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SPEAKER_06: Hey, it's Nick Fountain. Today, we're going to replay one of my absolute favorite episodes. It first ran in 2012. Here it is.
SPEAKER_04: This is Planet Money from NPR.
SPEAKER_07: You know what the price of a Coca-Cola was in 1886? A nickel. In 1900, still a nickel. Ten years later, 1910, a nickel. 1920, a nickel. 1930, a nickel. 1940, a nickel. 1950, a nickel. As late as 1959, you could buy a six and a half ounce bottle of Coca-Cola for one nickel. And for economists, this is a total freak of nature kind of thing. Prices you can read in any textbook are supposed to go up and down. The price of gasoline goes up and down depending on how much is available, how many people want it, how hard it is to get out of the ground. The price of a television depends on how expensive the components are to make and the price of labor. The price of butter goes up and down. Corn, cars, houses, everything. Prices change. They adjust. It's the basic mechanism for how markets work. And yet, for 70 years, you could buy a Coke for five cents. Coca-Cola is the best drink in the land. Men, women, children, the country over.
SPEAKER_00: Drink more Coca-Cola than any other one drink. It's the five cent drink of the nation. Proof that Coca-Cola quenches your thirst, refreshes your spirits, thrills your taste as nothing else does. Get that handy six bottle cotton now. There's only one Coca-Cola in the distinctive bottle. You know, the bottle that fits your hand.
SPEAKER_07: Hello and welcome to Planet Money. I'm David Kestenbaum. Today, the strange story of Nickel Coke, why it happened, what it says about the textbooks, and us.
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SPEAKER_07: It's not a secret that Coke cost a nickel for so long. You can go to any antique store and see the old signs. If you go to the Coca-Cola Museum in Atlanta, the tour guide will tell you. And normally people on the tour will just nod. Yeah, things used to be cheap. But one day a guy named Daniel Levy took his kids to that museum. It's called the World of Coca-Cola. And so his family's on this tour and the tour guide just mentions this Nickel Coke thing. And Levy thinks, wait, what? When I heard that I said, can you say that again?
SPEAKER_03: And he repeat that and I kind of grabbed my head, right? I said, how can that be? Daniel Levy, you see, is an economist.
SPEAKER_07: And for him, this is a mystery. So he basically hijacks the tour, starts asking all these questions. How could Coke stay a nickel for so long? And the tour guide's like, I don't know. I don't know. So Daniel goes back to Emory University where he works and he finds Andrew Young. Daniel did kind of walk in and say that he found this crazy thing one day
SPEAKER_05: and, you know, I need a research assistant. Do you want to help me out with this project? And I said, yeah, sounds really interesting. Let's do it.
SPEAKER_07: The more they think about it, a single price for 70 years, the stranger it seems. This puzzle becomes really, really amazing
SPEAKER_03: when you actually consider what has happened during that period. We had the Great Depression.
SPEAKER_05: Three wars, Spanish-American, World War I, World War II. Competitors, including Pepsi, hundreds of competitors.
SPEAKER_03: Prohibition. Various lawsuits. And none of these things made any difference. We're talking about basically like 1886 into the 1950s.
SPEAKER_05: All of these dramatic changes to the economy going on and one constant through it all was that you could get six and a half ounces of Coca-Cola at the fountain or in a bottle for five cents. If you think that's just because Coca-Cola came up with incredible innovations
SPEAKER_07: to cut costs, to keep the price down, this is not that story. It's a much stranger story. The tour guide, when Daniel had been grilling him, said, you should go to the Coca-Cola archives. So Daniel and Andrew do. And it has all this stuff. Posters, calendars, novelty items.
SPEAKER_04: This is Phil Mooney, the Coca-Cola company archivist.
SPEAKER_07: He says the company has saved everything. Metal signs, magazine advertising, radio and television advertising,
SPEAKER_04: departmental records.
SPEAKER_07: The answer was definitely in there somewhere.
SPEAKER_04: Product files, executive correspondence. Is the secret formula for Coke in there somewhere?
SPEAKER_04: That is one thing that is not there.
SPEAKER_07: So our economists start going through the archives. Mooney, the archivist, says he can explain how Nickel Coke began. It was an attempt to attract customers. The late 1800s were the days of soda fountains, and there were lots of soda fountain drinks. They were primarily fruit flavored drinks, oranges and grapes.
SPEAKER_04: And what was the cost of the competitors?
SPEAKER_07: Seven, eight, maybe ten cents.
SPEAKER_04: Some were five cents. But Coke went very specifically to market itself as an affordable product. The first sale we know is in Atlanta at a store on Peachtree Road on May 8, 1886.
SPEAKER_07: I'm reading from the Coca-Cola official history here. Dr. John Stith Pemberton, a local pharmacist, produced the syrup for Coca-Cola and carried a jug down the street to Jacobs Pharmacy where it was sampled, pronounced excellent, and placed on sale for five cents a glass as a soda fountain drink. Okay, that's the easy part. That's how it started. But why did Coke stay a nickel for 70 years? The two economists, Andrew and Daniel, start going deeper and deeper into the archives, reading everything they can find, books, company histories. Andrew Young finds this story that seems to explain part of the mystery of why Coke remained priced at a nickel. It has to do with two lawyers from Chattanooga, Tennessee. In 1899, those lawyers pay a visit to the president of Coca-Cola. His name is Asa Candler. And they tell him they're interested in this new thing, bottles, selling drinks in bottles. They want to buy the bottling rights. And Asa Candler, the president of Coke, thinks, Pfft, bottles. This is a soda fountain business.
SPEAKER_05: You know, the way the story goes is Candler just said, You're out of your mind. It's not going to be effective. It's not going to work. You're going to lose all your money. And they said, Well, please give us the rights anyway. And so he just said, Yeah, I'll sign this piece of paper, I'll just sign this piece of paper that says, Yeah, whenever you want it, I'll just sell you syrup, the concentrate at 90 cents a gallon. In agreeing to do that, Candler did something companies never do.
SPEAKER_07: He agreed to sell his product, the syrup to bottlers, for a fixed price forever. The contract had no end date. It was a perpetual, infinite, non-ending contract. He could never charge more for his product. Why would he do that?
SPEAKER_05: My best take on it is that, you know, really, this was just trying to get two guys out of your office. I mean, anytime you've got two lawyers in your office, you probably want them to leave, right? And he's just saying, I'll sign this piece of paper if you will just please leave my office. I never thought twice about it. This was a problem for the Coca-Cola Company because, of course,
SPEAKER_07: bottled drinks took off. And Coca-Cola had signed this contract basically saying it would never raise the price of the syrup to the bottlers. Now, this does not explain why Coke stayed a nickel because the bottlers could sell a bottle for whatever they wanted. So could the corner store, 6 cents or 7 cents or 10 cents. It's what Coca-Cola did next that kept the price at a nickel. To understand it, you have to think about the situation from Coca-Cola's perspective because you've agreed to sell your syrup to the bottlers for a fixed price. Any increase in price at the corner store, it doesn't help you. You don't get any of the extra profit. The profit goes to the bottlers and the retailers. And in fact, if they raise the price, it hurts you. If Coke goes up to a dime, fewer people are going to buy it and you, Coca-Cola, end up selling less syrup. So if you're Coca-Cola, you want somehow to keep the price down at 5 cents. What do you do?
SPEAKER_05: Well, one thing you do is you blanket the entire nation with Coca-Cola advertising that basically has 5 cents prominently featured. Think about how brilliant this is.
SPEAKER_07: Coca-Cola is taking control over the pricing away from the bottlers and the corner stores. The company can't actually put a sticker on the bottle of Coke saying 5 cents, but it can put up a huge billboard or paint the side of a building right next to the store that says, drink Coca-Cola, 5 cents. Again, Daniel Levy.
SPEAKER_03: I'm holding here in my hand Life magazine. Life magazine is quite old actually. This particular one is Life magazine from 19, let's see, 13, July 10. And the back of this magazine, there is an ad of Coca-Cola, and it says, drink Coca-Cola at 5 cents. Delicious and refreshing. The point is that since everybody was brainwashed, people saw these ads all over. And these ads included 5 cents. It was part of the commodity itself almost. It was hard for anybody to increase the price.
SPEAKER_07: Anyone selling a bottle of Coke for more than 5 cents was going to look like a jerk. But what about the soda fountains? The people who ran the soda fountains at the corner store, okay, the ads made it so they couldn't charge more than a nickel, but they could use smaller glasses or skimp on syrup. So what do you do if you're Coca-Cola? Here's Phil Mooney, the company archivist.
SPEAKER_04: You provided them with the glass. That was one way that you did it. And for many years, there was actually a line drawn in the glass to show you how far to draw the syrup and then how to fill the carbonated water to complete the drink. That's a very clever way to control how much people are getting for a nickel.
SPEAKER_07: That was the idea. This explains part of the mystery of why Coca-Cola stayed a nickel for so long. Coca-Cola was locked into this weird contract with the bottlers. But there had to be something else going on, because in 1921, Coca-Cola managed to renegotiate the contract. The price of sugar had gone up and the company was losing money, so bottlers eventually conceded, okay. And finally, the Coca-Cola Company was back in control. It could do whatever it wanted. After two decades of being shackled by a bad contract, Coke didn't have to be a nickel anymore. So what happened? It stayed a nickel anyway. Part of the reason was just that advertising campaign. It was so effective, the company had locked itself in. I mean, think how long it would take to repaint all those ads on the sides of the buildings. There were Coca-Cola trays that said five cents, all this stuff. Given enough time, that could have changed. But there was this one final hurdle, a hurdle about the size of a refrigerator painted bright red, the vending machine. At this point in history, vending machines aren't equipped to make change. And the Coca-Cola vending machines, they are built to take one coin, and that coin is a nickel. These machines, they were everywhere. Here's Daniel Levy.
SPEAKER_03: More and more sales of Coca-Cola were made through vending machines. In 1950, to give you a sense, there were about 460,000 vending machines in the U.S. Four hundred thousand of them belonged to Coca-Cola. Going through the archives, Daniel and Andrew say,
SPEAKER_07: it is clear that the people at Coca-Cola really wanted to raise the price of Coke above a nickel. But they couldn't because of these machines that only took single coins. So the people at Coca-Cola think, if only there were another coin, there's the dime, but that would double the price. No, really, we want something in between. So here is a clever idea.
SPEAKER_03: What they came up with, they said, how about we ask the Treasury to issue seven and a half cent coin?
SPEAKER_07: The U.S. Treasury, the government? Yeah, yeah, yeah, yeah. Daniel and Andrew say at one point, the head of Coca-Cola asked the president of the United States, Eisenhower, for help. The two were hunting buddies. And it wasn't just Coca-Cola, this was a crisis for any business that sold through vending machines. But no luck, there has never been a seven and a half cent coin. Coca-Cola was still desperate to raise the price. So desperate, in fact, that the company came up with what Andrew Young calls a harebrained idea. This never actually saw the light of day, but there are a bunch of references to it in the archives. We're going through some internal memos and pulled out this stapled pack of maybe 10 pages.
SPEAKER_05: Right in the front of it says, single coin plan. I said, oh my God, what is this? The single coin plan was a very clever way to charge more for a bottle of Coke without having to adjust the vending machines at all.
SPEAKER_07: I'll let Daniel Levy explain it. Here is what they basically came up with.
SPEAKER_03: They said, OK, we are going to increase the price, but people will still be using nickel. So how they do that? They said, we are going to make every ninth bottle in the vending machine, it will be an empty bottle. They called that bottle, that empty bottle, they called it an official blank.
SPEAKER_07: An empty bottle. So eight customers in a row would pay a nickel and clunk, a bottle of Coke comes out. The unlucky ninth person would put a nickel in, clink, an empty bottle comes out. Got to put in a second nickel. So sometimes you're lucky, sometimes you're not. On average, you end up paying slightly more than a nickel. Average price, the effective price now is 5.625 cents.
SPEAKER_07: I can imagine customers would hate that. I'd be so pissed if I put in a nickel and I got an empty bottle of Coke. Not even just a thing saying, sorry, you need to pay an extra nickel, but an actual empty bottle. It just made me angry.
SPEAKER_03: I think that's one reason they abandoned this policy. But I thought it was a very clever idea though. Vending machines that reliably make change are available by 1946.
SPEAKER_07: But the thing that finally undoes the nickel Coke is something else. After the break, the end of nickel Coke.
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SPEAKER_05: Inflation is definitely sort of the death knell for the nickel Coke. There's no doubt about that.
SPEAKER_07: You might think inflation would have been a problem for Coca-Cola the whole time. But Andrew Young says there wasn't really inflation before the 1940s. Yes, prices would meander up. Sometimes sugar and the ingredients cost more. But then they'd meander back down. After the 1940s, inflation is here to stay. Prices just keep going up. What happened? The U.S. went off the gold standard. Dollars no longer had to be backed by gold. This is vastly simplifying things, but basically we've no longer got the golden anchor.
SPEAKER_05: And so at that point, the amount of money just keeps going up and up and up, which means that prices go up and up and up. Well, if prices are going up and up and up, you just can't keep your Coca-Cola for a nickel for too much longer.
SPEAKER_07: So in a way, nickel Coke died because we went off the gold standard. You know, you can actually make that argument.
SPEAKER_05: In 1946 and 1947, you start to see Cokes on sale for more than a nickel.
SPEAKER_07: Six cents, seven cents. It's a big deal. The press reports on it. Fortune magazine in 1951 runs an article called, The Nickel Coke is Groggy, Like It's Unsteady, Ready to Fall. And it does. The last available nickel Coke seems to have been sometime in 1959. For Andrew Young and Daniel Levy, this story says a couple things. One is just that life is messier than the textbooks tell you. Yes, prices in the market generally adjust, but there are weird contracts and vending machines. And also, prices are complicated things. They get stuck, and we get stuck on them. There was a time between the contract and the vending machine when the Coca-Cola company could have changed its price, but it didn't. Coca-Cola early on said, a Coke costs a nickel. It put it on billboards and ads and painted it on buildings. And people got used to it. It felt like a promise. In a way, all prices kind of feel like that. Once we see a price on something, we have this feeling like that's some innate property of the thing. That it should not change. Prices have this psychological component. That's why companies will often shrink a product rather than raise the price. Put fewer potato chips in the bag. Make the ice cream container 14 ounces instead of a pint. I'm looking at you, Haagen-Dazs. So, prices get stuck. But Daniel Levy says, as far as he knows, nickel Coke is the longest documented sticky price in modern history. Nickel Coke persisted for 70 years. And in retrospect, it wasn't a bad thing for the company. Is one legacy of this weird history that Coca-Cola is now everywhere? I mean, we think of Coke as being everywhere. Is that in part because they were stuck with a nickel price and the only way to make more money was to sell more Cokes? So they really put every effort into that.
SPEAKER_05: My sense is that that is a big part of it. That Coca-Cola was forced to push volume to be more profitable. It couldn't adjust its price. And so it did. It very powerfully pushed volume. At one point, there were associated with the military, there were Coca-Cola bottling operations on every single continent except for Antarctica during World War II. All there to make sure that our soldiers could always get Coca-Cola in a bottle or at a fountain for a nickel. Today, Cokes are larger and they'll cost you a dollar or more at a vending machine.
SPEAKER_07: Nickel Coke seems like a long time ago. Though Phil Mooney, the Coca-Cola archivist, pointed out this one strange thing. In many respects, the nickel Coke is sort of still around.
SPEAKER_04: If you do it on a per-ounce basis, buy a two-liter bottle for $1.29, $1.39. And in the grocery store or on sale, and that's pretty close to the original nickel Coke. It's very, very close. I mentioned this to Andrew Young, the economist.
SPEAKER_07: He said, that's a nice way to think about it. It's still with us, just in bigger bottles.
SPEAKER_06: The price of Coke has changed even more since we first published this episode back in 2012. These days, two liters will probably set you back about three bucks. Also, economists Danielle Levy and Andrew Young have since published two more studies following up on nickel Coke. They look at implicit contracts, those expectations that can start to feel like promises. If you have any economic anomalies that you think we should look into, email us at planetmoneyatnpr.org. We're also on Facebook, Instagram, TikTok, at Planet Money. This rerun was produced by James Snead and edited by Molly Messick. Alex Goldmark is our executive producer. I'm Nick Fountain. I'm David Kestenbaum.
SPEAKER_07: Thanks for listening.
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