September 3, 2003

Coke Moves With Caution to Remain in Schools

n July, the Coca-Cola Company publicly vowed to roll back all of its marketing efforts to children under 12: no television ads; no free coupons; and no giveaways like book covers emblazoned with the company's logo.

But Coke has not disappeared from the lives of schoolchildren. In June, consumer groups and some parents were dismayed when Coca-Cola Enterprises, Coke's largest bottler, became an official sponsor of the National PTA. What was not widely known at the time was that the PTA had also given John H. Downs Jr., the bottler's senior vice president for public affairs and its chief lobbyist, a seat on its board.

The PTA says that its ties with Coke help pay for its programs and that Mr. Downs's appointment will help its marketing efforts. Both moves have outraged some parents, who say their children have been put up for sale.

"The National PTA has a wonderful history in protecting and advocating for the health of children, and now it is part of the Coke marketing machine because Coke literally helps to run it now," said Gary Ruskin, the executive director of Commercial Alert, an advocacy group in Portland, Ore. "It's a massive conflict of interest."

One of Coke's chief challenges is determining how to sell and promote its products and remain in the good graces of parents. Like many food companies, Coke and its bottlers are struggling to change the public's perception — and to maintain their business — in the face of growing concern about health and nutrition.

Coke and Pepsi have been heavily criticized for selling to children and for locking school districts into contracts for exclusive rights to have soda vending machines on school grounds. Some school districts have banned soda sales on campus.

But even in those districts, many of Coke's vending machines remain and the company has taken the opportunity to fill them with some of its noncarbonated drinks — Powerade, Minute Maid orange juice and Dasani water — and also to market new products.

"These cola companies are really bracing for changes in what they're going to be allowed to do in the schools because there's a growing grass-roots movement to stop the cola contracts in schools," said Susan Linn, a psychologist who studies children's marketing at the Judge Baker Children's Center at Harvard. "They're still marketing their brand."

Officials at Coca-Cola Enterprises, which actually sells Coke's products, said the company did not know the number of vending machines in schools because those deals were negotiated locally. But Dan DeRose, the president of DD Marketing, a Colorado company that helps secure contracts with soda companies, said the companies still had a large presence in schools.

"We're busier than we've ever been," Mr. DeRose said.

In the fall, Coke plans to introduce Swerve, a line of milk-based drinks and the first Coke beverage to be sold only in schools (in this case, middle and high schools). Made with skim milk, the drink has about 140 calories, no fat, 27 grams of sugar, 115 milligrams of sodium (about the same caloric and fat intake of Coca-Cola Classic, with more than twice the sodium, although Swerve has some vitamins added). It will come in flavors like Blooo, for blueberry; chocolate; and Vanana, a combination of vanilla and banana.

Coke is also willing to alter the terms of its contracts with schools in favor of some of its noncola products. The company says schools have the right to choose the products sold in vending machines. Even so, beverage companies traditionally offer a higher commission on sales of carbonated soft drinks. Coke, for example, typically offers schools a commission of 30 percent for each can of soft drink that they sell versus 15 percent for each noncarbonated drink, consultants said.

For exclusive vending rights in schools, cola companies typically made upfront payments of rights fees, or annual cash payments from bottlers regardless of how many drinks are sold. (Coke says it has eliminated upfront payments and advance fees.) School districts also receive a yearly commission based upon the number of beverages they sell, with carbonated soft drinks usually netting the biggest return.

Backing out of contracts can be costly for the schools. In the Richland County School District 1 in South Carolina, for example, one high school made about $40,000 in profit when it sold both colas and noncarbonated drinks. When the district banned the sale of soft drinks, it was taking in an estimated $5,000 to $6,000 in commissions, according to an newspaper article in The State of Columbia, S.C. School officials have called that data incomplete, saying the numbers did not reflect an entire year's sales.

"The districts lose out on some revenue, but they're still able to get enough money to support the programs that depend on that volume," Mr. DeRose said.

Officials at Coca-Cola said that no single food or beverage should be held responsible for the rising rates of obesity and diabetes in children and youths. They also said that for the most part, their vending machines were in middle and high schools, where its new policy does not prohibit it from marketing to students.

"We do not believe that having vending machines in schools represents a commercial presence in the classroom because the machines aren't in the classroom," said Kari L. Bjorhus, a health and nutrition spokeswoman for Coke. "We're in the schools because the schools have asked us to be there. Providing students with beverage choices is a benefit to the schools."

Critics of the cola companies have seized on Mr. Downs's appointment as a flash point in the battle to keep corporations out of schools.

"For them to now be on the side of people who absolutely create, market and peddle unhealthful products to children is just painful to watch," said Brita Butler-Wall, the executive director of the Citizens' Campaign for Commercial-Free Schools, an anticommercialism group in Seattle. "They can no longer take the high moral ground and help in the fight to get commercial exploitation out of schools because they simply have no moral authority to so anymore."

But officials at the PTA stand by their decision.

"Coca-Cola is sponsoring National PTA's program," said Pamela J. Grotz, the executive director of the National PTA. "PTA is not sponsoring Coca-Cola or promoting Coke. We have a very strong policy on commercialism in schools, and we haven't changed."

The National PTA began seeking corporate sponsorship about seven years; its current sponsors include the National Football League, Disney Interactive and AT&T Wireless.

Ms. Grotz, the PTA's executive director, declined to disclose how much money the PTA received from Coca-Cola Enterprises. But she said that corporate donations made up about 4 percent of the group's annual $12 million budget. Ms. Grotz also said the PTA tapped Mr. Downs for its board because the board needed a seasoned marketer to help with its fledgling marketing campaign. Mr. Downs, like other board members, will not be paid for his work on the board and will not be able to vote on the organization's major policy issues.

Mr. Downs said he saw his two-year appointment as an act of community service that had nothing to do with selling Coke.

"It can easily be misconstrued," Mr. Downs said. "But if an individual or a critic group tried to create a false litmus test through this issue, then that's wrong. Does that mean that someone in a large company can't volunteer to help out a local parent teacher association or some other organization? That just doesn't seem right to me."

Mr. Downs is also on the boards of eight organizations, including the Morehouse School of Medicine, the Georgia Chamber of Commerce, the Coca-Cola Foundation and the Council for Corporate and School Partnerships.

In December, executives at Coca-Cola Enterprises began a publicity campaign to highlight the company's efforts in schools. Coke has been distributing brochures and leaflets promoting "Your Power to Choose ... Fitness Health Fun," a school-based program about making wise health choices.

"You've got to exercise, eat right, do all the things that I tell my kids to do," said Mr. Downs, who was directly involved in creating the company's campaign. "And I've had four children. I've got a lot of experience."