The Curious Case of the Nickel Coke

August 09, 2024

“Wrong decisions are part of life. Being able to make them work anyway is one of the abilities of those who are successful.” — Warren Buffett

The Curious Case of the Nickel Coke

As a New York Mets fan, I brace myself for Bobby Bonilla Day every July. In 2000, the Mets released Bonilla with $5.9M remaining on his contract. Rather than pay him the money, some bright soul negotiated a payment plan financed over 24 years at 8%. They deferred the first payment until 2011. So on July 1, 2024, Bonilla got his annual check of $1,193,248. The last payment is due in 2035. In all, the MLB franchise will pay its failed slugger over $28.6M. It’s one of the worst deals of all time. But it’s not alone.

Coca-Cola, or Coke, began its iconic journey in 1886 on Peachtree Road in Atlanta. This was the age of soda jerks and fountain drinks. Soda cost 5 to 10 cents and Coke very intentionally positioned itself as the affordable option. A refreshing glass of it went for a nickel. And Coke waged a heavy advertising campaign (often offering free samples) to make sure everyone knew it.

Fast forward to 1899 when two Tennessee attorneys knocked on Asa Candler’s door. Candler, the president of Coke, heard their pitch to start bottling the beverage. Bottled Coke? Candler wasn’t even curious. Coke was the soda fountain king. No one drank sodas from a bottle. In a remarkably myopic moment, Candler agreed to sell Coke syrup for 90 cents a gallon in perpetuity.* No end date.

Coke continued to blanket the nation in “Nickel Coke” advertisements. Newspaper and magazine ads, murals, and all manner of memorabilia. Good luck wandering into any antique mall and not see at least one sign, poster, or serving tray inviting you to “Drink Coke” for a nickel. In 1921, they renegotiated the contract. But they doubled down on the iconic price. Custom Coke coolers were everywhere and the technology to make change didn’t yet exist. You could only pay with a single five-cent coin. Period.

Somehow this persisted for decades. Coke knew it had a problem. Pepsi and many other competitors existed. Prices had gone up for every ingredient and component of the supply chain. Where Coke was previously trapped by a contract, they were now cornered by their own success. There were about half a million vending machines scattered across the land, and Coke owned about 85% of them. Coke was still a nickel.

How did they keep profits from fizzing and going flat? They used their market size to buy ingredients in mammoth proportions and own bigger and bigger chunks of their supply chain to maintain a margin. As I’ve written before, constraints can sometimes spark innovation.

Coke’s salvation came from a quirk of monetary policy and technology. The US suspended the gold standard in 1933 and by the 1940s the cost of things started going inexorably up. Halfway through the decade, vending machines could make change. By 1946, you started to see Cokes selling for more than 5 cents. The last nickel Coke is believed to have been sold in 1959! It endured for close to 75 years!

So what’s the point? Where do we start? First, never agree to any contract without an end date. No matter how big you’re thinking, you can’t anticipate what consumers will or won’t love decades from now. Always, always, have a fiduciary negotiate on your behalf! The systems that scale you can also contain you. And finally, great individuals and companies find a way to make it work.

One question to ponder in your thinking time: How will I feel about this decision tomorrow? Next year? Ten years from now?

Make an Impact!
Jay Papasan

Co-author of The One Thing & The Millionaire Real Estate Agent ​

* Candler isn’t alone. In 2000 Blockbuster had the chance to buy Netflix for $50M!