drawn in the glass to show you where how far to draw the syrup, and and then we how Philip carbonated water that to complete the drink. That's a very clever way to control how much people are getting for it nickel. That was the idea this explains part of the mystery of why Coca-Cola state and nickel for so long. Coca-cola was locked into this weird contract with the bottlers. But there had to be something else going on because in one thousand nine hundred eighty one Coca-Cola managed to renegotiate the contract the price of sugar had gone up and the company was losing money. So bottlers eventually concede it, okay? And finally, the Coca Cola company was back in control. It could do whatever it wanted after two decades of being shackled by a bad contract. Coke didn't have to be a nickel anymore. So what happened it stayed and nickel? Anyway, part of the reason was just that advertising campaign. It was so effective. The company at locked itself in. I mean think how long it would take to repaint all those ads on the sides of the buildings there were Coca Cola trays that said five cents all the stuff given enough time that could have changed. But there was this one final hurdle. A hurdle about the size of a refrigerator. Painted bright red the vending machine at this point in history. Vending machines aren't equipped to make change and the Coca Cola vending machines. They are built to take one coin. And that Quyen is a nickel these machines. They were everywhere, here's Daniel Levy, more and more sales of Coca Cola view made through vending machines nineteen fifty to give you a sense to rural about four hundred and sixty thousand vending machines in the US for hundred thousand of them belong to Coca Cola going through the archives. Daniel and Andrew say, it is clear that the people at Coca Cola really wanted to raise the price of coq above a nickel, but they couldn't because of these. Machines that only took single coins. So the people at Coca Cola think if only there were another coin there's the dime. But that would double the price. No, really we want something in between. So here soothe get clever idea. But they Bruce they said how 'bout we asked the treasury to issue? Seven and half cent coin the US treasury the government. Yeah. Daniel Andrews say at one point the head of Coca-Cola asked the president of the United States Eisenhower for help the two were hunting buddies, and it wasn't just Coca Cola. This was a crisis for any business that sold through vending machines. But no luck. There has never been a seven and a half cent coin Coca-Cola was still desperate to raise the price so desperate. In fact, the company came up with what Andrew Young calls a harebrained idea. This never actually saw the light of day. But there are a bunch of references to it in the archives. We're going through some internal memos and pulled out this state. Pack of you know, maybe ten pages to Ryan the front of it says single coin plan said oh my God. What is this? The single coin plan was a very clever way to charge more for a bottle of coke without having to adjust the vending machines at all. I'll let Daniel Levy explain it, huge what they came up with the said, look we are going to increase the price, but people will still be using nickel. So how they do that. They said you're gonna make every nine bottle in the vending machine. It will be an empty bottle. They call that bottle that empty bottle. They called it an official blank an empty bottle. So eight customers in a row would panicle clunk bottle of coke comes out the unlucky ninth person would put a nickel in klink an empty bottle comes out got put in a second nickel. So sometimes you're lucky sometimes you're not on average you end up paying slightly more than a nickel average price effective price. Now is five point. Six to five cents. I can't imagine customers would hate that. I'd be so pissed if I put in a nickel, and I got an empty bottle of coke not even just saying sorry, you need to pay an extra nickel, but an actual empty bottle and just make me angry. I think that that's that. That's one reason they abandoned this policy. But I thought it was very very clever idea, though, vending machines that reliably make change are available by nineteen Forty-six. But the thing that finally does the nickel coke is something else after the break the end of nickel coke support for planet money and the following message. Come from American Express you want to build your business. They can help build your business with financing solutions for eligible business customers the powerful backing of American Express don't do business without it. Terms apply. Visit American Express dot com slash business. We're back with a new season of rough. Translation. Yeah. And this time we are following people. Who break the rule in lying is part of the business. Opinion, the best revenge against ISIS to be humane. A mess supposed to pinch. Yeah. Yeah. Episodes every other Wednesday. Subscribe. Inflation is definitely sort of the death knell for the nickel coke. There's no doubt about that. You might think inflation would have been a problem for Coca-Cola the whole time. But Andrew Young says there wasn't really inflation before the nineteen forties. Yes. Prices would meander up sometimes sugar and the ingredients cost more. But then they'd meander back down after the nineteen forties. Inflation is here to stay prices. Just keep going up. What happened? The US went off the gold standard dollars. No longer had to be backed by gold, and this is you know, vastly simplifying things. But basically, we've no longer got the golden anchor. And so at that point the amount of money just keeps going up and up and up, which means that prices, go up and up and up. Well, prices are going up and up and up. You just can't keep your you can't keep your Coca Cola for nickel for too much longer. So so in a way nickel coke died because we went off the gold standard. You know? You can actually you can make that argument in nineteen forty six and forty. Seven he start to see cokes on sale for more than a nickel six cents seven cents. It's a big deal. The press reports on it. Fortune magazine in nineteen fifty one runs an article called the nickel. Coke is groggy. Like, it's unsteady ready to fall, and it does the last available nickel coke seems to have been sometime in nineteen fifty nine for Andrew Young. And Daniel Levy, this story says a couple of things one is just a life is Messier than the textbooks. Tell you. Yes. Prices in the market generally adjust. But there are weird contracts and vending machines, and also prices are complicated things they get stuck. And we get stuck on them. There was a time between the contract and the vending machine when the Coca Cola company could have changed its price. But it didn't Coca Cola early on said a coke cost a nickel. It put it on billboards and ads and painted on buildings and people got used to it. It felt like a promise. In a way, all prices kind of feel like that. Once we see a price on something. We have this feeling like that some innate property of the thing that it should not change prices have the psychological component. That's why companies will often shrink a product rather than raise the price. Put fewer potato chips in the bag make the ice cream container. Fourteen ounces instead of a pint I'm looking at you Haagen-Dazs, so prices get stuck. But Daniel Levy says as far as he knows nickel. Coke is the longest documented sticky price in modern history nickel coke persisted for seventy years. And in retrospect, it wasn't a bad thing for the company is one legacy of this weird history. That Coca-Cola is now everywhere is I mean, we think of coke is being everywhere is that in part because they were stuck with a nickel price and the only way to make more money was was to sell more cokes. So they really put every effort into that. My sense is that that is that is a big part of it. That Coca Cola was forced to push volume to be more profitable. They couldn't adjust its price. And so it did it very very powerfully push volume. At at one point there were associated with the military. They were Coca Cola bottling operations on every single continent except for Antarctica during World War Two all there to make sure that our soldiers could always get Coca Cola in a bottle or a fountain for nickel today. Cokes are larger and the cost you a dollar or more at a vending machine. Nickel. Coke seems like a long time ago, though, Phil Mooney the Coca-Cola archivist point out this one strange thing in many respects, the nickel coca sorta still around. If you do it on a per ounce basis by two liter bottle for dollar twenty nine dollars thirty nine in the grocery store on sale, and that's pretty close to the the original nickel. Coke is very very close. I mentioned this to Andrew Young the economist he said that. A nice way to think about it. It's still with us just in bigger bottles. Whenever. Planet money now has a weekly newsletter. Asking interesting economic questions like is buying a house overrated, and are there ways in which plastic bag bans may actually be harming the environment? You can sign up for it at NPR dot org slash planet money newsletter. Again, NPR dot org slash planet money newsletter. You can Email us at planet money at NPR dot org. We're also on Twitter, Facebook and Instagram. Today's rerun was produced by Darren woods Bryant earth's that is the editor of planet money, and Alex Goldmark is the supervising producer. I'm Jacob Goldstein. I'm David Kastenbaum. Thanks for listening. Okay.