This question is the subject of historian Bartow Elmore’s recent book on the Coca-Cola Company, Citizen Coke: The Making of Coca-Cola Capitalism. Elmore argues that Coca-Cola was able to make a fortune and become one of the most successful companies of the twentieth century because it eschewed the business model of “vertical integration,” which is how Gilded-Age industrial megaliths like the Ford Company and Standard Oil operated. Because men like Henry Ford and John D. Rockefeller had become so successful by implementing a vertical-integration approach into their companies, it has long been regarded as the most effective way to organize and manage a company.
In brief, vertical integration is the process by which a given company not only owns its products but all of the industries that are involved in the production and distribution of that product. In the case of the Ford Company, for example, Henry Ford not only owned the cars themselves but also many of the foundries in which steel would be smelted, the railroads that would carry these raw materials to Ford-production factories, the rubber plantations that provided resin for the manufacture of tires, and everything else. Vertical integration is considered preferable because a company owner exercises complete control over every aspect of the manufacture and sale of its product.
Coca-Cola did not employ this method. As Elmore argues, Coca-Cola was one of the first companies to successfully utilize the franchise model, in which the company outsources all of its production and profits by serving as a middleman in the distribution of its products. In the case of Coca-Cola, this is important because it meant that, unlike companies such as Ford or Standard Oil, Coca-Cola owned none of the raw materials (or ingredients) that went into production of the drink.
This decision had its own logic. For example, Coca-Cola did not own the sugar plantations from which it imported the sugar used to sweeten the beverage. Instead, it contracted with other companies like Monsanto, which owned many such plantations in the Caribbean and cut them into some of the profits made by the sale of Coke. In this way, Coca-Cola was able to survive inclement weather that damaged sugar crops and destroyed infrastructure because it didn’t own any of it. Furthermore, because Coca-Cola did not employ the workers who extracted sugarcane, it was not responsible for quelling labor unrest or dealing with general strikes. Coke’s outsourcing of the raw materials it used allowed it operate at nearly 0 overhead, meaning that it could generate profit at almost no cost to itself.
This model held true in regard to other ingredients as well. Coke imported sugar from the Caribbean, coca leaves from Peru, glass, aluminum, and plastic (for its bottles) from American factories, and water from India. It owned none of these enterprises but rather gave domestic and foreign companies the right to sell product with the Coke brand, which by the mid-twentieth century was a global image.
It should be noted here that this practice often came at a high price for the places from which these resources were extracted. In India, for example, water was scarce as it is, and what little groundwater was available was absolutely critical to irrigate the Deccan Plateau. When franchise-Coke bottlers began to suck up what little water there was to use in making soda, it caused massive drought and corresponding famine. Legally, the Coca-Cola company was not responsible for the plight of poor Indian families, but such business practices came to endow it with a detestable reputation.