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The Real Thing Is Thundering Eastward


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THE REAL THING IS THUNDERING EASTWARD

How do you find sales reps in a territory that has never had any? That was Horst Muller's predicament. In 1990, the new head of Coca-Cola Co.'s operations in eastern Germany needed a sales force to handle store merchandising, order-taking, and delivery. But even advertising in the papers did no good. Says Muller: "These people come from a culture where selling is a completely foreign idea."

So Muller turned to his 2,100 local employees, many of whom came from the six antiquated eastern German plants Coke had bought from the state. He and his managers from western Germany picked out the most gregarious technicians, factory hands, and clerks, and shipped them to the West for sales training. The result was a team of Coca-Cola zealots hustling for new business. Former administrator Regine Hannemann, for example, landed the account at the mammoth Sports Hall in eastern Berlin. The Hall has a giant Coke sign near the skating rink as well as a dozen vending machines and three cafeterias serving Coca-Cola beverages.

Thanks to such drive, it's easy to find eastern German fans of this American standby. "Of course, when I want a soda, I drink Coke now," says Monika Moroz, a former librarian and now an art gallery owner in Berlin. "It's a lot better than our old Klub Cola." Excluding west Berlin, Coke sold 74 million cases of its soda last year in its new territory, up from zero before 1990 (chart). It could sell more than 100 million cases this year.

Since 1989, the world's No. 1 soft-drink maker has invested $450 million in eastern Germany, and some analysts figure the new operation will turn a profit by yearend. Germany is already Coke's largest market in its European Community group, which contributed $767 million in 1991 operating profits--more than the U.S. market generated.

At this pace, Coca-Cola will smack right into PepsiCo Inc., which for years has held the advantage in most of Eastern Europe and the old Soviet Union. But because Pepsi has been weaker than Coca-Cola in Germany, Coke has used its advantage to carve out a market dangerously close to Pepsi's strongholds in Eastern Europe.

Coke's top brass hesitated before plunging into eastern Germany. True, western German bottlers had handed out samples to easterners when the Berlin Wall fell in November, 1989. But Chairman Robert C. Goizueta and President Donald R. Keough worried that a large and fast push into eastern Germany's decrepit markets would be a logistical nightmare.

Muller and Heinz Weizorek, German division president, successfully argued otherwise. They figured monetary unification would come faster than anyone expected, making business in eastern Germany much easier. They also knew that the Treuhandanstalt, the government agency charged with selling off state-owned businesses, would offer the best tax incentives and investment grants to those who acted fast.

GOING BANANAS. Just as important, "there was enormous pent-up demand for the product," says Ralph H. Cooper, president of Coca-Cola's European Community Group. Before 1989, East Germany's 17 million consumers each year drank 95 soft drinks apiece--nearly as many as their western neighbors, despite the bitter taste of state-produced sodas. And East Germans had been watching Coke commercials on West German TV for years. When East Germans poured across the border in 1989, bananas and Coke were the products they bought most.

Once Keough and Goizueta authorized the move, Muller and Weizorek moved fast. The company helped foot the bill at the unification ceremony at the Brandenburg Gate in the fall of 1990. In April, 1991, Coke aired its first commercial on eastern German TV, showing young and old alike all enjoying Coke. Company managers also set up 8,000 vending machines and fountain services in prime locations, and swiftly jury-rigged a distribution network. "We used anything with wheels to deliver product," says Muller. That included wheezing Trabant autos, now being replaced by 370 trucks.

Coke's dominance of western Europe, where it outsells Pepsi 6 to 1, has helped enormously. Weizorek has consolidated Coke's 105 German bottlers into about 30 today. These efficient factories, along with an ultramodern plant at Dunkirk in France, have satisfied eastern German demand while the 1940s' plants Coke bought were being upgraded.

POLISH PUSH. As such western German grocery chains as Tengelmann expanded eastward, they have taken their orders for Coke with them. And they've supported Coke's Western-style marketing initiatives. The Coke sales force, for example, persuaded these retailers to push less familiar brands such as Diet Coke--Coke Light in Europe--and backed them up with a heavy sampling and promotions campaign. "Low-calorie brands weren't very popular at first," says Regina Monsheimer, manager of the Kauhof store in east Berlin's Alexander-platz section. "But now, I can't keep enough of them in stock."

Meanwhile, Pepsi is struggling in Germany. The company took control of its independent German bottlers two years ago, but low productivity, poor distribution, and feeble marketing efforts have prompted some major grocery chains to drop Pepsi. German volume dropped from 66 million cases in 1990 to 57 million in 1991. Pepsi has now put a German, Juergen Schlebrowski, a Procter & Gamble Co. veteran, in charge. Schlebrowski has won back key retail accounts, such as Tengelmann, but he admits the company has a long way to go. "We tried to do too many things at once when we bought the bottlers," he says. As a result, Pepsi has yet to expand aggressively in the East.

While Pepsi fixes up its German operation, analysts expect Coke will start shipping into Poland from its upgraded eastern German plants. Coke facilities are being planned for Bulgaria, Romania, Czechoslovakia, and Russia.

These efforts pale, however, in comparison with Pepsi's franchised network of 65 bottling plants in Eastern Europe and the former Soviet Union. And Pepsi downplays Coke's efforts. "We have a very sound base there, and awareness of Pepsi is higher than any other brand," says Schlebrowski. "It will be difficult to beat us." In the Soviet Union last year, for example, Pepsi sold about 45 million cases, about double Coke's output, according to Beverage Digest. Pepsi-Cola has earmarked $1 billion for overseas expansion over the next two years.

Some Coke-watchers expect its superior muscle to triumph in this latest installment of the cola wars. "Whatever advantage Pepsi may have in eastern Europe from having gotten there first will be easily wiped out by Coke's tremendous global resources," says George E. Thompson, an analyst at Prudential-Bache Securities Inc. Perhaps, but neither of these rivals ever backs off from a fight with the other, especially when new markets are to be won.Walecia Konrad in Berlin, with Igor Reichlin in Bonn


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