Royal Crown Company, Inc. History

Address: 1000 Corporate Drive

Fort Lauderdale, Florida 33334

U.S.A.

Telephone: (954) 351-5600

Fax: (954) 351-5365



Website: www.rccola.com Wholly Owned Subsidiary of RC/Arby's Corporation

Incorporated: 1905 as Union Bottling Works

Employees: 200

Sales: $178 million (1996)

SICs: 2086 Bottled & Canned Soft Drinks; 2087 Flavoring Extracts & Syrups, Not Elsewhere Classified

Company History:

A distant third in the $50-billion soft drink industry, Royal Crown Company, Inc. produces and sells concentrates used in the production of soft drinks that are sold domestically and internationally to independent, licensed bottlers. Royal Crown's leading brand, RC Cola, ranked as the third-largest national brand of cola behind Pepsi and Coca-Cola and stood as the only national brand cola alternative available to non-Coca-Cola and non-Pepsi-Cola bottlers. The company's other brands included Diet RC Cola, Diet Rite Cola, Nehi, Nehi Lockjaw, Upper 10, and Kick. Royal Crown was a wholly owned subsidiary of RC/Arby's Corporation, which, in turn, was owned by Triarc Companies, Inc.

Origins

Royal Crown was born from the efforts of Claud Adkin Hatcher, a turn-of-the-century pharmacist residing in Columbus, Ohio, who co-owned a grocery wholesale business. Established in 1901, the Cole-Hatcher-Hampton Grocery Company was started by Hatcher, his father, and two other partners, but by 1903 the Hatchers had bought out their partners and abbreviated the name of their business to Hatcher Grocery Company. By the time of the name change, Claud Hatcher was spending more and more of his time in the basement of the family business; driven downstairs by a combination of anger and a need for self-sufficiency. For the first time--and not the last time--Hatcher's way of doing business collided headlong with the business philosophy of a Georgia-based company named Coca-Cola. The friction between Hatcher and a Coca-Cola representative sparked the creation of Royal Crown and marked the beginning of Royal Crown's century-long struggle to capture market share from Coca-Cola, the reigning leader of the soft drink industry.

The sparks began to fly when a Coca-Cola bottler named Columbus Roberts refused to yield to Hatcher's demands. As a grocery wholesaler, Hatcher purchased a large volume of Coca-Cola from Roberts, and because of this Hatcher believed Hatcher Grocery Co. should receive a discount, or a commission, or in some way should be compensated for the amount of Coca-Cola it purchased. Roberts disagreed, and a heated dispute erupted. Hatcher declared he had purchased his last case of soft drinks from Roberts and vowed to produce and bottle his own beverages under his own labels. Following through on his promise, Hatcher retreated to Hatcher Grocery Co.'s basement and began experimenting with different formulas. While his father remained upstairs, Hatcher, the 27-year-old graduate pharmacist, worked downstairs creating the foundation of the new family business.

The first soft drink Hatcher created was named Royal Crown Ginger Ale, and its success opened the Hatchers' eyes to the opportunities available in the soft drink market. In 1905, father and son made their commitment to the soft drink market official by reorganizing Hatcher Grocery Co. as Union Bottling Works and concentrating wholly on producing Royal Crown Ginger Ale. In the months to follow, business was brisk. The Hatchers enjoyed enough success to move to larger production facilities in 1907, but, as they quickly realized, the greatest profits to be made were in the cola market, led by the burgeoning giant Coca-Cola. Hatcher wanted a share of the lucrative cola market, and shortly after Union Bottling Works relocated to its grander facility, he introduced his own cherry-flavored cola creation, dubbed Chero-Cola. By 1911 Chero-Cola ranked as the company's greatest-selling product, the first in a long line of product introductions that would eclipse the popularity of its predecessor. The popularity of Chero-Cola led to another event in Royal Crown's history--a name change to reflect the success of its greatest selling product. In 1912 Union Bottling Works changed its name to Chero-Cola Company, an enterprise reorganized to manufacture a line of syrups to be sold to franchised bottlers.

Hatcher's first clash with Coca-Cola pitted him against an emissary of the fast-growing, Atlanta-based soft drink producer. Hatcher's introduction of Chero-Cola, and its flowering success, swept away all subsidiary layers shielding direct confrontation with Coca-Cola and pitted Hatcher against Coca-Cola's senior executives. The ensuing struggle was a battle Coca-Cola was intent on winning. When Hatcher filed to register Chero-Cola as a trademark in 1914, Coca-Cola quickly responded, demanding that the word "cola" be removed from all advertising. This first clash touched off a 30-year legal dispute between Hatcher's business and Coca-Cola, a feud over the rights to the word "cola" that would not be concluded until World War II was near its end. As this exhaustive debate was being argued in the courts, Hatcher had to contend with more pressing problems: his company's first major crisis. As one of the first "cola wars" raged on, hostilities in Europe gave way to the United States' entry into World War I, the prosecution of which portended the collapse of the entire soft drink industry in America.

World War I and Legal Troubles

In 1918 the U.S. Government imposed severe restrictions on the use of sugar in products deemed non-essential to the war effort. Soft drinks, of course, added little to the country's fighting might and fell under the wartime restrictions. For a brief time, the federal government threatened to take its restrictive measures a step further and considered whether or not to ban soft drink production altogether during the course of the war, but government officials stopped short of sounding the industry's death knell. Staving off the termination of their business, however, did not put soft drink producers in a much better position, and each had to make do with sugar supplies reduced to a trickle. Chero-Cola responded by establishing and operating its own sugar refinery, using raw sugar imported from Cuba to keep its operations alive. For roughly three years, the company relied on its sugar refinery for the essential supply of sugar and managed to persevere through the war years, but as Chero-Cola entered the 1920s a host of challenges loomed ahead.

By 1920 Chero-Cola stood as a thriving business, with 700 franchise bottling plants scattered throughout the South and Midwest, but when sugar prices collapsed during the early years of the decade, the company's considerable cache of sugar became a liability. Chero-Cola's problems were amplified in 1923 when its legal battle with Coca-Cola reached a decisive juncture. After nine years of contentious debate, Coca-Cola prevailed, and Chero-Cola was ordered to remove the word "cola" from all advertisements. In the wake of the court's ruling, the abbreviated "Chero" beverage fared far worse than "Chero-Cola" and lost much of its market. Eventually, the production of Chero, which represented Chero-Cola's chief source of revenue, was discontinued entirely.

The quick death of Chero could have had disastrous repercussions for the company, but Hatcher's timing in introducing a new product provided Chero-Cola with a potent, revenue-generating engine that easily made up for the loss of Chero. The same year Coca-Cola won its case against Chero-Cola, Hatcher introduced a new, fruit-flavored beverage named Melo. After Hatcher overheard a salesman refer to a competitor's soft drink bottle as being "knee-high," he changed Melo's name to Nehi, a brand name that became familiar to generations of consumers after its 1924 introduction. By 1928 sales of Nehi beverages were driving the company's financial growth to such an extent that Hatcher changed the name of his business to Nehi, Inc.

With the increasing popularity of Nehi, the company entered the 1930s at full stride, but the Great Depression stood as a formidable obstacle blocking the company's progress, bringing to a halt the encouraging growth that characterized the latter half of the 1920s. To make the company's position more precarious, Hatcher died on New Year's Eve in 1933, stripping Nehi Inc. of its influential leader just as it was grappling with the century's most pernicious economic crisis. Together, the loss of Hatcher and an economic depression of unprecedented proportions represented what could have been a crippling blow to Nehi, Inc., but the company fared remarkably well, recording one of the most successful decades in its history. Between 1933 and 1940, the company's annual sales increased tenfold.

The negative affects of the Depression were only temporary. After Hatcher's sudden death, the company's vice-president of sales, Hilary Richard Mott, took command and immediately cut costs, discontinued slow-selling products, and consolidated production activities. Less than a year after taking charge, Mott stood over a debt-free enterprise exhibiting a vibrancy that belied the woeful economic times. As Mott's healing measures were being implemented, the company's chemist was working on Nehi, Inc.'s next great product: its second cola concoction. The greatest money to be earned in the soft drink industry was still in the cola market. Hatcher's realization of this fact had prompted the development of Chero-Cola in the first decade of the century, and it prompted him to muster another attempt shortly before his death. In 1932 he had instructed his chemist to develop a cola beverage, and by 1934, when the company stood on solid financial ground, the new cola product was ready for distribution. Named Royal Crown, the new soft drink represented the company's future, becoming a favorite of consumers in the decades to follow.

Although the bulk of the company's revenue was derived from the sale of Nehi throughout the remainder of the 1930s, much of the company's promotional efforts were directed toward building consumer awareness of Royal Crown, or "RC" as the cola drink became more commonly known. In 1940 the company pioneered blind taste tests, using the promotional strategy more than three decades before other soft drink manufacturers did so. According to the results of the publicly-performed blind taste tests, RC was the winner, spawning the "Best By Taste Test" slogan. One year after Nehi, Inc. started its blind taste test publicity campaign, it hired numerous Hollywood celebrities to promote the sale of RC. Such luminaries as Bing Crosby, Joan Crawford, Shirley Temple, Lucille Ball, and Ronald Reagan appeared in advertisements alongside RC, piquing consumer interest. As public demand for RC increased under the barrage of promotional campaigns, the company scored an important victory in the courts. In 1944 Nehi, Inc. ultimately prevailed in its 30-year legal battle with Coca-Cola when the courts ruled that the company could use the word cola in its advertisements.

Post-World War II Innovations

RC Cola, as the product could be called after the 1944 ruling, developed into the company's greatest-selling product during the post-World War II period, earning its distinction as the company's mainstay product when Nehi, Inc. became Royal Crown Cola Company in 1959. Under its new corporate banner, the company followed up on its success with RC Cola by developing the soft drink industry's first sugar-free diet beverage, a product the Los Angeles Times selected as the "Leading New Product of the 1960s." Development of the ground-breaking beverage was completed in 1961, and in 1962 Diet Rite Cola hit retail shelves. The product proved to be an enormous success, and one for which the other major soft drink manufacturers had no marketable answer. Fueled by the widespread demand for Diet Rite Cola and RC Cola, the company thrived throughout 1960s, gaining considerable ground on its two biggest rivals, Pepsi and Coca-Cola. According to several accounts, the 1960s ranked as the most successful decade in Royal Crown Cola's history, but the enviable success enjoyed by the company did not carry over into the 1970s. Royal Crown Cola's eye-catching growth came screeching to a halt in October 1969.

On October 18, 1969, the federal government banned the use of the artificial sweetener cyclamate, the essential ingredient in Royal Crown Cola's Diet Rite Cola. The losses suffered from the ban were immediate and profound, stripping the company of the product it had come to rely on for much of its growth. On the heels of the federal edict against cyclamate, company directors vowed never again to become reliant on a single product to drive sales. Their resolution gave rise to a period of diversification that began in the early 1970s with the acquisition of two fruit juice companies, Adams Packing Association and Texsun Company. Next, the company moved into the home decorative accessories field, purchasing seven companies involved in floor tile, mirrors, picture frames, and lamps. Not done there, the company moved farther afield, acquiring fast-food franchiser Arby's in 1976. Two years later, company directors observed the long-held tradition of changing their company's name to reflect the mainstay business, but this time the name change was purposefully less specific. In 1978 Royal Crown Cola Company became Royal Crown Companies Inc.

Under the corporate umbrella of Royal Crown Companies, the soft drink operations were organized into a division, no longer representing the sole source of revenue for the Royal Crown enterprise. When Diet Rite Cola was reintroduced in 1983, the soft drink division generated $242 million of the company's $490 million in sales for the year, a significant percentage of the company's total revenue volume, to be sure, but representative of only half of what the company had developed into in roughly a decade. In 1984 the soft drink division and the rest of the businesses that had been acquired were purchased by corporate takeover artist Victor Posner, who moved Royal Crown Companies to Miami Beach, Florida, and made the company part of DWG Corporation, one of several holding companies under his control.

Lackluster 1980s and Hope for the 1990s

Posner controlled Royal Crown for nine years. His tenure of ownership was notable for the introduction of Cherry RC, Diet RC Cola, and an eight-flavor line of Diet Rite, and it was infamous for Posner's cost-cutting measures that hacked away at Royal Crown's already limited marketing budget. As a result, the company lost ground during the late 1980s and early 1990s, ceding market share to its two, much larger rivals, Pepsi and Coca-Cola. Royal Crown's tailspin showed no signs of ending until ownership of the company passed to new hands, Nelson Peltz and Peter May. In 1993 Peltz and May acquired Royal Crown and Arby's through their company, Triarc Companies, Inc., eventually organizing Royal Crown as a subsidiary of RC/Arby's Corporation, a holding company that also oversaw the operation of Arby's.

Under the ultimate ownership of Triarc, Royal Crown's leading brand, RC Cola, received much greater attention than it had during the 1980s. Triarc added roughly $25 million a year to Royal Crown's marketing budget through the mid-1990s and into the late 1990s, which helped bolster recognition of the RC brand. A new brand, Royal Crown Draft Cola, was introduced in 1995 amid great expectations, but production of the product was discontinued roughly a year later. Following this misstep, the owners of Royal Crown were intent on reestablishing RC Cola as a brand able to wrest market share away from Pepsi and Coca-Cola, something the venerable label had not been able to do for years. Throughout its history, Royal Crown had demonstrated itself to be a creative innovator, but had never seriously threatened its two big rivals. In many respects, the company had served as a research lab for Pepsi and Coca-Cola, yet had never been able to reap the full rewards that should have been realized from its pioneering role. As the company looked toward the 21st century, its was searching for some way to collect the benefits of its legacy of achievement as a soft drink producer.

Principal Subsidiaries:Royal Crown International.

Further Reading:

Levine, Joshua, "Sisyphus Rolls Again?," Forbes, February 12, 1996, p. 94.

"Royal Crown Taps Emerging Markets," Beverage Industry, December 1996, p. 20.

Vaughn, Glenn, "The Fizz and Fizzle of Royal Crown: Georgia's Other Cola," Georgia Trend, June 1995, p. 28.

Source: International Directory of Company Histories, Vol. 23. St. James Press, 1998.