The World's Most Valuable Lie - Part 1
The World's Most Valuable Lie - Part 1
How Coca-Cola's intangible assets bamboozled everyone
By Nathaniel Nelson
Legend has it that the only record of Coca-Cola’s recipe is tucked away in a 20-acre complex off Baker Street in the US city of Atlanta.
The formula for the world-famous soft drink is apparently hidden behind a vault door ten feet tall and probably a good two feet thick (at least, that’s what the pictures appear to show – the owners have kept mum about details of the site).
All the nuts, bolts, gears and levers that operate this door create a kaleidoscope of secure metal and concrete. The whole apparatus looks like it weighs more than a typical house. But in case that isn’t enough security, the room also has a guard standing beside it to keep watch for the baddies.
This vault door is merely the start of a passage that, eventually, leads to the actual vault holding Coke’s intangible treasure. This second, deeper vault has even greater security – it’s a hulking monolith tucked in a corner of the same facility under red lighting and behind an extra barricade. Its design is straight from a Hollywood movie set, right down to the biometric scanner that presumably unlocks it (who knew those things were real?)
If you believe the rhetoric from Coca-Cola executives, this Matryoshka-like vault is necessary to protect Coke’s most valuable intangible asset.
How Coke Keeps Its Formula Secret
Secrecy was a key part of Coca-Cola from the beginning.
Its founder, John Pemberton, shared the recipe with only four people before he died in 1888. Asa Candler, the business tycoon who purchased the rights from Pemberton’s estate a year later (for about $US2300, big money for the time), allowed the patent to expire to keep it hidden from the world. He then modified the ingredients – slightly – ensuring that the old formula would be defunct. That meant the new recipe existed only in the minds of Asa Candler and a few select employees.
The legend of secrecy really took off in 1919 when a group of investors acquired the company from Candler. So great was the presumed value of Coke’s intangible asset that, to help secure a loan for the investment group’s proposal, Candler’s son was asked to finally write the formula down on a piece of paper.
That lonely, Holy paper copy remained secret until the group of investors finished repaying their loan – in 1925. According to a district court opinion from 1985, the sealed box in which this formula rested could only be opened “upon a resolution from the Company's Board of Directors.” It remained under lock and key for nearly a century until it was rehomed “in a stealth move” under heavy security to the World of Coca-Cola on Baker Street, on December 4, 2011.
This is all very strange to consider from a practical perspective. After all, to make a bottle of Coca-Cola somebody must know the recipe.
That court opinion cited above alluded to two unidentified employees who knew the famous formula by heart. And according to Mark Pendergrast, author of For God, Country and Coke, “those two people never travelled on the same plane in case it crashes.” Supposedly, each of these mystery people also hand-picked a successor to remember the secret should they die. On the other hand, in Intellectual Property and Open Source, IP lawyer Van Lindberg claims the Coke recipe is known by “more than two people.”
But it’s a bit ridiculous to think that even a handful of people could cover the ground necessary to run all of Coca-Cola’s factories dotted across the world. That’s where the concept of “compartmentalisation” comes in.
Compartmentalisation refers to the practice of dividing a process into parts that are purposefully isolated from each other. The isolation ensures that any information in one compartment will be inaccessible to people working on other sections.
When it comes to Coca-Cola's formula, compartmentalisation reportedly plays a crucial role in safeguarding the recipe's secrecy. To maintain the illusion of secrecy while still producing billions of bottles every day the company has a naming system for its secret ingredients. Boxes shipped from suppliers arrive vaguely labelled as “Merchandise” attached by a number ranging from 1-9. Factory workers know exactly how to mix these ingredients together, but only a small fraction of workers need to know what the ingredients actually are for reasons of safety (they are dealing with chemicals, after all). However, while each supplier knows about their own ingredients, they don’t know any of the others.
This kind of secrecy may sound excessive but consider that nearly two billion servings of Coke are sold every day – 20,000 a second across 200 countries. More countries consume the drink than participate in the United Nations. According to its marketing, “Coca-Cola” is the second‑most widely understood term in the world, after the word “okay.” The company’s revenue of $43 billion in 2022 makes it larger than the country of Paraguay. So, it is perfectly reasonable that Coca-Cola would do whatever it takes to protect the formula.
Yet it’s all a lie. A giant, stinking lie.
The entire premise of the secret – the sacredness of the recipe, the two or three anonymous people who know it, the singular slip of paper tucked inside of a vault, inside of another vault – is smoke and mirrors.
The Recipe for Coke is Worthless
To see through the magician’s illusion, imagine that the recipe for “Classic Coke” was leaked tomorrow. How would the world change?
Maybe you could make the beverage yourself at home. Of course, it would cost a lot more than just buying some at the local shop. After all, Coke has nine secret ingredients, on top of the half dozen listed on the bottle. You won’t find all fifteen at your local store (phosphoric acid? Aisle six). While it would be theoretically possible to make Coke at home if the formula was leaked, it wouldn’t be practical.
But Pepsi could produce the same drink based on the Coke formula. Maybe you would buy a Pepsi-branded version of Coke, but only in stores that don’t stock Coke’s version (good luck with that). Again, it wouldn’t be practical for Pepsi to produce Coke. Pepsi is Pepsi, not Coke. At this point in history, the competition between Coke and Pepsi isn’t about capturing or eliminating the other. They produce two different beverages with two different marketing strategies.
Also, Pepsi knows that starting a new product line requires a major capital investment, including partnerships with suppliers, redesigning or building new factories, dedicating new staff and resources to the project, and so on. Even if the Coke recipe were to land gift-wrapped at Pepsi’s door, the company would still need to bake these capital costs into the price or risk actually losing money on producing the exact same drink with which Coke presently earns a lot of profit. Unless the leaked formula is coupled to the factories, raw ingredients and networks that allow Coca-Cola to operate, there’s no practical way Pepsi can reproduce Coke and still make money.
The entire thought experiment is pointless because neither Pepsi nor anybody else – in the US, at least – could recreate the “Classic Coke” formula, even if they had the instructions.
As noted by the fact-checking website Snopes, “at least one of the ingredients in the recipe would be next to impossible to bring into the US (and most developed nations): “decocainised flavour essence of the coca leaf.”
There’s only one company in America with a special license to process this sensitive narcotic: chemical manufacturer Stepan Co. As it stands, only Stepan's New Jersey plant possesses the necessary permit to import coca leaves and remove the cocaine. Anyone looking to reproduce the drink would have to go through Stepan to get one of the key ingredients for Coke, and Stepan would likely refuse to sell to them. At best, it would trigger a major bidding war that Coca-Cola, with all its riches, would probably win.
Why, then, if it is effectively worthless to anybody else, does Coca-Cola make such a fuss about protecting its recipe?
What’s really going on here?